Below is a first draft of an essay I'm formulating. I welcome comments and will post a revised draft after a while:
Why we must be more concerned about capping emissions than trading them
If there is one thing that the recent financial debacle should have taught us, it's that risk cannot be managed by slicing it up, putting the pieces in a blender and reducing them to a fine purée, and then pouring the resulting mixture into a million little bowls that, supposedly, represent a finite amount of risk.
In fact, the meltdown gives us another chance to learn the ancient wisdom of the market: never invest in something you don't understand.
All across the country, representatives of the same institutions that brought about the recession we're enjoying now, the worst economic climate since the Great Depression, are peddling emissions trading schemes, popularly known as "cap and trade."
The claim is that one of these trading schemes, applied to sulfur emissions from power plants that caused acid rain, solved the problem. That's debatable, but there is evidence that the sulfur emissions trading system did work to bring emissions down quickly and with the minimum of fuss from power utilities.
If we stipulate that the emissions trading scheme worked with sulfur emissions, does it not follow them that we have the right model to use for getting carbon emissions under control?
Absolutely not.
In fact, it's the differences between the sulfur trading schemes and the proposed carbon emissions trading systems that tell the tale.
First, there are a finite universe of emitters covered under the sulfur emissions trading systems. Essentially all acid rain problems are the result of coal burning utilities in the Midwest. So there were a finite number of sources, and they were large, fixed sources.
Second, sulfur emissions are not part of everyday life for millions of people, the way carbon emissions are. The whole sulfur trading system relied on a handful of professionals in a handful of utilities, all operating in background, invisible to the everyday person.
Third, the cap for sulfur was a hard cap, in that non-participant (non-emitters) couldn't monkey around with the system and earn sulfur emission allowances that they could sell to utilities that had were intended to exceed their emissions limit.
But with carbon trading, the proposed "cap" is a more like porous thatch than a hard cap. With carbon trading, the ideas that utilities in large industrial emitters will be able to purchase additional allowances -- in other words, to produce more emissions than allowed or than the world can afford -- from non-industrial and nonutility emitters. This requires the creation of an elaborate (baroque even) system for estimating the carbon reduction potential of a bewildering variety of methods for either reducing emissions or trapping carbon and keeping it from entering the atmosphere.
In the acid rain program, offsets would be like utilities in Ohio earning the right to emit extra sulfur by paying Boy Scouts to dump alkali minerals into lakes in Vermont and upstate New York because the net pH in the lake wouldn't drop so much.
The only way to carbon emissions trading system can work to actually limit and then reduce greenhouse gas emissions is by restricting the universe of potential trading partners to similar entities, with a special emphasis on coal.
In other words, coal users (such as electric power plants and coal-burning facilities such as ethanol refineries) would only be able to buy and burn coal above their own limit by buying coal emissions allowances from other coal users.
This is critical, because coal is the make or break for climate.
There is little doubt that all of the world's oil and natural gas that can be economically recovered and delivered -- meaning those reserves that can be exploited at an energy profit, which translates into a monetary profit -- will be. However, climate models based on reserve estimates suggest that there is simply not enough carbon in these fluid fossil fuels to send our climate into a runaway greenhouse state.
Alas, there is more than enough carbon in more than enough places with more than enough coal to blast past the climate tipping points multiple times over, sending our climate into a chaotic new state the likes of which we have never encountered during the periods of human habitation and beyond.
Ultimately, that means that the Earth can only afford a carbon trading system that distinguishes between otherwise identical emissions, and that creates a special sub-system for coal emissions. All other greenhouse gas sources can be lumped together and traded if we wish or, more simply, efficiently, and elegantly, taxed on their carbon content. But coal is different. With coal, we must be much more concerned about the cap on carbon than on the trading scheme.
The lesson from the sulfur training program is that when a hard cap is applied to a fixed, limited universe of emitters, those emitters will operate to stay beneath the limit at the lowest total cost, letting those emitters that can make the greatest reductions at the lowest cost to do so.
But there are no phony offsets in sulfur trading: the only way to get allowances is to reduce emissions, either by removing sulfur from the smokestack or by burning coal with less sulfur to begin with. That is the strength of the system -- there is no way to have total omissions to exceed the cap thanks to offsets that are justified on paper by a calculation showing that Action A in India or South America would have the same acid rain reducing effect as a reduction in sulfur emissions in Ohio.
The world has very little time. If we want any hope for a stable climate in the future, we must reduce emissions radically, such that greenhouse gas concentrations no longer increase at an increasing rate, as they do today. (Or at least as they did before the economic meltdown reduced energy consumption globally.)
Today, we are rapidly approaching 400 ppm equivalent carbon dioxide concentration, increasing at 2-3 ppm per year. James Hansen of NASA, probably the leading climate change expert in the country and possibly the world, warns that we must get a house gas concentrations to less than 350 ppm carbon dioxide equivalent as rapidly as possible. The only way this can be accomplished is through aggressive, strict, airtight limits -- a hard cap -- on global coal emissions.
What we cannot do -- what the world cannot afford -- is to permit coal emissions to continue or to increase under the fig leaf of emissions offsets provided by non-coal users. If coal emissions continue, we don't stand a chance of stabilizing climate in anything like its present state.
Copenhagen, U.S.A. December 7
Comments
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Ted Nace Posted 3:18 am
13 Nov 2008
It's vital that this understanding be driven into climate legislation. Cap and trade that treats all fossil fuels as equivalent is folly. Those who don't get this should read the Kharecha/Hansen paper:
http://pubs.giss.nasa.gov/docs/2008/2008_Kharecha_Hansen. ...
We desperately needed a simple, direct policy that will phase out coal emissions quickly over the next two decades. This sort of "command and control" approach should not be a dirty word. In fact, "command and control" is exactly what government does best and is the appropriate approach under certain circumstances. This is just such a case.
Help build CoalSwarm-- a shared informational resource on coal and alternatives to coal.
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GreenMom Posted 3:27 am
13 Nov 2008
Here's some ideas I think I see:
Trading sulfur under a hard cap worked for acid rain for several reasons that don't necessarily work for carbon and climate (I know you say it's debateable when sulfur trading worked, but really it's not...).
SO2 trading was restricted to big power plants, where it's really hard to fudge your emission measurements (an important point to add is that power plants have continuous emission monitors that record electronically and they report to an EPA database).
Power plants can (and do) report CO2 emissions, which are correspondingly hard to fudge.
Power plants are also by far the biggest stationary carbon emitters and they are x% of global carbon emissions (I forget -- it's like 40%, right? That's important context).
Other carbon emitters can fudge much more easily. They don't have single emission points analogous to a power plant's tall stack, and you can't easily directly measure carbon emissions from a bajillion small(er) emission points.
All those programs that provide carbon offsets for all sorts of actions (give examples) are really hard to monitor.
So let's at least be really tight on the power plants we know are the bulk of the problem. Let's keep them in a separate pool.
We have very little time to get this right. Hansen, 350, yadda yadda yadda...
My two cents. Take or leave! :-)
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Sam Wells Posted 3:30 am
13 Nov 2008
Small point, but with coal-fired electric generating plants, we know exactly who and where they are. I suppose the fear is that if carbon credits are traded, the coal power industry can make "virtual" derivatives, CFO and CDS by masking their true contribution against a hard cap - such as by purchasing palm oil plantations in Africa or something.
The problem with coal is that it is a perfect energy source with the highest BTU content per unit weight - but also has the the highest CO2 emissions output profile as a result. Simply stated, there is no such thing as "clean coal," a topic that only exists in the gleam of a crazed scientist's eyeballs.
Not only is coal bad for global warming but is also is responsible for brown cloud and white haze formation with truly damaging global consequences. I was just reading a UN report that found a giant brown cloud that extended from Egypt to northern China, sometimes billowing as far away as northern California. Despite the effect of the brown cloud in masking sun energy (e.g., 20% less sunlight), it appears that the net effect is to dramatically raise global temperatures. -sam
Onward through the fog
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GreenMom Posted 3:55 am
13 Nov 2008
Hence I had nothing of substance to add on that part.
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BILL HANNAHAN Posted 4:46 am
13 Nov 2008
The biggest problem with C&T is the nonlinear relationship between the set point and cost, similar to the way the cost of oil varies hugely with a small change in supply or demand. Setting the cap to minimize suffering is guesswork, and a small error in targeting results in a large cost in quality of life.
By calculating a best estimate of the damage caused by each emission and charging it to the source as a dumping fee, we create the optimum level of effort to reduce the emissions. As the science improves the cost is refined. The money can be used to develop better technology.
Things Everybody Should Know About Energy
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CJ Brooks Posted 4:46 am
13 Nov 2008
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Max8806 Posted 5:46 am
13 Nov 2008
Bill, how do you possibly calculate the cost associated with Manhattan, London, and most of Bangladesh (among many others) ceasing to exist above-water? So how do you assign the right marginal cost to charge to each ton emitted? Also, I disagree that the marginal cost curve for economy-wide emissions reductions would be so steep. If the cap is set too stringent, the more the price goes up, the more investment goes into clean technology (because of the profit motive), and there are plenty of technologies waiting in the wings already.
Here's one you won't see profiled on grist:
http://www.guardian.co.uk/environment/2008/nov/09/miniatu ...
For techies/wonks here's the patent:
http://www.freepatentsonline.com/y2004/0062340.html
-Max Epstein
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Jon Rynn Posted 5:57 am
13 Nov 2008
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JMG Posted 6:06 am
13 Nov 2008
Another point I need to add, which I've been mulling over doing as a separate piece, is about the differences in time scales. Sulfer emissions return to earth quite quickly, so the problem doesn't linger much beyond the emissions.
But CO2 stays in atmosphere for centuries; I have zero confidence in our ability to actually see carbon reductions from things like reductions in natural gas, because of my certainty that we will certainly burn all the oil and natural gas we can get our hands on. If we, meanwhile, burned the coal, then the net result will be business as usual.
Only by limiting coal emissions trading to coal emitters can we actually set a cap on coal emissions that is meaningful. If we allow coal to trade with other industries as you suggest then it will let more coal be burned: as those industries become more efficient and less greenhouse-gas intensive, instead of seeing the benefit, the world's climate will only see more coal burned as those other industries sell their offsets to the coal industry (meaning, sell the "right" to burn more coal).
We need to recognize that coal is special; because of it's destructive capacity and abundance, coal is the hydrogen bomb of climate chaos. By letting all other industrial users trade (or just regulating them with a carbon tax, which would be preferable), we allow them to optimize their energy profile.
But we cannot optimize our use of coal any more than we can employ battlefield nukes and expect anything short of total destruction.
The 5% Project
Let's live on the planet as if we intend to stay.
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BILL HANNAHAN Posted 6:36 am
13 Nov 2008
Good question, and it applies equally to the other position, "how do you set the right cap?"
I would estimate the cost to protect protectable shore line and the cost to relocate people from land that cannot be protected. For example if 500,000,000 people have to be relocated at a cost of $1,000,000 per person, including the cost of purchasing new land for them, that part of the cost would be $5E14. I would repeat this sort of calculation for all external costs of emissions, then total the external costs and divide by the number of tons required to produce those effects, and make that the dumping fee.
How would you select the right cap for C&T?
Also, I disagree that the marginal cost curve for economy-wide emissions reductions would be so steep. If the cap is set too stringent, the more the price goes up, the more investment goes into clean technology (because of the profit motive), and there are plenty of technologies waiting in the wings already.
If the cap is set too stringent too much money is spent on emission reduction, energy prices are too high, people cannot pay their bills and are forced go without food, medicine, heat. The pain, suffering and death would be worse than from global warming.
Add in our best estimate of externalities, level the playing field, let the marketplace choose the best mix of technologies.
Things Everybody Should Know About Energy
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Max8806 Posted 10:50 am
13 Nov 2008
I should also have been clearer about what I meant about "too stringent," or at least clarify that I acknowledge a cap can be "too stringent" with negative effects. I completely agree that however much good comes from an energy revolution, any carbon price will raise the cost of carbon-fuel-produced energy sources, which are the marginal (price-clearing/setting) fuels in most markets and so raise energy prices for most consumers. Energy is a necessity and so this will be regressive (though could be offset by some (I would hope not all) rebating of carbon revenue to consumers). I support serious carbon-pricing primarily because of the need to avert future disaster, not because I'm under the impression that its all green jobs and butterflies.
-Max Epstein
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Max8806 Posted 11:00 am
13 Nov 2008
However, I do agree that the coal issue is significant. But the way to deal with it then is to invest more (there will be plenty of carbon revenue) in R&D for alternatives (hopefully with some peer-reviewed consideration of proposals to keep these decisions in hands of scientists to judge on merit, not politicians to judge on politics). People need electricity, and trying to shut down coal plants as fast as you can will jolt up the price because of the inelastic demand for the product. Its important that carbon be priced, but just as important that it be priced efficiently.
(Although if you made the point that coal is further underpriced because of other externalities like mountain top removal and healthcare costs for miners and so must be further addressed, I'd be more receptive. But I still think a separate cap is an inefficient and clumsy way of getting at that).
-Max Epstein
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GreyFlcn Posted 11:25 am
13 Nov 2008
"Cap And Permit" (CAP)
which creates a fund for
"Carbon Reduction Grants" (CRG)
-David Ahlport
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GreyFlcn Posted 11:40 am
13 Nov 2008
And Credits are equal to Permits.
Then Permits will be easy to counterfeit.
_
What's more, it makes a lot more sense to just auction off permits at the point of wholesale of the fuel. Rather than creating a nightmare of buaracracy. And unlike a carbon tax, you end up getting the REAL market price it takes to reach a set target of carbon reductions. (Also I wouldn't trust Congress to rachet up the cost if it were a tax)
Where as the people applying for Carbon Reduction Grants, they have to have all their stuff in order, and the burden of proof is shifted on to them, or else they don't get the money. It also opens up the potential to fund other things with it, like grid infrastructure, and renewable R&D.
And frankly a large portion of this fund will be used for pork. Which is perfectly fine, since that will assure that it actually gets the votes it needs.
_
I think what a lot of people fail to recognize is that what we want is a system which induces behavior change.
And it doesn't need to be nitpickingly exact to achieve that result. We just need a trend away from high carbon, and toward low carbon.
-David Ahlport
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GreyFlcn Posted 11:44 am
13 Nov 2008
Focus on eliminating the need for coal and gasoline, in USA, China, and India.
And reduce deforestation in Brazil, and Indonesia.
If we could just do that, then we'd have 90% of our problem solved.
_
Just makes me think, if that's our benchmark, then there's probably a simpler way to solve "our little problem".
-David Ahlport
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GreyFlcn Posted 11:52 am
13 Nov 2008
If we can set a good example, then China and India can move rather quickly to copy us.
-David Ahlport
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BILL HANNAHAN Posted 12:32 pm
13 Nov 2008
We are talking about the same physics in both cases. The uncertainty is the same. But the calculation is more transparent with the dumping fee, and more easily adjusted as the science is refined.
I completely agree that however much good comes from an energy revolution, any carbon price will raise the cost of carbon-fuel-produced energy sources,
Right but C&T is focused on CO2 only whereas the dumping fees would include all externalities including sulfur, mercury, NOx, cadmium particulates etc.
Things Everybody Should Know About Energy
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Max8806 Posted 1:04 pm
13 Nov 2008
My point is that while we have a high degree of certainty that the marginal damage curve is ultimately very steep (due to the almost incomprehensible damage BAU emissions would eventually cause), estimating the marginal cost of supplying emissions reductions is less certain, and certainly much harder to say for sure it would be so steep, because it depends mostly on the technological productivity of a host of industries that basically don't exist yet. Not in any form resembling what they will be just 7-10 years down the road if we instituted a cap today (which would itself only be 3-6 years into a cap starting in 2012).
And every cap/trade I've seen, including both L-W and B-L-W, included other GHG's including SO2 and NOx (not Mercury explicitly, though that would be driven down as well due to sharply decreased coal use). Actually now that this is mentioned, L-W and B-L-W also had a separate cap for HFCs. I don't know if that's a reasonable compromise to JMG.
-Max Epstein
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amazingdrx Posted 1:30 pm
13 Nov 2008
Not too sharp.
Phase out coal and oil with other methods. Let government specify the devices it wants mass produced, let industry mass produce. Just as in WW 2 war production. It ended the great depression. It will end this recession.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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