Too much of the debate on carbon-control policy starts from flawed assumptions. Take those assumptions away, and one quickly realizes that we have a lot of pretty good options.
Let's parse the carbon policy argument, and think for a moment about how to best engender the most economically beneficial carbon reduction policy.
First, let's strike any false assumptions from our logic:
- Let's not assume that it costs money to reduce carbon emissions until proven otherwise.
- Let's not presume that any of us know what the answer is.
Take these away, and you can pretty quickly get a good model. Picture, if you will, a 2x2 matrix of all the world's policy options. On one axis we list things that reduce or increase carbon emissions. On the other, we list things that cause GDP to grow or shrink. The middle of the plot (0,0) is the status quo. No change in emissions, no change in the economy.
Clearly, we ought to preferentially deploy resources towards those options that win on both metrics. Equally clearly, we ought not to spend any time on options that lose on both metrics. And once we've picked up all the low-hanging fruit in that win/win box, we can start getting into really hard political debates about whether win/lose beats lose/win.
And yet ... and yet.
We spend massive amounts of energy and money subsidizing a cost-plus regulatory model that encourages electric utilities to overproduce CO2 (lose/lose). More troubling, we start the debate where we ought to end it, quibbling over who should lose and who is more moral. "Environmentalists are too dumb to understand how the economy works!" "The business community is too short-sighted to consider the environmental consequences of their actions!" Stop it.
Let's set up a carbon price (be it by tax or auction -- this is simply a matter of politics, and while a tax may be more theoretically efficient, an auction is less prone to arbitrary changes in the face of shifting political winds). We currently emit about 1,300 lbs of CO2 for every kWh of power we generate. Calculate this average every year such that those on the wrong side of the line pay those on the good side. Do the same for heat and transportation fuel. Recalibrate every year so that you always get credit for beating the average. Don't pick winners. Don't pay solar more than wind just because it's less cost effective. Don't pay coal plants to do carbon sequestration because you think coal is the key to the future. Just set the price, get out of the way and let markets work.
They will.
What is troubling is that this isn't even close to what we're doing. Cap-and-trade models in RGGI and elsewhere are nice, but are bedeviled by the fact that the cap may well be too high (witness Kyoto -- it is always politically tempting to set caps at easily obtainable goals that make for good PR but lousy policy). Cap-and-trade regimes also suffer by limiting participation only to a small sector of the economy (in the case of RGGI, generators over 25 MW). Having gotten the cap wrong and not allowed the right people to trade, there's not much left. I will grant you that RGGI allows other avenues of participation through offsets, but why not let all good carbon reduction approaches in the front door?
More on this here (PDF).
Climate-news poem: Breath-catching edition
Comments View as Flat
rorywilliams Posted 7:11 am
21 Jun 2007
establishing the carbon goalposts
An important point mentioned in your argument is that of needing to beat the average amount of CO2 emitted for every kWh of power generated. You are basically suggesting that we continually shift the goalposts as a strategy to make progress towards a low-carbon future. That's one way of approaching the challenge, which might work for big utilities, but I would be interested to hear how that provides an incentive for microgeneration. If I want to install a solar panel on my roof, that's zero carbon, so it doesn't feature on your sliding scale of targets for CO2 emissions.
Another approach has been adopted in planning for Dongtan Eco-city, where it is recognised that to attain any global target for carbon emissions, many developments will need to be carbon negative to compensate for those that are carbon positive. In other words, it isn't enough to be carbon neutral. The Dongtan situation is one of centralised planning, so it doesn't answer my question about incentives for householders either, but I think that government will need to be involved - whether through taxes, subsidies or whatever - to "translate" the carbon market into something meaningful for residents or businesses making energy decisions. And I do believe that individuals and local communities will need to be involved, because localised power generation has benefits not available from centralised mega-projects.
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naturescene Posted 7:29 am
21 Jun 2007
in theory
tax and cap-and-trade are equally efficient. After that, there are a lot of political economy reasons that either a tax or cap-and-trade might be less efficient. There are also some other ideological reasons that one may be biased in favor of one over the other.
If we're talking on a national scale here, I think that we should have a cap-and-trade scheme with auctioned permits. Put the money in an environmental trust, give it back to citizens, or... whatever - that's a secondary issue. The main issue is cutting carbon, so we should be focused on what the cap should be. Everything else should be considered after this primary goal.
I probably wouldn't be opposed to a higher gas tax either.
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Sean Casten Posted 7:33 am
21 Jun 2007
Your case would count
Consider two projects - your solar panel and a coal plant. The grid averages about 1300 lbs/MWh and the coal plant runs ~2000 lbs/MWh. You earn a payment at the end of the year for all your carbon reductions, calculated as 1300 lbs/MWh, times the total MWh you generated, times whatever price we decide to pay per ton of carbon.
Meanwhile, the coal plant is 700 lbs/MWh on the wrong side of the line, so they pay 700 lbs/MWh, times the number of MWh they generate, times the same $ton fee you got as a credit. The market balances with a transfer of wealth from polluters to cleaners like you.
What the use of the average does is ensure that we are always paying for folks who clean up, and not setting bars that are too easy to reach (such as we have done in some cap & trade regimes). More notably, it lets the market pick winners, such that we always reduce the maximum carbon for a given investment. Since all pocketbooks are finite, this is equivalent to maximizing total carbon reduction.
This last point is important, and often overlooked. It is total carbon reduction that matters, not the specific reduction per unit of output (in this case, kWh). If one strategy reduces 10 tons per dollar of investment and another reduces 2 tons per dollar of investment, we should chase all the 10 ton$ options first, and then do the 2 ton/$ ones. This may sound intutitive, but can border on environmental fightin' words. A solar panel that produces 0 carbon/kWh on a $5000/kW investment is a less desirable carbon reduction strategy than an efficient (but otherwise fossil fueled) power plant that only reduces half of the carbon/kWh as the solar panel but can be built for $500/kW. 1/2 the carbon, but 1/10th the cost, means that the latter will reduce more total carbon given limited resources.
I don't raise this to suggest a winner-picking of my own, but simply to point out the elegance of the structure. Set the price, name the goal, and then let markets work. Good things will happen.
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Sean Casten Posted 7:39 am
21 Jun 2007
in theory, yes but
Agree with you in theory, noting my earlier remark that the tax is more subject to political winds, and is therefore bound to be considered less permanent (a not insignificant fact given the operating life of lots of investments - markets will be hesitant to factor in the price if they don't expect some degree of permanence).
Disagree that the auction is secondary though. The devilish details of these are the most important part. Kyoto and RGGI both went with an allocation formula which has the effect of creating windfall profits to the worst polluters, and giving a huge incentive to keep those plants on line, lest they forego their blessed grandfather status. Auctions are vastly more efficient - and politically way harder. There is at least one model though in some of the broadband auctions that have happened for wireless bandwidth. Perhaps other commenters are more familiar, but my recollection is that the FTC was successfully able to overcome the political resistance to an auction and structure a process that monetized a previously "free" - but tragedy-of-the-commons prone - public good and got more economic efficiency as a result.
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naturescene Posted 7:44 am
21 Jun 2007
hey
I didn't say that the auction was secondary, I said stuff like what to do with the auction revenue is secondary!
Believe me, I understand that institutions and the structure of these markets matter.
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Charles Barton Posted 7:47 am
21 Jun 2007
controling emissions or emitters?
Carbon control is far to problematic. Far from making solutions easier, it creates incentives for cheating, inevitable conflicts, and political pressure to relent on favored emitters. I favor what I call the gore everyones ox approaCH. Put all big time emitters on a timetable to shutdown their emitting activities. Lets require all fossil fule power plants be shut down by their 50th birthday with 2030 as the implimentation date. Tgat is as of January 2030 all 50 year old fossil fule generating plants. Lets requite that all cars constructed by 2017 must be plug in hybreds with a 50 mile battery range, or if gasoline powered, capable of 50 mpg. Lets require that by 2027 all hybreds have a 100 mile battery range, and all cars must deliver at least 60 mpg in urban settings.
As technological breakthroughs develop, mandate alternative solutions to the use of fossil fuels for flight. Put research into alternative technologies to replace kilm fired bricks and cement, or develop solar technology and other technologies for industrial materials heating. Only use direct carbon controls if replacement options do not work.
Charles Barton
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Jon Rynn Posted 7:47 am
21 Jun 2007
Let's say we put in a light-rail system...
...that eliminates a certain amount of carbon (how to tell?), but that the government has to put in, because the market can't. Or a town zones an area as mixed-use dense, with lots of shopping, so people can walk all over the place (like I can do in downtown Evanston), which also eliminates a bunch of carbon. First of all, the government did it. Second, how do we determine how much carbon was eliminated? And third, these two processes might eliminate as much as the market does using private purchasing of different energy alternatives -- so it would seem the rational solution is a combination market/government system, no?
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naturescene Posted 7:50 am
21 Jun 2007
make the government play in the market
The government and its vast expansive glory is probably a huge emitter of carbon. Make government agencies participate in the carbon markets.
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JohnCaley Posted 9:23 am
21 Jun 2007
All your thoughts are FLAWED
>> starts from flawed assumptions.
all your assumptions are flawed.
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Jon Rynn Posted 12:14 pm
21 Jun 2007
On "ttransforming electricity"
Sean, I just finished reading your very important article, "Transforming electricity", and I'm not sure where else to bring up the various questions I have:
- Your advocacy of distributed electrical generation vs. centralized seems to me to be a policy alternative to sequestration. If we are going to use coal, it would be more straightforward to use small, local plants using waste heat.
- I was under the impression that the electrical grid needs to be rebuilt if it is to transfer the large amounts of wind that are in places like the Dakotas and solar energy that are in the Southwest if we are to use those two sources to replace coal. You argue against increasing grid capacity; could it handle, say, just moving wind/solar around the country if there were no other generators (obviously a hypothetical).
- When you mention deregulation, in order to avoid the word "enron" popping into peope's heads, I would suggest stressing that you are talking about things like making small-scale distributed generators possible and getting rid of ridiculous grandfather pollution rules, instead of just a blanket condemnation of regulation
- Have you investigated distributed electrical generation with wind/solar? Your emphasis on distributed generation is an absolute perfect match for those who want to increase renewable technology use; can solar, for instance, also supply waste heat.
- speaking of waste, is it more efficient, energy-wise, to burn dried plant material for electrical generation than to use it for biofuel? The biofuel solution is preferred right now because people are anxious, shall we say, if not hyesterical, to have a supply of liquid fuels for their cars, but maybe it would help shift the debate from cellulosic biofuel to electrical generation.
- On a more general level, you are talking about production, while most people are obsessed with consumption. Your knowledge of production is very valuable; I wish people were more aware of production, and how to produce sustainably, than what to buy.
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Sean Casten Posted 11:15 pm
21 Jun 2007
Don't confuse the path with the goal
Jon:
Good questions, and my general response is that we shouldn't presume that a grid needs to provide a home for technology X. Our goal is a low cost, low-carbon grid. Period. That may or may not involve wind, solar, nuclear (and yes, even coal) to varying degrees, and the point we were making is that one ought to structure so that those goals are rewarded. Too much of current policy is focused on paths, and while I intend no ill-intent on your comments (we clearly want the same thing), I would point out that you are primarily talking about making sure that certain paths are rewarded. Brief answers to each of your questions follow:
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Jon Rynn Posted 12:38 am
22 Jun 2007
Thanks again...
...Just to clarify a couple of points: obviously, regulation vs. deregulation is a complex issue, and I didn't mean to imply that all regulation = enron. It's just that certain things popped out to me as easier to "sell" -- the hair-raising discussion of not being able to build on-site generation is probably enough right there to give people a good idea of the problem.
Also, as far as production vs. consumption is concerned, my concern has been that the public has very low "industrial literacy", that is, they don't understand how the economy works from an engineering point of view. For instance, it would probably help if people knew what a machine tool is. So your knowledge of the electrical part of the economy is valuable simply to explain to people how it all works. Which brings me to something a little different:
I skimmed some of Robert U. Ayres work, and I was very pleased to see someone attempt to explain economics in a way that is outside of the neoclassical world. I basically wrote a dissertation attempting to do just that (my article "The economy is an ecosystem" is a recent example). A biologist, Charles Hall, is doing some exciting work on an energy/ecological way to look at economics, and there is also an effort to use the word "emergy" -- I noticed Ayres uses the word "exergy". So I hope that we can keep track of these ecologically-based economic ideas that seem to be reaching, perhaps, a critical mass. Maybe another post?
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Sean Casten Posted 12:59 am
22 Jun 2007
On emergy
I'm not familiar with the term, but recognize that exergy isn't a buzzword, but one with a precise thermodynamic meaning. In effect, exergy = useful energy. To understand the difference, think of a small volume of 500 degree steam vs. a large volume of 50 degree water. We could set our volumes so that both have the same amount of total energy, but clearly we have the potential to extract a lot more useful work from the higher temperature stuff (be it turning a turbine to make electric power, heating a room to 100 degrees, or any multiplicity of other uses). Or going back to the skim-milk vs. cream example, energy treats all "milk derived products" as equivalent, while exergy recognizes the inherently higher value of cream vs. skim milk.
Simplifications, but hopefully useful. Bottom line is that while other terms can be helpful for understanding, we shouldn't confuse precise terms like exergy and energy with emergy that - while perhaps useful from an educational perspective - doesn't have any universally recognized physical meaning.
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