I've said before that one problem with greenhouse-gas emissions trading (as opposed to a carbon price) is that it creates a whole new lobby with incentives to build the emissions market at the expense of actual emissions reductions.
Speaking at the Carbon Expo trade fair in Cologne, Germany, Ken Newcombe, a pioneering carbon trader who currently works for Goldman Sachs provided an example:
He described the concept of additionality -- the idea of proving that a project would not have happened without the finance provided through the CDM -- as "impossible."
...
He urged a move to a "portfolio approach" to additionality, where sectors would be benchmarked for best practice. Under such a scheme, activities that emit below the benchmark would be rewarded with credits, but with a discount for the "anyway" or non-additional tonnes of emissions reductions that occur.
So additionality is impossible to measure on a case-by-case basis, but it can be measured for entire sectors. Gee, you don't think that would lead to game-playing, do you?
Since carbon credits under Kyoto are permissions to pollute, each non-additional credit issued would increase the amount of coal burned. Putting a price on emissions is not sufficient to solve climate chaos -- but it is necessary. So put a carbon tax in place or auction permits already. Forget game-playing CDM and the whole additional new carbon lobby that secondary carbon markets create.
Climate-news poem: Breath-catching edition
Comments View as Flat
Sean Casten Posted 7:37 am
12 May 2008
What's wrong with trading?
Gar,
I'm not sure I understand why trading is bad. Traders may be self-serving bastards, but that doesn't mean that trading collectively is a bad thing. It certainly has proven massively beneficial in a zillion other markets, from a farmer who wants certainty on the price she'll get at harvest-time to an energy project developer trying to lock in a long-term power contract to an employee trying to plan for their retirement. All of those things are only possible in a world that is full of traders - and the world is richer for their presence. Will people make some money from the trades? Sure. Will they have an incentive to try and maximize that money? Absolutely. But so does everyone else. And without a vibrant secondary market for carbon, there's no way for an economy to devise innovative ways to buy, sell, trade or hedge those offsets... which means a substantial limitation in our ability to lower GHG emissions (as compared to a top down tax or other approach where the universe of options is dictated by regulators from the outset.)
In that context, the guy who says that additionality is impossible to measure is simply acknowledging a basic truth about GHG pricing - and one that is as obvious from a market perspective as it is surprising from a top-down regulated view. This argues for more market, not less. Of course, those markets need gov't oversight to ensure they remain competitive, but that's nothing that the SEC and others aren't already set up to do.
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Gar Lipow Posted 8:01 am
12 May 2008
Credits -get it
Not being able to measure additionality individually he thinks it can be measured sectorially. And the used to generate credits that will be used as permission to burn coal. You don't see anything wrong with that.
Trade is fine for things we want to increase. Not really a good idea for things we want to gradually dwindle to zero - like carbon permits.
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GreyFlcn Posted 8:46 am
12 May 2008
Well
Another thing to consider.
Much like the gasoline tax going to pay for roads.
As the gasoline we consume goes down, the money to pay for roads goes down.
So attaching those revenues to something seperate from reducing the emissions, results in eventually defunding a particular program.
Especially when you consider something like the lottery for California schools. It was originally meant as an augmentation to school funding. And then it instead replaced direct funding.
So in short, we'd definantly have to be careful to where we plan on spending those revenues.
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Gar Lipow Posted 10:22 am
12 May 2008
Well
Reason I favor Barnes' proposal.
Take the revenue from auctioned permits or carbon tax and return it directly to the people. Fund infrastructure changes and social spending both from more stable sources.
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GRLCowan Posted 11:40 am
12 May 2008
Barnes? Is he the cap-and-dividend promoter?
Cap-and-dividend is good. Although I'd prefer to call it dividend-and-cap, lest the time it takes to utter two syllables be too long, for people who earnestly intend to give back to the people billions in C money, to remember that intention.
There are already carbon revenues, aren't there? Maybe the dividing-out could get started right away.
One man's price on carbon is another's carbon revenue. Or more to the point, many people's price on carbon is a few public exchequer-connected people's carbon revenue.
How shall driving gain nuclear cachet?
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green8659 Posted 3:42 pm
12 May 2008
Nothing Wrong
I don't see anything wrong with the trading in this manner.
Green and Environmental Website | Almighty Cleanse
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danlewer Posted 8:36 pm
12 May 2008
Agreed
Additionality can't be measured accurately, whether you do it project-be-project or sector-by-sector, and however much time and resources you have.
So long as the CDM is not additional, emissions and money will leak out of statutory cap-and-trade schemes (mainly the EU ETS at the moment) in unknown quantities.
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Sean Casten Posted 10:44 pm
12 May 2008
Gar
You know I don't support more coal. My point is simply that trading is inherently beneficial, and I don't understand the knee-jerk opposition. Trading allows creativity and frankly allows markets to surprise us. Regulation provides predictability, but also presumes that the universe of possible solutions are known at the outset. They never are - and there's no reason that a trading model can't be productively applied to something that we seek to decrease.
Re: additionality, you know my larger beef. The crux of my objection though is not whether 'tis better to apply at a project or portfolio level, but that additionality at core is a bogus test. It is the Heisenberg uncertainty principle of carbon policy, in the sense that one can never know with precision both (a) what one is doing right now and (b) what one would be doing if one weren't doing that other thing. It is regulatory masturbation, satisfying the regulator that one is doing good without actually doing anything productive with respect to GHG reduction. Indeed, per your question, I can guarantee that coal+ carbon sequestration will always pass additionality tests, because it is such an economically dumb idea - perhaps the single most expensive way to reduce GHG emissions. The fact that is is additional is precisely why it's such a bad idea - and why additionality is counter-productive, in the sense that (a) it maximizes the cost per ton of CO2 reduction, thereby minimizing the total CO2 reduced in a world of finite resources and (b) accelerates the rate of mountaintop removal in the name of GHG reduction.
But all of those issues are at core peripheral to trading. One can set a hard cap on the amount of CO2 traded by retiring permits each year without getting into any debate about additionality. And as we do that, it behooves us to make sure that we don't exempt the most cost-effective reductions, lest we cripple the economy in the process.
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amazingdrx Posted 12:22 am
13 May 2008
Exactly Gar
"...put a carbon tax in place or auction permits already. Forget game-playing CDM and the whole additional new carbon lobby that secondary carbon markets create."
That secondary carbon permit market will be the ultimate GHG reducing policy killer. As hedge funds scam and energy prices to consumers rise, industry friendly politicians will say "see, we told you so, government intervention is destroying thje economy."
That will be the end of green politicians and GHG climate disaster cure.
Is this why many CEOs favor cap and trade? That's my suspiscion.
But of course, withdraw subsidies for carbon heavy industries first. Before imposing taxes or permits. Subsidy diversion to renewables and conservation might be enough. Tackle a tax or permit system if it isn't enough to propell energy revolution. 50 billion per year ought to be possible with diversion alone.
http://amazngdrx.blogharbor.com/blog
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Kristina & Jason Makansi Posted 7:14 am
13 May 2008
another aspect of trading
...more food for thought on the whole idea of trading from our April Pearl Street Power blog...
Pearl Street::Jason and Kristina Makansi Read Lights Out reviews
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Sean Casten Posted 7:38 am
13 May 2008
K&J
I don't think there's anything quite so dastardly going on with respect to the banks. New coal-fired power plants simply don't pencil out, even without taking into account the carbon costs. Plug $3000/kW coal, plus $1400/kW wires and 3 cents or so for fuel and maintenance into a modest (~10%) utility return on assets and you quickly realize that new coal plants are contingent upon one of the following happening:
- Retail rates increase by 40%, or;
- Gas and other cheaper options come on at the margin, forcing coal plants to lower equity returns (and debt service) in order to keep running.
It is neither surprising nor nefarious that banks are running away from coal in this environment. Coal only makes sense if your capital is amortized. New construction, by definition, isn't. That is what is driving the lending community away, it is fundamentally good news.Permalink
Kristina & Jason Makansi Posted 3:59 am
14 May 2008
but...
focusing on coal is only looking at part of the problem...The bigger issue is that Wall Street does not want to finance anything long-term, which is now synonymous with "risk." Therefore, we fear that Wall Street will only finance short-term, (i.e. short-sighted) solutions to what are long-term infrastructure expansion problems. They don't want to tie up money in asset expansion; Wall Street wants to invest in assets that allow them to conduct more transactions, like short-term or spot market power sales, carbon trading, emissions trading, or natural gas trading. Long-term contracting for inexpensive base-load power based on fuels supplied on long-term contact doesn't net them "transaction fees."
This way of thinking is certainly not unique to the power industry. Wall Street has long been focused on short-term profits to the detriment of long-term planning. If Wall Street were really interested in investing in long-term energy strategies that pay off for the country in terms of energy independence, sustain economic growth and help confront the global warming challenge, we'd see the serious money going into solar, thermal, wind, storage, and nuclear.
Pearl Street::Jason and Kristina Makansi Read Lights Out reviews
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Sean Casten Posted 4:54 am
14 May 2008
K&J
That's a fair point, but note that coal plants are a lousy investment even if you have a longer investment horizon. Indeed, private (as opposed to public) equity does take a longer view, and it's not investing in coal either. Note also that the banks that are backing out of coal markets aren't on the equity (e.g., "wall street") side of the table but rather on the debt side, which is - while pessimistic by nature - inherently biased towards a long view by nature of what they do. (e.g., short-term equity appreciation doesn't have any impact on debt coupons... but if there is any point over the term of the debt - typically 10 - 20 years for big power projects - when there is the potential that the borrower might not be able to make their debt payment, the debt provider loses.) So while the short-term criticism is fair as applied to public equity/commodity brokers on wall street, I'm not sure that has anything to do with why banks are running away from coal.
Moreover, the underlying issues affecting coal are the same as those affecting other power assets: namely, that as we enter a build-cycle in the generation sector, one has to justify those investments on the basis of their marginal cost and capital recovery... but the price we see on the grid today, dominated as it is by old, dirty, largely amortized capital is much lower. Thus, just about any new generation technology is going to raise the cost of power... and therefore, the current prices of power aren't high enough to justify any of them. So do we build really expensive, really dirty stuff first, really expensive, really clean stuff first or sort-of expensive, really clean stuff first? That shouldn't be a hard question, but for the fact that our regulatory model is biased towards the former. We need a regulatory overhaul to build the better stuff first, and that's what a proper carbon market ought to do - but that means we need incentives to build the clean stuff today, not just out at some point in the future where we've built enough of the stupid stuff to raise the cost of power (both through expensive capital and carbon-compliance costs) to justify the stuff we should have built in the first place. This is why it's so critical that our carbon regs have carrots for early action, not just sticks against polluters - and why carbon policy needs to reward anyone who lowers carbon, with all the flexibilty of a market rather than just a few government-picked winners. In short, it's why we need a vibrant carbon market.
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sillyolebilly Posted 11:15 pm
16 May 2008
Carbon trading - New world religion
Isn't the point of all this carbon psycho stuff to create a huge trillion dollar "tax" base market to get into the worlds pockets and make the wealthy even moreso . A tax created from Nothing !! Nothing !! No back up to show whos emitting what amounts of CO2 . No accurate measurement devices . Just faith that the "wes" know what they are doing . Just like worthless subprime mortgages , made from nothing ( no asset backing) What disturbs me most is the mixing of the "new world worshop religion" with governments and business alike. Most ,like lemmings are beginning to bow at the carbon altar. Few are asking questions , fewer still are stating the truth about CO2 trading and sham global warming . Out of intimidation and fear . Good ole Al, sez if you don't believe his scam scheme you are a heretic (another religious word ) but he feels we should let gentle mother goddess earth be rid of gases that existed in larger atmospheric quantities 1,000,000 yrs ago than today - oh and its the coldest spring here in Michigan in last 100 yrs - global warming my kiester !!!
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