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.
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Sean Casten Posted 7:37 am
12 May 2008
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
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
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
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
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
Green and Environmental Website | Almighty Cleanse
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danlewer Posted 8:36 pm
12 May 2008
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
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
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
Citi, JPMorgan Chase and Morgan Stanley made big news recently with the announcement that they will not finance new coal plants without carbon capture and sequestration. Their reluctance may be due to stated concerns about global warming. However, the same financiers are also skittish about providing the debt financing for nuclear plants which don't produce any CO2. The skeptic in me began wondering about their sudden desire to go green and got me thinking about what else might be at stake for Wall Street.
To understand what else might be driving the financiers, it is instructive to review a couple of things that happened in the wake of the California Energy Crisis and Enron meltdown. First, Wall Street firms picked up a fleet of gas-fired power plants for pennies on the dollar. Those plants represent about 80% of the generating capacity owned by Wall Street, which turns out to be about 5% of the total generating capacity in the U.S. Secondly, most of the electricity trading operations picked up stakes and moved from energy-based firms in Houston to financial firms on Wall Street. Third, Wall Street has begun salivating at the prospect of trading carbon credits and allowances.
We know that corporations and investment firms have a fiduciary duty to act in the best interests of their shareholders. In this case, that fiduciary duty has conveniently converged with the growing movement to limit CO2 emissions from coal, lingering fears of nuclear energy, dominance of the electricity trading market and, by extension, dominance of any proposed cap and trade system, and a portfolio of gas-fired plants.
I don't think it's farfetched to guess that some very smart financiers see that if no new coal or nuclear plants come on line, and reserve margins continue to shrink, then the best way to reliably keep the lights on is with electricity generated at gas-fired plants. Seen from this vantage point, it makes perfect sense that the financial firms suddenly care about reducing CO2 emissions. If you (1) own the gas-fired power plants, (2) control the trading of gas and electricity, and (3) acquire and control the carbon credits, going green is, in fact, your fiduciary duty.
As a bonus, going green means more transactions. A carbon cap and trade system will generate more transactions, which generate more fees, which, in turn, create "transactional value," which is, it is important to note, very different from intrinsic value. Wall Street, we must remember, specializes in financial engineering, not infrastructure engineering.
So, Wall Street is driving the financial push toward lower CO2 emissions while also pushing for a transaction-based cap and trade system which they will control. The catch is that rather than investing for the long-term with more sensible options such as renewables with storage, no-CO2 nuclear, or even so-called clean coal, we're served up increasingly expensive electricity from gas-fired plants with a shiny, new cap and trade system on top.
Pearl Street::Jason and Kristina Makansi
Read Lights Out reviews
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Sean Casten Posted 7:38 am
13 May 2008
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.
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Kristina & Jason Makansi Posted 3:59 am
14 May 2008
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
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
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