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Melting markets_ melting ice caps


									  Think Tank

                                             Carbon targets

  Melting markets,                           While the European Commission has been
                                             working to allocate member countries with
                                             their own specific targets by 2012, the UK,
                                             for example, has committed to cutting its

  melting ice caps                           carbon emissions by 12.5% below 1990
                                             levels under the Kyoto Protocol, a legally
                                             binding international agreement. For the
                                             longer term and as a result of the recent
                                             G8 meeting, the UK has also agreed to a
                                             target of 50% below 1990 levels by 2050.

  Are the current targets for cutting        The purpose of climate scientists

  carbon emissions realistic or setting us   proposing target CO2 atmosphere
                                             concentrations is to limit global warming
  up for a fall? Dr Thomas R. Schneider,     and to help ‘stabilise’ the planet’s climate.
                                             Depending on the scenario, the required
  member of the IEEE, a professional         reductions in carbon emissions are
                                             suggested at being between 60% to 80%
  association for the advancement of         of the 1990 emission levels, or greater, by
  technology, investigates.                  Historically, carbon dioxide emissions
                                             did fall at the same time that coal
                                             consumption was reduced and that
                                             generation shifted to oil and gas.
                                             However, coal consumption has increased
                                             and carbon emissions, while still lower
                                             than previously, are again on the rise.

                                             There is also some controversy about
                                             emissions that can be attributed to the
                                             UK. Some economists suggest that if
                                             the carbon content of imports and the
                                             emissions associated with aviation and
                                             shipping are taken into account, overall
                                             emissions that should be attributed to the
                                             UK have actually risen.

                                             Power technology
                                             For the power sector, which contributes
                                             around one-third of carbon emissions,
                                             the main opportunities for reducing
                                             greenhouse gas emissions are as follows:

                                             a) Initiating end use efficiency and
                                                 demand reduction measures
                                             b) Introducing conservation and lifestyle
                                                 changes on the demand side
                                             c) Fuel switching from coal to natural gas
                                                 or bio-fuels
                                             d) Replacing existing fossil fuel generation
                                                 facilities with renewables and nuclear
                                                 sources, and
                                             e) Carbon capture and storage for any
                                                 remaining fossil fuel generation

                                             The Renewables Obligation Order in
                                             the UK is one of the government’s
                                             mechanisms to reduce carbon emissions
                                             by increasing the proportion of electricity
                                             produced from renewables to some 15%
                                             in 2015. It has also created a market in
                                             certificates acquired by suppliers of the
                                             renewable electricity.

                                             The global magnitude of the challenge
                                             in shifting to renewables, nuclear and

66 PES: Europe
carbon capture and storage is enormous.          creating an opportunity to profit and not       sale and then the proceeds, if not used
For example, in the US, the famous oil           at achieving a public good. Furthermore,       to fund governments, could be refunded
and gas billionaire T. Boone Pickens is          there is not simply a single market to         to the people. A simple tax on carbon
promoting the Pickens Plan which would           focus on, but individual markets including     emissions was and is still considered as
seek to generate approximately 20% of            electricity, renewable certificates and         “politically unfeasible” because it would
US electricity from wind in ten years; an        the market in greenhouse gas emission          be regressive, hurt the poor and, especially
endeavour that would cost more than a            credits.                                       in the USA, increase the cost of gasoline.
trillion dollars!                                                                               But those arguments were before USA
                                                 Can we trust the health of our planet          gasoline prices went over $4 a gallon
Unrealistic targets?                             to market forces? Should we turn from          and then fell to less than $2 dollars in
Depending on economic and population             the opportunity for corporate profits to
changes between now and 2050, a                  embrace again the obligation of the utility
business-as-usual scenario might see
energy use increase 30, 40 or even 50%
                                                 industry to serve the public? It certainly
                                                 would be easer to administer and probably
in most of the developed world, and more         also less expensive for the consumer but          politicians and
in the rapidly developing countries that         it would also shift accountability from
are seeing growth rates approaching              ‘markets’ as the means of discipline to        policymakers across
10%. Consequently, the actual reductions
necessary from emission levels in 2050
                                                 the government. As Parliament represents
                                                 the people, it would make the suppliers        the globe seriously
would be more than 90% below the
business-as-usual levels. To achieve this
                                                 responsible to the people. After all, it is
                                                 the individual’s right to clean air and a
                                                                                                misunderstand how
level of reduction will require a drastic
transformation of the energy sector that
                                                 safe environment and not industry’s rights
                                                 to pollute, which is central to the issue of
                                                                                                 difficult it will be
would entail virtually complete conversion
for new generation facilities to renewables
                                                 climate change.                                  to transform the
and nuclear, and an incredibly effective
carbon capture and storage for any
                                                 Cap and Trade or Tax?
                                                 It is proposed that control of carbon
                                                                                                   energy sector
remaining fossil fuel generating resources.      emissions be achieved from a framework
In parallel, nearly all direct fossil fuel use   of market forces by a “Cap and Trade”          a span of a few months. Compared to
in other sectors of the economy would be         scheme where the right to pollute by           prices this past summer, a direct tax on
eliminated.                                      emitting carbon dioxide be auctioned           carbon which might translate into $.50 or
                                                 or otherwise sold to industry and other        even a full dollar a gallon seems a small
Reaching 50% by 2050 and the                     polluters. It is a framework that assumes      price for mitigating climate change. The
intermediate target – 20% by 2020 –              that markets will be efficient and achieve      question then is “Will it become politically
appears to have been set not by an               a fair and equitable distribution of the       acceptable to tax?”
analysis of the possible, but rather by          rights to pollute. Governments that sell the
poetic license or alliteration. In fact, even    rights to pollute collect revenues from the    Until recently, the weight of political
if all possible means of reducing emissions      sale or auction of these rights and those      opinion has been against a tax and
are pursued to achieve such goals in the         rights are subsequently traded in a market     in favour of Cap and Trade. But Cap
long-term, it is likely that committing to       place created for the purpose. But nothing     and Trade is a de facto tax in disguise
an intermediate target of 20% by 2020            real is being produced and the polluter        and is far from simple. In light of
is setting us up for failure. Unfortunately      who is willing to pay the most gets the        market meltdowns and the growing
politicians and policymakers across              rights to pollute. Why has Cap and Trade       understanding that there is great price
the globe seriously misunderstand how            been the dominant emissions reduction          uncertainty and opportunity for market
difficult it will be to transform the energy      scheme? Perhaps there was some success         manipulation and substantial transaction
sector.                                          with this mechanism in capping and             costs to Cap and Trade. The simple and
                                                 trading of simple air pollutants from a        direct approach of a carbon tax may be
Melting markets compound the problem             limited number of power plants. Perhaps        gaining support. Recently, to the voices
The problem is exacerbated by the                it is because even progressives bought         of a few such as Al Gore has been added
recent market meltdown and worldwide             into the story that markets are best. Yet      Rex Tillerson, the CEO of Exxon Mobile
credit crunch as tight credit and financial       carbon emissions are a very complex            and the largest private oil company in the
instability raise risk premiums on private       problem and especially if it is greenhouse     world. Not only is a tax easier and cheaper
sector financing, making the achievement          gases and not just carbon dioxide that         to administer, it creates greater certainty
of the intermediate target far more              need to be controlled. Perhaps trying to       for industry, has little room for mischief by
difficult today than it was six months            create an artificially constructed market       market manipulation and can, through the
ago. Financing the construction of new           for emissions of greenhouse gases is the       use of a dividend or tax rebate, provide an
facilities through the free market will be       wrong approach.                                opportunity for social equity.
more difficult, more expensive and raises
serious concerns over the reliance on            An alternative framework is one where          Which approach is better? Now is the time
market forces.                                   the individual is compensated for the          for people and politicians to debate. With
                                                 collective pollution and all pay a cost        low oil prices today but the high prices of
Building new generating facilities powered       for their own pollution. This has been         this past summer still in current memory,
by wind, other renewables and nuclear            called a “Tax and Dividend” scheme and         the opportunity is now to adopt a simple
will cost trillions of dollars worldwide and     strongly endorsed by climate scientist         and transparent approach and avoid the
will also require government mandates.           James E. Hansen. It is easy to see how         complexity and costs of multiple markets
Yet in this time of privatised, restructured     such an approach could work. Carbon            piled one on another. Only the political
and deregulated utilities, these mandates        resources such as coal, oil and natural        debate will resolve the question and the
rely on market forces which are best at          gas would be taxed at the point of initial     time for the debate is now!

                                                                                                                              PES: Europe 67

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