Category Archives: emissions trading

McCain on cap-and-trade

This is a statement of general principles and the devil is always in the details, but it’s encouraging to see words like these from the Republican Party’s presumptive presidential nominee:

We will cap emissions according to specific goals, measuring progress by reference to past carbon emissions. By the year 2012, we will seek a return to 2005 levels of emission, by 2020, a return to 1990 levels, and so on until we have achieved at least a reduction of sixty percent below 1990 levels by the year 2050. In the course of time, it may be that new ideas and technologies will come along that we can hardly imagine today, allowing all industries to change with a speed that will surprise us. More likely, however, there will be some companies that need extra emissions rights, and they will be able to buy them. The system to meet these targets and timetables will give these companies extra time to adapt — and that is good economic policy. It is also a matter of simple fairness, because the cap-and-trade system will create jobs, improve livelihoods, and strengthen futures across our country.

The goal in all of this is to assure an energy supply that is safe, secure, diverse, and domestic. And in pursuit of these objectives, we cannot afford to take economic growth and job creation for granted. A strong and growing economy is essential to all of our goals, and especially the goal of finding alternatives to carbon-based technology. We want to turn the American economy toward cleaner and safer energy sources. And you can’t achieve that by imposing costs that the American economy cannot sustain.

As part of my cap-and-trade incentives, I will also propose to include the purchase of offsets from those outside the scope of the trading system. This will broaden the array of rewards for reduced emissions, while also lowering the costs of compliance with our new emissions standards. Through the sale of offsets — and with strict standards to assure that reductions are real — our agricultural sector alone can provide as much as forty percent of the overall reductions we will require in greenhouse gas emissions. And in the short term, farmers and ranchers can do it in some of the most cost-effective ways.

A tax “even the Right might like”

The Ottawa Citizen‘s response to the National Roundtable on the Environment and the Economy’s call for a price — some kind of price — for carbon:

There is a worse economic sin than overregulation, the NRTEE says, echoing warnings from the business community, and that is capricious regulation. Given warning, industry can adapt to just about anything; it’s shocks that are scary. When governments set long-range targets without setting rules that will get the country to them, investors get nervous.

Less pain now almost certainly means much more pain later. Yet the Harper government seems to focus entirely on short-term costs instead of long-term benefits when contemplating environmental economics. This is doing Canada no service.

Whatever you do, get on with it

Canada needs an “economy-wide” price on carbon emissions, says the federal government’s environmental economics think tank … but the National Roundtable on the Environment and the Economy punts on the key question in the debate today, which is whether a carbon tax or a cap-and-trade system should be the key measure for imposing that price.

There is, of course, no pithy money quote to demonstrate this vagueness, but the gist of the lengthy report is that the feds can use whatever instrument they like to put a price on carbon, as long as it’s properly designed and is coupled with complimentary policies to get at whatever parts of the economy the chosen instrument doesn’t capture.

Ah. Easy enough, then. Just some details to be sorted out.
What does come through clearly in the NRTEE’s final report on “Getting to 2050: Canada’s Transition to a Low-emission Future” is that this is an extremely urgent problem that the NRTEE doesn’t think the government is taking seriously enough.

The federal government has committed to deep long-term emission reduction targets for GHGs and air pollutants. For GHGs, these targets are 20% below 2006 levels by 2020, and 60% to 70% below 2006 levels by 2050; these targets match those of the NRTEE’s “fast and deep” [that is, most ambitious — DR.] scenario in this report. Achieving this vision of a low-emission economy for Canada requires embarking upon a focused and deliberate transition beyond current policy approaches. Our research shows that achieving the 2050 target of a 65% reduction in GHG emissions from current levels requires meeting the stated 2020 target of a 20% reduction. Missing the 2020 target will put at risk the attainment of the longer-term target, or make achieving that target come at both higher economic and environmental costs.

People who pay close attention believe that the government’s plan, which is still off somewhere in perpetual consultations awaiting death that will be either quiet (if the governing Tories call an election) or extremely noisy (if the supposedly green-friendly Liberals force one), will not actually achieve the targets the government has set, suggesting the whole thing is a fiasco in the making.

No scarcity = no market

After screwing up its internal carbon-permit trading system by issuing permits so willynilly that they became almost worthless, the EU is carrying on with phase two of the operation. This time, they’re going to impose some actual emissions restrictions, reports The Times:

The key difference in the second phase is a reduction of between 5 per cent and 10 per cent in the emissions permits granted. Mr Marcu said that he expected the tougher regime to “start delivering some substantive reductions” in carbon emissions.

City analysts believe that it will lead to a big increase in the market price of carbon. Deutsche Bank expects forward prices to rise from the present level of about €23 a tonne to €35. UBS has predicted a rise to €30 a tonne.

Michael Grubb, chief economist at the Carbon Trust, said that the changes represented a “fairly severe” cutback from the previous, regime. “In the old system, the allowances became pretty worthless,” he said.

The purpose of carbon-emissions permits is twofold:

  1. Create a mechanism for rewarding polluters that stop polluting;
  2. Create incentives to move pollution toward the most economically productive activity.

In other words, create a market for greenhouse gases. Markets only work if there’s scarcity. Maybe, maybe, the EU’s figured that out.

Campbell’s next move

FraserRiver
Photo credit: “Fraser River Rainbow,” Flickr/name.invalid

While the feds are still screwing around, B.C. Premier Gordon Campbell is charging ahead, making deals to join carbon-trading systems worldwide:

B.C. Premier Gordon Campbell joined politicians from around the world in signing a partnership agreement that would create a global carbon market for trading the environmental damaging emissions.

Campbell was Canada’s only representative and signatory at the ceremony Monday, but he said he doesn’t see his attendance at the Lisbon conference as overshadowing the federal government’s actions on climate change.

“I don’t expect this is a surprise to the prime minister,” Campbell told reporters on a telephone conference call.

The lead on the story overstates the case a bit: the International Carbon Action Partnership (ICAP) is really an agreement to share best practices and whatnot, not to actually establish a market, though that is the long-term goal. From the news release:

ICAP will provide an international forum in which governments and public authorities adopting mandatory greenhouse gas emissions cap and trade systems will share experiences and best practices on the design of emissions trading schemes. This cooperation will ensure that the programs are more compatible and are able to work together as the foundation of a global carbon market. Such a market will boost demand for low-carbon products and services, promote innovation, and allow cost effective reductions so as to allow swift and ambitious global reductions in global warming emissions.

I am, I don’t mind saying, pretty surprised that Gordon Campbell is leading the Canadian provinces on this file. I scrummed Campbell more than once during my short stint working on the west coast, and he struck me, close up, as a British Columbian Mike Harris with a pronounced tendency toward goobishness. Business-friendly populism to the max, and for all B.C.’s reputation as a land where granola grows on trees, it’s a place heavily reliant on mining and forestry and other high-intensity primary industries.

But maybe Campbell’s more forward-looking than I gave him credit for and sees where the money’s to be made in decades to come. (Or maybe he’s just seeing the messages the pine beetle’s leaving behind as it chews through B.C.’s forests at a prodigious rate.) The Lower Mainland has a fledgling high-tech industry, and if B.C. can get in on the ground floor of a genuine carbon-trading scheme, with its built-in cultural predisposition toward green energy and vehicles, it could lead Canada’s green economy of the future.

Personal emissions targets

Jammed into that same AP story is a pretty-much-totally unrelated bit about something German Chancellor Angela Merkel said:

In Germany, Chancellor Angela Merkel called today for an international system of global emissions trading to be adopted as part of an agreement to flight climate change from 2012 onward.

Speaking at a symposium of Nobel laureates and other leading scientists, Merkel insisted that only by establishing limits on carbon dioxide output per individual around the world – suggesting about 2 tons per head – could the fight to stop global warming be effective.

“Our long-term goal can only be the assimilation of worldwide per capita emissions,” Merkel told the conference.

Her suggestion would mean drastic cuts: Germany currently has a carbon dioxide output of some 11 tons per person per year, while the U.S. is at around 20 tons per person.

She’s probably using the old numbers, too, suggesting we have till about 2050 to wrestle our greenhouse-gas emissions under control. If the situation is worse than previously thought, time is shorter. But Merkel’s figures indicate the scale of the problem. Take the emissions we think the planet can handle, divide them by the number of people we’ve got, and you come up with about two tons per person per year. By modern industrialized-world standards, that ain’t much — I emit more than that in my personal life, let alone with what I do professionally, and writing for a living is a pretty low-emitting gig.

It’s a reasonable argument that nobody, at the moment, has more of a claim on emissions space than anybody else does, so setting personal limits and allowing people to trade them is, in principle, a sensible way to distribute emissions room to the people who’ll make best use of them (Canadians, say, in our cold northern land). In practice, it’s hard to imagine a mechanism for allowing trades of quantities that small. We’d be creating a new parallel global currency, in essence.

Auctioning carbon permits

Ecological Economics has some worthwhile clips exploring the idea of auctioning permits to emit greenhouse gases. This is a refinement of the general notion of capping emissions and letting emitters buy and sell the permits amongst themselves (and presumably to speculators and investors and others interested in the market).

The weight of learned economic opinion has generally come down in favour of taxing carbon emissions instead of having a cap-and-trade system as the primary way of reducing greenhouse-gas emissions both globally and in any given country. In carbon taxes’ favour:

  • They can be made universal, not just applied to “heavy emitters” that you’d then need to define
  • They can be applied at source, whenever people or companies buy carbon-based fuel, rather than requiring somebody to monitor emissions in some way
  • They’re less easily subjected to political fiddling, where a politician tries to protect a particular factory, say, in his or her constituency

In short, they’re simpler to administer and therefore impose fewer costs on the economy.

But what I think is a crippling weakness in carbon taxes is that it’s difficult to predict what effect they’ll have. We have a pretty good idea what our targets for future carbon-dioxide emissions need to be, but how to connect those targets to precise tax levels remains a black void. Three cents on a litre of gasoline? Thirty cents? Five dollars on a tonne of coal? Fifty dollars?

If we know what our emissions targets are, though, we know how much carbon dioxide (and equivalents) to issue permits for. The market can do the rest, if it’s allowed to work.

That’s been the problem with capping and trading so far. The only place it’s been tried even half-seriously, in Europe, they issued way too many permits, the prices crashed, and the system’s been very little use. Nobody can make money by slashing emissions and then selling their excess permits because the things aren’t worth anything.

But if you start by auctioning permits, rather than handing them out to whoever you think will need them, you let the market sort the initial stage out, too. Companies that want to pollute can estimate for themselves what they think their pollution is worth to them in increased productivity, and go out and pay that price for their pollution rights — unless they find that polluting is worth so much more to other people that they’ve hit the market first, at higher prices.

This would hurt in the early going, and possibly very badly. Companies that are now using their essentially free right to emit CO2 to inefficient ends would get wallopped really, really hard. Some would go bust immediately. But with the rest, we could be confident that the emissions we do allow would be supporting the most efficient economic activity possible.

But even economics-conscious politicians have to keep winning elections, and the short-term pain would be so great — and would definitely be predicted to be so great — that it probably wouldn’t be politically feasible unless we reach a point of climate crisis so acute that even people who aren’t really paying attention start to notice.