…environmental economics and the implications of environmental policy

Absolutely counter-productive and utterly pointless

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Minister Prentice went after Quebec here about their climate policy.

Quebec’s new environmental regulations targeting vehicles are an “absolutely counter-productive and utterly pointless” way to cut greenhouse-gas emissions that will ultimately put Canada at a competitive disadvantage in the North American marketplace, the federal Environment Minister said Monday.

When you have the track record that “Canada’s New Democracy” has on climate policy you might want to be careful what you say. Living in Glass Houses and all that. And at least PQ is taking some action. And fining the auto sector is the way to go. I did some feebate work for the NRTEE a few years ago, where fees and subsidies are combined to incent lower emitting vehicles, and all the research said that people would respond and it would work. Trouble was the Big Three got hit the most because they have done the least to improve fuel economy. And then they lobbied and the proposal was dropped by the Federal Department of Finance. But more importantly the automakers would not improve fuel economy unless you put a start motor to their head. Look at all the whining about fuel economy even when they were given billions in bail-outs. So, regulating them and applying penalties is likely required.

But back to the hysterics. In moving forward we need a balanced view on climate action. Some reductions driven with cost-effective policy. What we don’t need is this continual pandering to industrial special interests. That will increase costs and make our long-term job all the harder.

Written by Dave Sawyer

February 2nd, 2010 at 7:22 am

Posted in Uncategorized

Canada`s New Democracy: Taking Lessons from Enron Accounting

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Ok, so I have held off ranting on this site and kind of just laughed off the clown show that is Canada’s carbon policy.
But now I am mad. With the GoC’s announcement of the -17% target below 2005, which I have no problem with other than it is just another target to be ignored by policy, the GoC has taken down Canada’s GHG inventory tables for 2006 from here.

There was a time not so long ago where we could access the inventory data and do analysis. Like what it means to drop down the target -3% from a new base year. Which is what I would like to do for a pending deliverable, but no, for some reason the data now needs to be hidden.

Coincidence? Nope, just “Canada’s New Democracy”.

Written by Dave Sawyer

January 31st, 2010 at 5:07 pm

Posted in Uncategorized

Carbon trading and fraud: is it inevitable?

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In reading this one would think that we are on the verge of the next great ponzi scheming structured financing debacle,

The next big scam: carbon dioxide

In referring to the $7.4-billion in fraud that have occurred in the last 18 months in the EU’s carbon market: “It is clear that [carbon trading] fraudsters are fully aware of the potential that trading in intangible commodities has to further their ends. Such goods or services can be traded without the need to be physically moved or transported, which represents an obvious opportunity to frustrate Law Enforcement efforts to track and trace transactions.” So much fraud has been occurring that, Europol estimates, up to 90% of all carbon market volume in some EU nations was related to fraudulent activities.

Permits for CO2, a tasteless, colourless and odourless gas, epitomize an “intangible commodity.” The underlying commodity for these permits, CO2, until recently had few producers, few customers and few commercial uses. With the rise of fears over global warming, governments decided to turn this niche gas into what could soon be the world’s most traded commodity

Can we minimize gaming in the trading market? Probably, given stock market regulators routinely set the conditions to minimize fraud and then enforce these. And does the “intangibility” of carbon necessarily lead to fraud? If carbon can be counted and then reconciled, is it truly intangible? Company valuations are typically based on intangibles, like goodwill, and product pipelines are always intangible as in pharmaceuticals. And don’t get me going on how the magic of technology drives tech valuations. So the fact that carbon is “intangible” does not necessarily lend itself to fraud. Stock markets work on intangibles on a minute-by-minute basis.

In the end, the prevalence of fraud is about instrument choice: with the choice of carbon markets over carbon tax, one is necessarily trading off market gaming for inept government spending. Trading is what most people want given aversion to tax, and so one has to live with immature markets, speculation, volatility and gaming. With each layer of the carbon trading onion revealed, it is no wonder folks are drifting back to carbon taxes.

Written by Dave Sawyer

January 22nd, 2010 at 10:03 am

Blowing Hot Wind, or too much of a good thing

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The wind industry will hate this from the US Energy Department,

Expanding Use of Wind Power Feasible, but May Be Costly
Adding wind gets progressively more difficult as the amount used rises because of wind’s intermittent nature and the need for back-up power generation, according to the study. Without a better grid, the system would often waste large amounts of wind power because at many times during the year, the power grid would not be able to handle the amount of power that wind turbines were putting out.

In all of the recent Canadian carbon policy modeling, decarboinizing electricity and the electrification of energy are two important reduction pathways. Regardless of the scenario, with varying carbon pricing, electricity always wins with major expansions in the size of the electricity sector at the expense of higher emitting fuels. Decarobinzation follows, but a major point of contention has always been the shares of low emitting technology. Does wind capture all new supply? What about Nukes, and what about large hydro?

Modelling, using relative technology costs, suggests that wind is important but expensive at higher prices. Wind does come one with carbon pricing, but it comes on more in the baseline, meaning it is mostly competitive now with other generation. And with falling costs in time as more wind is installed (learning by doing lowers costs) and innovation occurs, we get more wind absent new carbon policy. Forecasts developed for NRTEE and others suggest that wind absent carbon policy will increase about 17 times between now and 2020. Modelling of carbon prices of about $60 in 2020, about the carbon price under Turning the Corner, then only increases wind deployment about 18% above forecast levels. This is then about 5% of total generation in 2020.

With carbon pricing, other generation types also supply decarbonization and meet new supply with fuel switching away from coal, including more natural gas, more hydro and more biomass. Nukes fill a gap in Ontario, but this is in the baseline given current efforts. But by 2020 it is unlikely that they will fill a role given relative costs and deployment difficulties.

So, wind is part of the solution, but so too is a portfolio of other stuff. And importantly for policy, subsidies to wind may be overcompensating some given current supply costs, and providing limited additionally given deployment regardless of carbon policy. This all may not sit well with the wind industry. But a balanced view in portfolio management pays.

elec bauelect pol

Written by Dave Sawyer

January 21st, 2010 at 11:00 am

Posted in Uncategorized

The Olympian Climate Policy, Do Emitters Believe?

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The climate policy intelligentsia gets all knotted up on key aspects of climate policy design from targets to coverage, to allocation to auction and then recycling. But, I would argue that none of this really matters. Instead, what matters is what emitters believe. And so the most important question in climate policy is not the target, or the instrument or overcompensating through free allocations or technology subsidies but “do emitter believe?”. All else then flows from this and all else becomes secondary.

Getting going with credibility matters, period. And then expectations drive outcomes. Which brings me to this today,

Carbon Falls as Climate Failure Is Oil Polluter Boon

The inability of government leaders to agree on stricter pollution controls at meetings in Copenhagen last month is showing up in commodity markets, where it’s getting cheaper to emit greenhouse gasses.

The price of permits to emit a ton of carbon dioxide sank 10 percent in London, while oil gained 6 percent in New York since Dec. 7, when 8,000 delegates attended a summit in the Danish capital to prepare for a successor to the Kyoto Protocol, the climate treaty that expires in 2012. Not only did the summit fail to increase regulation on polluters, it also reduced incentives to invest in clean energy.
“There are surely two factors impacting carbon prices: the failed summit in Copenhagen and a probable surplus in the EU emissions-trading system,” said Jacek Kaczorowski, chief executive officer of Poland’s Belchatow coal-fired power plant, the biggest polluter in Europe, according to EU data. Any “sustainable recovery” in carbon markets is unlikely this year, he said.

The work a number of folks did for NRTEE on expecations and outcomes is illustrative, so if you are feeling teckey see here

Do Emitters Believe?

Do Emitters Believe?

But this graph says lots. Simply, with low expectations there are low reductions and so one of two things happen: either you don’t hit your targets as the graph from the NRTEE modelling suggests, or carbon prices must climb in the future to knock out all that high emitting capital that is the result of unbelievable policy. But either way, delay is costly, and policy credibility is key.

Written by Dave Sawyer

January 19th, 2010 at 9:21 am

Posted in Emissions Pricing

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The Dunce Cap of Inaction — Why Target Trash Talking Hurts Us All

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Mark Jaccard has a nice short article here on why target trash talking is detrimental. I somehow missed it in December, but here are the headline quotes,

Environmentalists do not seem to have learned anything from this experience. Their criticisms of Canada’s emissions target — a 20 per cent reduction from 2006 levels by 2020 — may yet convince the Harper government to follow the Chretien strategy of adopting an unattainable target.

Getting this policy in place is a thousand times more important than setting unattainable targets for 2020.

Deeper targets may eventually be the way to go, but the sticker shock is too much to start. Instead, we need to just get going and ramp up in time. Prodding a government’s current policy, or lack thereof, seems better than pushing them to adopt deeper targets. As we have proven so well in Canada, painting ourselves into deep target corners leaves politicians no choice but to wear the dunce cap of inaction.

Written by Dave Sawyer

January 5th, 2010 at 9:00 am

Posted in Uncategorized

Hopenhagen or Copenhagen? Either way, Canada is going to suffer the consequence of its past inaction.

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Post from Seton Stiebert in Copenhagen….

I’ve just arrived with a train load of protesters to bear witness to the crazy zoo that will be COP15. My journey comes via Germany where I’ve spent the last week travelling around and thinking about what COP15 means for Canada. Not surprisingly, Canada is already in the lead for the number of fossil awards and I’ve been heckled by Europeans trying to understand why we’ve gone rogue. They just don’t get it, how does a country with all our pristine wilderness, natural beauty, wealth and resources thumb our noses to the international community and completely disregard the threat of climate change?

I was worried that the truth was insidious. That collectively Canadians were climate deniers and we just don’t believe that our activities release large quantities of GHG emissions that will have catastrophic consequences. While, there may be some truth to this reflected by the fact that our emissions have increased by 26% since 1990 rather than decreased by 6%, I don’t think it’s the main reason. Neither do I give more than passing credence to the view that we have special or arduous circumstances as an energy exporter.

I’m wondering if it comes down to the way we do business and our inability in Canada to consider anything but short term investments and paybacks? First our political system seems to have descended into a hopeless divisive politic that is concerned only with short-term interests. There doesn’t seem to be any ability for parties to work constructively together on long-term solutions for climate change, as demonstrated by six failed climate change policies. From my perspective, our federal parties would rather put a hole in our life raft then agree on rowing together to save our skins. Unfortunately the provinces, cities and citizens of Canada aren’t the ones who are best equipped to deal with climate change, so Canadians are going to have to demand that our federal government start to take a long term and multi-party perspective on climate change. But it is not just politics it’s also economics. Comparing Canada to Europe, you realize that Canadian businesses and citizens only accept very short paybacks when we build infrastructure. Perhaps, it is because Europe has many more centuries of experience with development, but you can’t help but get the feeling that they are willing to spend more for something that will pay off in the long-term. So they build houses that last longer, and they put solar panels on the roof and windmills in the fields even though it might take 20 years to make back the investment.

What Canada will discover in Copenhagen is that a lot of nations have tired of our short-term perspective. While Obama brings hope for a new direction and has started to hire the right crew to turn around the giant supertanker America, Harper will have a hard time pretending that we’re also ready for a transformation and an even harder time hanging on to Obama’s coat tails. This is because his feet are stuck in the oil sands, without a workable plan to reduce emission and little support from other political corners. While our government may match American commitments we can be assured that like in the past there is no functional plan to deliver on these promises. Because what they surely know and what Canadians ought to know is that no one is interested in rewarding us for doing nothing and that we are far enough behind in climate action that catching up won’t be easy or cheap.

While thumbing our noses at Kyoto was reprehensible, thumbing our noses at future commitments will have consequences. Other parties to the conference will surely favor penalties, tariffs and taxes to ensure a global level playing field where Canada is already far behind.

Written by Dave Sawyer

December 14th, 2009 at 8:38 am

Posted in Uncategorized

Mr Harper Goes to Copenhagen

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Written by Dave Sawyer

December 10th, 2009 at 11:13 am

Posted in Uncategorized

Act Locally, realize local benefits. Municipal Report on Abatement Potentials and Costs

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FCM released a report completed by myself and Seton Stiebert today on opportunities and costs for reductions from municipalities. See the report here and coverage here.

Below are some summary points from the report.

There are important reasons that suggest there are strong rationales to focus our climate policy efforts at the municipal level.

1. Canadian municipalities have a large influence on Canada’s emissions. In the past, and moving to the future, emissions originating from Canadian municipal operations and within their borders are significant, totaling in the order of 40% of Canada’s national inventory. This is about equivalent to the emissions of all of Canada’s large industrial emitters.

2. Municipalities have started down the road of reducing emissions and realizing local benefits. Canadian municipalities, representing 41% of Canada’s population have set emission reduction targets, with local action implemented in municipalities covering 12% of Canada’s population. This has resulted in small and verifiable reductions to date in the order of 1.3 Mt. Small yet positive.

3. But there is significant potential still on the table that is very low cost. Our analysis indicates that municipalities could deliver, in the short-term significant low cost reductions. The stock of potential is significant, in the order of 50Mt, and low cost, with about two thirds of this at prices below $25/tonne. This stock of potential is about half of the required reductions from the large industrial emitters under Canada’s Turning the Corner climate plan, at costs that are much lower than competing technologies such as carbon capture and storage.

These three points lead to the conclusion that there are strong rationales to jump-start emission reductions in municipalities.

1. Significant reductions are ready to go. Canada could demonstrate progress in the short-term with abatement opportunities that can be implemented now, with proven technologies. The stock of this potential is significant and could do much to contribute to Canada’s carbon aspirations.

2. These reductions are low cost, which is key to the carbon solution. Carbon policy requires significant shifts in how we use energy and deploy technology. If we are to achieve our carbon objectives, low cost solutions are necessary. In looking at the costs for reductions from municipalities, it is clear that they are a key to early and low cost reductions.

3. Importantly, benefits are local. With investments in low carbon technology and the associated reduced energy use and emissions, we can expect important economic, social and health benefits. These include lowering our costs making us more competitive, improving living conditions and thereby raising our collective welfare, and finally improving health outcomes through improved air quality. These are not diffuse benefits accruing in remote parts of the globe, but rather real and tangible benefits where we live.

But, there are barriers,

1. First the lack of a unified carbon price across Canada has not signaled that carbon is valuable and should be managed. This missing ingredient then lowers expectations and does not send the signal that action should be taken. We then have lower localized benefits that we should which speaks top a need to get going and set expectations.

2. Second, municipalities lack capital to get going. Most projects require upfront investments that can pay off in the longer term. But that initial capital is scare. Taking a longer term view results in cost savings, which ultimately pay off. Mindsets have to change to take a longer view that balances increased capital costs with long-term energy savings.

Municipal contributions to carbon reductions in Canada seem an essential element of cost-effective climate policy. A sharper focus on the role of municipalities in Canadian climate policy would help by shifting the climate policy debate in Canada to that of thinking about local actions and local benefits.

Written by Dave Sawyer

December 8th, 2009 at 1:04 pm

Posted in Uncategorized

Forget the hockey stick, the bloomer theory rules

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Lots of traffic on climategate, but the New York times has some good stuff,

The Copenhagen conference itself reflects increasing acceptance of the scientific arguments: the negotiations leading to the talks were conducted by high-ranking officials of the world’s governments rather than the scientists and environment ministers who largely shaped the 1997 Kyoto Protocol. Late last week, President Obama changed the date of his visit to Copenhagen to Dec. 18, the last day of the talks.

For many, a 2007 report by the Intergovernmental Panel on Climate Change was a marker of a shift in the global warming debate. In it, the panel — a volunteer network of hundreds of scientists from many disciplines who meet periodically to review climate studies and translate the results into language useful to policy makers — concluded that no doubt remained that human-caused warming was under way and that, if unabated, it would pose rising risks.

Over the last several decades, other reviews, by the National Academy of Sciences and other institutions, have largely echoed the panel’s findings and said the remaining uncertainties should not be an excuse for inaction.

The panel’s report was built on two decades of intensive scientific study of climate patterns.

Greenhouse gases warm the planet by letting in sunlight and blocking the escape of some of the resulting heat. “The physics of the greenhouse effect is so basic that instead of asking whether it would happen, it makes more sense to ask what on earth could make it not happen,” said Spencer Weart, a physicist and historian. “So far, nobody has been able to come up with anything plausible in that line.”

Good questions, but perhaps a more base line of inquiry is better,


How can one refute this?

Written by Dave Sawyer

December 7th, 2009 at 8:37 am