…environmental economics and the implications of environmental policy

Archive for January, 2010

Canada`s New Democracy: Taking Lessons from Enron Accounting

with 24 comments

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?

with 28 comments

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

with 16 comments

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?

with 14 comments

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

Tagged with ,

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

with 25 comments

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