…environmental economics and the implications of environmental policy

Archive for the ‘carbon pricing’ tag

Secret Advice to Politicians: Design Better Regulations

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This article comes as no surprise to anyone looking at the CCS issue:

Secret advice to politicians: oilsands emissions hard to scrub

…Little of the oilsands’ carbon dioxide can be captured because most emissions aren’t concentrated enough, the notes say. For efficient capture, there must be a high concentration of CO2 coming out of a smoke stack.

The article is correct to state that the streams of CO2 coming off the power units is not concentrated. Most In-Situ Steam Assisted Gravity Drainage (SAG-D) units are running on natural gas (gas produces steam which is injected in the ground to loosen oil in the sand, which is then pumped to the surface). In these plants, natural gas powers a couple of co-generators and upwards of eight power boilers. Given the high efficiency of the co-generators and the low carbon content of the natural gas, emission rates are low and so CO2 is less concentrated. Total emission rates of CO2 from SAG-D facilities are in the order of 60 kg/bbl, but these units produce 100,000 plus barrels per day, so total emissions can approach 2 to 5 MT. This is a big number, and so it seems appropriate to target these facilities. But, what reductions do we get for what cost?

The article implies that capturing CO2 is not feasible from SAG-D units. But this is not right: CCS is technically feasible for SAG-D units, it just costs lots. Federal regulations, for example, require emission performance from new SAG-D units to match that of CCS. Cost estimates for these units could then be upwards of $200/tonne removed CO2 to achieve the 90% removal efficiency. Feasible yes, cost-effective, perhaps not.

And here is the problem. While most of Canada’s emissions remain unpriced, these units will be facing costs of upwards of $200/tonne. Equity aside, this leads to high cost abatement strategies. That is, we are requiring high cost reductions from these units while other emissions remained unpriced and lower cost abatement opportunities ignored. And oh yes, the embodied carbon emissions in a barrel of oil is roughly 340 kg, or 6 times that of SAG-D extraction. So, we can assume the moral high ground about oil sands needing to reduce emissions right up to the point when we turn the ignition. The real story implied in the article is the misaligned carbon prices across Canadian emissions. This needs to be fixed. This is the challenge for Canadian carbon policy.

Written by Dave Sawyer

November 25th, 2008 at 3:06 pm

“A Focus on the Promise of Trade to Combat Climate Change Rather than the Potential for Conflict”

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When the Trade Ministers meet to talk climate change and trade, there is promise. These are the folks that generally get things done in government. Toby Heaps has a great account of a first, and very important meeting of international finance ministers on climate change and trade in Bali. One nugget from this account is a World Bank assertion that trade barriers could be removed that could improve the flow of “climate friendly goods” between countries by something like 7 to 13%. These are big numbers and underscore an area that needs more attention: the removal of non-price barriers to lower carbon emissions.

Despite the focus on emission pricing, there is also a need to systematically crawl through the way we regulate and control behavior and see what is distorting movement to a low emissions profile. In many cases, removing these barriers opens up a suite of low cost options.

One notable example that recently stuck me as significant are barriers in the cement sector to burning waste fuels and adding supplemental cementing materials (SCM’s are a cement “filler” that is waste fly-ash from burnt coal). In Canada, we regulate the industry’s ability to burn waste materials and add SCM’s, but in Europe things are different. With proper air pollutant controls, the European cement sector has become a waste burning powerhouse, while reducing emissions a tonne (ok many tonnes). Similarly, the industry is allowed to add waste materials to their cement products up to something like 30% while maintaining quality, which lessens total emissions (1/3 from energy and 2/3 process) on a ratio in the order of 1:1.

In Canada, our SCM standard is 1% and we burn about 5% waste fuels nationally. Changing these standards would mean we could reduce energy and process emissions from this GHG-intensive sector by a much larger number at a much lower cost than options such as fuel switching (more Nox) or upgrading the kilns (more cost). And banning the burning of tires in Ontario, but allowing them to be shipped to Michigan and burnt in Cement kilns owned by the same folks in the same airshed is absurd (yes we do this).

It is always puzzling to an economist to see something that makes economic sense but is undersupplied. But when we do, we generally know there is some sort of distortion at play. In Canada, finding and removing these distortions should be a priority for climate policy. So, while Canada’s climate change delegation drags our good name through the volcanic sand in Bali, take comfort. Some smart people are at least thinking about this stuff on our behalf, and when they are trade ministers, we may just be better off.

Written by Dave Sawyer

December 11th, 2007 at 2:23 pm