NewEnergyNews: CAP AND TRADE VERSUS CARBON TAX IN A RECESSION

NewEnergyNews

Gleanings from the web and the world, condensed for convenience, illustrated for enlightenment, arranged for impact...

The challenge: To make every day Earth Day.

YESTERDAY

  • THE STUDY: THE GREEN TRANSITION – MONEY KEEPS COMING TO NEW ENERGY
  • QUICK NEWS, Sept. 17: THE NEWEST NUMBERS ON BIRDS AND WIND; BIG SOLAR COMES TO THE SOUTHEAST; WHERE THE EV CUTS EMISSIONS MOST
  • THE DAY BEFORE

  • THE STUDY: THE BENEFITS OF PUMPED HYDRO STORAGE CALCULATED
  • QUICK NEWS, Sept. 16: THE ENERGY TRANSITION TAKES SHAPE; A LABOR-ENVIRO CALL FOR NEW ENERGY, NEW WIRES; ADVANCES IN WATER POWER
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    GET THE DAILY HEADLINES EMAIL: CLICK HERE TO SUBMIT YOUR EMAIL ADDRESS OR SEND YOUR EMAIL ADDRESS TO: herman@NewEnergyNews.net

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    THE DAY BEFORE THE DAY BEFORE

  • THE STUDY: RENEWABLES IN THE COMING ARAB WORLD
  • QUICK NEWS, Sept. 15: SOLAR SUCCEEDING ON PRICE; EVEN MORE WIND THAT HONDA EXPECTED; THE HUGE UNRECOGNIZED BENEFITS OF EFFICIENCY
  • THE DAY BEFORE THAT

  • Weekend Video: Climate Change For The Birds
  • Weekend Video: The Evidence Mounts
  • Weekend Video: Colbert On Birds And Climate Change
  • AND THE DAY BEFORE THAT

  • FRIDAY WORLD HEADLINE-NOW CO2 TOO HIGH FOR PLANTS AND OCEANS TO ABSORB
  • FRIDAY WORLD HEADLINE-NEW ENERGY IS THE WORLD’S BEST OPTION
  • FRIDAY WORLD HEADLINE-SWEDEN WINNING SCANDINAVIAN WIND RACE
  • FRIDAY WORLD HEADLINE-INDIA DISPLAYS SOLAR'S VERSATILITY
  • THE LAST DAY UP HERE

    THINGS-TO-THINK-ABOUT THURSDAY, Sept. 11:

  • TTTA Thursday-GETTING GREEN BY MIXING RED AND BLUE
  • TTTA Thursday-PRICEWATERHOUSE COOPERS’ CLIMATE CHANGE NUMBERS
  • TTTA Thursday-THE RACE FOR EV DOMINANCE
  • TTTA Thursday-THE BIG FUTURE FOR ZERO ENERGY BUILDINGS
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    Anne B. Butterfield of Daily Camera and Huffington Post, is a biweekly contributor to NewEnergyNews

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT)

    November 26, 2013 (Huffington Post via NewEnergyNews)

    Everywhere we turn, environmental news is filled with horrid developments and glimpses of irreversible tipping points.

    Just a handful of examples are breathtaking: Scientists have dared to pinpoint the years at which locations around the world may reach runaway heat, and in the northern hemisphere it's well in sight for our children: 2047. Survivors of Superstorm Sandy are packing up as costs of repair and insurance go out of reach, one threat that climate science has long predicted. Or we could simply talk about the plight of bees and the potential impact on food supplies. Surprising no one who explores the Pacific Ocean, sailor Ivan MacFadyen described long a journey dubbed The Ocean is Broken, in which he saw vast expanses of trash and almost no wildlife save for a whale struggling a with giant tumor on its head, evoking the tons of radioactive water coming daily from Fukushima's lamed nuclear power center. Rampaging fishing methods and ocean acidification are now reported as causing the overpopulation of jellyfish that have jammed the intakes of nuclear plants around the world. Yet the shutting down of nuclear plants is a trifling setback compared with the doom that can result in coming days at Fukushima in the delicate job to extract bent and spent fuel rods from a ruined storage tank, a project dubbed "radioactive pick up sticks."

    With all these horrors to ponder you wouldn't expect to hear that you should also worry about the United States running out of coal. But you would be wrong, says Leslie Glustrom, founder and research director for Clean Energy Action. Her contention is that we've passed the peak in our nation's legendary supply of coal that powers over one-third of our grid capacity. This grim news is faithfully spelled out in three reports, with the complete story told in Warning: Faulty Reporting of US Coal Reserves (pdf). (Disclosure: I serve on CEA's board and have known the author for years.)

    Glustrom's research presents a sea change in how we should understand our energy challenges, or experience grim consequences. It's not only about toxic and heat-trapping emissions anymore; it's also about having enough energy generation to run big cities and regions that now rely on coal. Glustrom worries openly about how commerce will go on in many regions in 2025 if they don't plan their energy futures right.

    2013-11-05-FigureES4_FULL.jpgclick to enlarge

    Scrutinizing data for prices on delivered coal nationwide, Glustrom's new report establishes that coal's price has risen nearly 8 percent annually for eight years, roughly doubling, due mostly to thinner, deeper coal seams plus costlier diesel transport expenses. Higher coal prices in a time of "cheap" natural gas and affordable renewables means coal companies are lamed by low or no profits, as they hold debt levels that dwarf their market value and carry very high interest rates.

    2013-11-05-Table_ES2_FULL.jpgclick to enlarge

    2013-11-05-Figure_ES2_FULL.jpg

    One leading coal company, Patriot, filed for bankruptcy last year; many others are also struggling under bankruptcy watch and not eager to upgrade equipment for the tougher mining ahead. Add to this the bizarre event this fall of a coal lease failing to sell in Wyoming's Powder River Basin, the "Fort Knox" of the nation's coal supply, with some pundits agreeing this portends a tightening of the nation's coal supply, not to mention the array of researchers cited in the report. Indeed, at the mid point of 2013, only 488 millions tons of coal were produced in the U.S.; unless a major catch up happens by year-end, 2013 may be as low in production as 1993.

    Coal may exist in large quantities geologically, but economically, it's getting out of reach, as confirmed by US Geological Survey in studies indicating that less than 20 percent of US coal formations are economically recoverable, as explored in the CEA report. To Glustrom, that number plus others translate to 10 to 20 years more of burning coal in the US. It takes capital, accessible coal with good heat content and favorable market conditions to assure that mining companies will stay in business. She has observed a classic disconnect between camps of professionals in which geologists tend to assume money is "infinite" and financial analysts tend to assume that available coal is "infinite." Both biases are faulty and together they court disaster, and "it is only by combining thoughtful estimates of available coal and available money that our country can come to a realistic estimate of the amount of US coal that can be mined at a profit." This brings us back to her main and rather simple point: "If the companies cannot make a profit by mining coal they won't be mining for long."

    No one is more emphatic than Glustrom herself that she cannot predict the future, but she presents trend lines that are robust and confirmed assertively by the editorial board at West Virginia Gazette:

    Although Clean Energy Action is a "green" nonprofit opposed to fossil fuels, this study contains many hard economic facts. As we've said before, West Virginia's leaders should lower their protests about pollution controls, and instead launch intelligent planning for the profound shift that is occurring in the Mountain State's economy.

    The report "Warning, Faulty Reporting of US Coal Reserves" and its companion reports belong in the hands of energy and climate policy makers, investors, bankers, and rate payer watchdog groups, so that states can plan for, rather than react to, a future with sea change risk factors.

    [Clean Energy Action is fundraising to support the dissemination of this report through December 11. Contribute here.]

    It bears mentioning that even China is enacting a "peak coal" mentality, with Shanghai declaring that it will completely ban coal burning in 2017 with intent to close down hundreds of coal burning boilers and industrial furnaces, or shifting them to clean energy by 2015. And Citi Research, in "The Unimaginable: Peak Coal in China," took a look at all forms of energy production in China and figured that demand for coal will flatten or peak by 2020 and those "coal exporting countries that have been counting on strong future coal demand could be most at risk." Include US coal producers in that group of exporters.

    Our world is undergoing many sorts of change and upheaval. We in the industrialized world have spent about a century dismissing ocean trash, overfishing, pesticides, nuclear hazard, and oil and coal burning with a shrug of, "Hey it's fine, nature can manage it." Now we're surrounded by impacts of industrial-grade consumption, including depletion of critical resources and tipping points of many kinds. It is not enough to think of only ourselves and plan for strictly our own survival or convenience. The threat to animals everywhere, indeed to whole systems of the living, is the grief-filled backdrop of our times. It's "all hands on deck" at this point of human voyaging, and in our nation's capital, we certainly don't have that. Towns, states and regions need to plan fiercely and follow through. And a fine example is Boulder Colorado's recent victory to keep on track for clean energy by separating from its electric utility that makes 59 percent of its power from coal.

    Clean Energy Action is disseminating "Warning: Faulty Reporting of US Coal Reserves" for free to all manner of relevant professionals who should be concerned about long range trends which now include the supply risks of coal, and is supporting that outreach through a fundraising campaign.

    [Clean Energy Action is fundraising to support the dissemination of this report through December 11. Contribute here.]

    Author's note: Want to support my work? Please "fan" me at Huffpost Denver, here (http://www.huffingtonpost.com/anne-butterfield). Thanks.

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    Anne's previous NewEnergyNews columns:

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT), November 26, 2013
  • SOLAR FOR ME BUT NOT FOR THEE ~ Xcel's Push to Undermine Rooftop Solar, September 20, 2013
  • NEW BILLS AND NEW BIRDS in Colorado's recent session, May 20, 2013
  • Lies, damned lies and politicians (October 8, 2012)
  • Colorado's Elegant Solution to Fracking (April 23, 2012)
  • Shale Gas: From Geologic Bubble to Economic Bubble (March 15, 2012)
  • Taken for granted no more (February 5, 2012)
  • The Republican clown car circus (January 6, 2012)
  • Twenty-Somethings of Colorado With Skin in the Game (November 22, 2011)
  • Occupy, Xcel, and the Mother of All Cliffs (October 31, 2011)
  • Boulder Can Own Its Power With Distributed Generation (June 7, 2011)
  • The Plunging Cost of Renewables and Boulder's Energy Future (April 19, 2011)
  • Paddling Down the River Denial (January 12, 2011)
  • The Fox (News) That Jumped the Shark (December 16, 2010)
  • Click here for an archive of Butterfield columns

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    Some details about NewEnergyNews and the man behind the curtain: Herman K. Trabish, Agua Dulce, CA., Doctor with my hands, Writer with my head, Student of New Energy and Human Experience with my heart

    email: herman@NewEnergyNews.net

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    Your intrepid reporter

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  • ---------------
  • Sunday, January 04, 2009

    CAP AND TRADE VERSUS CARBON TAX IN A RECESSION

    The theory is that a cap-and-trade system is the most effective tool to fight global climate change because it harnesses the power of the marketplace to the purpose. Does that theory hold up in a recession?

    Before answering that question, another one must be answered: Does the theory hold up at all? Does a cap abnd trade system fight climate change?

    Answer: Nobody knows for sure yet.

    A cap and trade system applies system-wide caps to emissions, then parcels out greenhouse gas emissions caps proportionately by region, by industry within the region and by business within the industry. Each business may sell “allowances” for the emissions its operations do not require or purchase more allowances for the emissions above its cap its operations require.

    All caps are periodically ratcheted down, forcing the businesses, industries, regions and system to cut emissions by implementing economically advantageous methods. Allowances can also be obtained via offsets, with which a business pays for some form of emissions reduction elsewhere, most likely a New Energy project.

    A cap and trade system, limited to a handful of big emitters generating specific pollutants, was reasonably successful during the 1990s in reversing acid rain.

    The biggest and most important cap and trade system ever implemented is the
    European Union (EU) Emissions Trading Scheme (ETS). It began in 2005, implanted a 2nd phase with corrections in 2008 and is currently laying the groundwork for a 3rd phase scheduled to kick off in 2013. In the EU ETS, allowances (called European Union Allowances, EUAs) are traded at a price of euros per tonne (metric ton). Offsets, overseen by the The United Nations (UN) Clean Development Mechanism (CDM), are traded as Certified Emissions Reductions (CERs), also at a price per tonne.

    Is the EU ETS working?

    Answer: Nobody knows for sure yet.

    In phase 1, EU allocation of EUAs was too generous. Prices fluctuated wildly and fell to almost worthlessness. Power companies figured out ways to game the system and profit without cutting emissions. Those problems were rectified in phase 2 and EUA prices stabilized, although a recent short supply threatened to push the price untenably high (which would drive the cost of electricity up).

    Then the recession came along, production slowed and demand for EUAs dropped. Prices have dropped. Is this the beginning of new fluctuations? Was the market for emissions another bubble?


    World Emissions Markets (from Reuters. click to enlarge)

    Opponents of cap and trade – advocates of a potentially simpler, though possibly more politically difficult, revenue-neutral carbon tax – believe the EU ETS experiences during phase 1 are more likely to be the rule than the seeming stability of 2008. The impact of the current financial crisis on the system could affirm their point.

    Bloomberg News, December 30: “EU carbon dioxide allowances for December 2009 dropped 10 cents, or 0.6 percent, to 15.71 euros ($22.18) a metric ton…The permits, which have fallen 32 percent this year, are influenced by oil prices because crude affects the cost of European natural gas, burned as a fuel in some power stations. Utilities in the EU emissions-trading program, the world’s largest, need about half as many carbon allowances to burn gas as they do to use dirtier coal…”

    Bloomberg News, 3 days later, January 3: “European Union carbon dioxide permits dropped to their lowest in more than three weeks as natural gas declined. German power fell…”

    Does this mean the EU ETS is fundamentally flawed? Does it mean the system will not serve in a recession, when climate change concerns might take a back seat to economic survival?

    Not necessarily.

    Reuters, December 18: “Recession will not lead to a repeat collapse in European carbon prices… companies can now use EUAs any time from 2008-2020, meaning they can save up -- or bank -- any surplus during temporary recession for use in later years, when there will be an expected shortage…That was not the case in the first trading cycle of the scheme -- now dubbed an expermiment -- from 2005-07…”

    Implementing a global carbon tax could be simpler than a building a worldwide cap and trade system on the foundation of the EU ETS but it would require a careful, complicated adjustment of global revenues. How high should the tax be? How can it best be made neutral rather than regressive, with the burden falling disproportionately on those with fewer options? And new taxes have, historically, been politically out of reach. A little remembered failure of the first Clinton term was the carbon tax for which Al Gore prodded the administration to try.

    In short, a tax sounds simple but would not necessarily be so. The other problem with a tax is that it does not guarantee any limits on emissions. Any business that discovers an energy source cheap enough to use without being hindered by the tax would be free to emit voluminously.

    None of the complications of a global carbon tax is irresolvable. But they belie the argument that such a system is simpler to implement or more certainly effective.

    The EU ETS proves a cap and trade system is a complicated affair and, though it is impossible to know how much the EU’s emissions would have gone up with no cap and trade system or with a tax, it is clear that EU emissions are only beginning – or only PERHAPS beginning – to show any improvement.

    There is only 1 absolutely unequivocal and certain conclusion that can be drawn from a close study of the EU ETS: Any system chosen for the fight against global climate change will require vigorous monitoring and the flexibility to adapt. The EU ETS is an admirable example of both.

    The U.S. system of government evolved over an extended period of time from the Articles of Confederation into the Constitution and the Bill of Rights. And it is still being perfected.

    The marketplace presently in use by the U.S. and the world evolved throughout the 20th century. And, if the uproar about new regulatory measures to prevent the kinds of excesses that brought on the current financial woes is any indication, it is still in the process of evolving.

    The global climate situation does not afford the luxury of time. A tax is the preferred mechanism of economists, conservative idealogues and purists who refuse, admirably, to acknowledge political limits. If they pursue a tax and capture momentum, let them have at it. Perhaps they can convince the public and the shortsighted politicians who lead them of their wisdom.

    Climate change, however, will not wait long. If a consensus can only be built around a global cap and trade system, the EU has a model that has had and continues to have a lot of preparatory work done on it.

    It is much more than the idea that the perfect must not be the enemy of the good. It is that there is no perfect solution and the challenge will not wait. World leaders must choose the most accessible potential solution and make it work.


    Just like other world markets. (from Reuters. click to enlarge)

    Slump means EU industry carbon caps no longer bite
    Nina Chestney and Gerard Wynn (w/James Jukwey), December 18, 2008 (Reuters)
    and
    EU Carbon Permits Drop on Natural Gas; German Power Falls
    Matthew Carr, January 2, 2009 (Bloomberg News)
    and
    European Union Carbon-Emission Permits Fall as Crude Oil Drops
    Matthew Carr, December 30, 2008 (Bloomberg News)

    WHO
    The European Union (EU) Emissions Trading Scheme (ETS); The United Nations (UN) Clean Development Mechanism (CDM); EU analysts (Trevor Sikorski, head of carbon research, Barclays Capital; Alessandro Vitelli, carbon market analyst, IDEAcarbon)

    WHAT
    How does the current recession affect the crucial debate of cap and trade versus carbon tax?

    Phase 1 results were a mixed bag. Continued below...(from Reuters. click to enlarge)

    WHEN
    - 2005 – 2007: EU ETS phase 1
    - 2008 – 2012: EU ETS phase 2; CERs purchased but not used in phase 2 can be used to offset emissions in phase 3.
    - 2012 – 2020: EU ETS phase 3
    - Oil fell from a high near $150/barrel to below $40/barrel in 2008 and natural gas prices followed the pattern.
    - The price of EUAs fell 32% in 2008.

    WHERE
    - The ETS is mandatory to EU member nations. Traders around the world invest and trade in EUAs.
    - The UN CDM administers the CERs for New Energy and emissions reduction projects in developing nations. The country hosting the biggest number of CER projects is China.

    WHY
    - The recession in some ways makes cap and trade more economically appealing because a business’s investment in CERs at low prices now will offset emissions later, when economic growth returns and allowances are more expensive.
    - As the price of oil drops, the price of natural gas also drops. When natural gas is cheaper, it is used more (and coal is used less) to generate electricity by European power plants. Natural gas requires has the amount of EUAs or CERs as coal.
    - The fall in the price of German power is significant because traders include the cost of EUAs in power prices as a cost of generation.

    ...More mixed bag. (from Reuters. click to enlarge)

    QUOTES
    - Trevor Sikorski, head of carbon research, Barclays Capital: "From 2008-12 there's certainly enough CERs to balance the system, and going forward until about 2017 when you will need to get domestic European abatement…The expected EUA shortage has gone from 1 billion tonnes to about a quarter of that from 2008-12…It is putting off the day of internal emissions cuts…If you're meeting the (emissions) target through prolonged recession then the carbon price can be lower and you can meet your environmental goals more easily."
    - Alessandro Vitelli, carbon market analyst, IDEAcarbon: "I don't really see a replay of Phase 1…The bankability of allowances means that future compliance obligations will set a carbon price going forward."

    2 Comments:

    At 11:37 AM, Blogger Dan said...

    Thanks for the very helpful analysis of cap-and-trade vs. carbon tax. Just two quick comments. First, while you correctly state that "Climate change, however, will not wait long," you apparently assume that favors a global cap and trade system. The opposite is true. A cap-and-trade program in the United States would take years to develop and implement. A carbon tax, by contrast, could be passed, implemented and begin to have an impact this year. Time is of the essence.

    Second, 2008 conventional wisdom that a carbon tax isn't politically feasible is wrong, just as so much other political conventional wisdom was wrong last year. For details see my post on the Huffington Post, cross-posted on our Carbon Tax Center web site. And for more details on carbon taxes vs. cap-and-trade, see the issue paper on our web site.

    Dan Rosenblum
    Co-Director
    Carbon Tax Center

     
    At 3:40 PM, Anonymous Anonymous said...

    How about this: Cap and Trade or Carbon Tax are both bad ideological manifestations of Global Warming...pardon me...Climate Change hysteria.

     

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