Voluntary Actions and the Rudd Government’s changes to its proposed Carbon Pollution Reduction System

Guest Post by Tim Kelly. Tim works as a Principal Climate Change Advisor in the Water Industry and is a regular contributor to Brave New Climate.

The Australian Government is belatedly acknowledging the harm that its proposed Carbon Pollution Reduction Scheme will have on the effectiveness of voluntary actions taken to reduce emissions.

The media release from the Prime Minister, Treasurer and Minister For Climate Change and Water on May 4, 2009, stated that : “The Rudd Government has listened to Australian households who have raised concerns that their individual efforts to reduce emissions will not be adequately taken into account under the CPRS”, and a number of measures were proposed.

So did the Government listen enough and has it has fixed the problems in regards to voluntary actions as claimed, or made them worse?

Firstly, this discussion is not about the overall target or whether the potential change to the upper end of the Government’s potential target provides sufficient improvement.  Secondly, whilst I do believe that voluntary choices for businesses and households to avoid emissions intensive products and services are essential in an effective low emissions economy, this comparison can be seen in my joint submission [1] with Professor Barry Brook to the Senate Economics Committee. 

Where do the benefits of voluntary actions currently belong?

Under emissions trading, the benefits of voluntary actions are changed or cancelled, yet many believe that there are simple fixes that can be applied. It is important to understand how voluntary mechanisms work, whether actions are effective, and who owns the benefits.  This understanding can serve as the foundation to determining whether the actions still have merit under emissions trading.  So lets consider several examples:

1) Energy Efficiency:  Without emissions trading, where individuals, households and businesses find ways to reduce their electricity use, fuel use or consumption of other products and services, their greenhouse gas emissions are reduced and National emissions are reduced.

2) GreenPower:  Under Australian law, GreenPower works as a donation.  Customer emissions are not reduced (despite marketing messages that suggest otherwise [2]) but new renewable energy is created which serves to avoid emissions from non renewable power stations so National emissions are reduced.  

3) Household solar and hot water systems when Renewable energy Certificates (RECs) are sold:  Where households esablish these systems, their emissions are reduced, but their RECs are signed across to third parties, either other renewable energy that was already required by law is no longer needed so there is zero reduction in emissions Australia wide or, their RECs are used to create GreenPower that double counts the greenhouse reduction and use benefits as it is sold to other households and businesses negating the additionality of the efforts of the GreenPower Customer.

4) Household solar and hot water systems when Renewable Energy Certificates (RECs) are kept by the householders:  Household emissions are reduced and National emissions are reduced.

So there are a number of good outcomes and wasted outcomes from current voluntary actions, and I maintain that there is an urgency to either reform GreenPower and electricity emissions accounting or clarify that it is really just a donation system for the benefits to be shared amongst all grid customers in proportion of their use so that the Trades Practices Act (1974) is complied with.  (Also note that this matter is about the legal assignment of benefits and has nothing to do with how the grid is used or how inputs or outputs to the grid are measured).

The basic problem of voluntary actions under an emissions trading system.

As pointed out [3] by me since September 2008, by Richard Dennis in his discussions from the Australia Institute, and others where greenhouse gas emissions are voluntarily reduced by an individual or business under an emissions cap and trade scheme, this frees up permits that can then be used elsewhere in the market resulting in zero reductions in Australia’s National emissions.

So let us run through the same four examples again, under an emissions trading scheme with no Government fixes of problems.  (I will skip the some of the details that still apply).

1) Energy Efficiency:  Individual, household or businesses reduce their emissions but  National emissions are no longer reduced reduced as permits are redirectred and used elsewhere.

2) GreenPower:  Customer emissions are not reduced (as before), but now National emissions are not reduced either.  The Nation’s biggest electricity users receive the lion’s share of the scope 2 greenhouse reductions where the State grid emissions intensity factors are reduced.  

3) Household solar and hot water systems when Renewable energy Certificates (RECs) are sold:  Household emissions are reduced but National emissions are not reduced because a) renewables that were already required by law are no longer needed and b) because permits are redirectred and used elsewhere in the market.

4) Household solar and hot water systems when Renewable energy Certificates (RECs) are kept by the householders:  Household emissions are reduced but National emissions are no longer reduced.

By using these examples we can see that individual actions to reduce emissions become less meaningful under emissions trading, compounding a number of pre-existing problems.

Government contradictory approaches on how voluntary actions have meaning under the proposed Carbon Pollution Reduction System:

In the Government’s Discussion Paper on a National Carbon Offsets Standard, and in follow up claims by Minister Penny Wong there have been a number of explanations on how voluntary actions might work under the CPRS.  The Government first claimed that traditional tangible voluntary action still has value in that it reduces:

“the demand for permits. This will in turn reduce the carbon price, reducing the cost to the economy of achieving the same level of abatement. As the cost to the economy decreases it becomes increasingly feasible to set more ambitious emissions reduction targets”.

With this approach, it is the “feasibility” aspect that determines whether the cap is reduced in following 5 year target and gateway periods that determine how quickly Australia will move towards and beyond its mid term target in five yearly blocks.  My own view is that this approach was probably close to how the scheme would work but it has virtually been abandoned by the changes announced on May 4, 2008.

Voluntary retirement of Australian Emissions Units  (also referred to as permits)

The contradictory approach comes from the concept of voluntary retirement of Australian Emissions Units AEUs.  The basic idea is that if there is a fixed amount of permits released, and persons or entities acquire these permits but retire some of them voluntarily without causing emissions then this will cause a reduction in total permits available for pollution so National emissions will be reduced.

There are two fatal flaws with this approach as follows:

a) Where AEUs are released in surplus, this approach has no impact.  This can where the the cap is breached and unlimited permits begin to be released as can occur under the CPRS proposal for $10/tonne unlimited permits in the first year followed by $40/tonne unlimited permits commencing in the subsequent year.  As soon as the cap is breached, there would be proof that voluntary retirement of permits has failed.

Alternatively, recession can cause permit surplus (as currently being experienced in the European emissions trading system) meaning that individuals may be retiring permits that may not have been used anyway.

b) Secondly, the logic is a complete contradiction of the Government’s case for traditional tangible voluntary actions to have meaning.  This is what will happen:

Voluntary retirement of Australian Emissions Units causes greater AEU scarcity. This will in turn increase the carbon price, increaseing the cost to the economy of achieving the same level of abatement. As the cost to the economy increases it becomes less feasible to set more ambitious emissions reduction targets.

In addition, unlike traditional actions like permanent improvements in efficiency or additional renewable energy generation, throwing AEUs in the bin, does not create infrastructure that would improve Australia’s capacity to reduce emissions further.

Changes made to the CPRS on May 4, 2009

Australian Carbon Trust

Sounding like something dreamed up in an episode of “ The Hollow  Men”, the Government has proposed the Australian Carbon Trust where Australians can donate money that will be used to “fund efficiency improvements in commercial buildings and businesses”.  Well at first glance this sounds good but this does not reduce emissions under the Government’s scheme so it is really just more charity for businesses. Which ones, we don’t know!

Voluntary Retirement of Permits

The Federal Government has proposed that “a new website will provide a one-stop shop for individuals and households to simply calculate their energy use and buy and retire carbon pollution permits under the Carbon Pollution Reduction Scheme”.

The question must be asked as to why individuals and households would buy and surrender permits?  This will cause greater AEU scarcity, increase the carbon price unnecessarily, increase the cost to the economy of achieving the same level of abatement and make the situation less feasible to set more ambitious emissions reduction targets!  This is the Government’s own logic applied the defence of traditional voluntary actions but acting in the opposite direction.

One further complication is that as the price of pollution increases in time (and it must to achieve deep cuts in emissions) the cost of this approach increases in a perverse manner.  In a propper functioning market, the cost of voluntary action to reduce emissions should decrease in comparison to greenhouse intensive options, not be tied with the cost of pollution.

Changes to GreenPower

The Government will now retire an Australian Emissions Permit associated with GreenPower sales above a threshold.  This means that the indirect benefit of GreenPower that as previously described by the Department of Climate Change will reduce the demand for permits. This will in turn reduce the carbon price, reducing the cost to the economy of achieving the same level of abatement. As the cost to the economy decreases it becomes increasingly feasible to set more ambitious emissions reduction targets is now cancelled because a permit is now going to be removed to increase the demand for permits. This will in turn increase the carbon price, increase the cost to the economy of achieving the same level of abatement. As the cost to the economy increases it becomes less feasible to set more ambitious emissions reduction targets.

So with the Government’s proposed change, we end up back where we started from.  Decreased scarcity to ultimately reduce emissions is undone with re-introduced scarcity.  I am astounded that the Australian Government has used the same logic at once in two different directions claiming that either way emissions will be reduced.

GreenPower Threshold

GreenPower threshold that causes AUE retirement only for purchases above 2009 levels has focused attention on the fairness of the threshold rather than the mechanism itself.  Whilst the use of thresholds to count or discount voluntary efforts of individuals in any given year is blatantly unfair, it is irrelevant and diversionary in this instance as the whole concept of throwing permits in the bin is flawed anyway and the general problems of whether voluntary action is meaningful under an emissions cap and trade scheme are not resolved.

Furthermore, none of the underlying problems of GreenPower, its greenhouse accounting and its marketing messages have been resolved.  The Government is proposing to recognise greenhouse reductions of a product that has no greenhouse reductions to offer,  as these benefits have already been assigned to all grid customers under Australian Law.  The Government might has well retire an AEU with old shoes because in terms of greenhouse reductions they have the same merit.

Efficiency

So where does efficiency end up under the Government’s proposed Carbon Pollution Reduction System? Whilst not making a clear unambiguous statement, the Australian Government has now progressed on a pathway that suggests that energy efficiency which reduces the emissions of households and businesses is futile in terms of emissions reduction unless further payments are made to the Australian Carbon Trust to throw permits in the bin.

The Governments Fact Sheet on Individual Action reads as follows:

Web based tools will enable households and small businesses to calculate their energy use and the dollar savings that can be made through actions to reduce energy use such as installing energy efficient appliances. Individuals can then pledge the resulting savings, or any other amount, to the Energy Efficiency Savings Pledge Fund. The fund will buy and cancel carbon pollution permits to create additional emission reductions. Individuals could also choose to purchase and cancel offset credits complying with the Government’s forthcoming National Carbon Offset Standard

If my family and I go a bit hungry and shiver in the dark and manage to halve our personal emissions this doesn’t count under the Government’s new implied perspective on voluntary action. Instead of being able to use our savings to pay off our mortgage, to reduce emissions we then need to donate our savings to the Energy Efficiency Savings Pledge Fund presumably managed by the Australian Carbon Trust where it will be used to buy a permit which forces up electricity prices, does nothing tangible to reduce emissions and makes the situation less feasible to reduce the cap in the future.

In my view, if my family reduces its emissions by halving resource use then this should be recognised in regards to our personal footprint, and if the Federal Government is now suggesting that under the CPRS our actions are not genuine and that we should also buy and throw permits in the bin, through a mechanism that cannot work in the real world then the system is wrong and it is offensive.

Conclusion

Given the choice between throwing permits in the bin or enhancing traditional voluntary actions in support of the concept that this will provide greater capacity to reduce emissions and ultimately make a diference, the latter option is better. 

Both options are less than satisfactory.  Both options cannot be used at the same time and still be regarded as credible.

It is my view that the Federal Government has not fully understood the problems of voluntary actions under its CPRS, and its proposed mechanisms for voluntary action are unrealistic, contradictory (therefore self cancelling), unfair and ineffective.  The situation is no better as a result of the Government’s changes to recognise GreenPower, or its Carbon Trust.  A more transparent approach would have been to be upfront and state that voluntary actions don’t work effectively under emissions trading. 

The tragedy in all of this is that the Federal Government is proposing a scheme that is more like a taxation mechanism anyway because of its significant interventions to manipulate the price, the setting of upper limits starting at $10 per tonne CO2-e and increasing to $40 per tonne CO2-e in the second year, and unlimited permits in any given year.  This approach relies on managing the price beneath the cap in a way that is more akin to a carbon tax scheme.  The only difference is that all actions are voluntary and enhanced under a carbon tax approach whereas voluntary actions are harmed under the proposed emissions cap trade scheme.

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[1] http://www.aph.gov.au/senate/committee/economics_ctte/cprs_09/submissions/sub33.pdf

 

[2] The use aspect and reduced emissions have been legally assigned to all grid customers. “No other method is supported” (see Pages 305-307 of the NGERS Technical Guidelines 2008).

[3] https://bravenewclimate.com/2008/09/15/are-voluntary-actions-meaningful-where-an-emissions-cap-is-introduced/

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13 Comments

  1. Tim,
    this is a difficult subject to grasp, because of the complex interactions. To take one point
    :Energy Efficiency: Individual, household or businesses reduce their emissions but National emissions are no longer reduced reduced as permits are redirected and used elsewhere”.

    Is this true, if I reduce by electricity consumption, a coal fired power station will use say one tonne less coal, but will sell 1000kWh less electricity so the cost of the 999,999 permits it does buy will be spread over fewer sales so almost the same cost. If the permit price is being held below $40/tonne, the price per permit will be the same.

    Now if the utility starts up a wind farm, producing 100 MWh, and now only produces 900,000 tonnes of CO2, it will still sell 1000MWh of electricity so the
    cost will be averaged over larger sales.

    Similarly if prices are at the bottom of the range($10/tonne). If prices are intermediate, 10% conservation will reduce the permit price by 10%, but a utility will still be 90% better off with 10% of power from wind energy.

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  2. I hope they don’t go through all this in other countries like the US that are looking at cap and trade. Voluntary actions will always be minor. If households and businesses create less demand for CO2 via big emitters then those emitters won’t have to buy so many permits. That’s how it should be. Go on a diet and the belt around your waist won’t be so tight.

    The CPRS legislation has turned into a dogs breakfast. Unfortunately when the full implications of the 20% MRET are grasped we’ll do it all over again.

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  3. In the financial year 2010-2011, the CPRS will function as a carbon tax set at $10 per tonne; from 2011-2012 until 2015-2016, the CPRS will be a cap and trade system with a “price ceiling”; after 2015-2016, the CPRS will be a cap-and-trade scheme. My understanding of the latest iteration of the legislation is that the price ceiling will start at $40 per tonne in 2011-2012, and increase by %5 above the CPI in subsequent years.

    So Tim is correct that the CPRS is similar to a carbon tax because of the price ceiling, but only until mid-2016. In my opinion, a much better way to make the CPRS similar to a carbon tax is to introduce a price floor.

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  4. Agreed,
    The Bill introduced to Parliament requires a cap to come into effect some six years from now and not before.

    Assuming that the Government’s legislative package is passed, the future cap will of course be dependent on legislative developments and changes that might take place between the passing of legislation and 2016, the supply (and cost) of overseas offset units that bypass the cap, and ultimately Australia’s (businesses, individuals & Governments) preparedness for a cap.

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  5. John,
    I think that it is worth looking at the “voluntary actions will always be minor” aspect.
    My view to date is that it is not appropriate to compare a voluntary response in the absence of a carbon cost, with a market that would apply a meaningful carbon cost. I sought to address this in the carbon tax versus cap and trade debate within our Submission to the Senate Economics Committee (section 4.2. Can voluntary action make the difference?, but there is more to it.

    All actions taken to increase emissions or decrease emissions are voluntary in the absence of a scheme, under a cap and trade scheme or under a carbon tax scheme. (percentages applied to the efforts of individuals, households and businesses in terms of where emissions might have been if people took no action cannot be realistic as there is no reliable way to make such an assessment).

    Under an emissions trading scheme any business can choose to increase emissions and it is only customer ‘willingness to pay’ for the necessary Australian Emissions Units (AEUs) or approved international emissions units (IEUs) that control the success or otherwise of the business. New greenhouse intensive businesses can start up providing they are given and buy AEUs or buy IEUs. Any decision a business makes to reduce emissions and avoid the need to pay the cost of such units, or to sell excess units to others is also voluntary.

    It is therefore only the voluntary cost that matters even beyond 2015.

    The key difference (appologies to Jenna for rabbitting on) is that under emissions trading, voluntary mechanisms and the effectiveness of voluntary actions to reduce emissions by any more than the legislation requires, are significantly harmed. So I agree that voluntary action by more than the cap will always be minor but only under emissions trading. I don’t believe that this aspect can be fixed and believe that the Government could be more open and transparent on the issue.

    Under a carbon tax however, all actions for reduction are voluntary whether acting on direct or indirect emissions, and all actions contribute to the end result in a straight forward way. Where voluntary actions are damaged under one option and supported as mainstream by another I don’t think that a generalised statement can apply.

    I also agree on the “dogs breakfast”.

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  6. Peter,
    Has a cap without trade been seriously considered? The cap could be divided into industry sectors, say 20% less CO2 for aluminium refining, 10% less for transport, 30% less for electricity. DO we really need a coal fired electric plant to be able to trade with transport or agriculture?

    Surely the efficiencies are within an industry, we are actually trying to stop the biggest CO2 emitters from closing down by giving out free permits to ensure they don’t close, that’s surely whats making a “dogs breakfast” out of a potentially clean trade mechanism. You are not going to be able to stop exporting some CO2 emissions, why not phase out 20% of aluminium refining, keeping the most efficient operations going?
    We can move fastest and further with coal-fired electricity, because we lots of lower carbon alternatives, it cannot be exported( except for aluminium) that’s where we need maximum squeeze with a cap of 90% present CO2 going down 2% a year to 10% in 2050. It would be clear that no new coal fired plants can be built without at least 90% CCS, and all others will have to be closed as they approach 40 year life.

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  7. Hi Tim

    There was a mistake with what I said above, under the CPRS the year of the fixed price of $10 per tonne is 2011-2012, not 2010-2011. In 2010-2011 there will be no carbon price.

    From mid-2012 until the financial year staring in mid-2016, Australia’s emissions could exceed the emissions determined by the cap if the carbon price becomes sufficiently high that firms buy permits at the price of the fixed cap (which will be $40 or more). Whether this happens or not will depend on the emissions trajectory and what the Australian economy is doing, but bear in mind that the first five years of the trajectory (as specified in the White Paper) will have reductions that are quite low.

    My understanding is that firms will be able to buy an unlimited amount of international CDM credits (Certified Emission Reductions or CERs) to account for their emissions in any case. At the moment the CER price is much less than $40 per tonne, so it is likely that this will prevent the Australian carbon price becoming as high as the price cap. There are two problems with firms being able to buy an unlimited amount of CERs: firstly, with CERs, additionality is questionable, there have been studies that suggest that many CDM projects would have happened even if CERs were not available; secondly, my understanding is that firms will be unable to sell Australian permits on the international market, leading to the possibility that the Australian carbon price is lower than international carbon prices, leading to the risk of carbon leakage to Australia.

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  8. Hi Neil

    There are quite a few economists and other people involved with climate policy who do not believe that there should be trading between land use sectors (probably including agriculture) and non land use sectors. With land use, measurement is much more uncertain, and accounting is much more uncertain. There is also the issue that the amount of emission reductions is much more uncertain, and could be quite high (this was suggested by the chapter on land use in the Garnaut Review as well). If the amount of possible emission reductions in the land use sector is quite high, a weak cap in an ETS would not be sufficient to make these emission reductions happen. For these reasons I do not support the inclusion of land use and agriculture in an ETS covering the rest of the economy. Therefore other carbon pricing or emission reduction policies in the land use sector should be considered.

    I would not support capping particular sectors associated with fossil fuel use. Determining particular caps for each sector would be a dogs breakfast, more politically difficult (each sector will plead for a weaker cap) and most probably more expensive, for no more net emission reductions.

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  9. Tim,

    Thanks for the post, I’m still working to get my head around it. In the meantime I just wanted to ask a question, but, to start with you and I would most probably have the same view on the global reason for introducing an ETS in Australia. However, given all that has gone on what do you think the main or real purpose/emphasis for designing the ETS has been? Is it a) to reduce emissions or b) lessen the impact emissions reductions might have on certain sectors. I think the two are different. Given all the argy bargy that has gone on I would say it is b) and the unintended consequence (apart from not reducing emissions by a useful amount) is that we are building walls around particular sectors (e.g. coal fired generation) that will make it much harder to make needed changes as time goes on. I have posted previously that all my tax dollars being ponyed up to the coal sector is just making them welfare dependent.

    We do seem to have this problem in Australia of avoiding change when it is needed and is the ETS a victim of this outlook?

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  10. Sorry, that post of mine above is a bit vague. I guess I meant to say is that a fortress of tax welfare spending is being built around the coal industry entrenching attitudes which is just making it harder to change things. If I’m right then the things that you are pointing out are all well and good but are we going to find ourselves talking to well built and very high brick walls for the next x no of years and if so what can we do to break them down?

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  11. Thanks Jeremy,
    This is a question of belief and I must admit I cannot see into the heads of the Australian Government Ministers or its senior bueaurocrats so all I can provide is a guess based on limited insight.

    As a collective organisation I believed the Labor Party when they pledged to take action on climate change and this meant reducing Australia’s emissions. I also believed the previous Federal Government’s pledge to head the same way which was made close to the election. I therefore Agree with a) The ETS was to to reduce emissions. But Governments also believe in supporting b) to lessen the impact emissions reductions might have on certain sectors. So we have a piece of the diabolical problem described by Professor Ross Garnaut.

    In the global context I don’t believe that an ETS is the only mechanism that can underpin commitments and trading in offsets.

    We are still searching for the silver bullet to avoid the structural economic change that is needed. We seek change without change. Whilst bio-char, carbon capture and storage, overseas credit units from avoided deforestation, renewable energy and other technologies could all be part of Australia’s solution they wont be enough without a market framework that prices in the climate harm cost in a way that has sufficient meaning to drive implementation of low emission technologies to the detriment of polluting technologies.

    We are building walls to some extent but perhaps the bigger failing is in not building the foundations for a new low emissions house in a market economy that polluting industries can move into. Perhaps if we had a National Transition Strategy to complement the National Greenhouse Reduction Mechanism (being the tax or an ETS if we are prepared to cripple voluntary actions) we would not need to keep the walls. In the Tax versus Cap and Trade debate I discuss creating a Department of Climate Change Defence so we get the job done but a National Transition Strategy is probably the first step.

    Is the ETS a victim of this outlook?
    Well to some extent it is, as the ETS was seen as something that could provide business certainty. But can we have certainty when emissions are unsustainable?, only the certainty that this cannot continue.

    I think that the ETS is actually a victim of its initial support, in that it was not a tax so that had to be good. It was never fully analysed as to how it would work in a complex market and every review since has protected an earlier position. I trace this as far back as the previous Howard Government Environment Minister Ian Campell in article with the headline “Campbell rules out ‘stupid’ carbon tax”*. I don’t even think that the former Minister was referring particularly to a tax, as it was probably inclusive of both an ETS or a tax compared with the Howard Government’s voluntary approach.

    However, the ‘Stupid carbon tax” headline helped set the stage for picking an ETS option without thorough debate on the best mechanism (with the exception of Warwick McKibbin who explored the benefits of a hybrid Tax/ETS, but still without much on the impacts of voluntary mechanisms). The NETTs review, the Garnaut Review, the CPRS Green Paper the Wilkins Review of Government Climate Change Programs** (publicly released last week with minimal announcement if any) and the CPRS White Paper all seem to have followed on supporting an ETS with little mention of the collateral damage on voluntary mechanisms that are now causing the Government headaches.

    If the ETS does not get through Parliament there may be an opportunity for a bipartisan approach to come up with a mechanism that works for all markets.

    * http://www.abc.net.au/news/newsitems/200606/s1658808.htm
    **http://www.finance.gov.au/publications/strategic-reviews/index.html

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  12. Hi Neil,
    Sorry to not answer your question earlier.

    “Is this true, if I reduce by electricity consumption, a coal fired power station will use say one tonne less coal”,

    YES(approximately 1 tonne CO2-e per MWh)

    “but will sell 1000kWh [1MWh] less electricity so the cost of the 999,999 permits it does buy ( assuming it was producing 1,000,000 MWh per year @ 1tonne/MWh) a will be spread over fewer sales so almost the same cost”

    ANSWER If the scheme is operating at the safetey valve price of $10 in the first year or $40 in year 2, or $40+(CPI+5%) in years 3,4 or 5 then the price per tonne is not changed through the action

    “If the permit price is being held below $40/tonne, the price per permit will be the same”.

    If the scheme is operating below the price cap, in year 1, the permit price could technically fall below $10 if businesses sell of permits that are not needed near the end of the year if they have confidence in their forecasts.

    In the following years to 2016, the sale of the spare permit will incease supply and the permit can also be sold for less than the safety valve price.

    “Now if the utility starts up a wind farm, producing 100 MWh [lets say 100,000 MWh/year], and now only produces 900,000 tonnes of CO2, it will still sell 1000MWh [1,000,000 MWh)] of electricity so the cost will be averaged over larger sales”.

    YES the cost of its permits will be spread over its total energy production sales. It will also receive less assistance in terms of free permits from the Government.

    “ Similarly if prices are at the bottom of the range($10/tonne). If prices are intermediate, 10% conservation will reduce the permit price by 10%, but a utility will still be 90% better off with 10% of power from wind energy”.

    AGREE, within the compliance market things work OK. The difficulty comes in seeking to do anything more than compliance in terms of reducing National Emissions.

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  13. Thanks for the article. Just one clarification question.

    You say with regard to the surrendering of permits “This will cause greater AEU scarcity, increase the carbon price unnecessarily, increase the cost to the economy of achieving the same level of abatement”. I don’t understand why you say the ‘same level of abatement’? The total amount of permits, hence level of emissions, is now lower because some permits have been surrendered. This is why the country has had to move up the abatement curve and increased the carbon price.

    Or are you referring to the total national target (kyoto level, both covered (ets) and non-covered sectors) and that the non-covered sector can now pollute more. If the later, then maybe it should be made more clear as to why there is going to be automatic displacement from the non-covered sectors.

    Thanks
    Paul

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