EU Carbon trade "set to fail"

[southsider2k5]

http://news.bbc.co.uk/2/hi/business/6748031.stm

 

EU's carbon trade 'set to fail'

 

The large polluters have been given credits freely

The EU's carbon trading scheme - deemed a key to tackling climate change - is set to "fail" yet again, says the WWF.

The European Trading Scheme (ETS) was launched in 2005 to cut carbon dioxide (CO2) emissions, but its success was limited, partly due to lax limits.

 

The wildlife charity is worried that the ETS' next phase will also "fail to deliver" significant emissions cuts.

 

Failure to cut carbon dioxide levels could cause irreversibly damaging climate change, scientists fear.

 

Good principle

 

"While the mechanism of carbon trading is sound in principle, the first phase of the EU scheme (2005 to 2007) has been seriously undermined by weak political decisions," said the WWF.

 

The ETS could become a messy and deeply flawed market for a virtual commodity that only really benefits the traders

 

Paying to pollute

 

The first phase of the ETS - which covered around 40% of the EU's emissions - has been accused by critics of falling short of its promises because the CO2 limits were not strict enough.

 

Moreover, the large polluters were given credits free of charge.

 

For firms that managed to cut emissions easily, they then had a surplus of carbon credits, which they could then sell for a profit.

 

Next phase

 

Now the EU has set new limits for the next phase of the scheme for a number of nations including the UK, Germany and Luxembourg. Others are yet to be finalised.

 

But the WWF's new report called Emission Impossible shows that the next phase of the ETS - which runs from 2008 to 2012 - could also fail "because of the potential for very heavy use of imported credits".

 

In practice this means that large polluters could buy carbon credits from projects overseas that claim to reduce emissions.

 

The WWF questions whether these projects are all genuine emission reduction plans.

 

The ETS could become "a messy and deeply flawed market for a virtual commodity that only really benefits the traders", WWF warns.

[NorthSideSox72]

Yet again, we see a good idea executed poorly by government. Just not ours this time.

 

But because its a good idea, I hope we don't simply abandon it because its been poorly implemented in some cases. I think that is exactly what some politicians want - take an idea they disagree with, move it forward but into a hornet's nest, then point to the failure and say "I told you so - this idea sucks!"

 

Pisses me off.

[kapkomet]

Yet again, we see a good idea executed poorly by government. Just not ours this time.

 

But because its a good idea, I hope we don't simply abandon it because its been poorly implemented in some cases. I think that is exactly what some politicians want - take an idea they disagree with, move it forward but into a hornet's nest, then point to the failure and say "I told you so - this idea sucks!"

 

Pisses me off.

 

Now you know my filibuster secret! Damn! What do I do?

[southsider2k5]

Yet again, we see a good idea executed poorly by government. Just not ours this time.

 

But because its a good idea, I hope we don't simply abandon it because its been poorly implemented in some cases. I think that is exactly what some politicians want - take an idea they disagree with, move it forward but into a hornet's nest, then point to the failure and say "I told you so - this idea sucks!"

 

Pisses me off.

 

The problem is, this isn't a good idea. You cannot apply the concepts of a commodity to a gas, and expect it to work as a regulatory device. There is no way to physically limit a gas, which means you cannot limit supply. It is impossible to make something function on a supply and demand basis, when you have an infinate supply of it. It is a market imperfection. There is no way a carbon exchange will ever work.

[EvilMonkey]

The problem is, this isn't a good idea. You cannot apply the concepts of a commodity to a gas, and expect it to work as a regulatory device. There is no way to physically limit a gas, which means you cannot limit supply. It is impossible to make something function on a supply and demand basis, when you have an infinate supply of it. It is a market imperfection. There is no way a carbon exchange will ever work.

plus, it just contributes to Edwards 'two-Americas" but on a grander scale. Those with money can just pay a little extra to offset thier excess, while those just getting by cannot. For the lower to middle class to be carbon neutral, or even to simply reduce, they would have to actually change thier lifestyle and consumption habits, whereas the rich can simply write a check to feel better about themselves.

[Balta1701]

plus, it just contributes to Edwards 'two-Americas" but on a grander scale. Those with money can just pay a little extra to offset thier excess, while those just getting by cannot. For the lower to middle class to be carbon neutral, or even to simply reduce, they would have to actually change thier lifestyle and consumption habits, whereas the rich can simply write a check to feel better about themselves.

Well, if these things were set up to work correctly, that would actually be an ideal way to do things, because the money that the wealthy would be pumping into the market would be used to develop and activate renewable sources. For example, if a wealthy person is buying carbon offsets, and that money is used to fund the construction of a wind power station, then that benefits everyone because the wealthy person has paid some of the money to offset the additional cost of building that new windmill. If I want to build a wind farm, and 1/2 the cost of it is paid for through money raised by carbon offsets, then that windfarm is a much more practical thing for me to build.

 

There are an awful lot of scenarios where things start off being a product that only the rich can afford, but then with time, the fact that rich people buy items leads to more money being put into the system and the price of that item dropping at the same time as it becomes more effective.

 

Here, of course, I think the problem is likely the way the market was set up originally. It was set up as being too friendly to business. The ideal situation would be to have an organizing body selling off the carbon offsets to business who generate a lot. The way the Europeans did it, if I understand things, they handed out the carbon offsets to businesses for free who were already polluting, so that they could then move to sell them. So it became a method of making more money for polluters rather than a method of reigning in polluters.

[EvilMonkey]

Well, if these things were set up to work correctly, that would actually be an ideal way to do things, because the money that the wealthy would be pumping into the market would be used to develop and activate renewable sources. For example, if a wealthy person is buying carbon offsets, and that money is used to fund the construction of a wind power station, then that benefits everyone because the wealthy person has paid some of the money to offset the additional cost of building that new windmill. If I want to build a wind farm, and 1/2 the cost of it is paid for through money raised by carbon offsets, then that windfarm is a much more practical thing for me to build.

 

There are an awful lot of scenarios where things start off being a product that only the rich can afford, but then with time, the fact that rich people buy items leads to more money being put into the system and the price of that item dropping at the same time as it becomes more effective.

 

Here, of course, I think the problem is likely the way the market was set up originally. It was set up as being too friendly to business. The ideal situation would be to have an organizing body selling off the carbon offsets to business who generate a lot. The way the Europeans did it, if I understand things, they handed out the carbon offsets to businesses for free who were already polluting, so that they could then move to sell them. So it became a method of making more money for polluters rather than a method of reigning in polluters.

Where the system will fail is when is starts penalizing the ones who can't afford to buy offsets, or to reduce their footprint.

[jackie hayes]

The problem is, this isn't a good idea. You cannot apply the concepts of a commodity to a gas, and expect it to work as a regulatory device. There is no way to physically limit a gas, which means you cannot limit supply. It is impossible to make something function on a supply and demand basis, when you have an infinate supply of it. It is a market imperfection. There is no way a carbon exchange will ever work.

I can't tell if this is serious. If so, it makes no sense. Of course it can work. In this market, the supply is not of a gas, it's supply of a right to pollute, or a claim on a part of the environment. The supply of that is fixed by the government, by fiat. As long as the government can monitor average pollution levels for every polluter covered by the statute (it's not very difficult to measure plant emissions), it's plain whether a polluter is compliant.

 

You can't "physically limit" radio frequencies, either, but you can award ownership rights to certain frequencies. And when Q101 decides to start broadcasting on 103.5, it won't take too long to put things to rights.

plus, it just contributes to Edwards 'two-Americas" but on a grander scale. Those with money can just pay a little extra to offset thier excess, while those just getting by cannot. For the lower to middle class to be carbon neutral, or even to simply reduce, they would have to actually change thier lifestyle and consumption habits, whereas the rich can simply write a check to feel better about themselves.

You do know this only applies to a particular set of companies, right?

[southsider2k5]

I can't tell if this is serious. If so, it makes no sense. Of course it can work. In this market, the supply is not of a gas, it's supply of a right to pollute, or a claim on a part of the environment. The supply of that is fixed by the government, by fiat. As long as the government can monitor average pollution levels for every polluter covered by the statute (it's not very difficult to measure plant emissions), it's plain whether a polluter is compliant.

 

You can't "physically limit" radio frequencies, either, but you can award ownership rights to certain frequencies. And when Q101 decides to start broadcasting on 103.5, it won't take too long to put things to rights.

 

You do know this only applies to a particular set of companies, right?

 

It makes perfect sense. You cannot trade carbon as a commodity. There is no fixed supply of pollution, so it will not respond to market conditions correctly.

 

The government plans on monitoring every single company? Good luck with that. If they don't, they are setting up the two America's scenario.

 

On a side note, in my personal reading, I came accross something interesting... One of the leading supports of the Kyoto treaty in corporate American was none other than Enron. It seems they had a special interest in the Carbon credits trading market...

[jackie hayes]

It makes perfect sense. You cannot trade carbon as a commodity. There is no fixed supply of pollution, so it will not respond to market conditions correctly.

 

The government plans on monitoring every single company? Good luck with that. If they don't, they are setting up the two America's scenario.

 

On a side note, in my personal reading, I came accross something interesting... One of the leading supports of the Kyoto treaty in corporate American was none other than Enron. It seems they had a special interest in the Carbon credits trading market...

??? -- They're not trading carbon, they're trading the right to release carbon. And the supply of these credits IS fixed, by the law.

 

These plans typically only apply to power companies and other big-time polluters. Enforcement really isn't a big deal, especially considering the fact that these tend to be natural monopolies, or close. When you need a very large scale operation to be profitable, it's obvious what needs to be monitored. (There are no boutique coal-burning plants.)

 

The idea for this type of market actually comes from classical economics (a U of Chicago guy, even). There are some objections on practical grounds, but the theory is universally accepted. There's no "market imperfection" (in fact, in theory it FIXES a market imperfection and reaches an efficient outcome).

 

Now, I would say that the credits should CERTAINLY be auctioned off, not just awarded. But that doesn't make the basic idea (pollution credit trading) a bad one.

[southsider2k5]

??? -- They're not trading carbon, they're trading the right to release carbon. And the supply of these credits IS fixed, by the law.

 

These plans typically only apply to power companies and other big-time polluters. Enforcement really isn't a big deal, especially considering the fact that these tend to be natural monopolies, or close. When you need a very large scale operation to be profitable, it's obvious what needs to be monitored. (There are no boutique coal-burning plants.)

 

The idea for this type of market actually comes from classical economics (a U of Chicago guy, even). There are some objections on practical grounds, but the theory is universally accepted. There's no "market imperfection" (in fact, in theory it FIXES a market imperfection and reaches an efficient outcome).

 

Now, I would say that the credits should CERTAINLY be auctioned off, not just awarded. But that doesn't make the basic idea (pollution credit trading) a bad one.

 

You can auction off as many credits as you like, but unless you find a way to limit actual carbon release, the credits are worthless. They are trading carbon, by trading these credits.

 

You have to have a set supply to determine a market, and an artificial number doesn't do that.

[jackie hayes]

You can auction off as many credits as you like, but unless you find a way to limit actual carbon release, the credits are worthless. They are trading carbon, by trading these credits.

 

You have to have a set supply to determine a market, and an artificial number doesn't do that.

Explain. The government says, Hey, you, big utility company that we're heavily regulating already! Yeah, you! You have to install these monitors on your equipment, and if you spew more pollution than you have credits for, you're in deep s***. And since we already regulate you, you know we can and will be checking to make sure you don't tamper with those monitors!

 

How do those firms increase their pollution on the sly? Where does it sneak the exhaust out?

[southsider2k5]

Explain. The government says, Hey, you, big utility company that we're heavily regulating already! Yeah, you! You have to install these monitors on your equipment, and if you spew more pollution than you have credits for, you're in deep s***. And since we already regulate you, you know we can and will be checking to make sure you don't tamper with those monitors!

 

How do those firms increase their pollution on the sly? Where does it sneak the exhaust out?

 

Because Carbon doesn't come from just a few companies? It comes from everyone and everything. Besides those structures have failed in the past anyway from the same problems. Look no futher than US steel. They done care about pollution they just pay the fines, so what is to stop them from just emitting more and paying the fines? nothing. They don't have to go buy more of an object that has a fixed supply. Take something like Corn, where if you want more of it, you either have to go plant it, or you have to buy it somewhere. Carbon does not have the same physical limitations. If you want to emit more carbon, you just emit more carbon. Monitoring is a joke. If the government could monitor stuff that well, they would have been doing it a long time ago. Hell we can even monitor our own boarders, let alone every major polluter in the US. Heck all you have to do is look at all of the Superfund sites in the US.

[jackie hayes]

Because Carbon doesn't come from just a few companies? It comes from everyone and everything. Besides those structures have failed in the past anyway from the same problems. Look no futher than US steel. They done care about pollution they just pay the fines, so what is to stop them from just emitting more and paying the fines? nothing. They don't have to go buy more of an object that has a fixed supply. Take something like Corn, where if you want more of it, you either have to go plant it, or you have to buy it somewhere. Carbon does not have the same physical limitations. If you want to emit more carbon, you just emit more carbon. Monitoring is a joke. If the government could monitor stuff that well, they would have been doing it a long time ago. Hell we can even monitor our own boarders, let alone every major polluter in the US. Heck all you have to do is look at all of the Superfund sites in the US.

Well, obviously it would be impractical to control car pollution this way. Which is why it isn't done. But utilities are a major source of pollution. For the more decentralized sources, taxes are a better way to go.

 

The fines have to be steep, no doubt. But suppose you set fines to 10 times the maximum price over the previous year of a credit on the open market? What incentive would a firm have to "just pay the fine"? No matter what they pay in the market, it's still cheaper than the fine. Or make it 50, 100 times, whatever. The firm has zero incentive to pay more than the market price.

 

And, sorry, but you're just wrong about monitoring. We're talking about huge, immobile operations that are registered with every level of government and use a well-understood technology. The comparisons to the border and superfund sites are bogus (although I'd bet that superfund sites are a lot less harmful, in the aggregate).

[NorthSideSox72]

I've gotta go with Jackie on this one. It can work very well, if implemented properly.

 

And SS, I know you are familiar with the commodities markets. You can indeed trade on a market representing a fraction of a product or item available in the world. The key is connecting the SOLD or RELEASED physical product to the contracts for sale. That doesn't mean that the entire world of carbon release has to be taken into that market, any more than we need all the world's corn to be present at that market.

[EvilMonkey]

I've gotta go with Jackie on this one. It can work very well, if implemented properly.

 

And SS, I know you are familiar with the commodities markets. You can indeed trade on a market representing a fraction of a product or item available in the world. The key is connecting the SOLD or RELEASED physical product to the contracts for sale. That doesn't mean that the entire world of carbon release has to be taken into that market, any more than we need all the world's corn to be present at that market.

All your arguments on both sides here assume that the green movement limits this to the business areana. Just wait until they atsrt 'taxing' individuals who pollute more, and can't afford carbon offsets. Older car? pollutes too much, you need to pay more for your sticker, or buy some offsets. Don't have a front-load washer? Oh, too bad, extra fee on your water bill. When it gets to the individual level, you will have created Edwards two Americas, as the rich will still pollute, and the poor will get screwed.

[Balta1701]

All your arguments on both sides here assume that the green movement limits this to the business areana. Just wait until they atsrt 'taxing' individuals who pollute more, and can't afford carbon offsets. Older car? pollutes too much, you need to pay more for your sticker, or buy some offsets. Don't have a front-load washer? Oh, too bad, extra fee on your water bill. When it gets to the individual level, you will have created Edwards two Americas, as the rich will still pollute, and the poor will get screwed.

Well, at some point, you still wind up having to weight those losses versus possibly losing New York, Boston, London, Florida, and so on. If the problem is as severe as we say it is (it is), then the fact is, everyone is going to have to make sacrifices somewhere in order to give science the time to figure out how to either remove the stuff permanently from the atmosphere or create a carbon free power source.

[NorthSideSox72]

All your arguments on both sides here assume that the green movement limits this to the business areana. Just wait until they atsrt 'taxing' individuals who pollute more, and can't afford carbon offsets. Older car? pollutes too much, you need to pay more for your sticker, or buy some offsets. Don't have a front-load washer? Oh, too bad, extra fee on your water bill. When it gets to the individual level, you will have created Edwards two Americas, as the rich will still pollute, and the poor will get screwed.

1. As Balta states, were in a situation now where someone has to pay. Period. Probably all of us, to one degree or another.

 

2. You are saying the program is a bad idea because of what MIGHT happen later. Nothing of the sort is going on. Why would we want to avoid something positive because it might lead to something negative? Why not do the positive and fight the negative?

 

3. Ultimately, the biggest polluters should pay the highest price. That is what I would hope for in any program.

[EvilMonkey]

1. As Balta states, were in a situation now where someone has to pay. Period. Probably all of us, to one degree or another.

 

2. You are saying the program is a bad idea because of what MIGHT happen later. Nothing of the sort is going on. Why would we want to avoid something positive because it might lead to something negative? Why not do the positive and fight the negative?

 

3. Ultimately, the biggest polluters should pay the highest price. That is what I would hope for in any program.

I'm saying that a system that allows, on a personal level, those who can afford to pay to pollute more, while screwing those who cannot pay is wrong, and create the two americas that Edwards so vehemently rails against. It won't be a 'Let's all conserve for the good of our planet', it will instead be 'I'll pay you to conserve so I don't have to', or even worse, 'I can afford to install solar panels and drive a hybrid, but since you can't, you have to pay all those new pollution fees and taxes'.

 

As far as the program goes in regards to businesses, find a way to verify that the so-called pollution credits actually DO some good other than assuage some guilt, and you may have something. But as the systems stand now, they suck.

[southsider2k5]

I've gotta go with Jackie on this one. It can work very well, if implemented properly.

 

And SS, I know you are familiar with the commodities markets. You can indeed trade on a market representing a fraction of a product or item available in the world. The key is connecting the SOLD or RELEASED physical product to the contracts for sale. That doesn't mean that the entire world of carbon release has to be taken into that market, any more than we need all the world's corn to be present at that market.

 

In commodities the entire market isn't traded, but it is a consideration of the rest of the market, because supply is finite. So the KC Wheat affects the Minneapolis Wheat, affects the CBOT Wheat etc... There is only so much wheat to go around. Carbon emissions don't have that same caveot. Introducing an artificial supply constriction (a "cap") doesn't change that at all, because you can still create more supply, whether or not the market says you can or not. Why would you go down to the store and buy something that your competitor was getting for free, when you could also get it for free?