I know that the other day I again proclaimed the futility of negative politics, at least as far as the Labour Party at the moment are concerned. However, I was asked to comment on this letter from the Tory PPC for Copeland and couldn’t resist picking apart his arguments. I’d be amused at how weak they are, if the prospect of him being the MP for the seat where I grew up and where most of my family still live were not so appalling. This is what I had to say:

If David Cameron is so pro-nuclear, how is his close relationship with the avowed anti-nuclear campaigner and Tory PPC for Richmond Park Zac Goldsmith to be explained? Could it be that the Tories want to say one thing in Richmond Park and another in Copeland?

Irrespective of what they say in different parts of the UK, a Conservative government would not be heard in Brussels, as David Cameron has already made decisions which have, according to France’s European Minister, castrated British influence in Brussels. This materially impacts upon economic wellbeing in Copeland. Chris Whiteside speaks of removing barriers to new nuclear investment, but securing a higher and more stable carbon price would remove a key barrier to this investment. Lowering the cap in the EU-ETS is the best available policy lever for achieving such a carbon price, but this lever will only be pulled by a British government capable of commanding influence in Brussels and across the EU. The castration of British Conservatives in Brussels threatens the nuclear future of west Cumbria should we ever have a Conservative government.

It is odd that Chris Whiteside bemoans, rightly, attempts to misrepresent the policies of other parties and then proceeds not only to misrepresent Labour policy but also his own party’s history.  

As far as his own party’s history is concerned, it is one thing to attempt, as Cameron and Andrew Lansley, the Conservative health spokesman, are doing, to re-brand the Conservatives as champions of the NHS. Great is the joy for the sinner who repenteth. But it is quite another to ask us to forget the sin, as Chris Whiteside’s perplexing praise of the record of past Conservative governments on the NHS asks us to do. The NHS was on its knees when Labour came to government in 1997. We turned it around because we have always believed in the NHS and not seen it “as a 60 year mistake”, as a Conservative MEP recently described it; comments which cause one to doubt the sincerity of the repenting we are being asked to embrace.

As for misrepresenting Labour policy, since when has Budget 2009 been a leaked document? This very public document set out plans for a cumulative 6.7 percent reduction in public spending over the three years from April 2011. I can only presume that the 10 percent figure that Chris Whiteside refers to is the reduction which is implied across most of the public sector by the Conservative commitment to both match Labour’s spending restraint and ring fence increases in health spending. This ring fencing is intended to convince us of the sincerity of Tory repenting on the NHS, but one’s confidence in this sincerity is further shaken by Chris Whiteside’s capacity not only to confuse a leaked document with Budget 2009 but Labour Party policy (which is for a 6.7 percent reduction) with Conservative policy (which is for the 10 percent reduction he refers to).

Nonetheless, Whiteside is correct to be concerned about public debt and we look forward to the Chancellor, Alistair Darling, setting out full plans for the management of public debt in the Pre-Budget Report later this month. He will do so on a basis that both preserves confidence in the public finances and maintains the public services that Labour has turned around since 1997. To re-coin a phrase, this will be prudence with a purpose. Chris Whiteside’s obvious lack of either prudence or sincere purpose is a danger to Copeland.

Originally posted at http://regenerationem.wordpress.com/

UPDATE: The NI186 figures were revised in November 2009 – more details here.

A new dataset for carbon dioxide emissions by local authority has just been released by the Department of Energy and Climate Change (DECC).

Actually, make that two datasets. It’s fair to say that there is potential for confusion between the two, so here is a quick guide to clear up what to use when.

The statistics given most prominence by DECC are for total emissions by local authority area for 2007 (local figures are only available after a two year gap). These figures cover all emissions on an ‘end-user’ basis; that is, only those associated with energy usage within homes and businesses. The emissions from the region’s power stations are allocated to those using the energy being produced (useful for the region as it is a net exporter of energy). The figures for total emissions give the most accurate picture available of how the actions of people within the region are contributing to climate change.

However, this picture includes some sources over which local government has little control; namely transport emissions from motorways and large emitters who belong to the EU Emissions Trading Scheme (ETS). To reflect this, DECC have removed these sources for a parallel set of statistics released in line with National Indicator 186 (NI186)  guidelines. NI186 is a requirement for districts to reduce their per capita emissions which is included in the majority of the region’s Local Area Agreements.

So total figures reflect the scope of the overall problem, but for a focus on local and regional policy it’s the NI186 figures that are the key.

Intelligence East Midlands is working with new data to present some visualisations for the new Climate East Midlands website currently in development. 2007 is the third year of data made available at the local level, so offers an opportunity to begin to study change over time. I’ll be checking back in on the blog once we’ve looked over the figures more carefully. OK, that’s enough of the abstract here’s the latest ‘Act On Co2′ ad from DECC; certainly doesn’t pull any punches…

The European Commission has issued a statement following two judgments of the European Court of First Instance (CFI) in September ruling that the Commission “exceeded its powers” in revising the number of carbon dioxide emissions allowances in the Polish and Estonian National Allocation Plans (NAPs) for the 2008-12 trading period of the EU Emissions Trading Scheme (ETS). The EU executive body said it might appeal the ruling or issue a new decision on the NAPs, but meantime the two countries are not entitled to issue any more allowances beyond those already created in the registry system. Six other countries are awaiting a CFI ruling on the same issue.

(More on www.eurelectric.org in Daily News – Password needed)

Related links: European Court of Justice

At the moment, Romania is not affiliated with the European System of Green Certificates due to the fact that the Romanian energy market has not as of yet met European standards. However, as soon as this happens and Romania enters the European System of Green Certificates, Romanian energy producers will be able to sell their green certificates on the European market, while Romanian energy distributors will be allowed to buy green certificates on the same European market. Electricity producers of renewable energy are able to sell the electricity they produce on the wholesale market at that market price. However, electricity produced in electric power stations having an installed power of less than 1 MW, may only be sold to suppliers that are licensed in the areas in which the electric power stations are located at regulated prices set by NAER at the national level. The trade and commercialization of green certificates and E-RES According to Law 220/2008, green certificates are traded on a centralized market, as well as a bilateral contracts market, where producers and suppliers of electricity from E-RES have entered into trading contracts for green certificates. As mentioned above, suppliers are required to annually purchase a certain number of green certificates relative to the amount of electricity annually supplied by them to their consumers. The law also provides for the trading of green certificates on the market until 2014. Afterwards these values will either change, or if it has achieved its purposes the green certificates system will be abolished. Therefore, the minimum trading value is of €27/certificate, while the maximum trading value is of €55/certificate. The trading values are to be annually adjusted by the consumer price index for Romania. The certificates are thus sold on the market at the market price which cannot be lower than €27, but cannot exceed €55.  - READ MORE -

As global and European policies to limit emissions of greenhouse gases take shape, the emerging carbon market is focusing its attention on Central and Eastern Europe.

Climate change is now recognized as one of the greatest challenges facing humanity in the 21st century, and the world’s governments are moving to develop solutions. The Kyoto Protocol, signed in 1997 and likely to enter into force by the end of this year, commits industrialized countries to reduce their emissions of carbon dioxide and other greenhouse gases by 2012. Despite the withdrawal of the United States from this treaty in 2001, most other members of the OECD are pushing forward with its implementation.

The quest for solutions has focused on the market-based mechanisms established in the Kyoto Protocol to help countries meet their obligations at low cost. Their principle is simple: since climate change is a truly global problem, the precise location of emissions abatement efforts is irrelevant. As long as emissions are reduced somewhere, the benefit to the global atmosphere is the same. Emissions trading allows emitters to choose costeffective solutions, because governments or corporations can sponsor cheap emissions abatement projects outside their immediate vicinity and use the resulting carbon credits to meet climate regulations at home.

Buyers in the international emissions trading market are therefore seeking projects that reduce large quantities of emissions, at low cost, and in countries willing to part with their Kyoto-assigned quotas in exchange for foreign investment. One region in the world offers all these characteristics-Central and Eastern Europe (CEE).

Following a steep decline in emissions due to the death of many inefficient Soviet-era industries since 1990, the nations of CEE will meet their own Kyoto obligations, most with room to spare. However, the carbon intensity of the CEE economies, as measured in tons of carbon emitted per million dollars of GDP, is still many times higher than the European Union average. This signals the availability of low-cost and even cost-saving emissions reduction opportunities awaiting funding through Kyoto’s Joint Implementation (JI) mechanism.

Carbon credit buyers, including the Dutch government’s ERUPT program and the World Bank’s Prototype Carbon Fund, have begun to explore such opportunities. JI investments in this region have funded projects ranging from the construction of wind farms and biomass-fueled district heating systems to power plant renewal and forestry.

For instance, the Hungarian government recently approved the country’s first JI project, a coal-to-biomass fuel switch at the AES Borsod Power Plant. The prospective buyer, ERUPT, would contribute roughly 25% of the project’s capital cost in exchange for the rights to the plant’s future stream of emissions credits.

As interest in buying carbon credits in CEE grows worldwide, many hurdles remain to efficient, low-risk carbon commerce. Project developers are for the most part unaware of the opportunity to sell their carbon credits, governments have been slow to create the necessary regulatory environment, and there are few intermediaries who fully understand both the local market and the complex web of rules and conditions that govern carbon trading transactions. But the motto of this market is learning by doing, and as that process continues carbon commerce will become streamlined within a few years. The question is: how many good projects will remain, and will governments still be inclined to trade foreign investment for emissions quota? Stay tuned.

The European Commission tabled on 18 September a draft of a formal Decision listing 164 industrial sectors and sub-sectors deemed to be exposed to a “significant risk of carbon leakage”.   Affected companies would receive a higher share of free greenhouse gas allowances than other industrial sectors during the third phase of the EU Emissions Trading System (ETS). A Commission memo explained the list could be revised if an international climate change agreement that reduces the risk of carbon leakage is struck in Copenhagen in December.

(More on www.eurelectric.org in Daily News – Password needed)

Related links: European Commission

Experts from industry, the financial sector, EU policymaking bodies and NGOs gathered at a workshop – Pushing and Pulling: What has the EU learned about the efficient combination of carbon market and low-carbon investment support? – hosted in Brussels on 3 September by the International Emission Trading Association (IETA) and the Centre for European Policy Studies (CEPS), to discuss the impact of current EU policies, especially the role of the carbon market, on deployment of low-carbon technologies and assess the effectiveness and efficiency of those policies in meeting the European Union’s recently-adopted triple energy-climate targets – on carbon dioxide emissions reduction, uptake of renewable energies (RES), and energy efficiency – by 2020 and beyond.

(More on www.eurelectric.org in Daily News – Password needed)

Related links: CEPS, IETA

One of the biggest complaints about carbon trading is that it’s complex and difficult to manage, that a tax would be more effective, and a fairer approach to managing emissions. The benefit to emissions trading is the associated cap on emissions, as by definition such a system demands an overall drop in emissions. This argument looks set to run and run but the industry body Oil and Gas UK has just set a new level for effrontery – arguing that the oil and gas industry should be exempt from the next phase of the European Union’s emissions trading scheme (EU ETS) because it’s effectively a tax on the industry. Clearly not a fan of emissions trading or taxation!

The argument goes that because green fuels can’t power oil platforms or drilling equipment, for practical purposes inclusion in the EU ETS is a tax. Somehow you can’t help but feel they’re missing the point – the whole idea behind the imposition of an emissions trading scheme was to encourage an economy wide transition to a low carbon basis. Oil and Gas UK might be right about the EU ETS making things difficult for the oil and gas industry – but surely that was the point?

We need to find alternatives to fossil fuel consumption, especially if supplies of fossil fuel are set to dwindle. Oil and Gas UK is arguing that energy security requires protection of the oil and gas industry. In the short term, this may be a valid point. In the medium to long term, energy security can only be assured by the development of alternatives to fossil fuel sources. If Peak Oil is truly on its way (and some argue it’s a point that we’ve already reached), then it’s imperative that we address energy issues in such a way that we become independent of imports of any form of fuel. That means an increase in distributed generation, improved transmission systems, and the use of every sensible resource available to generate power.

Many arguments regarding the use of renewable power, or fossil fuel power, seem to swirl around the idea that there is one perfect solution. The reality is that there are a number of technologies available today that should be in wider use, and many more in development. It’s not a question of offshore wind providing the solution, or the need for nuclear power or CCS, or even the need for protecting the oil and gas industry. We need to start taking a holistic approach to our energy environment and starting using the resources we have where appropriate – that means that we use a combination of different power sources from geothermal, to wind, to waste – and that we start looking at energy management as a key way to cut emissions.

Unfortunately, that leaves out the option of protecting the oil and gas industry with funds needed to help develop those alternatives.

Posted via email from Conquering Carbon

“In the long term, a dual system of cap and trade should prove a powerful policy tool for delivering emissions reductions in an effective, efficient and equitable way.” This is the overriding conclusion given in a new report on Global Carbon Trading (1). There is one aspect of this report I would like to discuss over the coming weeks and that is the under the European Union Emissions Trading Scheme (EU ETS) does not go far enough in terms of the allocations that have been made to various countries and  what I propose can be done about it. However, before we get to that stage let us first understand what cap and trade is and examine why it would work in principal. Then, we can examine the evidence to see that the allocations made are overly generous. Then perhaps suggest a new level for the allocations and finally what can be done to achieve this.

Cap and trade what is it?

It’s roots go back to Kyoto and the Kyoto Protocol that was signed up to by a number of Developed Countries. The agreement is a collective one to reduce the amount of GHG emissions (the ‘cap’) from  their 1990 level by at least 5% by the period 2008-2012 (Section 3). In Section 17 in then goes on to say how The Parties included may participate in emissions trading (the ‘trade’) for the purposes of fulfilling their commitments under Article 3.

Cap and Trade: Illustration

Let us go down to the very micro level to illustrate and understand what this means. Our fictional Emissions Trading Scheme is made up of two businesses: Business I a Coal fired power station called Smoke Inc. and Business II a Sugar manufacturer called Sweet Inc. (which uses energy to transfer sugar beet into purified sugar). Each is given an allocation (i.e. the ‘cap’) of the amount of Carbon Dioxide that they are allowed to emit into the atmosphere. If they emit less than that target they have a surplus, if they emit more that their allocation they have a deficit. If Sweet Inc. has a deficit and Smoke Inc a surplus, Sweet Inc will need to buy (i.e. ‘trade’) allocations or ‘Carbon Credits’ from Smoke Inc. who is running at a surplus.

What happens if Sweet Inc and Smoke Inc both have deficits. Since they cannot buy credits from each other there needs to be another way they can get back to their allocation. This is where the Clean Development Mechanism (CDM) comes in. This is an arrangement under the Kyoto Protocol that allows countries with a commitment to reduce GHG can invest in projects that reduce emissions in developing countries. So for example Smoke Inc. and Sweet Inc. can purchase these Certified Emissions Reductions (CERs) i.e. ‘carbon credits’ from an Indian Windfarm.

What happens if Smoke Inc and Sweet Inc both have surpluses, in short nothing. What happens currently is companies that have a surplus can ‘bank’ their credits to use later, for when either the targets come down or they need to make more emissions in the future. Another way of looking at this is taking a mobile phone analogy, if I have unused minutes at the end of the month I can ‘roll-forward’ these over to next month when I may make more phone calls.

References:

(1) Global Carbon Trading, A framework for reducing Emissions. Mark Lazarowicz et Al. Crown copyright.

Next: Part 2. Cap and Trade in Practice

I have gotten a lot of response from the post on my thoughts on Data Center regulation.   Many of the comments in a response to an Infoworld article focused on the disbelief of regulations particularly targeting data centers.  A Greener Computing article felt that because the current administration is very tech-savvy they wouldn’t do anything to hurt data centers.  In fact the exact quote was:

I can understand Manos’ concerns, but I think he’s on the wrong track. The federal government is very unlikely to issue strict green regulations related to data centers. And if they do regulate them in some way, the regulations will no doubt be reasonable. The current administration is very technology-savvy — after all, the current Secretary of Energy Steven Chu was recently the director of the Lawrence Berkeley National Laboratory, whose work was heavily dependent on its data center. Chu did some great work related to Green IT when at the labs. He knows what can and can’t be done — and will make sure that data centers aren’t hamstrung with unnecessary regulation.

I guess for clarity sake I should state unequivocally that I do not believe that Data Centers will specifically be targeted or singled out for regulation.   Domestically here in the United States the EPA has kicked off its Energy Star Data Center evaluation which looks to study data centers as a sector, and something may come out of that, but in all honesty that wont be for some time.  I think the more immediate threat is in the efforts around Carbon Cap and Trade.  As the Greener Computing Article calls out, it was front and center at the G8 meetings.   With the UK leading the charge and the only real legislation on the books in this space, it would be hard for the other countries not to use it as the base for their programs.   My previous post focuses specifically on the fact that Data Centers will end up being significant contributing factors to Carbon metrics for companies.  Data Center Managers just aren’t thinking about it, and wont be until its far too late.  

While I am hopeful that leaders like Steven Chu and the Obama administration will weigh all possible aspects in a Carbon Cap and Trade program, the fact remains that they will need to legislate to the least common denominator and data centers are unlikely to be called out unless there is a group specifically calling attention to it.  Ergo my call for an industry wide group lobbying on its behalf.     I have doubts they will altruistically incorporate all possible sub cases into the mix without that kind of pressure.   President Obama frankly has bigger problems to be thinking about in my opinion.   

I am reminded of a quote from another excellent communicator and activist president, Ronald Reagan:

"The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.’"

Its those times more than any other that you should put your guard up even higher.  I guess only time will tell, but one thing is certain Data Centers and IT departments will have a role to play in Carbon Reporting. 

\Mm

As an industry, we have been talking about it for some time.  Some claimed it would never come and it was just a bunch of fear mongering. Others like me said it was the inevitable outcome of the intensifying focus on energy consumption.   Whether you view this to be a good thing or bad thing its something that you and your company are going to have to start planning for very shortly.  This is no longer a drill.

CRC – its not just a cycle redundancy check

I have been tracking the energy efficiency work being done in the United Kingdom for quite some time and developments in the Carbon Reduction Commitment (CRC).  My recent trip to London afforded me the opportunity to drive significantly harder into the draft and discuss it with a user community (at the Digital Realty Round table event) who will likely be the first impacted by such legislation. For those of you unfamiliar with the initiative let me give a quick overview of the CRC and how it will work. 

The main purpose of the CRC is a mandatory carbon reduction and energy efficiency scheme aimed at changing energy use behaviors and further incent the adoption of technology and infrastructure.  While not specifically aimed at Data Centers (its aimed at everyone) you can see that by its definition Data Centers will be significantly affected.  It was introduced as part of the Climate Change Act 2008.

In effect it is an auction based carbon emissions trading scheme designed to operate under a Cap and Trade mechanism.  While its base claim says that it will be revenue neutral to the government (except of course for penalties resulting from non-compliance), it provides a very handy vehicle for future taxation and revenue.  This is important, because as data center managers you are now placed in a position where you have primary regulatory reporting responsibilities for your company.  No more hiding under the radar, your roles will now be front and center.                             

All organizations including governmental agencies who consume more than 6000 MWh in 2008 are required to participate.  The mechanism is expected to go live in April 2010.  Please keep in mind that this consumption requirement is called out as MWh and not Megawatts.  What’s the difference? Its energy use over time for your whole company.  If you as a data center manager run a 500 kilowatt facility you account for almost 11% of the total energy consumption.  You can bet you will be front and center on that issue. Especially when the proposed introductory price is £12/tCO2 (or $19.48/tCO2).  Its real money.  Again, while not specifically focused on data centers you can see that they will be an active contributor and participant in the process.  For those firms with larger facilities, lets say 5MW of data center space – dont forget to add in your annual average PUE – the data centers will qualify all to themselves.

For more information of the CRC you can check out the links below:

• A Good Deck with a high level overview can be found here
• The wikipedia definition
• For alot of additional detail the CRC user guide is a great tool

While many of you may be reading this and feel poorly for your brothers and sisters in Great Britain while sighing in relief that its not you, keep in mind that there are already other mechanisms being put in place.  The EU has the ETS, and the Obama Administration has been very public about a similar cap and trade program here in the United States.  You can bet that the US and other countries will be closely watching the success and performance of the CRC initiative in the UK. They are likely to model their own versions after the CRC (why invent the wheel over again, when you can just localize to your country or region).  SO it might be a good idea to read through it and start preparing how you and your organization will respond and/or collect.

I would bet that you as a Data Center Manager have not been thinking of this, that your CIO has not thought about this, the head of your facilities group has not thought about this.  First you need to start driving awareness to this issue.    Next we should heed to a call to arms.

One of the items that came out during the Roundtable discussions was how generally disconnected government regulators are to the complexities of the data center.   They want to view Data Centers as big bad energy using boxes that are all the same.  When the differences in what is achievable from small data centers to mega-scale facilities are great.  Achieving PUEs of 1.2x might be achievable for large scale Internet firms who control the entire stack from physical cabling to application development,  banks and financial insitutions are mandated to redundancy requirements which force them to maintain scores of 2.0. 

Someone once decried to me that data centers are actually extremely efficient as they have to integrate themselves into the grid, they generally purchase and procure the most energy efficient technologies, and are incented from an operating budget perspective to keep costs low.  Why would the government go after them before they went after the end users who typically do not have the most energy efficient servers or perhaps the OEMs that manufacture them.  The simple answer is that data centers are easy high energy concentration targets.   Politically going after users is a dicey affair and as such DCs will bear the initial brunt.

As an industry we need to start involving ourselves in educating and representing  the government  and regulatory agencies in our space.   While the Green Grid charter specifically forbids this kind of activity, having a Data Center industry lobby group to ensure dumb things wont happen is a must in my opinion.  

Would love to get your thoughts on that.

/Mm

EU greenhouse gas (GHG) emissions fell by 1.6% in 2007 versus the previous year, confirming a three-year reduction trend begun in 2005 (-0.9%) and continuing in 2006 (-0.6%), a report from the European Environment Agency shows. The European Commission has already announced that emissions covered by the EU Emissions Trading Scheme (ETS) fell by 3.06% in 2008 compared to the previous year, suggesting that the EU is on track to meet the objective of an 8% reduction set by the United Nations Kyoto Protocol and the EU  target of a 20% reduction on the 1990 level by 2020.

(More on www.eurelectric.org in Daily News – Password needed)

Related links: European Environmental Agancy, European Commission

The Federal Government’s emissions trading scheme, or CPRS, is the talk of the town at the moment, as it inches towards being tabled in Parliament, and threatens to be the trigger for a double dissolution election.

In my next few posts, I plan on talking about the CPRS, so in case you haven’t been following the discussion, I’ll briefly explain what it’s all about.  If you are after an explanation that isn’t so wildly simplistic, jump on www.climatechange.gov.au and follow the links. Between the Garnaut Review, the Green Paper, and the White Paper, you should have enough bed-time reading to last you all year.  Or a really good doorstop.

The CPRS, or Carbon Pollution Reduction Scheme, operates by placing a limit on the amount of greenhouse gas emissions that can be emitted in a given year, by entities within a covered sector.  This is done by setting an emissions limit and  and then requiring liable entities to obtain a permit for each tonne of greenhouse gas emissions they emit.  The Government will auction some permits, or for those that qualify as an ‘emissions intensive, trade exposed industry’ (EITEI), they are set to receive up to 95% of your permits for free (at least for now).

The covered sectors include all the regular heavy hitters you might expect, such as the energy sector, transport, industrial processes, waste and so on.  This includes some of Australia’s biggest companies, like Woodside Petroleum, Origin Energy, and Rio Tinto and will apply to around 75% of our total emissions.

To qualify as an EITEI, you basically have to show that you are going to be less competitive than your international peers due to the CPRS. In other words, if you are an Australian steel manufacturer that now has to buy permits to cover the greenhouse gas emissions you generate, your product is going to cost more than some Chinese company that does the same thing, but doesn’t have a limit on emissions.

Over time, the emissions limit will gradually be reduced, in line with our international obligations under the successor to the Kyoto Protocol.  By 2020, Australia is targeting an emissions cut of between 5 and 25%  relative to 2000 levels, depending on whether we get a strong international agreement to reducing emissions.

As you might expect, Europe is leading the charge for strong international action, having had their own emissions trading scheme in place since 2005. The UK recently agreed to cut emissions by 80% by 2050, relative to 1990 levels, and the US has been making huge steps in the right direction under the Obama administration. That said, it’s not hard to look good compared to Bush, who sat with his head in the sand for 8 years on climate change.

It’s important to pay attention to the detail of these claims, as the baseline year for emissions reductions moves around from country to country.  1990 is the generally accepted base year, and is used to calculate our emissions obligations under the Kyoto Protocol.

As you might expect, when some of the biggest and most powerful companies in Australia are being told ‘you’re going to have to pay for that’, you get quite a lot of pushback , and some pretty outrageous claims.  Don’t be surprised to hear claims of massive job loss, failed industries, and companies moving off-shore as these corporate behemoths try to tug at the purse strings of our pollies for less stringent conditions and more freebies.

However, people need to take these claims with a pinch of salt.  The same sort of arguments are dragged out of the closet and dusted off whenever a major reform is brought in.  Think back to the GST – lots of people up in arms before it came into effect – not a real lot of impact afterwards.

Also don’t forget these companies have a serious self-interest at stake, and as we have seen with the CPRS, they can get a lot of allowances by complaining loudly about job losses, particularly in this economic climate.

So that’s it in a nutshell – a very simplistic, 5 minute overview of the CPRS, and some discussion on the international scene.  Keep an eye out for later posts, where have a big rant about the greens and find flaws in some of the big emitters’ arguments.

EURELECTRIC delegates joined representatives from industry, finance, government, EU bodies and academia at a conference – Climate Change: Implementing a Coordinated Response in Central Europe and around the Globe – hosted in Prague on 23-24 April by Czech power company Cez and the International Emission Trading Association. Speakers discussed implementation of the EU Emissions Trading Scheme (ETS) for the 2013-2020 period, and developments towards an international post-2012 climate regime.

(More on www.eurelectric.org in Daily News – Password needed)

The EC has published verified emissions data.

Bloomberg:

Power plants and factories in the European Union’s emissions trading program produced 25 percent more carbon dioxide than the amount of permits they received, according to Bloomberg calculations based on European Commission data.

The data is 91 percent complete, Stavros Dimas, the environment commissioner, said today in Brussels. The comparison between verified emissions and the allowances total is a like for like comparison, using only figures for installations that data is available for.

In Phase I of the European Union Emissions Trading Scheme (the EU ETS), between 2005 and 2007, the carbon price collapsed. In April-May 2006, the price for a permit to emit one tonne of carbon dioxide collapsed from over 30 euro to less than 10 euro. The carbon price then eventually declined to less than 0.10 euro by September 2007. The primary reason for this was that too many permits were allocated — the size of the cap was higher than the total amount of emissions. Has Australia learned from what happened? Is the carbon price likely to collapse during the initial phases of the Carbon Pollution Reduction Scheme (CPRS)?

This question is pertinent because the Australian House of Representatives economics committee has been instructed conduct an inquiry into the choice of emissions trading as the central policy to reduce Australia’s carbon pollution. A low carbon price is inefficient because there is a lost opportunity to make deeper reductions in greenhouse gas pollution. This means that deeper reductions will need to be made later (which will cost more), or impacts from climate change will be greater (which will cost significantly more). This issue applies, in a much worse way, when there is no carbon pricing at all (as is happening now).

Phase I of the EU ETS has not been the only time that cap and trade schemes have experienced low carbon prices. In the north-eastern states of the United States, an emissions trading scheme called the Regional Greenhouse Gas Initiative (RGGI) has commenced. The RGGI covers emissions from electricity generation, and allows for the purchase of offsets. It aims to stabilise emissions at 2002-2004 levels by 2015, and then reduce emissions by 10% by 2020. Permits are auctioned, and there have been two auctions so far, the emission permit prices were US$3.07 and US$3.38 per tonne of carbon dioxide.

One “design feature” of the CPRS is that Australia’s emissions trajectory is set 5 years in advance (see Chapter 4 of the White Paper). There is also a target range for emissions reductions to be achieved by 2020 to be 5-15% below 2000 levels (Policy position 4.2). The target range is perhaps the worst aspect of the CPRS White Paper, because an unwillingness by Australia to reduce emissions beyond 15% undermines a good comprehensive international agreement to reduce greenhouse gas emissions. The initial trajectory is given in Policy position 4.5 of the CPRS White Paper. I have converted these figures from percentages to megatonnes of greenhouse gases (carbon dioxide equivalent).

The first indicative national emissions trajectory will be:
• in 2010–11, 109 per cent of 2000 levels (602.5 Mt)
• in 2011–12, 108 per cent of 2000 levels (597 Mt)
• in 2012–13, 107 per cent of 2000 levels.(591.5 Mt)

How does this trajectory compare with what Australia’s emissions will be in the absence of of the CPRS? If the trajectory is higher, then the carbon price is likely to be very low (although this is affected by intertemporal flexibility measures, such as banking).

Projections for Australia’s emissions in the absence of of the CPRS are supplied have been estimated by the Department of Climate Change here. They project Australia’s emissions during the 2008-2012 Kyoto commitment period to be 599 Mt CO2-e. Note that this is below the CPRS trajectory for 2010-2011, about the same as for 2011-2012, and slightly higher than for 2012-2013. The projections include uncertainties in emissions for each sector, they range from 3% to 10%. They do not include uncertainties in emissions from land use change or from forestry. Aggregating these uncertainties is difficult, because emissions in different sectors are not independent. There can be covariance between different sectors. If we assumed the sectors were independent and ignore uncertainties in land use change and forestry, then the uncertainty in the projected emissions is 12-13 Mt CO2-e (about 2.2% of projected emissions). If the emissions in each sector are highly dependent, and we take into account the uncertainty from land use emissions, then the amount of uncertainty could be several times higher.

The Treasury modeling predicts that a 5% 2020 reduction scenario would be consistent with an initial nominal carbon price of $23 in 2010. Since the modeling was released, the global financial crisis has gotten worse and the global carbon prices have dropped significantly. The boom in Australia’s emissions intensive resource industries has also ended. The government has also unveiled a stimulus package that includes $3.9 billion in ceiling insulation for households and incentives for solar hot water.

There have been some very serious declines in the price of carbon as the global financial crisis has been unfolding. In the EU ETS, the carbon price has declined from around 30 euro in mid-2008 to 8-9 euro in February 2009. Credits for clean development mechanism projects (known as certified emission reductions, or CERs) have also declined in price, and are trading at less that 8 euro (around A$15). The price of CERs functions as a cap on the carbon price in the CPRS, because firms will be able to purchase an unlimited amount of CERs to account for their emissions (Policy position 11.5).

One thing that will provide stability for carbon prices is the banking of permits. The CPRS White Paper proposes that “Unlimited banking of permits will be allowed under the Scheme (except those accessed under the price cap arrangements)” (Policy position 8.2). Firms with extra permits can always hold them until a later year, and exercise them then. This means that even if there is an overallocation of emissions, there still will be some demand for permits if there is the expectation that there won’t be an overallocation of emissions in subsequent years. In Phase I of the EU ETS, there was banking of permits allowed, but not between phases. At the end of Phase I the permit price declined to less than 0.10 euro. When there is overallocation, banking spreads the impact in carbon prices across several years, instead of confining it to one or two years.

Because of unlimited banking of permits, the carbon price in the early years of the CPRS will also be affected by the medium term trajectory. The target range of 5-15% that has been set for Australia is not very steep, and is not consistent with what science and equity arguments suggest would be appropriate for Australia. Business as usual projections for 2020 emissions are available, but are even more uncertain than for 2010. Australia’s unconditional target is likely to be easier to meet than the EU’s unconditional target, because Australia’s high per capita emissions imply more opportunities for abatement.

At this stage it is too early to know for certain whether there will be an overallocation of emissions in the initial years of the CPRS, but is is very likely. In this sense, Australia appears not to have learned the lesson of Phase I of the EU ETS. International developments alone suggest that the carbon price is likely to be significantly lower than the price suggested by Treasury modeling. Banking of permits means that the carbon price probably will not be as low as the end of Phase I of the EU ETS. The US RGGI also has unlimited banking of permits, and that has not prevented the carbon price from being very low. It is therefore very likely that unless significant changes are made to the CPRS, it will start with very low carbon prices.

What changes need to be made to the CPRS to make it more effective and efficient? What changes need to be made to put in place long-term incentives for investment in clean energy and low-emission technology? Clearly the targets need to be tightened, the unconditional target could be significantly stronger. The conditional target only serves to undermine climate negotiations by ruling out Australia playing its part in a global effort to reduce greenhouse gas emissions. It is not appropriate for the government to rule out any level of emissions reductions.

There are also structural changes that should be made to the CPRS. The best way to rule out downward price volatility is by introducing a price floor. This could be implemented by having firms pay an extra fee when they surrender their permits, or could be implemented by having a reserve auction price. By having a price floor (and making it sufficiently high) we get many of the advantages that we get from a carbon tax. The CPRS also should not allow firms to purchase unlimited amounts of CERs, this is also because of credibility and additionality problems with the CDM, as well as the effect on prices. If the CPRS allows banking of permits, then for each permit banked, the regulator could reduce the cap by that amount of permits in the following year.

The overallocation issue suggests that permits should not be treated as property rights. This has lead to problems elsewhere, such as with the overallocation of the water in the Murray River. It is also inappropriate to create and allocate property rights that potentially infringe on the rights of future generations to a clean atmosphere. Emissions permits should instead be treated as limited compliance instruments. This suggests that Policy position 8.1 of the White Paper needs to be changed.