A Musing Environment

The What People are Saying portion of the series on the culture wars began with Climate change is a concern: yes or no? Now for part 2:

—Cap and trade for greenhouse gas (GHG): yes or no?
Overheard in public discussions:
• Cap and trade, a policy that limits total GHG emissions increasingly over time, but allows the trading of permits to pollute, is necessary because without an increase in price, individuals and companies will not make decisions that reflect the cost.

• Utilities and other businesses would benefit most from adding a cost to GHG today because such a cost is A) inevitable, sooner rather than later; and B) getting the rules and costs nailed down soon will facilitate long-range planning. (A number of utilities have been expressing frustration for a decade because they don’t know the rules, yet must make $2 trillion in investments.)

• Governments have proved reluctant to implement policy that results in a serious cost for GHG. Of the nations that signed Kyoto, almost none placed any cost on GHG, and for the few that did, the cost was low. So forget cap and trade, an expensive way to regulate pollution without coming up with new solutions. Instead, governments could finance technological breakthroughs through public investment.*

• Current technology is sufficient and sufficiently cheap. This argument comes from two different groups. Some nuclear energy advocates say, use nuclear for power, heating and electric transportation; it will take care of most of the problem. The second group appears to believe that Big Business and the Government are hiding that we already have enough renewable technology to avert the crisis, and could become 100% renewable within a decade or two.** Both groups believe we could be fossil-free soon.

• A greenhouse gas tax is better than cap and trade, because Big Business will benefit too much from the structure created to implement the cap and trade policy. And we should return a percentage of the tax to the lower and middle classes. On the other hand, if cap and trade is used, we should auction 100% of the permits, so that business does not benefit from “windfall profits” (eg, Friends Committee on National Legislation Six Keys to a Successful Cap and Trade Program).

• Cap and trade is likely to kill the economy.

• Others see any cost as OK, no matter how high, “if we are fighting climate change, we need to do all we can”, they say in response to questions about particular policies.

Read in IPCC and other major reports from peer-reviewed community:
A cost on greenhouse gas is critical, through cap and trade and/or a tax. Some analysis suggests whatever the attraction of tax (costs known, reduction uncertain), that cap and trade (reduction known, cost uncertain) is a better policy when large, rapid reductions are needed. (See Pew Center’s US Climate Action Proposal for a simplified explanation, or the more-detailed IPCC Working Group 3.) Severin Borenstein, director of University of California Energy Institute, believes the question unimportant, and that either must be tweaked to get us where we want to be (his talk). Giving away permits cannot be simplified as a benefit for big business, eg see Robert Stavins.

Most important: get a cost, get it now, and make sure that it becomes appreciable soon. While many kinds of solutions are necessary (including technological innovations, behavioral changes, and efficiency mandates), adding a steep cost to GHG is perhaps the most necessary of all. Borenstein believes we won’t really tackle climate change until the price of greenhouse gases reaches $60-80/ton and possibly $100/ton (5 cent/kWh, 90 cent/gallon gasoline). Go to Borenstein’s talk, around 51 minutes—or catch the whole talk for a good introduction to energy issues.

Experts also say that while the costs are high, they aren’t as high as ignoring climate change and biodiversity loss. See for example, The Stern Review (the report is several years old, news from the climate change community is scarier, and politicians have done little, so costs could be larger today). The costs for addressing climate change will be high, but some subsidies are excessive, eg, solar (>41 pence/kWh, >66c in the UK)—choices must be made.

Increasing funding for research, development, and deployment is critical (see for example Belfer Center’s analysis, DOE FY 2011 Budget Request for Energy Research, Development, Demonstration, and Deployment: Analysis and Recommendations), but new technology alone is not the solution. Also see IPCC Working Group 3.

Note: increased R&D is cheaper than adding a cost to GHG emissions. The current Department of Energy R&D budget is more than $10 billion, so major increases would be on the order of $10 – 30 billion. A GHG cost of $100/ton adds 90 cent/gallon to the price of gasoline, or $120 billion/year on sales of 138 billion gallons gasoline (US, 2009). Adding a 10 cent/kWh cost to coal electricity, 5 cent for natural gas, assuming no change in production or use, would impose a cost of $20 billion (US, 4 trillion kWh in 2008). Since there would be a shift towards greater efficiency and reduced driving of cars, and a shift away from coal and natural gas, costs would be much lower. A concrete plan implemented over time provides needed information for choosing among cars and power plant sources. Increased R&D is also important, but it will not substitute for a GHG cap and trade policy, or tax. Note: economists often suggest using some of the money raised to substitute for other taxes, and some to be returned to consumers as a general benefit to help compensate for higher energy costs.

Neither nuclear nor renewables is expected to supply 100% of 2050 electricity under the most optimistic scenario, nor are nuclear and renewables together expected to supply all of 2050 electricity.

*See, for example: Ted Nordhaus and Michael Shellenberger:

[T]he debate between carbon tax and cap-and-trade proponents is a false one. The problem is that no government in the world so far has been willing to establish and sustain a high price on carbon, whether through taxes or caps. This is due to at least four substantial and interlinked issues: the political power of incumbent energy interests, low consumer tolerance for high energy prices, the economic impacts that substantially raising energy prices will have on key energy-intensive sectors of the economy, and — most importantly — the substantial price gap that continues to exist between fossil fuels and clean-energy alternatives….For this reason, we argue that environmentalists must shift from looking to high carbon prices to drive private sector energy innovation to using low carbon prices to fund public sector research, development, and deployment of clean energy technologies.

**See, for example, Amory Lovins, who claims renewables are already cheaper than all alternatives.

Innovation solves the climate problem, not at a cost but at a profit. I think that already is happening. I was just looking at the numbers for the U.S., and it turns out we have existing technology that can displace our coal-fired electricity more than 22 times over—cheaper than buying a new coal plant, and you can displace all of it with some room to spare cheaper than running an old coal plant. So if you look at the astonishing developments in the market, I think you will see some validation of that. Two-thirds of the world’s new electricity is now from micro power—that is, cogeneration plus renewables, minus big hydro. So all of the central plants—coal, nuclear, gas—have been pushed into minority market share because they cost too much and have too much of a natural risk.

Lovins appears to be saying both that new technology is needed and current technology is more than sufficient. I failed to substantiate his claims about 2/3 of the world’s new electricity.

What People are Saying
part 1—Climate change is a concern: yes or no?
part 3—Choosing technologies/changing behavior
part 4—Population reduction has to happen first
second part—What People are Saying—Population reduction has to happen first, part 2

This entry was posted on Tuesday, September 21st, 2010 at 8:56 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.