Nature - Carbon Economy
Nature's special issue on climate change features two articles on carbon trading and the global carbon market. The first, Carbon copies, addressed the likelihood that some sort of cap and trade system will be implemented in the U.S. within the next 10 years, quite possibly by 2010. The system will probably look much like the system currently in place in the European Union, where 362 tonnes of carbon were traded in 2005. Cap and trade, you probably remember, is the system in which carbon emitters are "capped" at a certain amount of emissions and if they are over that cap, they must buy credits from an emitter who is under their cap. Cap and trade has limitations - it could work for industry and power generators, but not for transportation in any simple way. One of the main points of the Nature article is that the carbon market should be compatible with the European market rather than reinventing something that is already working in another part of the world.
The second article, Is the global carbon market working? discusses whether the Clean Development Mechanism (CDM), a global market for emissions reductions established in 2003 by the Kyoto Protocol, is working to effectively reduce carbon emissions. Here's an excerpt from the article explaining how the CDM works:
The CDM works by paying developing countries to adopt lower-polluting technologies than they otherwise would. For example, rather than building an inefficient but cheap coal-fired power plant, a Chinese utility might choose instead to build a more efficient gas-fired plant that emits less carbon dioxide. The difference in potential carbon emissions between the coal and gas plants can, after monitoring and certification, be converted into CDM credits that can be sold to an industrialized nation party to the Kyoto Protocol. The revenue from the credits enables the utility to afford the more expensive gas plant. The purchase of low-cost credits by industrialized nations to offset their own emissions reduces the cost of complying with Kyoto. The mechanism works because it is cheaper to construct low-carbon energy infrastructure from scratch in developing nations than to modify or replace existing technology in industrialized nations.
Sounds great, but is it working? The system has some serious problems. The CDM covers all six Kyoto Protocol gases (CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride), and although even China and India have embraced the system, the incentives for building low-carbon energy infrastructure haven't been effective. Instead, almost 30% of the CDM credits currently come from capturing and destroying trifluoromethane (HFC-23), a by-product of the manufacture of refrigerant gases. HFC-23 is easy and cheap to capture and destroy - industrialized nations do so voluntarily. It would be considerably cheaper for industrialized nations to pay for the installation of the technology to capture and destroy the HFC-23 and eliminate that from the list of possibilities for the trading scheme.
A simple solution offered in the article is to simply make the global carbon market a market for CO2 rather than for all six Kyoto Protocol gases. Use the developing world's participation in the CDM to put those nations on "a path to a low-carbon future" through the development of lower carbon energy sources. Address the other Kyoto Protocol gases in other agreements.
That solution is simple, but unlikely to occur:
What matters in the long term is the type of energy infrastructure that gets locked into place in the world economy. Tackling that problem requires identifying economic, national security, as well as energy priorities of the major developing economies and then finding ways to align them with low-carbon energy infrastructures. The CDM, no matter what the price of carbon, is unlikely to convince China that it makes more sense to depend on foreign sources of natural gas than on cheaper domestic coal. Similarly, India is unlikely to pursue nuclear energy to significantly reduce its carbon emissions, given the challenges of non-proliferation and nuclear waste, without greater international support.
Additional measures will be required in the future to get all nations involved in cutting carbon emissions.
Comments (5)
The U.S. should stay clear of convoluted international entanglements as is represented by the Kyoto protocol. There are those out there, who believe that their position in the world as "great scientist", entitles them to sign these treaties, for the U.S.,which ultimately will suborn the U.S. to foreign (a.k.a.UN), interests. One such "scientist" who comes to mind is al gore. He has political "science" confused with meteorological and other earth sciences.
IF there is a global warming problem created by us (US?) humans, we in the US will eventually find a solution to the problem. Perhaps we will restart our nuclear power plant building programs once again, perhaps we will start tree planting programs, but we will not allow ourselves to be coerced by foreign interests.
Conrad
Posted by Conrad Bruckert | February 11, 2007 8:33 AM
Well, well. The Inconvenient Truth about Kyoto finally comes out. As you stated Laura, "Cap and trade, is the system in which carbon emitters are "capped" at a certain amount of emissions and if they are over that cap, they must buy credits from an emitter who is under their cap. Cap and trade has limitations - it could work for industry and power generators, but not for transportation in any simple way."
So for those of us in this, the most industrialized country in the world, we would have to pay other countries for their credits. Basically, we just hand over billions of dollars to nations, who are required to do nothing but hold out open hands, and receive all of this free money, courtesy of the American consumer! Yup, you and I. Any exorbitant, expense increases to industry would simply be passed onto to us. That sounds so fair, doesn't it? Say goodbye to our great economy. Oh, China and India would be exempt from participating in Kyoto because they are "still developing". How much do they pollute? China's economy is set to surpass ours.
America would have to follow laws made up by foreign, socialist countries, with a hidden side effect of deflating our economy to help inflate the economies other nations.
Posted by Rich | February 12, 2007 12:01 PM
Rich - Cap and trade isn't a nation-to-nation trading scheme. To give an example of how it would work, imagine two coal-fired power plants. One uses standard smokestack scrubbers to remove pollution, but emits carbon dioxide. The other upgrades and installs carbon sequestration equipment, effectively eliminating it's carbon dioxide emissions. Say both are provided with 100 carbon "credits." If plant one's emissions are the equivalent of 150 carbon credits, it could buy the extra 50 credits from the plant with the sequestration equipment. It's a system which penalizes emitters and rewards those who cut emissions.
The CDM is a nation-to-nation scheme, which at least get the developing world doing some things to improve their emissions.
Posted by Laura Hannon | February 12, 2007 12:26 PM
I am all for a comprehensive global system for reducing the amount of CO2 emitted worldwide. I'm not a big fan of the Kyoto Protocol. Something doesn't seem right when the biggest benefactors of an agreement to reduce emissions are the largest emitters. Say I am a big power producer in Germany and I am allocated a certain number of emissions credits. There is an open market for the allowances. Once these allowances are in hand they are marked to market. If you are able to pass the cost of the allowances to the end use electricity buyer you have now made a gain from what you paid for them (zero) and what you sold them for (~20 bucks per ton). The system seems flawed. There has been some good to come from the Kyoto Protocol. Carbon financing for reforestation projects in third world countries is an example (see Belize Mountain Pine Ridge Project).
I really do hope that the US enters a comprehensive global agreement - I just hope the agreement is in the best interest of the people instead of the emitters...
Posted by snooj | February 13, 2007 9:40 AM
If I may better explain my above statement. Sometimes I get a little fired up.
Kyoto punishes emitters, yes. It mandates American emitters to update to new technology or be forced to contribute, buying credits from other countries until we are retrofitted with cleaner technology. Europeans are given an advantage in the Kyoto treaty. They are able to buy and sell emission rights. That makes pollution control a profitable market for European countries. America is not allowed to trade emission rights and has a required limit for emission reduction. This administration isn't the only one to oppose this treaty. President Clinton also opposed the Kyoto Treaty as well as an overwhelming majority in congress and the Senate during the 90's.
Posted by Rich | February 14, 2007 9:24 AM