Carbon Trading: How does it work?

[korrupt_1]

Been hearing plenty about Carbon Trading lately.

I've heard that it will be (or already is) a tradable instrument on some exchanges?

So, we're going to be paying more tax to reduce carbon... how does this tax that I'm paying help clean the environment up?

Yeh, sure it will go to the companies that pollute so they can build better infrastructure to minimise carbon emissions, but who will regulate the money they receive?

You all know about "carbon offset credits"... why should I feel better by giving my hard earn money to some 'organisation' that will 'manage' it.... to me it feels like sinners buying forgiveness... "here, take my money,... i'm not guilty anymore. It's someone elses' problem now"

So back to the heading, how does carbon trading work? How is it 'tradable'? It's not like it's a desirable commodity is it?

 

[Julia]

Korrupt, here's an outline from one of the papers today.

 

[moXJO]

It works by all the costs being passed on to the consumer.

 

[Smurf1976]

One thing most people won't realise is that with total emissions now capped, it is completely pointless for anyone to make an uneconomic decision to reduce their emissions.

No matter how much you cut your emissions, national emissions will remain exactly the same since they are effectively at a pre-determined level.

It's like saying that you're going to spend exactly $1000 this week. Then you go shopping and save $50 buying specials. All that means is you now need to blow another $50 on the pokies or whatever - you're spending a total of $1000 no matter what.

So what I'm saying is that in this new world we're headed into, make any decision to reduce emissions on purely economic grounds after the cost of carbon is included. Anything else is pointless.

 

[juw177]

You all know about "carbon offset credits"... why should I feel better by giving my hard earn money to some 'organisation' that will 'manage' it.... to me it feels like sinners buying forgiveness... "here, take my money,... i'm not guilty anymore. It's someone elses' problem now"

No, I think you are a bit confused. The businesses have to pay to pollute. Not us.

The only known method to stop humans from doing irresponsible things for a profit is to enforce a monetary penalty on it.

Carbon trading is a fair way to enforce it. The idea is businesses will invest in cleaner technologies to save carbon permit costs. But it is not without its problems of course.

 

[Julia]

If the government were doing its job properly, we wouldn't need this thread.
We should all know how the proposed scheme is intended to work.
Apart from people like you, Smurf, I doubt many of us have any idea.
I'm just really taken aback at the projected 16% rise in electricity charges for a start!

 

[Buddy]

Juw, absolute rubbish.
Are you one of the left wing ideological driven bleeding hearts?
Let me correct you before anything else by stating that C02 in NOT a pollutant. In fact it essential for life on this planet! Have any of you dimwits ever thought of what would happen if CO2 levels went down instead of up?

This so called carbon tax is just that. Another tax. It will do nothing to "save the world", and in fact we are probably heading for the biggest depression since Adam was in the caves, with this stupid idea. It will do absolutely nothing to stop the increase in CO2 levels, let alone lower the total CO2 content of the atmosphere.

Now on to something more relevant to this thread. Smurf, do you know how the coal export industry and LNG export industries are to be treated? Are they to be "taxed" on the total content of the CO2 in their export product or just the CO2 that they emit in the the mining, treatment and export of the product? If they are taxed on the total CO2 content then that is not fair! They are not the ones burning the product, it is the Chinese, Japanese and Koreans. They are the ones that should be taxed, not the exporter! Please correct me if I am wrong on this but I think my question justifies Julia's statement "If the government were doing its job properly........". Very few of us really understand the mumbo jumbo behind this scheme. And that's hardly surprising, considering it has been invented by "economists, bureaucrats, and polies". By definition it was always going to be a big pile of rubbish.

 

[Smurf1976]

If the government were doing its job properly, we wouldn't need this thread.
We should all know how the proposed scheme is intended to work.
Apart from people like you, Smurf, I doubt many of us have any idea.
I'm just really taken aback at the projected 16% rise in electricity charges for a start!

Totally agreed that community understanding of this issue is very low and government needs to be doing better.

Electricity generation is the single largest source of emissions and the one most easily cleaned up, hence the general focus on it. Easiest to clean up for two reasons - a few very large sources of the emissions (power stations) would be much easier to fit capture technology to than, say, 10 million cars.

And you can use solar, wind, hydro etc to generate electricity with the consumer being unaware that anything has changed. It makes no difference if my computer is running on power from Morinna (a tiny 102 year old hydro plant in Tas), Loy Yang (a massive brown coal plant in Vic running since 1984) or Pelican Point (a medium size modern gas-fired plant in SA).

You may not realise it, but if you live in Qld, NSW, Vic, Tas or SA and are on the grid then ultimately you're connected to Morinna, Loy Yang, Pelican Point and all the others. It's all one big system and 99.999% of people would have no idea which power station increased its output when they turned the toaster on this morning. And there's no reason for them to know, or care, since it's exactly the same thing being produced by all of them - electricity.

The industry generally makes investment decisions assuming the long term price of wholesale electricity to be about $40 per MWh.

But if we add a $20 carbon cost (per tonne) then that will increase average industry costs to around $60 per MWh (it's close to 1 tonne of CO2 per MWh on average).

And so $60 becomes the market price which consumers will pay and upon which decisions will be based. That's the key point of how this all works.

So if you have the opportunity to build a renewable source of power at $55 then previously it wasn't economic and so you didn't build it. But now it's economic and so you build it. There's your CO2 saving. And because of the higher prices, consumers will find that solar hot water, insulation, heat pumps etc become more financially attractive and so more will be installed. More CO2 saved.

The market price of the permits will adjust through normal market (like the ASX) operations to find that balance point where sufficient investment in CO2reduction occurs. So overall it's simply using a financial market to address an environmental problem. How the emission reductions occur will be determined by consumers and industry based on what makes financial sense.

All the government is doing is this (my words) - "we've capped total emissions to x level and will issue permits for that. Up to you how you manage that situation - either buy permits at the market price or you can't pollute".

Those who find it cheaper to cut emissions than buy permits will presumably do so, thus reducing emissions and demand for the permits. Those with a higher cost of cutting emissions (or who simply can't) will just pay up. So the emissions end up being limited to where the CO2 emission is of greatest economic value.

As for fuel exports, it's emissions within Australia that count to my understanding. The trouble is with aluminium etc - all the emissions occur in Australia even when the consumption is overseas. At least with coal most of the emissions will be counted as being somewhere other than Australia. In the same way we, not Saudi Arabia, get the blame for petrol etc.

I don't know if that explanation is really going to help, but I'm trying. I should point out that I'm not advocating this scheme, only trying to explain how it works.

 

[AlterEgo]

Let me correct you before anything else by stating that C02 in NOT a pollutant. In fact it essential for life on this planet!

Yes, it’s essential for life (of plants), but needs to be kept at a natural, balanced level. People and animals breathe out CO2, and plants convert it back in to oxygen that we breathe, and the cycle continues. But people have increased this natural level of CO2 with all the burning of fossil fuels, and we’ve been cutting down the forests which are needed to absorb it. If this practice is allowed to continue, CO2 will increase at an ever increasing rate. We need to get the CO2 back to a sustainable level.

This so called carbon tax is just that. Another tax. It will do nothing to "save the world", and in fact we are probably heading for the biggest depression since Adam was in the caves, with this stupid idea. It will do absolutely nothing to stop the increase in CO2 levels, let alone lower the total CO2 content of the atmosphere.

So you know more about the situation than all the world’s experts in the climate science field?

Any depression that happens will be the result of the sub-prime mortgage situation, and because of increasing energy costs. The increase in energy costs is being driven by an ever increasing global demand, and peak oil. Oil prices have increased enormously for a long time now, so is nothing to do with any carbon tax. The proposed carbon tax on petrol is 5c – that’s hardly going to make much difference at all, and is certainly not going to be the cause a depression.

 

[AlterEgo]

I'm just really taken aback at the projected 16% rise in electricity charges for a start!

Change to green electricity then. Or use less. It's not really going to add that much to the cost anyway - only like the cost of of cup of coffee per week.

 

[lusk]

Electricity generation is the single largest source of emissions and the one most easily cleaned up, hence the general focus on it. Easiest to clean up for two reasons - a few very large sources of the emissions (power stations) would be much easier to fit capture technology to than, say, 10 million cars.

I can't understand why that just don't offer a few billion dollars to powerstations to sequestrate CO2 and get it over with or would that be too easy. Instead they decide to introduce something that could clip the wings of the economy and create headaches for everyone.

 

[gfresh]

I've been paying for "green" energy for a couple of years.. I don't mind paying extra, as one way or another we will anyhow. We are all paying extra as a result of environmental change anyhow in the price of our food, in the cost of water, the costs to fix these issues, and probably in our health care. This may only get worse.

I think Smurf's explanation seems to make sense.. it think it will have some sort of effect over time, and the only real way to force people to be environmentally friendly, will be to cost them *not* to be so.

Wasn't there some sort of offsetting idea as well? Where a company can choose to invest in environmentally friendly scheme (which may not be directly related to it's own business), to offset it's own emissions? This would I imagine spark at least some sort of carrot to try new technologies, and new forms of energy - which has been severely lagging in this country.

In 20 years time we'll probably be all looking back, wondering how we got by without such a scheme (or whatever it ends up becoming), because frankly, the rest of the world will be doing the same. Maybe this scheme will turn out to be not ideal, but the population does want some sort of action, so which is it?

I have already seen several (conservative) commentators from overseas comment that our stance is a positive step forward, and I don't think it will be long before other countries are adopting similar, because they're not so pig-headed as we are. Locally of course, this is the end of the world, the sky is falling in, and we're all going to be so poor it hurts. Oh it effects my money, what about me, poor me, I will suffer. Fear. Fear. Fear.

Yes, the cost is a concern to me also in many ways, but I'll deal with it.. but the cliche "what is the greater concern" for our kids and grandkids if the planet is f'ed. They're the ones who will be worrying about it, not most of us, as we'll be gone.

I know there are some older people who seem to dislike any form of change, and it will be pretty biased on any investment forum, however I think amongst some of the younger generation there is a real sense of "this is what needs to be done", even if it will cost them $$. Again, they will be the ones dealing with the consequences if absolutely nothing is done, so for those older to decide that it's a stupid idea seems heavy-handed.

 

[AlterEgo]

I can't understand why that just don't offer a few billion dollars to powerstations to sequestrate CO2 and get it over with or would that be too easy. Instead they decide to introduce something that could clip the wings of the economy and create headaches for everyone.

What I can't understand is why George Bush is spending billions of $ on this Iraq war when he chould be using that money to reduce the Americans oil dependence instead. He has already spent in excess of $550 Billion on this war, and estimates suggest it could end up costing in excess of $1 Trillion!!! Just imagine how much good he could have done by spending it on fixing climate change instead.

 

[Buddy]

Yes, it’s essential for life (of plants), but needs to be kept at a natural, balanced level. People and animals breathe out CO2, and plants convert it back in to oxygen that we breathe, and the cycle continues. But people have increased this natural level of CO2 with all the burning of fossil fuels, and we’ve been cutting down the forests which are needed to absorb it. If this practice is allowed to continue, CO2 will increase at an ever increasing rate. We need to get the CO2 back to a sustainable level.


So you know more about the situation than all the world’s experts in the climate science field?

Any depression that happens will be the result of the sub-prime mortgage situation, and because of increasing energy costs. The increase in energy costs is being driven by an ever increasing global demand, and peak oil. Oil prices have increased enormously for a long time now, so is nothing to do with any carbon tax. The proposed carbon tax on petrol is 5c – that’s hardly going to make much difference at all, and is certainly not going to be the cause a depression.

So where was I talking about petrol? I dont give a poop about petrol prices. I am more concerned about the impact of this tax on business, mining, industrial production, export industry, etc. (And I'll leave Smurf to explain the issues with power generation & CO2 - he/she appears to have a very good understanding of that area). Yes, sure, the way various financial bodies are (mis)managing money, or should I say credit, is going to impact things. But if you think this new tax in Australia is not going to adversely impact the above, you are dreaming.

And the answer to your second para is of course ......... Yes! And you are missing my first point chum. All I said was CO2 is not a pollutant. Get it?


Stop trying to lecture me m8. I have never said anything about CO2 levels, other than to say that if it was going in the oppposite direction we would be is real serious trouble. And before any more of you jump on my back, I am not saying that nothing should be done to lower CO2 levels, I am saying that this is the wrong approach, and governments will simply use this as a revenue scheme. Already the current mob have said that (a) not all money collected will be used to promote alternative energy (with a view to lowering CO2 emmissions), and, (b) Krudd has admitted that he cannot provide any numbers on what this tax will do to CO2 levels. So they are just doing it on a wing and a prayer! Now that's a good way to run the place!

Anyway, this is irrelevant. What I would really like to know is exactly how export industries (coal, LNG, food) are taxed? As Julia said, "If the government were doing its job properly, we wouldn't need this thread." By the way, if it walks like a duck, quacks like a duck, and poops like a duck, what is it? A duck! Same goes for tax.

 

[Julia]

Change to green electricity then. Or use less. It's not really going to add that much to the cost anyway - only like the cost of of cup of coffee per week.

Unless you have some uncanny ability to know what I use electricity for, your suggestion that the additional cost will equate a cup of coffee is simply silly.

 

[AlterEgo]

Unless you have some uncanny ability to know what I use electricity for, your suggestion that the additional cost will equate a cup of coffee is simply silly.

Well you never stated how much you use. That's about what it cost's for the average home consumer to switch to green electricity. But you could be running an aluminium smelter in your back yard for all I know - I can't be expected to know that.

 

[AlterEgo]

So where was I talking about petrol? I dont give a poop about petrol prices. I am more concerned about the impact of this tax on business, mining, industrial production, export industry, etc. (And I'll leave Smurf to explain the issues with power generation & CO2 - he/she appears to have a very good understanding of that area). Yes, sure, the way various financial bodies are (mis)managing money, or should I say credit, is going to impact things. But if you think this new tax in Australia is not going to adversely impact the above, you are dreaming.

It will have an impact, but I believe the impact will be MINIMAL compared the other issues I stated. If you don’t think that GLOBAL DEMAND is BY FAR the greatest cost contributor, then it’s YOU that’s dreaming and can’t see the blooming obvious.

And the answer to your second para is of course ......... Yes! And you are missing my first point chum. All I said was CO2 is not a pollutant. Get it?

No, I didn’t miss your point, bud. It depends on the QUANTITY of it. In HIGH quantities it IS a pollutant. At NORMAL levels it’s not. Get it? Open a CO2 gas cylinder in your room and see just how long you live for!

 

[AlterEgo]

So where was I talking about petrol? I dont give a poop about petrol prices. I am more concerned about the impact of this tax on business, mining, industrial production, export industry, etc. (And I'll leave Smurf to explain the issues with power generation & CO2 - he/she appears to have a very good understanding of that area). Yes, sure, the way various financial bodies are (mis)managing money, or should I say credit, is going to impact things. But if you think this new tax in Australia is not going to adversely impact the above, you are dreaming.

Ok, maybe you are referring to general business and not energy production. If so, then I think you would find that if some industry can't make the changes without enourmous cost, than the government will give most likely give them exemptions, as the last thing the government would want to do is destroy the enonomy.

 

[Smurf1976]

Change to green electricity then. Or use less. It's not really going to add that much to the cost anyway - only like the cost of of cup of coffee per week.

I should point out that it's a 50% rise in the wholesale power price and that is essentially what heavy industry is paying.

For example, power generator X currently has a contract for Y MW to supply Z with baseload energy at $34 per MWh. That represents about 24% of Z's total cost of doing business (that's total cost, not profit). They couldn't recover that loss even if they sacked literally half their workforce and somehow maintained production. And they can't increase their selling price unless globalisation and the free trade is undone first.

So three options here. 1. Government assistance. 2. X (the power generator) takes the loss and drops their real price from $34 to $14 to offset a $20 carbon cost. 3. Z relocates to a country that has electricity around the present price (there's plenty to choose from) and simply ships the raw materials to there.

The above is a real situation in Australia. All I've done is removed the company names.

At the household level, there's a lot of regional variation too. If you're in a cool climate and don't have a heat pump or wood heater then you're in trouble big time. Already there are a lot of situations especially in Tas (and presumably Vic) with pensioners etc harming their health by shivering through winter.

I know of quite a few situations where people limit their power use to, say, $50 a week and in a rental house with no insulation that doesn't come close to keeping you warm especially if you're home most of the time.

But if you're in a warmer climate or have heat pump / gas / wood then it's not such a worry.

Also some big regional economic differences too.

Vic - The state's economy shouldn't suffer too much overall apart from the Latrobe Valley.

SA and NT not such a big deal there apart from household poverty issues with air-conditioning especially in rentals with poor insulation. Uranium's a massive plus assuming the rest of the world follows at some point.

WA, NSW and Qld - here comes trouble. The gas industry will benefit in WA and Qld but just about everything else loses. The NSW government's financial house of cards seems to have caught fire - not exactly an unforeseen event.

Tas - Interesting times ahead - a lot of conflicting forces there. Politically, it's a very difficult situation for all parties and economically it's quite complex. Overall the state is better positioned economically for this than most of the rest. How government handles it will determine a lot of what happens.

 

[Buddy]

It will have an impact, but I believe the impact will be MINIMAL compared the other issues I stated. If you don’t think that GLOBAL DEMAND is BY FAR the greatest cost contributor, then it’s YOU that’s dreaming and can’t see the blooming obvious.



No, I didn’t miss your point, bud. It depends on the QUANTITY of it. In HIGH quantities it IS a pollutant. At NORMAL levels it’s not. Get it? Open a CO2 gas cylinder in your room and see just how long you live for!

Dreaming am I Alter, and you certainly have one?
So Don Voelte from Woodside must also be dreaming. Or should I say having nightmares.
http://www.theaustralian.news.com.au/story/0,25197,24037785-601,00.html
So I guess you are saying $60B is minimal impact. And from an industry that is part of the solution. Such great policy (not).

And CO2 is not a pollutant. "Open a CO2 gas cylinder in your room and see just how long you live for!" is a ridiculous comparison and absurd. No one ever in this debate has ever said that CO2 would get to those levels. You are just fear mongering and talking rubbish!

I notice no one has answered my question yet. More proof that what Julia says, is correct. Which is the whole point of what this topic is supposed to be.

And I have another question for krudd, gannet, parret, duck, giblet and Co. So, if you are going to tax exports, why are you not taxing imports from China where the CO2 is emitted in the first place? Now that would put the proverbial cat amongst the working family pidgeons. Actually, its probably not a bad idea because it would make developed (first world) country industries more competitive - now that would have a positive impact on lowering overall CO2 levels.

As I said in my last post - its a duck!