Emissions Trading

[Buddy]

This is the best I can do, Its not a graph, you see farting is the main problem. gg

Or this, gumnut.......

 

[Smurf1976]

Is there anyone who can easily explain the carbon trading scheme? Perhaps a pictorial diagram, graph or something.

In short:

1. Government legislates that polluters have to pollute less.

2. For some industries this is technically or economically impossible by any means other than cutting production. But we don't necessarily want less of those products or services - we'll still want aeroplanes and steel, for example.

3. So we have a financial instrument which can be traded to ensure that the total reduction in emissions takes place without it needing to come at the same percentage from all polluters. That way, through the market, the cheapest and easiest means of cutting emissions will be the ones we use.

For example, company A might be required to cut emissions by 100,000 tonnes of CO2 equivalent, likewise company B is required to do the same. But it might be a lot cheaper for company A to not cut emissions at all (because it's either not technically possible or is hugely expensive for them to do it). Meanwhile company B can cut 200,000 tonnes reasonably cheaply and without technical issues.

So using the above example, company B cuts by 200,000 tonnes with both company A and B paying part of the costs. This is adminstered by the market - the two companies don't even have to make contact, all that happens is B sells their excess permits and A buys them. Just like I could sell you some shares via the ASX - we don't make personal contact or even know who each other is but the end result works in that you've bought my shares.

That's highly simplified since there are more than two polluters but that's basically how it's intended to work. We use the easiest and cheapest ways of cutting emissions in total and trade in order to make it work financially for all parties both those doing the cuts and those continuing to pollute.

In theory, I'd say it's the best approach since it minimises the cost but still delivers the full cut that government legislates. If it costs company B $10 per tonne to cut emissions then it doesn't make sense for company A to be spending $1000 per tonne to achieve their share of the cuts. Nor does it make sense to be permanently grounding aircraft (for which there are no easy ways to cut emissions) when we could cut emissions somewhere else far more easily.

 

[Julia]

And the costs will be passed on to the end user, e.g. we will all be paying up to 40% more for power. I can't wait.

And at this stage it looks unlikely that many other countries - including the big polluters - will be sharing Australia's zeal for this venture. So we will have our cost of living increase for no global benefit.

 

[It's Snake Pliskin]

And the costs will be passed on to the end user, e.g. we will all be paying up to 40% more for power. I can't wait.

And at this stage it looks unlikely that many other countries - including the big polluters - will be sharing Australia's zeal for this venture. So we will have our cost of living increase for no global benefit.

So what we can discern is that it is basically a tax hat is going hit the country hard and turn it into a Banana republic.

In dire times will we take the enemies' dogs for walks or answer their phones for them? This is the message I get from destroying the manufacturing base of the country.

 

[It's Snake Pliskin]

In short:

1. Government legislates that polluters have to pollute less.

2. For some industries this is technically or economically impossible by any means other than cutting production. But we don't necessarily want less of those products or services - we'll still want aeroplanes and steel, for example.

3. So we have a financial instrument which can be traded to ensure that the total reduction in emissions takes place without it needing to come at the same percentage from all polluters. That way, through the market, the cheapest and easiest means of cutting emissions will be the ones we use.

For example, company A might be required to cut emissions by 100,000 tonnes of CO2 equivalent, likewise company B is required to do the same. But it might be a lot cheaper for company A to not cut emissions at all (because it's either not technically possible or is hugely expensive for them to do it). Meanwhile company B can cut 200,000 tonnes reasonably cheaply and without technical issues.

So using the above example, company B cuts by 200,000 tonnes with both company A and B paying part of the costs. This is adminstered by the market - the two companies don't even have to make contact, all that happens is B sells their excess permits and A buys them. Just like I could sell you some shares via the ASX - we don't make personal contact or even know who each other is but the end result works in that you've bought my shares.

That's highly simplified since there are more than two polluters but that's basically how it's intended to work. We use the easiest and cheapest ways of cutting emissions in total and trade in order to make it work financially for all parties both those doing the cuts and those continuing to pollute.

In theory, I'd say it's the best approach since it minimises the cost but still delivers the full cut that government legislates. If it costs company B $10 per tonne to cut emissions then it doesn't make sense for company A to be spending $1000 per tonne to achieve their share of the cuts. Nor does it make sense to be permanently grounding aircraft (for which there are no easy ways to cut emissions) when we could cut emissions somewhere else far more easily.

Thanks for your description of it Smurph.

 

[Happy]

In dire times will we take the enemies' dogs for walks or answer their phones for them? This is the message I get from destroying the manufacturing base of the country.

Many manufacturers left Australia for the benefit of higher profits with cheaper labour, now remaining industry will get the final nudge to join the exodus.

On the positive side, with no industry left in Australia we will have clean air - mission accomplished.

 

[Smurf1976]

And the costs will be passed on to the end user, e.g. we will all be paying up to 40% more for power. I can't wait.

And at this stage it looks unlikely that many other countries - including the big polluters - will be sharing Australia's zeal for this venture. So we will have our cost of living increase for no global benefit.

Very true in my opinon.

As for the actual costs, I make the observation that the lowest cost new renewable generation that can be built on a significant scale and connected to an Australian electricity grid is about 70% more expensive than new black coal (Qld / NSW costs) or gas-fired baseload generation.

And that figure is for a company with special circumstances regarding its existing assets which enable it to add intermittent generation at significantly lower cost than anyone else. On a larger (national) scale the difference is in the order of 100 to 150% more for renewables (large scale) compared to coal or gas.

If you want distributed generation, panels on roofs etc then we're talking about 1000% to 2000% increase in cost - hence my view that such things aren't worth doing at all unless there's some other reason (eg supporting new technology development with future potential etc).

The 40% figure you hear quoted is the increase in total bill including generation, transmission, distribution, retail and taxes. Those non-generation costs are high for households (about two thirds of the total bill) but are very low for major industry which really only needs generation and transmission. So for major industry the increase in overall cost is pretty close to the figures above for new renewables. Also, that 40% figure is based on doing only part of the job - we'll still be pumping out CO2, just not quite as much of it.

For those wondering, nuclear would be about 110% more than new coal or gas according to the pro-nuclear optimists. I'd personally put it closer to 200% more for a single plant in Australia once all the costs of regulation, waste handling and everything else are included. And that's assuming the plant is built near existing loads (cities, industry) or near the site of existing generation that is being replaced. Costs would be higher if it's built somewhere remote for political reasons.

 

[Smurf1976]

Many manufacturers left Australia for the benefit of higher profits with cheaper labour, now remaining industry will get the final nudge to join the exodus.

You may want to do a little research to find out which Professor was behind much of the destruction of Australian manufacturing in the first place.

Hint: He's recently released a report on climate change.

 

[Buddy]

You may want to do a little research to find out which Professor was behind much of the destruction of Australian manufacturing in the first place.

Hint: He's recently released a report on climate change.

Well, he is certainly true to form in following the original concept of destroying Australian industry. This ETS will be his final piece in the jigsaw. I suppose he feel proud of his work.

 

[Reealjrd]

Emission Trading is a nice concept for trading and receiving news regarding the market secenario.

 

[Aussiejeff]

Very true in my opinon.

As for the actual costs, I make the observation that the lowest cost new renewable generation that can be built on a significant scale and connected to an Australian electricity grid is about 70% more expensive than new black coal (Qld / NSW costs) or gas-fired baseload generation.

And that figure is for a company with special circumstances regarding its existing assets which enable it to add intermittent generation at significantly lower cost than anyone else. On a larger (national) scale the difference is in the order of 100 to 150% more for renewables (large scale) compared to coal or gas.

If you want distributed generation, panels on roofs etc then we're talking about 1000% to 2000% increase in cost - hence my view that such things aren't worth doing at all unless there's some other reason (eg supporting new technology development with future potential etc).

The 40% figure you hear quoted is the increase in total bill including generation, transmission, distribution, retail and taxes. Those non-generation costs are high for households (about two thirds of the total bill) but are very low for major industry which really only needs generation and transmission. So for major industry the increase in overall cost is pretty close to the figures above for new renewables. Also, that 40% figure is based on doing only part of the job - we'll still be pumping out CO2, just not quite as much of it.

Indeed. See 3.2.1 here - http://www.treasury.gov.au/lowpollutionfuture/report/html/03_Chapter3.asp#table_03_2

The graph shows OZ CO2-e increasing at an average of 13mt p.a. from 2005 until 2020 (of which approx. 2mt p.a. is from the addition of approx. 130,000 additional permanent residents each year - mostly migrants - many of which are coming from low CO2-e footprint countries (typically <5t p.a.) to dear old OZ, whence they will likely generate up to 30t p.a. EACH - the price of an increased standard of living!

Am I right in thinking that the gummint's proposed 5% cut in CO2-e is really only AT BEST (if everyone played the game) a 5% cut in the rate of increase of CO2 and NOT a 5% decrease in TOTAL OZ CO2-e?

So, total CO2-e still grows, but just a tad less fast than might have been?

If that is so, what is the point (which is what the Libs are arguing)?

Especially with so many other countries unlikely to do anything.

I'm essentially with Smurf here. Like it or not, politically incorrect or not, it all comes down to largely un-restricted population growth.

Ever-increasing Billions of low CO2-e footprint people WILL scramble to improve their lifestyles & standards of living using cheap power (burning coal, gas, trees etc...) no matter what the small percentage of "civilised" & developed decide would be the nice & decent thing for them to do.

Which MUST inevitably increase total global CO2-e. I'm a total pessimist here. I see no glimmer of hope with regard to reducing total human pollution of the planet. From Wiki -

The last one hundred years have seen a rapid increase in population due to medical advances and massive increase in agricultural productivity made by the Green Revolution.

The actual annual growth in the number of humans fell from its peak of 87.5 million per annum in 1989, to a low of 76.4 million per annum in 2002, at which it stabilised and has started to slowly rise again to 79.4 million per annum in 2007, and 80.2 million per annum in 2009. Growth remains high in the Middle East, South Asia, Southeast Asia, Latin America, and primarily in Sub-Saharan Africa. According to projections by the U.S. Census Bureau, the annual world population growth will peak in 2011 at 80.9 million.

In some countries there is negative population growth (ie. net decrease in population over time), especially in Central and Eastern Europe (mainly due to low fertility rates) and Southern Africa (due to the high number of HIV-related deaths). Within the next decade, Japan and some countries in Western Europe are also expected to encounter negative population growth due to responsible reproduction and family planning.

http://en.wikipedia.org/wiki/Population_growth

Working some VERY rough figures, at around +80million persons added to the planet per annum using a VERY conservative current rest of world carbon footpint of approx. 4.2 t of CO2-e per person p.a., that makes for a whopping extra 336mt of CO2-e worldwide THROUGH POPULATION GROWTH ALONE!!!! The scary thing is that the current low rest of world average is projected to increase significantly over the coming years as the massive populations in poor countries lift their GNP per capita. Apply that to the expected population increase over the same timeframes and VOILA! - une catastrophe humaine

For comparison sake, our piddly lil' contribution in CO2-e growth (via nett permanent population growth of approx. 130,000p.a.) using the same rest of world average would only be around +0.55mt p.a. or +0.16%!!! Our personal contribution to reducing the rate of CO2-e growth will by equivalent to a spit in the Pacific Ocean.

Happy daze ahead....

 

[So_Cynical]

Am I right in thinking that the gummint's proposed 5% cut in CO2-e is really only AT BEST (if everyone played the game) a 5% cut in the rate of increase of CO2 and NOT a 5% decrease in TOTAL OZ CO2-e?

Its a 5% cut in GHG emissions based on GHG emissions in 2000, year 2000 being
the benchmark...under the Kyoto treaty 1990 was used as the baseline....so were
going backward all the time.

Its clear now that the new trading system will achieve very very little, its getting
watered down all the time...the big industry's that have known this was coming for
a decade and a half...and have done absolutely nothing to lower emissions, are
now getting even more free permits to carry on as normal.

Its the small handful of early movers getting screwed...so the big guys can continue
to do nothing.

Penny Wong is my new most hated pollie. :chainsaw:

 

[Smurf1976]

Its the small handful of early movers getting screwed...so the big guys can continue
to do nothing.

Penny Wong is my new most hated pollie. :chainsaw:

To be fair, privatisation and competition in the electricity industry and a financial system that requires, in practice, companies to make a profit has effectively precluded a shift to cleaner energy unless and until forced. To do otherwise requires that you have a monopoly and no need to make a profit in any given year or even any given decade. That's the old government-owned utility model...

I should also point out that environmental groups were the loudest critics of previous attempts, by the old state utilities, to build renewable energy systems in preparation for the ultimate demise of cheap oil, gas and coal. Their argument being that fossilf fuel was far cheaper at the time and that paying the additional cost of alternatives was effectively a subsidy that could be better spent on health, education and the like. This stance is very well documented in the publications of the various environmental groups over the years.

Bottom line is that preparing for this has been made virtually impossible by mainstream political and environmental thinking. Don't blame the industry. Go back to vertically integrated monopoly utilities if you want long term planning in the energy business - that's actually the main reason they were set up in the first place by the way...

 

[Julia]

Penny Wong is my new most hated pollie. :chainsaw:

I'm almost up for joining you in this, but then there's Rudd and Swan.
For me they pretty much achieve equal rating in the Most Loathed Stakes.

 

[doctorj]

I think it’s reasonably fair to say emissions trading as a concept is dead in the water for the foreseeable future. No government in their right mind should be taking steps to increase taxation and constrain growth in the current economic climate.

Governments need to be doing what they can to promote growth. Introducing this into Australia alone will force industry offshore, increase Australian unemployment and may actually increase global pollution through promoting industry to move to places with less robust environmental laws and increased pollution from shipping.

Then you throw in the fact that financial markets have recently proven themselves not to be the efficient allocators of resources we once hoped they would be and you realise there is no hope for this proposal. The last thing we want is banks (who will invariably be intermediaries for these products) having another direct connection to the real economy. If this was to go ahead, how long until we have a range of emissions-related derivatives?

 

[Smurf1976]

IThe last thing we want is banks (who will invariably be intermediaries for these products) having another direct connection to the real economy. If this was to go ahead, how long until we have a range of emissions-related derivatives?

I'd be surprised if the usual suspects weren't involved in the lobbying to introduce carbon trading and also the move to create excessive scarcity of water, thus giving it tradeable value as a commodity.

Both enable entire new markets to be established, traded and manipulated for profit and see bankers and green groups joined at the hip, a rather strange situation given that it is the financial system which lies at the heart of the problem in the first place.

Smurf would prefer proper solutions to these problems. Ones that actually work to fix the original problem rather than working to make someone rich whilst doing next to nothing else. There seems more chance of me landing on Mars than seeing real solutions to problems implemented here on Earth however.

 

[Smurf1976]

Am I right in thinking that the gummint's proposed 5% cut in CO2-e is really only AT BEST (if everyone played the game) a 5% cut in the rate of increase of CO2 and NOT a 5% decrease in TOTAL OZ CO2-e?

It's an actual cut in emissions physically emitted here in Australia.

In practice however it will largely take the form of a reduction here and a corresponding increase overseas plus shipping. So it's roughly zero change from business as usual unless the world runs out of countries without carbon emissions caps - THAT is the problem in all of this.

It's like saying you will pay 100% tax on your income over a certain level but giving you the option of handing some to your wife, husband, brother, father or whoever who will pay no tax at all. Obviously nearly everyone would take advantage of that and such a tax would thus raise very little revenue. Same with emissions caps - most of the emissions will simply be transferred to a country with no such cap.

 

[Glen48]

What IF we suddenly find G W is much worse than the experts thought and we are forced to shut down Power stations etc???
How long before a turn around or do we keep pouring out CO2 and damn the World?

 

[So_Cynical]

Bottom line is that preparing for this has been made virtually impossible by mainstream political and environmental thinking. Don't blame the industry. Go back to vertically integrated monopoly utilities if you want long term planning in the energy business - that's actually the main reason they were set up in the first place by the way...

Smurf im talking about simple offsets (forestry)...look at any of the big transport, Aluminum
or open pit coal miners....they will all need millions of tonnes of offsets, just a lousy couple
of million bucks a year over the last 15 years would of significantly reduced there year 2000
carbon footprint, and need for additional offsets going forward...the cost over the long term
would of been insignificant..they would spend more on insurance than that.

Just sorta answered my own question...cos it looks like the early movers wont get to claim
offsets created before 2000 so any early action will just mean that they would get less
free permits...but still the coal industry ain't getting any free permits anyway.

They couldn't stick to Kyoto because the 1990 targets were just impossible, and now...a year
2000 baseline is looking impossible.

Still i blame industry for doing nothing...and the idiot liberals for encouraging them to do nothing.

Regardless of what anyone believes, this was always coming, and 99% of Australian industry
is totally unprepared for it due to gross incompetence.