Carbon Trading Schemes

[Julia]

Could someone explain exactly how these schemes are going to work, please?

As I understand it (and I may be completely wrong here), various organisations/businesses are going to be able to buy and sell carbon credits.

i.e., say Company A is very environmentally conscious and manages to reduce their emissions. They are then entitled to carbon credits which they can sell. Is this right?

then Company B is the opposite. It's business is such that it's not economically viable to cease some of their practices which increase their emissions. So they are able to buy the credits from Company A which will allow them in free conscience to continue their current practices.

Do I have this right?

If so, how on earth is this going to solve anything?

And, next thing, can someone please explain to me the reason why we are being warned that our electricity charges will rise exponentially with a carbon trading scheme. Is it because most electricity generation is coal powered, this is a nasty emitter, and therefore our power companies are going to have to buy the said credits as above to allow them to continue emitting their excessive muck?

Please don't jump down my throat if my conjectures above are quite wrong.
That is why I'm asking the question.
At this stage, I'm having some difficulty in suppressing the suspicion that, at least as far as electricity companies are concerned, they will jump at the chance of any excuse to bump up prices. Who will actually ask them to present justification for so doing? Not us silly little consumers, huh.

 

[Insan3]

Hi Julia,

My understanding is that you are close, but instead of Company A having reduced emissions, their business is actually doing something environmentally friendly. To counter Company B, who continues to pollute as normal.

Such as -
Company A (New Enterprise) taps into Methane Gas provided by Land Fills and creates energy source. Sells Carbon Credits to Company B - Let's say a major airline.

My understanding is best with airlines. You pay an additional $5 for your flight, that $5 is used to purchase Carbon Credit, which is sold by a company who used those raised funds to build a renewable energy plant/fly to Africa and replace light bulbs with energy efficient bulbs/cover labour and land purchases for new plantations/etc/etc.

I guess the theory is that the scheme 'funds' environmentally healthy projects - to make up for others polluting through carrying on their business with no/minimal changes. Lets everyone go to bed with a warm, fuzzy feeling.

 

[Smurf1976]

There are a number of possibilities for the detail, but the basic principles are as follows:

For carbon TRADING

1. Government legislates that carbon emissions are capped to a total of x per annum.

2. Government creates an exchange (like the ASX) or similar through which carbon "permits" can be bought and sold. The total number of permits is equal to the capped amount, presumably reducing each year or at least on a semi-regular basis.

3. You have to have a permit to emit the carbon. If you have no permit, your power station, airline etc IS shut down no questions about it.

4. The reducing number of permits gradually forces buyers out of the market. It is not a case of paying enough, but a case that ultimately emissions have to go down as there can't be enough permits to do otherwise at ANY price.

Now the complexities are many. Who creates the permits? Does government simply create them and sell them on the market? Or do they issue them free initially to established operations, gradually reducing the number over time? Do carbon sinks (eg trees) create permits? Or are we only measuring emissions and not including sinks? Is this a domestic scheme or intended to work internationally?

There are lots of things the government could come up with as far as the specific workings are concerned. For example, What if someone just traps methane from an old landfill that they don't even own? Do they gain permits etc from that? Presumably yes, but the detail is not known as yet.

Something similar already works with Renewable Energy Certificates (REC's). In short, your electricity retailer is required to source a small % of energy from new renewables.

To make this work, they have to surrender certificates to a government department in proportion to their total electricity sales. Those who generate renewable electricity create the entire supply of certificates - all the government does is mandate the scheme. And since there can be trade, a retailer in (say) Perth can buy REC's from a renewable generator in (say) Tasmania even though the two grids are not connected.

All that matters is that someone, somewhere in Australia generates the renewable energy (from new sources) and that the retailer is paying for it to go into a grid somewhere. It doesn't have to be the same grid - it's the same atmosphere on the same planet which is what counts. This is not part of the carbon trading scheme but the principle is very similar (used it for example only).

...

A carbon TAX is simply just that. A tax. Higher prices might lower emissions but there is no cap as such, unless government chooses to ramp the tax as high as is needed to reach a certain emissions level. There does seem to be a leaning towards a tax at the moment and less towards trading. That could change of course - politics.

...

The reason for rising electricity costs is indeed due to coal. It won't be illegal to burn it, but the cost of carbon permits will greatly increase the cost. And over time as the availability of permits reduces, total coal use will likely be forced down.

Coal is the major source of electricity in Qld, NSW and Vic. It is significant in WA and SA too. NT and Tas have no significant coal-fired plants (though Tas is running about one third on mainland coal-fired power at the moment and does have 2 very small coal-fired plants at industrial sites). So most Australian's are on a grid where coal is a major factor as far as price is concerned. And coal is, at present, very cheap.

In total, coal is around 80% of total electricity generation in Australia - historically it was close to 100% in Queensland, over 90% in NSW and over 85% in Vic. Only now is it falling but it's still very high in those states. SA and WA use quite a lot of gas, NT is almost exclusively gas (small amount of oil), Tas is predominantly hydro and always has been.

Some are suggesting that gas-fired generation will provide a cheap way out. This ignores however the reality that gas prices would rise substantially (to world market levels) with such a major increase in demand. And of course you have to build the gas-fired plants, pipelines etc. Gas is not a cheap way out in the long term.

Your bills will certainly go up, the only question is by how much. I'm more worried about industry though - in some situations it's possibly a 25% or so increase in total business (not just energy) costs in an internationally competitive market. Odds are they'll simply close.

 

[Smurf1976]

My understanding is best with airlines. You pay an additional $5 for your flight, that $5 is used to purchase Carbon Credit, which is sold by a company who used those raised funds to build a renewable energy plant/fly to Africa and replace light bulbs with energy efficient bulbs/cover labour and land purchases for new plantations/etc/etc.

I guess the theory is that the scheme 'funds' environmentally healthy projects - to make up for others polluting through carrying on their business with no/minimal changes. Lets everyone go to bed with a warm, fuzzy feeling.

Carbon offsetting. Works very easily when it's voluntary as in this example. But it gets a lot more complicated when the airline (or their fuel supplier - I expect it will be done at the fuel supplier level) has to have a carbon permit or the plane is grounded. Becomes quite complex when you think about it - hence the apparent shift towards an outright tax.

 

[So_Cynical]

Could someone explain exactly how these schemes are going to work, please?

As I understand it (and I may be completely wrong here), various organizations/businesses are going to be able to buy and sell carbon credits.

i.e., say Company A is very environmentally conscious and manages to reduce their emissions. They are then entitled to carbon credits which they can sell. Is this right?

then Company B is the opposite. It's business is such that it's not economically viable to cease some of their practices which increase their emissions. So they are able to buy the credits from Company A which will allow them in free conscience to continue their current practices.

Do I have this right?

If so, how on earth is this going to solve anything?

Julia...your (how it works) assumptions are about right.

The above helps solve the problem by reducing GG Emissions, it puts a dollar value on the reduction, to help
with the addition cost of that reduction.

Theres pretty much not a single company/organization that cant easily reduce GG Emissions...depending on the
flexibility of whatever the conditions are of the new trading scheme.

More flexibility/freedom = easier reductions
Less flexibility or rigid conditions = harder more limited reductions.

In the old NSW scheme there were only 5 options...so not a lot of room for innovation there.

Under a proper/good trading system ANY organization that can verify an emissions reduction can claim an offset/credit.

 

[Julia]

Thanks to everyone who took the trouble to explain it.

Much appreciated.

I'm still not convinced elec. companies won't regard it as a perfect opportunity to rip off consumers yet again.

 

[wildkactus]

Hi all,
if you are interested here is a site that may help.

it is for the International Emissions Trading Association.
http://ieta.org/ieta/www/pages/index.php

I think they set carbon credits at about $7 a ton but they have since go into double digits.

 

[Timmy]

There is an article in the SMH that serves as a reasonable introduction to emissions trading and some of the implications.

With quotes like:

"We realise there is a cost of carbon but it's how you introduce the cost without making it hyper-inflationary and an industry killer," the chief risk officer at Qantas, Rob Kella, says. (that's me going eek, not the Qantas guy)

and:

Truenergy's Richard McIndoe goes further. He warns that without proper compensation, some power companies will go under, triggering national blackouts.
I think that warrants another

This is going to provide fertile ground for research into who will be the winners and losers, and to develop trading/investment strategies to be on the plus side of this huge change.

 

[So_Cynical]

U only have to look at the airlines and transport company's to see that
almost nothing to reduce the impact of carbon trading has been done, these
industry's have known this was coming for more than a decade and they
have done nothing and are preparing to do nothing.

 

[Smurf1976]

U only have to look at the airlines and transport company's to see that
almost nothing to reduce the impact of carbon trading has been done, these
industry's have known this was coming for more than a decade and they
have done nothing and are preparing to do nothing.

I must point out that if you're going to reduce emissions from aviation then, in practice, that means simply having less aviation. The only way Qantas, Virgin etc are going to make significant ongoing emissions cuts is to fly fewer people on fewer planes less often since technology offers relatively little as far as aviation is concerned. One reason why I've long thought those promoting tourism as a long term major industry are wrong. And if not emissions, it will be oil that kills the airlines instead.

As for electricity, I'd totally agree with the view that if you shut a few power stations then the lights WILL go out. There's really no doubt about that from a technical perspective. Contrary to the claims of a certain political party, we don't exactly have an excess of capacity to start with (indeed the reverse is somewhat true) so any cut means blackouts.

Also, consider this. If we're going to use less coal then we're going to use more of something else. Oil's too expensive and gas is already starting to go the same way so forget those. And wind can't go far enough from a technical perspective. So we're going to use...

Personally, I do think the climate change problem is real. But I also think that 10 years from now we'll be ignoring it, the necessary steps to curb emissions having proven too costly to bear.

I also think we'll see an energy crisis on a similar scale to the water crisis at some point. Only trouble is, it won't suddenly rain petrol or electricity (well, it will rain a bit of electricity but we're not about to run the whole country on hydro) so it will take a lot longer to fix.

Smurf's prediction: A decade from now energy will outrank interest rates, Medicare, defence, social security and water as an issue with mainstream voters. Indeed I wouldn't be surprised to find that Joe Average is paying more for energy than on interest by that time - yes I'm being serious.

 

[ghotib]

Discussion papers are available on the Garnaut Review website which set out the thinking on the emissions trading scheme and include a specific discussion of the effect on power generating companies.

http://www.garnautreview.org.au/CA25734E0016A131/pages/home

As Smurf says, the scheme depends on creating an economic value for carbon emissions by placing a limit on the quantity allowed and then distributing (probably by auction) tradable permits up to that quantity. The scheme "helps" because of the cap on emissions.

You've probably seen that the final report is due out on July 4. I'm rather bewildered that there's been so little talk about it in investment circles or even, apparently, in management and boards. It's going to affect almost everything we do, one way or another.

Smurf I sure hope your 10 year prediction is wrong, because if you're right I think the 10 years after that will be scary.

Cheers,

Ghoti

 

[malachii]

U only have to look at the airlines and transport company's to see that
almost nothing to reduce the impact of carbon trading has been done, these
industry's have known this was coming for more than a decade and they
have done nothing and are preparing to do nothing.

I think this statement is a bit harsh when you consider how efficient modern aircraft are compared to older types. The 747 Classic burns tonnes more fuel than the A380 and carries just over half the payload. How can you say they have done nothing when they have spent billions buying/updating aircraft never mind a lot of the other things that the general public dont see - for example RNP approaches and departures that allow track shortening. This saves a lot of fuel and subsequently carbon emissions.

All airlines are constantly looking for ways to shave off fuel usage and in doing so reduce carbon emissions. They also have a number of people looking at ways to deal with the carbon credit issues that Europe will be introducing soon. There is far more going on than meets the eye.

Most airlines also offer "Carbon Offset" for passengers to offset their carbon emissions but there is only a very small uptake. Maybe passengers need to become more "enviromentally aware".

malachii

 

[Timmy]

Most airlines also offer "Carbon Offset" for passengers to offset their carbon emissions but there is only a very small uptake. Maybe passengers need to become more "enviromentally aware".

malachii

Hey I took up this option on a flight I booked the other day! It was peanuts so I thought "Why not?". Anyway, upshot was I got a message they were unable to process that part of the transaction so despite opting for it it didn't work...

 

[malachii]

My apologies Timmy - this was not meant as a direct dig at anyone in particular - obviously some people must be taking up the option - more just a "belly button gazing" comment I guess!

malachii

 

[Timmy]

No probs Malachii - sorry wasn't having a go or anything. Yeah I saw the carbon offset cost and it really was a tiny amount but it didn't get through their system. I wonder if I get a seat on the wing now when they see I didn't make the contribution!

 

[So_Cynical]

I must point out that if you're going to reduce emissions from aviation then, in practice, that means simply having less aviation. The only way Qantas, Virgin etc are going to make significant ongoing emissions cuts is to fly fewer people on fewer planes etc.

Yes thats true for the negative aspect of there carbon profile...what im
talking about is these company's lifting there positive carbon profile by
engaging in specific non aviation activities that improve there baseline.

EG: buying 1000 acres in Dubbo and planting box and wattles (offsets)

Yes its that simple....and if they had started 10 years ago the annual
cost would of been negligible and they would now be in a position where
there carbon baseline mite be neutral.

Most airlines also offer "Carbon Offset" for passengers to offset their carbon emissions
but there is only a very small uptake. Maybe passengers need to become more
"environmentally aware".

This should of been treated like an airport tax and not an optional extra.

 

[Smurf1976]

Smurf I sure hope your 10 year prediction is wrong, because if you're right I think the 10 years after that will be scary.

I likewise hope I'm wrong. But when you look at what's going on it's rather scary...

Not because there's nothing we can do, there's plenty, but because we're not doing it.

 

[andy87]

from doing an assignment on trading schemes, it's a bloody good idea.... In theory that is. Europe has had all types of 'green branding' schemes for years and is really successful. Currently in Europe its about $37.70/tonne and like previosuly mentioned, is company A produces x/tonnes of carbon p.a. and that is capped by x$ they pay, and company B purchases the same amount of carbon but uses half, company B can 'trade' their existing carbon to company A. Its essentially just another product. In practice, it doesnt benefit the environment because its not going to be invested in it, since businesses are just going to produce the same amount of carbon but have to pay for it. Another business tax. HOORAY!!!

However, in Aus its going to be a massive challenge. Europe has been associated with esd, renewable energy etc. for yonks. Aus has done dick all. The harsh reality we face is in order for it too really work, we have to sacrifice something. Its a double edged sword. i.e. Kyoto. I dont mean to offend the enviro attivists out there but wat a load of poppy **** crap. Rudd is a show pony and during the election he said 'ill sign kyoto bla bla bla'. Really Mr. Rudd, did you sign it??? NO, he merely signed a bit of paper saying the Aus. will push towards reducing their carbon footprint. In order for Kyoto to work, our coal and resource production will have to decrease immensly and have some pretty detremental effects on our economy. As a result, carbon tax & carbon trading is the new 'it' environmental catchphrase. I dont think it can really work in this country because our economy strives on resource production.

And as for the aviation industry, I dont think they will be associated with a trading scheme, more so a carbon tax. Which is even worse, considering its going to add about 17c/ltr. The problem we have is that its a cash generator and there hasnt been any hint on what the taxes are going to be spent on. Renewable energy is where the government needs to focus, and once that has been sorted, then move onto carbon taxing otherwises businesses are going to fork out $$$ for a nothing cause. Just more money in the governments pockets.

The best thing at the moment is the carbon offsetting, but Aus has left that too late. Japan and China are forking out ridiculous amounts of money to purchse land here to offset

Anywho thats my 2 cents. Sorry for the rambling

 

[Ramble]

I would suggest that given the logarithmic effect on temperature at increasing concentrations of carbon dioxide, and the resultant insignificant (viz. indistinguishable from natural variation) outcomes likely from any 'carbon trading' schemes, which inevitably will only maintain the status quo, then you are all being sold a pup by charlatans

How about a carbon trade proponent explains to the forum the revised thermodynamcs and infrared absorbing properies of carbon dioxide that support their marketing?

 

[andy87]

haha mate no idea. Wasnt our objective or brief. Obviosuly you know a little more than me

I would suggest that given the logarithmic effect on temperature at increasing concentrations of carbon dioxide, and the resultant insignificant (viz. indistinguishable from natural variation) outcomes likely from any 'carbon trading' schemes, which inevitably will only maintain the status quo, then you are all being sold a pup by charlatans

How about a carbon trade proponent explains to the forum the revised thermodynamcs and infrared absorbing properies of carbon dioxide that support their marketing?