So what was the fuss about? You'd be forgiven to think that the Copenhagen meeting was a failure and that the environment has fallen off the agenda of most leaders. In fact, in the UK and in most other countries 2010 will be a year of new environmental legislation for many companies. And, Copenhagen, far from being a failure, may well turn out to be a precursor to a legally binding treaty signed in Mexico at COP16 this year.
Copenhagen was always going to be difficult to produce a success. The Kyoto Protocol in 1997 was agreed right at the last minute and then the Americans pulled out. It wasn't until the Marrakesh Accords in 2001 that the mechanisms for Kyoto were agreed and only when the Russians voted to accept the treaty in 2004 did it formally begin in 2005.
At Copenhagen, a rough agreement includes India, China and the USA. Reducing Emissions from Degradation and Deforestation (REDD) is also included and pretty much agreed. Forestry or the reduction of it accounts for 17% of global emissions and any target here is to be welcomed. The EU is willing to reduce emissions by 30% and there is very little challenge to the science of climate change. It won't be easy, but there will be a legally binding agreement in Mexico this year.
Regardless of Copenhagen, the EU is committed to a 20% cut in emissions which equates to a 34% by 2020 for the UK. If Mexico 2010 is successful, it's likely that the EU will increase its emissions reduction to 30% which equates to a 42% for the UK by 2020. Even if you include the reduction in emissions since 1990, there is a still a lot to do by 2020. Every business and household will need to reduce emissions by around 30%.
That's why 2010 is going to be an important year for the UK. In April, the CRC Energy Efficiency Scheme and a new Feed-in-Tariff regime begins. One is about energy efficiency for large firms; the other is a subsidy regime for households and businesses for renewable generation.
The CRC Energy Efficiency Scheme will include every school, hospital, most public buildings as well as large firms that have an energy bill of around £500000. For every tonne of CO2 emitted, the organisation will have to pay £12 a tonne. For Norfolk County Council that's nearly £1million. They will get most of this back, but it depends on how much energy they have reduced compared to other organisations. All CRC participants will be part of a league table where the position will dictate the additional fee you pay or the bonus you receive.
Norfolk County Council emissions are rising and, like other councils, face a rising CRC bill unless they can conserve energy hence the move to switch off street lights. Organisations that claim to be green will soon be exposed by the CRC league table. What's interesting about the CRC is that organisations won't be able to reduce emissions by investing in renewables: they have to reduce energy consumption.
In the next few posts, I will be writing about what households and businesses can do reduce energy use and increase renewable investment under the CRC and the new FiT regime. I'll be analysing the impact of voltage optimisation, change behaviour, solar PV, AD and much more.
Showing posts with label Carbon Reduction Commitment. Show all posts
Showing posts with label Carbon Reduction Commitment. Show all posts
Tuesday, 19 January 2010
Friday, 4 December 2009
The Story of Cap n Trade...
Traders haven't got much of a good press recently as they have been blamed for excessive risk taking and nearly bringing down capitalism. It's a great story, but it ain't true. Retail banks - thats RBS to you and me - took excessive risks and brought down capitalism not the traders.
And so to another great story - the story of cap and trade.
The Story of Cap & Trade from Story of Stuff Project on Vimeo.
You have to hand it to Anne Leonard and her team - they know how to get press and get a great story out there. But let’s look closely at some of the accusations:
1. The cap and give away.
The free permits. I have discussed this earlier this year. Phase 1 (2005-2008) of the European Union Emissions Trading Scheme (EU-ETS) which this story is based on was a cap and giveaway. Billions were made by the utility companies in windfall profits. Which is why in phase 2 (2008-2012) and especially in phase 3 (2012-2020) the allowances will have to be bought at auction. The proposed US cap and trade scheme is also proposing auctions and the CRC Energy Efficiency Scheme - the UK's trading scheme for smaller businesses - has 100% auctions. In fact virtually every economist argues for it. It ain't a cap and giveaway anymore.
2. Caps too loose
In phase 1 for the EU-ETS, the caps were too loose which meant the carbon price fell sharply. But it’s been suggested that this was deliberate to secure buy-in from industry. Get them in, and then tighten the cap. In Phase 2 the EU rejected most national allowance plans - not the UK's - but virtually everyone else's. For phase 3, member states won't be allowed to set them - only the European Commission which means a tighter cap AND a wider cap that will include aviation and more industries. There is also a strong argument for a price floor which basically makes it a tax and cap and trade. The US proposal also suggests a price floor.
3. Offsetting
People really don't like offsetting, but lets get a few things right. There are two types - certified emission reductions (CERs) that are generated by Clean Development Mechanism (CDM) projects and voluntary emissions reductions (VERs) which are not.
CDM projects have to get verified by 12 UN bureaucrats and need to show that they are providing additionality (that a renewable project, for example, would only go ahead if there was income generated from CERs) AND that they are not just replacing home country emissions. If a utility company funded a project in China to reduce emissions of a coal plant, they would have to prove that they have reduced emissions at home first.
So, a utility company within the EU-ETS, may decide that it is more cost-effective to reduce emissions in another country (where coal fired stations are less efficient) than to reduce emissions further at home (where coal fired stations are more efficient). First, they have to get the project approved and that takes 18 months; remember, there are only 12 of these UN bureaucrats to approve 1000s of projects. Second, the EU-ETS only allows a small percentage of offsetting - around 10% - and once this has been reached there is no more allowed. Finally, they have to hope that their project in another country is built to spec and works to spec and reduces emissions. Oh, by the way, they can't use voluntary emissions to offset their own emissions as they are not regulated by the UN.
When CDM works well it can benefit countries through increased income and technology transfer. If China, India and Brazil want to grow, CDM projects can facilitate this without increasing carbon emissions.
So where does this leave us? Well, it's great story, but it's spoilt by the facts. Leonard is short on alternatives, but let’s visit them, briefly. First, we could have a carbon tax and there is a strong argument for this over cap and trade. The problem is that businesses and the public don't like them, accountants are great at reducing tax burdens and how do we harmonise a global carbon tax? There's no precedent.
What about simply telling business to meet a standard? Well, how do we define a global standard? Should it be the same for all countries? Also, command and control systems tend to reward complacency and companies that do the minimum. Companies that go beyond the minimum are simply not rewarded.
Ultimately, in my view, it's down to two things: first, the trading of carbon blows people's minds away. Think about it, it doesn't physically exist like coffee or oil or other commodities. Second, a vocal section of environmentalists don't like the profit motive or capitalism and see cap and trade as part of this problem. I don't see it as that way: it's government regulation using the profit motive. Without government, the carbon market wouldn't exist. The other benefit is that cap and trade is on the brink of securing a better climate change deal - that's some achievement.
And so to another great story - the story of cap and trade.
The Story of Cap & Trade from Story of Stuff Project on Vimeo.
You have to hand it to Anne Leonard and her team - they know how to get press and get a great story out there. But let’s look closely at some of the accusations:
1. The cap and give away.
The free permits. I have discussed this earlier this year. Phase 1 (2005-2008) of the European Union Emissions Trading Scheme (EU-ETS) which this story is based on was a cap and giveaway. Billions were made by the utility companies in windfall profits. Which is why in phase 2 (2008-2012) and especially in phase 3 (2012-2020) the allowances will have to be bought at auction. The proposed US cap and trade scheme is also proposing auctions and the CRC Energy Efficiency Scheme - the UK's trading scheme for smaller businesses - has 100% auctions. In fact virtually every economist argues for it. It ain't a cap and giveaway anymore.
2. Caps too loose
In phase 1 for the EU-ETS, the caps were too loose which meant the carbon price fell sharply. But it’s been suggested that this was deliberate to secure buy-in from industry. Get them in, and then tighten the cap. In Phase 2 the EU rejected most national allowance plans - not the UK's - but virtually everyone else's. For phase 3, member states won't be allowed to set them - only the European Commission which means a tighter cap AND a wider cap that will include aviation and more industries. There is also a strong argument for a price floor which basically makes it a tax and cap and trade. The US proposal also suggests a price floor.
3. Offsetting
People really don't like offsetting, but lets get a few things right. There are two types - certified emission reductions (CERs) that are generated by Clean Development Mechanism (CDM) projects and voluntary emissions reductions (VERs) which are not.
CDM projects have to get verified by 12 UN bureaucrats and need to show that they are providing additionality (that a renewable project, for example, would only go ahead if there was income generated from CERs) AND that they are not just replacing home country emissions. If a utility company funded a project in China to reduce emissions of a coal plant, they would have to prove that they have reduced emissions at home first.
So, a utility company within the EU-ETS, may decide that it is more cost-effective to reduce emissions in another country (where coal fired stations are less efficient) than to reduce emissions further at home (where coal fired stations are more efficient). First, they have to get the project approved and that takes 18 months; remember, there are only 12 of these UN bureaucrats to approve 1000s of projects. Second, the EU-ETS only allows a small percentage of offsetting - around 10% - and once this has been reached there is no more allowed. Finally, they have to hope that their project in another country is built to spec and works to spec and reduces emissions. Oh, by the way, they can't use voluntary emissions to offset their own emissions as they are not regulated by the UN.
When CDM works well it can benefit countries through increased income and technology transfer. If China, India and Brazil want to grow, CDM projects can facilitate this without increasing carbon emissions.
So where does this leave us? Well, it's great story, but it's spoilt by the facts. Leonard is short on alternatives, but let’s visit them, briefly. First, we could have a carbon tax and there is a strong argument for this over cap and trade. The problem is that businesses and the public don't like them, accountants are great at reducing tax burdens and how do we harmonise a global carbon tax? There's no precedent.
What about simply telling business to meet a standard? Well, how do we define a global standard? Should it be the same for all countries? Also, command and control systems tend to reward complacency and companies that do the minimum. Companies that go beyond the minimum are simply not rewarded.
Ultimately, in my view, it's down to two things: first, the trading of carbon blows people's minds away. Think about it, it doesn't physically exist like coffee or oil or other commodities. Second, a vocal section of environmentalists don't like the profit motive or capitalism and see cap and trade as part of this problem. I don't see it as that way: it's government regulation using the profit motive. Without government, the carbon market wouldn't exist. The other benefit is that cap and trade is on the brink of securing a better climate change deal - that's some achievement.
Sunday, 11 October 2009
Prosperity without growth?
Professor Tim Jackson of the Sustainable Development Commission has made the case that we have been living the myth of economic growth. This myth has led to widening income inequality, stagnated our wellbeing and is leading us to environmental catastrophe. He suggests that we need to recalibrate - perhaps revolutionise is a better word for it - the economy to restrict economic growth to ensure a more even distribution of wealth and to avert climate change: Prosperity without growth.
How? Jackson groups his 12 solutions into three key areas: building a sustainable macroeconomy; protecting capabilities for flourishing and respecting ecological limits.
Building a sustainable macroeconomy
First, we need to reconfigure how we measure growth. Not as radical as it sounds. The Stern Report was essentially a new way of looking at long term growth taking into account externalities. Jackson argues that we need to consider caps or rationing and to embed them into our economic modelling. Second, he argues for a Green New Deal. Third, financial capital needs to be reined in using a tobin tax or tighter regulations. Fourth, a new model of economic accounting is required to take into account economic wellbeing. President Sarkozy of France has argued for this following Joseph Stiglitz and Amarta Sen as well as other eminent economists.
Protecting capabilities for flourishing
Fifth, we need to move towards a much better work life balance - perhaps following France's 35 hour maximum working week. I'm not quite sure how that fits in with Sarkozy's current thinking as he got rid of this on an election platform! Sixth, Jackson argues for a redistribution of wealth on a large scale. His seventh suggestion is a reiteration of measuring wellbeing - he quite likes this one. The eighth suggestion is interesting as it argues for strengthening human and social capital creating resilient communities. This could involve increased participation to protecting our libraries to making sure we fund our museums. Nine is to restrict and reverse consumerist culture. This could mean more funding to the BBC and restrictions on advertising especially for children.
Respecting ecological limits
The tenth suggestion is a cap on on emissions or resources. Nothing too radical here, the EU-ETS and CRC are essentially emissions caps and more are being planned. Perhaps he refering to emissions caps for individuals that Milliband suggested a few years back. Jackson doesn't sell this one very well by referring to war-time rationing or cuban-style living! Suggestion 11 argues for the greening of the taxation system - something that is slowly happening. There is no mention of what happens to tax revenues when people stop using carbon or resources. Finally, suggestion 12 argues for technological transfer and for the protection of biodiversity.
Remember this is a government commission which highlights how mainstream these ideas are becoming and businesses need to be aware that some of these ideas may be policy in the next few years. What I think is interesting is the language or "discourse" of the argument. It doesn't engage business, if anything business causes the problem. The market is a problem and government is the solution. There are three key issues, though.
First, governments have to be elected. David Cameron gets all touchy feely about wellbeing indicators and at the same time suggests that his government will slash spending on, well, museums, the BBC and other things that arguably enhance our wellbeing. Governments, however, do want to make radical changes - they know the seriousness of climate change, but try to tax more on cars or petrol and you have a revolt. They back down. They back down as the public don't want to be told by the "nanny state" what to do.
The second point is that businesses and markets can work more quickly within a boundary dictated by the government. The EU-ETS and the CRC are examples of this. The government basically got businesses on board by saying: "we're going to cap your emissions, but you can do what you like to reduce them or to buy carbon credits". Very little fuss. Personal Carbon Credits could do just that. Let the market dictate within a boundary dictated by the government. Who has a smaller carbon footprint? The less well off. Who has the largest footprint. The middle classes. Let them trade - it sounds nicer than redistribution of wealth. People who consume less are now rewarded. Of course, it's not as simple as that - there are a whole host of questions on how to decide the cap and whether it should be household based or individual based and so on.
The final point goes back to a theme I keep refering to. Get business on board with these ideas and you will have much greater change. It's easier to change 10 multi-nationals corporations than to change the citizens of ten countries.
How? Jackson groups his 12 solutions into three key areas: building a sustainable macroeconomy; protecting capabilities for flourishing and respecting ecological limits.
Building a sustainable macroeconomy
First, we need to reconfigure how we measure growth. Not as radical as it sounds. The Stern Report was essentially a new way of looking at long term growth taking into account externalities. Jackson argues that we need to consider caps or rationing and to embed them into our economic modelling. Second, he argues for a Green New Deal. Third, financial capital needs to be reined in using a tobin tax or tighter regulations. Fourth, a new model of economic accounting is required to take into account economic wellbeing. President Sarkozy of France has argued for this following Joseph Stiglitz and Amarta Sen as well as other eminent economists.
Protecting capabilities for flourishing
Fifth, we need to move towards a much better work life balance - perhaps following France's 35 hour maximum working week. I'm not quite sure how that fits in with Sarkozy's current thinking as he got rid of this on an election platform! Sixth, Jackson argues for a redistribution of wealth on a large scale. His seventh suggestion is a reiteration of measuring wellbeing - he quite likes this one. The eighth suggestion is interesting as it argues for strengthening human and social capital creating resilient communities. This could involve increased participation to protecting our libraries to making sure we fund our museums. Nine is to restrict and reverse consumerist culture. This could mean more funding to the BBC and restrictions on advertising especially for children.
Respecting ecological limits
The tenth suggestion is a cap on on emissions or resources. Nothing too radical here, the EU-ETS and CRC are essentially emissions caps and more are being planned. Perhaps he refering to emissions caps for individuals that Milliband suggested a few years back. Jackson doesn't sell this one very well by referring to war-time rationing or cuban-style living! Suggestion 11 argues for the greening of the taxation system - something that is slowly happening. There is no mention of what happens to tax revenues when people stop using carbon or resources. Finally, suggestion 12 argues for technological transfer and for the protection of biodiversity.
Remember this is a government commission which highlights how mainstream these ideas are becoming and businesses need to be aware that some of these ideas may be policy in the next few years. What I think is interesting is the language or "discourse" of the argument. It doesn't engage business, if anything business causes the problem. The market is a problem and government is the solution. There are three key issues, though.
First, governments have to be elected. David Cameron gets all touchy feely about wellbeing indicators and at the same time suggests that his government will slash spending on, well, museums, the BBC and other things that arguably enhance our wellbeing. Governments, however, do want to make radical changes - they know the seriousness of climate change, but try to tax more on cars or petrol and you have a revolt. They back down. They back down as the public don't want to be told by the "nanny state" what to do.
The second point is that businesses and markets can work more quickly within a boundary dictated by the government. The EU-ETS and the CRC are examples of this. The government basically got businesses on board by saying: "we're going to cap your emissions, but you can do what you like to reduce them or to buy carbon credits". Very little fuss. Personal Carbon Credits could do just that. Let the market dictate within a boundary dictated by the government. Who has a smaller carbon footprint? The less well off. Who has the largest footprint. The middle classes. Let them trade - it sounds nicer than redistribution of wealth. People who consume less are now rewarded. Of course, it's not as simple as that - there are a whole host of questions on how to decide the cap and whether it should be household based or individual based and so on.
The final point goes back to a theme I keep refering to. Get business on board with these ideas and you will have much greater change. It's easier to change 10 multi-nationals corporations than to change the citizens of ten countries.
Wednesday, 10 June 2009
Selling Hot Air part two
The Carbon Reduction Commitment (CRC) is something we're going to hear more about in the next few months. Unlike the EU trading system, which for most people is off their radar, the CRC is carbon trading coming closer to home.
From next year, any large organisation in the UK will now have to measure their carbon emissions for energy use and from 2011 they will have to buy carbon allowances (permits) at £12 a tonne of CO2. By large organisation, we're looking at companies that have a turnover of over £50million a year. Under the EU trading scheme, it was very energy intensive companies involved, but the CRC includes supermarkets, car dealerships, commercial property owners, colleges, schools, hospitals and government buildings.
Whereas I was suggesting that the EU trading system has a price floor, the CRC has one and prices cannot fall below £12/tonne. In addition, there is a league table of all companies involved - the less CO2 you emit the higher your league position. This last bit of legislation is very clever: companies might be tempted to pay the cost of pollution by buying carbon allowances, but now they have to consider the impact on their brand if they have a low league table ranking.
Gradually, the UK is carbonising its decision making. If you're a school and you want IT equipment, the person in charge of the budget will need to know what is the carbon impact. Less impact means less cash needed to buy carbon, or more income from selling surplus allowances to carbon hungry businesses. Building a new supermarket will need require calculations on how much future energy it will use to appraise the extra costs of buying carbon allowances. If a school is switching to low carbon IT equipment, then providers will need to go greener themselves; if Tesco are building a green supermarket (and, before you laugh, they are actually doing this!) they will need green architects, builders and so forth. Low carbon decision making will be forced on smaller firms whether they like it or not. The smart ones will be ahead of the game and gain extra business.
The CRC, if it has a successful launch, is likely to be replicated across the EU and the US. The green revolution is starting...Just one question, when is the government going to tackle the elephant in the room? Who will dare to touch transport?
From next year, any large organisation in the UK will now have to measure their carbon emissions for energy use and from 2011 they will have to buy carbon allowances (permits) at £12 a tonne of CO2. By large organisation, we're looking at companies that have a turnover of over £50million a year. Under the EU trading scheme, it was very energy intensive companies involved, but the CRC includes supermarkets, car dealerships, commercial property owners, colleges, schools, hospitals and government buildings.
Whereas I was suggesting that the EU trading system has a price floor, the CRC has one and prices cannot fall below £12/tonne. In addition, there is a league table of all companies involved - the less CO2 you emit the higher your league position. This last bit of legislation is very clever: companies might be tempted to pay the cost of pollution by buying carbon allowances, but now they have to consider the impact on their brand if they have a low league table ranking.
Gradually, the UK is carbonising its decision making. If you're a school and you want IT equipment, the person in charge of the budget will need to know what is the carbon impact. Less impact means less cash needed to buy carbon, or more income from selling surplus allowances to carbon hungry businesses. Building a new supermarket will need require calculations on how much future energy it will use to appraise the extra costs of buying carbon allowances. If a school is switching to low carbon IT equipment, then providers will need to go greener themselves; if Tesco are building a green supermarket (and, before you laugh, they are actually doing this!) they will need green architects, builders and so forth. Low carbon decision making will be forced on smaller firms whether they like it or not. The smart ones will be ahead of the game and gain extra business.
The CRC, if it has a successful launch, is likely to be replicated across the EU and the US. The green revolution is starting...Just one question, when is the government going to tackle the elephant in the room? Who will dare to touch transport?
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