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.
Showing posts with label carbon margin. Show all posts
Showing posts with label carbon margin. Show all posts
Friday, 4 December 2009
Wednesday, 9 September 2009
Carbon Combat!
As part of our consultancy project with Adnams I mentioned that we were on a quest to find the holy grail of carbon reductions. We ran a project with two Hotels in the Adnams group: the Swan and the Crown. Both are old buildings restricted by planning regulations and by-laws in Southwold, but the staff are keen and aware of environmental issues.
Our project, named Carbon Combat at the suggestion of the hotel teams, involved a competitive element and a financial incentive. For a four week period each hotel team battled to see who could save the most carbon emissions. Each week, after meter readings, posters were displayed in staff rooms and in other areas where staff would notice them. We used a baseline of the last three years' meter readings and the staff were told that all financial savings would be passed on to the hotel team that saves the most emissions.
The project ran at short notice and at the busiest time of the year for both hotels. Guidance was given on "quick wins" or low hanging fruit: switching off lights; keeping fridge doors closed; changing lightbulbs to low energy bulbs; switching off the gas when not needed in the kitchen. All staff - from cleaners, chefs, bar staff and waitresses - were encouraged to think about how to reduce emissions and guests were discreetly guided with quirky messages in their bedrooms.
The results are very interesting. The Swan won with a 32% reduction for the four weeks year on year. The Crown still managed a respectable 9% reduction. The Swan did have an advantage in that they had more efficient boilers and a newer kitchen. The Crown serves more covers using a more inefficient kitchen. However, emissions per room were higher for the Crown than for the Swan.
What's pretty clear, we think, is that around 9%-10% of the reduction in emissions was due to behavioural change - the switching off of lightbulbs and so on. Even the sceptics in the hotel still wanted to beat the other team and there was much discussion on the best method and how the figures were calculated. We're clear that "green teams" are not enough: there needs to be financial incentives -we recommend up to 50% of the savings to be passed on to the staff- with a competitive element attached to it.
What's pleasing is that the management team were very happy - they saved £1000 in the four weeks - and they're looking to extend the project all year round to all four hotels. We will also be recommending to Adnams that they extend the project to their retail outlets and offices. A 10% reduction is easily within reach and given that Adnams have signed to the Guardians 10:10 campaign - it's all come together nicely.
Our project, named Carbon Combat at the suggestion of the hotel teams, involved a competitive element and a financial incentive. For a four week period each hotel team battled to see who could save the most carbon emissions. Each week, after meter readings, posters were displayed in staff rooms and in other areas where staff would notice them. We used a baseline of the last three years' meter readings and the staff were told that all financial savings would be passed on to the hotel team that saves the most emissions.
The project ran at short notice and at the busiest time of the year for both hotels. Guidance was given on "quick wins" or low hanging fruit: switching off lights; keeping fridge doors closed; changing lightbulbs to low energy bulbs; switching off the gas when not needed in the kitchen. All staff - from cleaners, chefs, bar staff and waitresses - were encouraged to think about how to reduce emissions and guests were discreetly guided with quirky messages in their bedrooms.
The results are very interesting. The Swan won with a 32% reduction for the four weeks year on year. The Crown still managed a respectable 9% reduction. The Swan did have an advantage in that they had more efficient boilers and a newer kitchen. The Crown serves more covers using a more inefficient kitchen. However, emissions per room were higher for the Crown than for the Swan.
What's pretty clear, we think, is that around 9%-10% of the reduction in emissions was due to behavioural change - the switching off of lightbulbs and so on. Even the sceptics in the hotel still wanted to beat the other team and there was much discussion on the best method and how the figures were calculated. We're clear that "green teams" are not enough: there needs to be financial incentives -we recommend up to 50% of the savings to be passed on to the staff- with a competitive element attached to it.
What's pleasing is that the management team were very happy - they saved £1000 in the four weeks - and they're looking to extend the project all year round to all four hotels. We will also be recommending to Adnams that they extend the project to their retail outlets and offices. A 10% reduction is easily within reach and given that Adnams have signed to the Guardians 10:10 campaign - it's all come together nicely.
Tuesday, 21 July 2009
The End of Charity part 2
Nic Frances did what he said he would do: become an actor. He is now an actor that can have lots of rests in between jobs as his company Cool NRG has succeeded in gaining approval from the UN for its programmatic CDM project that starts in Mexico. You read can more about it here and here.
Friday, 3 July 2009
The End of Charity
Every now and then someone comes along and inspires you. On the Carbon MBA course, we're lucky to have master classes from people of all walks of life. We've had Carbon specialists talking about Kyoto to finance directors discussing their company. All have been excellent, but none as inspirational as Nic Frances. Frances is one of those people who have the ability to inspire all sorts of people in different ways. He has been a priest and then became a charity worker before losing faith in "doing good". He now calls himself a social entrepreneur, but has decided to sell his businesses and become an actor. Hardly bog-standard MBA stuff.
His book The End of Charity highlights his journey from Jesus to selling to carbon credits in Mexico. It's well worth a read and I would jettison any MBA text book that has the word(s)excellence or value-added or blue skies or whatever the latest business jargon is in fashion.
He had a failing business that he turned around by getting to grips with the Carbon market, and, indeed, made a very good carbon margin. In Victoria in Australia, he realised that he could gain carbon credits by giving away low energy light bulbs. The price of carbon was A$10 a tonne, each pack of four light bulbs saved one tonne of carbon per annum and cost A$5 to distribute. The carbon margin being A$5/tonne. His failing business was saved. He did the same in the UK. In September last year he distributed over 4 million light bulbs via the Sun newspaper. They gained carbon credits for the energy companies and he took a cut. According to external audits 85% of the bulbs are used. This means a huge reduction in emissions.
So what? Well, no charity could match that nor could any government; in fact no organisation of any kind has matched what he has done to reduce emissions. And, it gets better:
Frances hopes in the next few weeks to have approval from the UN for his Clean Development Mechanism (CDM) project in Mexico.
CDM projects, put simply, are carbon offsets. An energy company in the UK may miss its EU-ETS targets and can buy emissions reductions elsewhere - in this case Mexico. There are skeptics about offsets, but they are highly regulated and will reduce global emissions AND reduce poverty. Frances' company - Cool NRG -is giving away 30 million low energy light bulbs to low and middle income households across Mexico starting in the city of Puebla. It is estimated it will cut 8.1 million tonnes of CO2 over ten years. It will also save US$165 million in lower energy bills AND save the Mexican government US $585 million in electricity generation infrastructure costs and US $200 million in reduced household electricity subsidy payments each year. Cool NRG make an IRR of 15% if the price of carbon is around €15/tonne. A lot more money is made if projections of the price of carbon rising to €30-€50/tonne in the next 5-10 years are correct.
Some interesting facts emerge from this: the saving to the Mexican people is the equivalent of one weeks income and the money saved is five times the annual US aid budget to Mexico. This is money direct to the people without NGOs or governments saying what it can be spent on.
It's a work of genius from an entrepreneur who wants to make money. Can Oxfam do this - yes they can, but they don't. Can any NGO do this - yes they can, but they don't. What some people don't like is that it makes a carbon margin; what they fail to understand is that "doing good" doesn't work. It needs to be both.
His book The End of Charity highlights his journey from Jesus to selling to carbon credits in Mexico. It's well worth a read and I would jettison any MBA text book that has the word(s)excellence or value-added or blue skies or whatever the latest business jargon is in fashion.
He had a failing business that he turned around by getting to grips with the Carbon market, and, indeed, made a very good carbon margin. In Victoria in Australia, he realised that he could gain carbon credits by giving away low energy light bulbs. The price of carbon was A$10 a tonne, each pack of four light bulbs saved one tonne of carbon per annum and cost A$5 to distribute. The carbon margin being A$5/tonne. His failing business was saved. He did the same in the UK. In September last year he distributed over 4 million light bulbs via the Sun newspaper. They gained carbon credits for the energy companies and he took a cut. According to external audits 85% of the bulbs are used. This means a huge reduction in emissions.
So what? Well, no charity could match that nor could any government; in fact no organisation of any kind has matched what he has done to reduce emissions. And, it gets better:
Frances hopes in the next few weeks to have approval from the UN for his Clean Development Mechanism (CDM) project in Mexico.
CDM projects, put simply, are carbon offsets. An energy company in the UK may miss its EU-ETS targets and can buy emissions reductions elsewhere - in this case Mexico. There are skeptics about offsets, but they are highly regulated and will reduce global emissions AND reduce poverty. Frances' company - Cool NRG -is giving away 30 million low energy light bulbs to low and middle income households across Mexico starting in the city of Puebla. It is estimated it will cut 8.1 million tonnes of CO2 over ten years. It will also save US$165 million in lower energy bills AND save the Mexican government US $585 million in electricity generation infrastructure costs and US $200 million in reduced household electricity subsidy payments each year. Cool NRG make an IRR of 15% if the price of carbon is around €15/tonne. A lot more money is made if projections of the price of carbon rising to €30-€50/tonne in the next 5-10 years are correct.
Some interesting facts emerge from this: the saving to the Mexican people is the equivalent of one weeks income and the money saved is five times the annual US aid budget to Mexico. This is money direct to the people without NGOs or governments saying what it can be spent on.
It's a work of genius from an entrepreneur who wants to make money. Can Oxfam do this - yes they can, but they don't. Can any NGO do this - yes they can, but they don't. What some people don't like is that it makes a carbon margin; what they fail to understand is that "doing good" doesn't work. It needs to be both.
Tuesday, 17 March 2009
Countdown to Copenhagen09
Two hundred and seventy four days to Copenhagen 09. Who cares? Well, I do, for one, and I'm trying to make sense of amount of information we have on climate change. I started the grandly titled Strategic Carbon Management MBA at the UEA in January and thought I was pretty well informed. Renewables is the future, no need for nuclear and bio-fuels seem troublesome and coal is a really bad idea in the race to reduce carbon emissions.
It's more complicated than that. There are hard choices, for sure, but there's also a lot of muddled thinking. So I'm aiming to get some clarity. For me, I have some key questions:
It's more complicated than that. There are hard choices, for sure, but there's also a lot of muddled thinking. So I'm aiming to get some clarity. For me, I have some key questions:
- Renewables. Will they be enough? If we have solar panels on every house, an increase in tidal and wave energy and continue with our wind development will we be able to cut emissions by 40%?
- How do we change consumer behaviour? We're talking about cutting emissions by 40% in ten years. Can you think of one example where government initiatives or the private sector have managed to achieve such a target in such a short space of time? So what role does carbon marketing have?
- What new technologies are out there? There's been a lot of focus on, say, green cars and how they will assist us to reduce emissions. You can see how revolutionary the Internet has been in the space of ten years. Is there a green equivalent?
- Is there a carbon margin? Kyoto and current UK legislation is focused on tradeable pollution permits making the assumption that the profit motive is essential to reducing emissions. Will this work?
- Finally, if the government is too slow to react will it be too late to reduce emissions or will the market simply adjust prices? In other words, will businesses reflect a carbon price once profits start to decline? Who will this impact the most?
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