In the Green

Personal carbon trading rises again!

MPs have taken a break from proclaiming the death of the Labour party, and today lent their support to the personal carbon credit idea advertised by Ed Milliband 18 months ago. And when I say lent their support, I mean, they said the government should go ahead with it. Here is their report, released today.

Climate policy is all well and good, but I can't say I'm thrilled with this. I wrote about this proposal back in 2006 here, highlighting the fact that their proposed cap and trade system for individuals could be achieved with a tax and rebate ("feebate") scheme. But don't take my word for it: here is Greg Mankiw discussing a feebate in the NY Times last year. In my view, a feebate system avoids the costs and complexity of a cap and trade system, but retains the progressive nature.

But for those new to this discussion, I'll just summarize the issues. The idea is to reduce emissions from domestic energy and transport sources. The MPs from the Environmental Audit Committe (EAC) have proposed that this should be done via a cap and trade system, where each person in the UK is given an equal ration of carbon allowances, which can be "spent" on energy and transport emissions. Allowances that they don't use can be sold on a trading market, thereby offering an opportunity for income for people who are economical with carbon. These are generally people from lower incomes, thereby making the system progressive. Those who need more credits (or tourists) need to buy them from the market. The price of a permit represents the marginal cost of carbon reduction. A massive IT project to say the least - but supporters point to the Oyster card system to suggest it can be done.

A feebate system, on the other hand, places a fixed tax on the enegy and transport products on the basis of their embodied carbon. This incentivises switching to lower carbon products, much in the way as the permit price in a cap and trade system does. All revenue from the tax is then redistributed back uniformly to all tax payers. This means that more economical people are better off under the feebate system than before - which also makes the system progressive. This system, of course, requires transparency from the government.

Sadly, in all the UK government's material about personal carbon trading, I've not seen a convincing discussion about why it would be better than such a feebate. In today's EAC report, I find their argument weak.

For starters, they don't even compare trading with a feebate system - they compare it with green taxes without rebates (which we know are regressive). So they've skewed the argument in their favor to begin with. They also claim that, "We have been unconvinced of the Government’s real commitment to implementing meaningful green taxation." (p.11). Which is a bit rich, coming from MPs.

They then claim:

[I]ndividuals are used to dealing with and absorbing price fluctuations from taxes, and need the provocation of a personal carbon allowance to make real decisions about their lifestyle.

[P]rice elasticity of energy consumption is very low in this [household] sector, which means that carbon prices would need to be very high to have a significant impact on behaviour and emissions.

Pray tell, what is the mechanism that incentivises carbon reduction under the personal carbon credit scheme? Could it be...PRICE?! How they seem to think that the price impacts under a personal credit scheme are more effective than a green tax is beyond me. This is Microeconomics 101: in theory, the impacts are identical, and their argument is bunk.

Now, I say "in theory" because it is possible that a useful advantage is that:

Cap and Share offers personal carbon trading’s sense of empowerment and entitlement. (p.12)

There's a chance that it trading could make people more proactive because they can count their permits like beans. Now, this could make an interesting behavioural economics study, but the EAC have no such results to offer. As they admit, it is "not something we should have to rely on in order to implement a scheme" (p.13). Oh well.

Finally, they claim that the benefits of a personal carbon credit scheme over a tax system outweigh the costs. According to the BBC, "the cost of introducing the scheme would be between £700 million and £2 billion, and would cost £1bn-£2bn a year to run." (When I get further information, I'll compare these costs to their proposed emissions cuts.) I don't have estimates on the cost of a feebate system, but it would likely be implemented easily into the existing VAT and tax return system: no ID cards, no trading market, no mess.

So for now, colour me unconvinced.

Who are you calling a gas bag?

I've been doing a little reading about an interesting little molecule called dimethyl ether, or DME. There are many who claim a bright future for DME as it can be produced from a variety of sources (fossil and renewable), it is a gas at room temperature but is easily liquified for transport, it is water soluble, and is a very clean-burning fuel for heating and in blends with LPG, petrol and diesel. It can also be converted to petrol and chemicals  with high purity. Impressively for such a tiny molecule, it even has its own fan club called the International DME Association, who really would like to see more of it.

[Quick overview of DME production: It does not occur naturally in significant quantities and is made by the dyhydration of two molecules of methanol. Methanol is mainly made from syngas (carbon monoxide and hydrogen)]

Because DME burns cleanly and can be used in all existing engines it is attractive for car manufacturers (Volvo are in the IDA). Because it can be produced frombiomass gasified to syngas it is attractive to legislators (the EU is considering its use in biofuel blends). Because it can be made from coal it is attractive for countries that are short of oil (e.g. China) and coal gasification guys (Lurgi are in the IDA). But mainly it is attractive to oil and gas companies who are finding that natural gas is increasingly located further from its markets (Total and BP are in the IDA).

New Zealand went into production of methanol, DME and petrol from natural gas in 1979 to get value from remote gas fields, and whilst the petrol enterprise didn't survive the oil price collapse of 1986, methanol production did. Now Qatar is following suit with large-scale conversion plants to enable export of its gas as liquid fuels like diesel (via GTL). This is arguably more sensible than selling LNG, which has associated compression/decompression losses and is constrained by availablity of handling facilities. DME might be even better: it is has a 'clean' premium as a fuel, the conversion process has lower capex and opex costs and it can access additional markets such as LPG in Asia.

The problem with these kind of panacea technologies is that their attraction often hinges on the fact that they break the monopoly of a particular raw material, such as that of oil with transport fuel. So hydrogen, electricity and DME are all promoted on their ability to be produced fom renewables, but in reality are often backed by the suppliers of the fossil fuels from which they are more likely to be produced. In the case of DME, it seems that it offers something that hydrogen and electricity do not - it can bring an end to stranded natural gas fields for which pipelines and LNG are not practical - and if the IDA are persuasive enough, we can burn more fossil fuels as long as the crude price stays above $30 (er...likely...).

This post isn't really about whether its a bad thing to have more temptations to burn oil and gas in exciting new ways. It's more about how good ideas (e.g. waste/biomass to methanol to DME) tend to become overwhelmed and distorted once the big boys start to get involved in lobbying; I have no doubt that DME could be produced from renewable resources, but I question whether biomass features as heavily in BP's business plan for DME as it does in their presentations on the subject. In a roundabout way this brings me neatly back to the title of this post, which jumped out at me from a presentation by  a BP technologist on DME.

In a list of different ways to get value from remote gas, Dr Fleisch mentions the 'very small niche' of Gas by Bag. Before I got carried away with my little introduction to DME (above), I  was just intending to put up the pictures below and ask if anyone had any more info on Gas by Bag. It seems astonishing to me that this family have been given the facilities to fill a big old sack with unpurified methane and then just cart it home. I want answers!

• Where do you think this is?
• What can actually be done with gas at realtively low pressures, apart from poisoning and asphyxiation?
• Is it free?
• Why not install provisions for filling pressurised LPG bottles, which would be a 20th of the size  for an equal quantity?

Watch that whale – it has a plastic bag on its head!

Shamed by your pathetically un-environmental principles? Don’t worry help is at hand – instead of getting free plastic bags at the supermarket, pay for them. Technically, you aren’t actually saving the planet –but you will be told you are - everyone wins. But thank goodness the one thing we are saving is as much oil as possible, what a relief!

Even Gordon Brown announced he would force supermarkets to charge for the bags, saying that they were “one of the most visible symbols of environmental waste”. Oh Gordon – you seemed to have confused ‘environmental’ with ‘economic’, mind you it’s so easily done these days.

To my astonishment I discovered that even China plans to address their plastic bag use - at last are they growing a conscience? Well... maybe not, as they will save 37 million barrels of oil a year by cutting production. It certainly pays to care.

Selling Ecosystem Services: A pro-poor conservation solution?

A meeting held by the Forests Philanthropy Action Network and the Department for International Development in London yesterday did well to bring a growing concern to the front of people’s minds; just a shame that there were only a handful of people present.

The meeting, briefly covering the many issues of tropical forest conservation and the rural poor, focussed on the need for engagement of capital markets to realise the value of tropical forests. Academia, the public and private sector are beginning to promote this ecosystem service commoditisation as a method to not only conserve forests but also to reduce poverty in developing countries. On the surface it appears to make sense; depletion of natural resources and poverty often occur together. The development of a market generates revenue for previously “free” ecosystem services. Deliver the funds to those who provide the service and you’ll get poverty alleviation. But this seems more like an ideal, designed to help sell the idea to the policy-maker or consumer, rather than the reality.

Thinking beyond the lifespan of most well-meaning NGOs, will rural communities in developing countries have the capacity to deal with these markets for ecosystem services? Meeting conservation and rural development goals concurrently isn’t straightforward. The Integrated Conservation and Development Projects, appearing since the 1980s, taught us that those living near to projects must have a high level of input in their design and implementation, and sufficiently clear links between conservation and social benefits must be made to secure success.

To take an example, consider payments made for CDM or voluntary carbon market projects in developing countries. It is highly unlikely that the average rural community will have sufficient capacity to deal with issues of additionality, leakage, permanence and management demanded by stringent compliance market conditions and emerging voluntary market standards. It is, arguably, just as unlikely to get private sector consultants and project developers to assess exactly what the local community’s needs and aspirations are. It is more likely we’ll try to implement projects claiming development benefits so that they sell and then shrug our shoulders as marginalised community members get poorer, or indigenous people lose customary property rights.

Those designing markets for ecosystem services need to carefully consider what the project is designed for. Is it compensation for the opportunities forgone? Is it to make tangible poverty reductions and contributions to development? Or, is it merely charity to the local communities that obscure potential implications of, for example, restricting resource access? If it is the first, we need much better ways to calculate opportunity costs before we do more harm than good. If it is the second, we must learn from community based resource management approaches and invest time and effort to establish best practice guidelines. If it is the third, then how long can we really get away with it?

Hey Mr Gore, what about meat?

A whole movie on climate change without talking about livestock farming?
That's what Al Gore did in "An Inconvenient Truth" and this certainly is an important mistake. A newly-released Dutch movie aims to repair this lapse.

Yesterday morning was in London the World premiere of "Meat the Truth", a movie about livestock farming's contribution to climate change. The documentary is presented by Marianne Thieme, a Dutch MP of the "Party for the Animals".
Thieme's documentary mostly relies on a result of the study released by the FAO (UN Food and Agriculture Organisation) in 2006: "Livestock's long shadow".
This study showed that livestock farming accounted for 18% of the world greenhouse gas emissions, making it one of the worst contributors to global warming.
While cars and energy are often thought by the public to be the only big contributors to climate change, not many know the importance of agriculture and especially livestock farming's contributions to GHG emissions.

Although the 18% figure has recently been challenged, it is not really new to say that Western diets containing lots of meat are responsible for much more GHG emissions (especially methane, a GHG that is 25 times more powerful than CO2) than vegetarian diets. And there have already been several good posts on this topic on this blog (Simon's 1 and 2 and Will's).

But the movie manages to communicate effectively on this issue, with enough wit for the audience to feel challenged but not patronised.
One of the funny bits of the movie is Marianne meeting a former cattle farmer from Montana that became vegetarian after he realised how bad his industry was (a spine tumor was the thought-provoking event that made him change). Howard Lyman, nicknamed the "wild cowboy" appears as a convincing vegetarian (he is even vegan now).

At last, the end of the movie challenges the viewer to change his/her habits of eating meat. The less you eat meat (and dairy), the easier you can reduce GHG emissions from your food consumption (which DOES count a lot as I just said).
Mr Gore might have forgotten to talk about meat consumption's impact on climate change for the simple reason he "has been involved in the business of raising Black Angus for most of his life". Difficult to separate personal life and ideals sometimes...

So how far are you willing to reduce your meat consumption today?

Money where your mouth is

The claim global warming has ended has been du jour recently - particularly because of the recent cold winter. Never mind that the the temperature trend is still up.

As finance blogger Barry Ritzholz comments, "If the above long term chart was a stock, would you short it?". (Graph from here.)

Anyway, a recent Nature article by a German research group makes the projection that global warming will take a pause for the next few years - that the periods 2000-2010 and 2005-2015 will be slightly cooler than the 2004-2014.

In response, the guys at RealClimate have said are willing to put up money against these predictions:

If the average temperature 2000-2010 (their first forecast) really turns out to be lower or equal to the average temperature 1994-2004 (*), we will pay them € 2500. If it turns out to be warmer, they pay us € 2500. This bet will be decided by the end of 2010.

We offer the same for their second forecast: If 2005-2015 (*) turns out to be colder or equal compared to 1994-2004 (*), we will pay them € 2500 – if it turns out to be warmer, they pay us the same. The basis for the temperature comparison will be the HadCRUT3 global mean surface temperature data set used by the authors in their paper.

William Connolley has already offered a bet that the Germans won't take it. Blogger Tamino points out one reason:

They’d be suckers to take your bet, especially the first part. The Nov.1994 - Oct.2004 average for HadCRUT3v is 0.3594, the average from Nov.2000 to the present is 0.4246. This means that for them to win the 2000-2010 part, the average temperature from now to Oct.2010 would have to drop to 0.1722. ‘Tain’t likely.

Let's see if the second part goes through...

Connecting news

Two news. The first is about surge in power sector construction cost. The other is about the lobbying efforts of an increasing number of people for the introduction of feed-in-tariffs in the UK.
This two news do not seem really connected. In my mind they are, a bit; simply considering that if the cost of conventional power sources is increasing then the relative cost of renewables might become not so high as before. So, we might need to update all those studies around (also used by governement to make decisions on energy policy) that compare  cost of different power technologies, taking into account not just the increase in fuel cost (i.e. the variable cost), but also increases in initial capital cost. I guess it would take some time, as in reality a robust estimation of generation costs is quite time consuming and subject to many uncertainty and discretion. But, who knows, in few years we might get interesting results.. and different energy policy approaches toward renewables.
well, not sure I succeeded in connnecting..but still, I think they are two interesting news/messages!