Wednesday, October 25, 2006

Media Keeps Trashing Emissions Trading.

I responded to a comment found on Larvatus Prodeo which seemed to me to be symptomatic of the general take on Emissions Trading:

I find it interesting that the idea of emissions trading - when taken from what the MSM puts out - always receives the initial negative response. The system is not perfect, I grant you, but it is really the first global effort that has some sort of organizing umbrella organization (the UN [link] ) that has the galvanizing support of one very important group behind it: financial market types.

Sure you may laugh at my comment, but if you consider other suggestions as put forth by the environmental types (um, basically shut down everything) or the individual “taxation” routes adopted by governments, you might begin to see why the idea of bringing into the realm of financial markets trading has some street cred.

I am, you should be aware, a financial markets type and a cynical one at that. My first salvo of cynicism is this: it would not ever have the chance of succeeding from the get-go unless bankers saw a profit in it. Sure, greed plays a major part in the success of the emissions trading scheme.

Next I will say that when people begin to understand emissions trading, they will see that the issue of ‘too many credits’ could very well be considered (in my opinion) a carrot rather than the stick, approach. Later on these carrot addicts will be facing the stick but entirely too far along to get out the carrot-stick world. I mean, basically, that the credits given out will be less and less over time.

Next, and this is very important, is that while there is emissions trading in the 25 nations of the EU (and 27 next year when Romania and Bulgaria join), credit can be incubated and harvested from around the world. For example, an energy user in China which burns coal, may be converted to gas, a cleaner fuel. They are enticed to do this because they can sell the future credits to willing buyers (to be used by the EU25 companies who must pay with these credits at the end of each year).

It may surprise you that there are huge amounts of money being invested into such funds now and a financial markets type like me begins to see the value of it (and begins drooling).

Ok, so now I am appearing to be a self=serving greedy trade. Well I am. But it proves to you one thing, capitalism, the pursuit of profit, has done what a bunch of greenies could not do: bring real action into the equation.

Yes, yes, there are problems. There are inequalities of access, far from transparent markets, perhaps too many credits to begin with. But it is a start!

Another criticism is that it is not so easy to understand is the economists’ wish of an auction.Well, I hate to say it, but I have now experience first hand the threat of a financial markets boycott. How? Well if the bankers are involved, they see ways that they can subvert the system to trade as they do Bonds or Equities. This is very cynical, but in my opinion, very accurate.

Lets say that the EU 25 companies were all given their credits, EUAs (European Union Allowances), all on one day, and told to trade them all on one exchange, via one electronic platform. A system like this would have been ideal, free from the issues of credit line relationships, payment worries, price transparency, and unequal access, as well as being cheaper to set up. But it wasn’t to be. In my opinion it would never have enlisted the support of banking and energy trading organizations that dominate the market (but represented through their governmental representatives).

Ok. Cynicism aside. I am in it because I enjoy new markets, found a niche for my company (as an intermediary between sellers from Eastern Europe to buyers in Western Europe). But also, I must say that even if one does not believe in global warming, the overall efforts of the Kyoto borne emissions trading scheme gives me succor on two fronts : 1) I do believe lower emissions is better from a general environmental view. I.e.., cleaner skies, cleaner neighborhoods, cleaner rivers. (oops, do NOT call me a greenie, please). 2) It really helps to promote energy efficiency by virtue of the huge R&D money thrown at the search for renewable energy. I don’t know if you have heard, there might be an energy shortage soon.

Ok back to cynicism. Windmills? Not in favour of them. I do not care of the blight on the landscape, but since wind does not come with an on/off switch, its hard to figure into the electricity trading grid. Storing it?: this means using the windmill power, converted to electricity, to pump water up a hill to a reservoir, to be let down the hill, to be converted into electricity. I cringe when I think of this waste.

Other backyard solutions? Solar panels, friction magnets in the oceans, even, if you believe the latest commercial on CNN, small generators under dance floors??? They do have some home applications such as heating the bath water, but the only real hope in my opinion is Nuclear. This is because it is the only big, big, BIG source that can begin to make a dent in the coming energy deficit.

Sorry I have run on a bit, but there are many things people need to understand about the emissions trading schemes. It is driven by the high-minded efforts to help the environment, stop global warming, save us from and energy deficit, etc etc. But only after some greed is thrown into the equation.


Steve Edney said...

Hi Dan,

As the originator of the post I don't think it was a negative response. Far from it. I think its a great idea, although we will see how it eventuates and I'm a little sceptical with the US not on board.

The post was just to put some pieces I've been reading out to a wider audience. Highlighting both a problem and an more innovative way they oculd be used.

My final summary was

"it promises to allow a degree of innovation in approaches like the one outlined by the World Bank, that a regulation based approach would allow."

Which while not exactly three cheers was hardly negative.

ps. I am also a financial markets type as well.

Dantravels said...

What, you negative? Not at all. Perhaps I should have made clear that my real point is that the media has been negative.

No worries at all Steve. I guess I misconstrued your cautionary comments "but it is a good lesson in the mistakes that can be made and the need to either slash the number of permits or auction them off if the scheme is going to be worthwhile."

And the use of the word "failures" and the phrase "CO2 emissions collapse" in the early parts might have led me astray.

But may I point out that I must disagree with the logic of your final line "Hopefully it [Carbon Emissions Trading] can, as it promises to allow a degree of innovation in approaches like the one outlined by the World Bank, that a regulation based approach would allow"

In my opinion a 'regulation approach' is precisely what would kill innovation.

Steve Edney said...

Ooops. ok I see the problem

I need some proof reading I do.

Insert a NOT in front of "allow", and you'll get my intention.

Sorry I fully understand your confusion.

I'll just go change the posts!