Jo, you have made a very long reponse. I could respond myself to all your
points but I would be at it all day and I don't think anyone would terribly
want to read it all anyway. So I am only going to address what I see as your
main points.
Your point about relativity has some truth, in that rising energy costs do
tend to push up the cost of pretty much everything else. However there is no
doubt that putting a price on carbon would favour clean energy sources that
are carbon free or carbon light relative to high carbon sources. Much of
this would be taken care of by markets, and the secure knowledge of a long
term minimum carbon price would do wonders to incentivise long term
investment in clean energy production, energy efficiency etc. The spending
of the revenues would also bring about great changes. While a lot would be
spent on adaptation there would still be plenty for altering the whole path
of energy development now taking place in India, China and other countries,
which is heavily coal and oil reliant, and shifting that development path
towards renewables by paying incremental costs. K2 also proposes regulatory
measures designed to overcome market failures which would have the effect of
raising economic efficiency and reducing fossil fuel demand.
You seem to be prejudging many issues - like that the base price will be
weak. Actually there will be strong pressure for a highish base price as
this is what is needed for companies to commit to capital investments they
actually quite want to make. Many big corporates (Shell comes to mind) are
lobbying government to do this. As far as the permit price trajectory goes,
it will be determined by the balance of supply and demand and that is hard
to predict, but I would envisage beginning at a relatively modest price in
the region of $/E 20-40, which will persit until the 'reservoir' of lost
cost options for emissions reductions such as CCS and wind are exhausted,
after which it will rise quite steeply. But by that time the world's energy
infrastructure will be far less dependent on fossil fuels and major
renewables and efficeincy investments will have taken place both from
private funds and from auction funds, limiting the economic / inflationary
impact of the permit price rise. So the emissions reductions would be real,
long term and progressive.
I could go on but mindful of other peoples' time I won't. The book is due
out in June (Zed books).
Oliver Tickell.
-----Original Message-----
From: jo abbess [mailto:[log in to unmask]]
Sent: 19 March 2008 23:13
To: Oliver Tickell; Torsten Mark Kowal; [log in to unmask]
Subject: RE: Response to critique of contraction and convergence? Kyoto2
crititique
Dear Crisis Forum, Oliver, Torsten,
I would like the opportunity to clarify my remarks further, in response to
yours.
1. Cost is Relative
There are many proposals for how you do the "Auction" in any "Cap and
Auction" model to control Carbon Dioxide Emissions.
The point that I am trying to make about Cost being Relative is, that within
any regime for Carbon Pricing, the actual cost of the Carbon to any consumer
or producer become "relativised" within the Economy, after an initial
adjustment period.
First, there is the step up in Cost for Carbon, as the Auction is
implemented (whichever way it is implemented). This disincentivises a
proportion of Carbon Emissions.
Second, the added stepping cost (and of course, it can be a varying cost,
depending on the way you do the Auction), percolates through the Economic
system.
Third, since everything we currently do in the industrialised world depends
highly (probably greater than 90%, at least greater than 80%), everything
becomes more expensive.
Fourth, this inflationary pressure causes a "cost wave", after which the
Economy stabilises again, having devalued the currency to a certain extent.
The fifth stage of applying a Carbon Cost through Cap and Auction is that
Carbon is un-de-permitted again, as its Cost becomes Relative in the Economy
at the same Relative level it was before the Auction was applied.
At no stage is there any incentive to de-carbonise.
You would need to step up the Carbon Cost on a programmed, ratcheted basis
in order to persist in incentivising Carbon Cuts.
Otherwise the full quota, plus any safety valve "store" would always be
used, plus there would be extra leakage (guaranteed).
A Cap-and-Auction without a "base price" for Carbon cannot continue to
deliver Carbon Cuts, as the Cost re-relativises in a short timeframe.
And if you try to set a "base" or "minimum" price, you can expect much in
terms of compromise, and so it will always be a weak price.
You will quickly find there is a "cartel" going on, and the price of the
Carbon will never become a simple function of supply and demand.
The British Columbia Carbon Tax proposal does not expect to affect more than
5% of Carbon Emissions. If you don't believe me, I can find the reference
again for you.
About variable pricing : if you have a rolling Auction, and there are day or
spot prices for Carbon, the same argument applies.
The current Carbon Price through Auction will always be Relative at the same
level to other Costs in the Economy as it is now.
A Carbon Price (applied through any means) is therefore effectively a "flat"
tax. It not only applies to everything, but it is also Relative to
everything.
The same arguments can be applied to all forms of Cap and Trade of Carbon,
for the simple reason that Carbon Dioxide is not a "loner"
chemical. It cannot easily and cheaply be replaced by another
Climate-friendly chemical.
Carbon Dioxide is implicitly involved in every part of technological life,
industrial life, Western/Northern social life, the operation of governments,
everything.
It has been speculated that the effect of Carbon Trading will be to touch
approximately 5% to 10% of Carbon Dioxide Emissions. The reason is that
insufficient amounts of Carbon Credit will be found, and compromises will be
made on the stepping down of the Cap.
The research on sources of Carbon Credits within CDM and so on, has already
shown that there is a problem with bringing Carbon Credits of sufficient
quality and quantity to market.
This means that the Carbon Market will always be smaller than it should be
to be effective.
2. Flow-Down Pricing
Any system that permits the "prime polluters" to pass Carbon Costs down the
Carbon Chain to end consumers is not going to achieve significant timely
Carbon Cuts as there will be no incentive for them to de-carbonise.
[ "Prime polluters" - those who are upstream in the Energy supply and who
have fixed on various forms of primary fuel - for the most part these are
Fossil Fuels today. ]
What I mean is this : if I charge you for your dirty habits, and you make
someone else pay, how does that make you stop being do dirty ?
There is no Clean Energy Investment made possible by charging for Carbon.
All the money from a Cap and Auction would flow eventually into a government
revenue bucket - and would be used on social adaptation and compensation for
Climate Damages.
Remember, governments are bound by rules on how much they are permitted to
dictate which energy sources are to be used. There are international trading
agreements on state interference in Energy, which is deemed to be the realm
of private concerns.
Plus, governments have been supporting the Oil and Gas industries for a very
long time through subsidies and infrastructural support.
They are not going to undermine that. Why rock the applecart ?
3. Carbon as Currency
The only way to get round the problems of "re-normalisation" of Costs, and
to "finance" Green Energy investment is to treat Carbon itself as a parallel
currency, a kind of negative-value currency.
Making CARBON "scarce" by imposing reduction quotas on a fixed timescale
would definitely cause MONEY to get thrown at a sharply rising Green
Investment program.
Please stop confusing Carbon with Money. Money cannot solve Carbon.
Only Quotas can.
jo.
+44 77 17 22 13 96
http://www.changecollege.org.uk
http://www.blackoutbritain.org.uk
http://groups.google.co.uk/group/blackoutbritain
http://www.planet-positive.org.uk
http://www.workface.co.uk
http://groups.google.co.uk/group/climate-energy
> Date: Wed, 19 Mar 2008 15:50:36 +0100
> From: [log in to unmask]
> Subject: Response to critique of contraction and convergence?
> To: [log in to unmask]
>
> Hi Torsten, George,
>
> Thanks for drawing my attention to this critique from Jo Abbess. To
> put the record straight as regards the Kyoto2 proposals and how they would
operate ...
>
> 1. The auction price for Permits is not a "flat rate tax". The price
> is on the contrary determined by the balance at any point in time
> between supply and demand. The biggest danger is that the price might
> go too low (reducing long term incentives for investment) or too high
> (inflicting needless economic damage and hardship), dangers which are
explicitly addressed with K2 by means of reserve and safety valve prices.
>
> 2. The cost of carbon will indeed percolate to consumers, business
> etc. Where else can it go? But bear in mind: (a) at present we are as
> consumers in EU already paying a carbon price in electricity, but this
> is a windfall profit to utility companies (b) the energy price for
> oil, gas, coal etc is determined by the balance of supply and demand,
> with a 'reserve' representing the cost of production and a 'scarcity
> premium'; as such a carbon price, contained within the energy price,
> would make little if any difference to the market price, and would
> come out of the scarcity premium and so reduce resource owners' profit
> much more than it will increase consumer price (c) the money raised in
> this way will go to reduce demand for fossil fuel by way of
> investments in renewable energy etc; this will have, over time, the
> effect of reducing demand for fossil energy and reducing energy
> prices, and is thus anti-inflationary (high fossil energy prices being a
major inflationary driver). The market measures would also be complemented
by regulations aimed at overcoming market failures which are at present
preventing negative cost energy conservation etc; by reducing costs these
would also be anti-inflationary.
>
> 3. Costing carbon does indeed not cap carbon. This is why K2 proposes
> a cap, not merely a carbon price. The EUETS is indeed not so much buoyed
as undermined by Kyoto FM carbon credits. K2 is not.
>
> 4. Abatement depends on the contraction curve that is adopted. The K2
> proposal is for a steep abatement curve leading to carbon neutrality
> by 2050, and leading to stabilisation in the 300- 350ppm (net) range.
Abatement would be long term.
>
> 5. There would be an open, global auction for Permits using the
> uniform price sealed bid system open to anybody with an internet
> connection (and even without). No single player is so big as to be
> able to corner the market. There would also be an active secondary
> market. As explained in (1) there would also be reserve and safety
> valve prices at which the permit banker would at any time buy (at
> reserve price) or sell (at safety valve price)Permits. The cost of
> carbon would reduce the level of profit in the fossil fuel energy
> chain and increase that in renewable / clean energy and energy demand
reduction and energy recycling. Moreover much of the money raised from the
auction would be spent on stimulating such activities especially in
developing countries, reducing fossil fuel demand while boosting access to
energy where presently lacking.
>
> 6. Under K2 there would be business, but not business-as-usual. The
> entire business landscape would be transformed, and in the process
> made far more sustainable. There would be wealth, but not
> wealth-as-usual. A major redistribution of wealth would take place
> (much of it away from fossil fuel production and to clean energy
industries), and from rich consuming nations and individuals to poor nations
and individuals.
>
> Do quote / forward on to the network.
>
> All best, Oliver.
>
> Oliver Tickell
> Kyoto2 - for an effective Climate Protocol www.kyoto2.org
> --
> 379 Meadow Lane
> Oxford OX4 4BL
>
> + 44 (0)1865 728118
> [log in to unmask]
>
>
>
>
>
> ----------------------------------------------------------------------
> ----------
> From: Torsten Mark Kowal [mailto:[log in to unmask]]
> Sent: 18 March 2008 09:43
> To: Oliver Tickell
> Subject: Fw: Critique of Kyoto2 - contraction and convergence?
>
> Oliver! Your proposals are being attacked! Would suggest that you mount
your defense...!
>
> Mark Kowal
>
> ----Original Message----
> From: [log in to unmask]
> Date: 17/03/2008 20:44
> To:
> Subj: Re: Critique of contraction and convergence?
>
> Dear Chris & Crisis Forum,
>
> I'm sorry but I'm going to have to rubbish Kyoto2 here.
>
> Kyoto2 is an implementation proposal of the idea of "Cap & Auction",
> basically capping Carbon Emissions by stating a fixed number of Carbon
> Emissions Rights, and then selling them to the highest bidders.
>
> There are two very basic problems with this : one of which has already
> been raised :-
>
> 1. Cost is Relative
>
> The Cost of any Carbon Emissions under a Kyoto2 or similar auction
> (like making the European Emissions Trading Scheme NAP National
> Allocations 100% auctioned), would effectively be a flat Carbon Tax.
>
> Just like VAT, the cost of the Carbon would percolate down to the end
consumers.
>
> Since the economy is 90% reliant on Carbon for Energy, and Energy
> underpins every business and domestic activity, the extra cost for Carbon
would apply to everyone, everywhere.
>
> This would outcome as everything getting more expensive. This is
> inflation. After a while, despite any adjustment activity in the
> amount of Carbon people use, the cost of living will relativise again,
> and the added cost of Carbon will be absorbed in the economy.
>
> Costing Carbon does not Cap Carbon, as any scheme like Kyoto2 or EU
> ETS needs to be bouyed up by "input" Carbon Credits from somewhere else.
>
> But the principal problem is that all costs are relative, and any
> Carbon Abatement will be short- term.
>
> 2. Wealth as Usual
>
> Those organisations rich from Carbon will be best-placed to bid for
> all the Carbon that is auctioned.
>
> The Carbon-intensive industries and businesses are those that will buy
> the Carbon, and continue burning.
>
> It will be wealth-as-usual as well as business-as-usual.
>
> BY CONTRAST : Contraction and Convergence is the correct framework for
> operating scarcity economics - effectively making Carbon a parallel
currency.
>
> jo.
> +44 77 17 22 13 96
> http://www.changecollege.org.uk
> http://www.blackoutbritain.org.uk
> http://groups.google.co.uk/group/blackoutbritain
> http://www.planet-positive.org.uk
> http://www.workface.co.uk
> http://groups.google.co.uk/group/climate-energy
>
>> Date: Mon, 17 Mar 2008 00:07:35 +0000
>> From: [log in to unmask]
>> Subject: Critique of contraction and convergence?
>> To: [log in to unmask]
>>
>> I've been reading about Kyoto2 recently, and I'm not sure C&C is the
>> way forward - it doesn't account for embedded energy - all those
>> Chinese beavering away to make consumer junk for the West have the
>> emissions involved counted towards *their* budget, which is obviously
unfair.
>>
>> I wonder if a scheme involving auctioning of emission rights to
>> energy corporations, with the proceeds going to an international body
>> like the UN, would be better. They could then use the revenue to help
>> the majority world develop along a zero carbon pathway, putting money
>> into R&D, renewables etc. And we could do away with all those
>> loopholes in Kyoto, like the CDM, which are supposed to finance this
>> development of renewables there, but have hardly made any difference
>> and which are effectively preventing the setting of a real cap, the
>> most important think we need now.
>>
>> I know that C&C is supposed to finance this, but the trouble is,
>> payment for emission rights goes to governments, and I think the UN
>> would be better, since so many governments are corrupt, and even if
>> they aren't, they are under so much pressure to cut taxes there will
>> be a great temptation for them to use payments they get for emission
>> rights to fund general government expenditure, rather than low
>> carbon, or zero carbon, development.
>>
>> But I might be wrong. What are people's views on this?
>>
>> Chris
>
>
>
> ----Original Message----
> From: [log in to unmask]
> Date: 19/03/2008 10:39
> To:
> Subj: Response to critique of contraction and convergence?
>
> Hi Torsten, George, thanks for drawing my attention to this critique
> from Jo Abbess. To put the record straight as regards the Kyoto2 proposals
and how they would operate ...
>
> 1. The auction price for Permits is not a "flat rate tax". The price
> is on the contrary determined by the balance at any point in time
> between supply and demand. The biggest danger is that the price might
> go too low (reducing long term incentives for investment) or too high
> (inflicting needless economic damage and hardship), dangers which are
> explicitly addressed with K2 by means of reserve and safety valve prices.
>
> 2. The cost of carbon will indeed percolate to consumers, business
> etc. Where else can it go? But bear in mind: (a) at present we are as
> consumers in EU already paying a carbon price in electricity, but this
> is a windfall profit to utility companies (b) the energy price for
> oil, gas, coal etc is determined by the balance of supply and demand,
> with a 'reserve'representing the cost of production and a 'scarcity
> premium'; as such a carbon price, contained within the energy price,
> would make little if any difference to the market price, and would
> come out of the scarcity premium and so reduce resource owners' profit
> much more than it will increase consumer price (c) the money raised in
> this way will go to reduce demand for fossil fuel by way of
> investments in renewable energy etc; this will have, over time, the
> effect of reducing demand for fossil energy and reducing energy
> prices, and is thus anti-inflationary (high fossil energy prices being
> a major inflationary driver). The market measures would also be
> complemented by regulations aimed at overcoming market failures which
> are at present preventing negative cost energy conservation etc; by
> reducing costs these would also be anti-inflationary.
>
> 3. Costing carbon does indeed not cap carbon. This is why K2 proposes
> a cap, not merely a carbon price. The EUETS is indeed not so much
> buoyed as undermined by Kyoto FM carbon credits. K2 is not.
>
> 4. Abatement depends on the contraction curve that is adopted. The K2
> proposal is for a steep abatement curve leading to carbon neutrality
> by 2050, and leading to stabilisation in the 300- 350ppm (net) range.
Abatement would be long term.
>
> 5. There would be an open, global auction for Permits using the
> uniform price sealed bid system open to anybody with an internet
> connection (and even without). No single player is so big as to be
> able to corner the market. There would also be an active secondary
> market. As explained in (1) there would also be reserve and safety
> valve prices at which the permit banker would at any time buy (at
> reserve price) or sell (at safety valve price)Permits. The cost of
> carbon would reduce the level of profit in the fossil fuel energy
> chain and increase that in renewable / clean energy and energy demand
> reduction and energy recycling. Moreover much of the money raised from
> the auction would be spent on stimulating such activities especially in
developing countries, reducing fossil fuel demand while boosting access to
energy where presently lacking.
>
> 6. Under K2 there would be business, but not business-as-usual. The
> entire business landscape would be transformed, and in the process
> made far more sustainable. There would be wealth, but not
> wealth-as-usual. A major redistribution of wealth would take place
> (much of it away from fossil fuel production and to clean energy
> industries), and from rich consuming nations and individuals to poor
> nations and individuals.
>
> Do quote / forward on to the network.
>
> All best, Oliver.
>
> Oliver Tickell
> Kyoto2 - for an effective Climate Protocol www.kyoto2.org
> --
> 379 Meadow Lane
> Oxford OX4 4BL
>
> + 44 (0)1865 728118
> [log in to unmask]
>
>
>
>
>
> ----------------------------------------------------------------------
> ----------
> From: Torsten Mark Kowal [mailto:[log in to unmask]]
> Sent: 18 March 2008 09:43
> To: Oliver Tickell
> Subject: Fw: Critique of Kyoto2 - contraction and convergence?
>
>
> Oliver!
>
> Your proposals are being attacked! Would suggest that you mount your
defense...!
>
> Mark Kowal
>
>
>
> ----Original Message----
> From: [log in to unmask]
> Date: 17/03/2008 20:44
> To:
> Subj: Re: Critique of contraction and convergence?
>
> Dear Chris & Crisis Forum,
>
> I'm sorry but I'm going to have to rubbish Kyoto2 here.
>
> Kyoto2 is an implementation proposal of the idea of "Cap & Auction",
> basically capping Carbon Emissions by stating a fixed number of Carbon
> Emissions Rights, and then selling them to the highest bidders.
>
> There are two very basic problems with this : one of which has already
> been raised :-
>
> 1. Cost is Relative
>
> The Cost of any Carbon Emissions under a Kyoto2 or similar auction
> (like making the European Emissions Trading Scheme NAP National
> Allocations 100% auctioned), would effectively be a flat Carbon Tax.
>
> Just like VAT, the cost of the Carbon would percolate down to the end
consumers.
>
> Since the economy is 90% reliant on Carbon for Energy, and Energy
> underpins every business and domestic activity, the extra cost for Carbon
would apply to everyone, everywhere.
>
> This would outcome as everything getting more expensive. This is
> inflation. After a while, despite any adjustment activity in the
> amount of Carbon people use, the cost of living will relativise again,
> and the added cost of Carbon will be absorbed in the economy.
>
> Costing Carbon does not Cap Carbon, as any scheme like Kyoto2 or EU
> ETS needs to be bouyed up by "input" Carbon Credits from somewhere else.
>
> But the principal problem is that all costs are relative, and any
> Carbon Abatement will be short- term.
>
> 2. Wealth as Usual
>
> Those organisations rich from Carbon will be best-placed to bid for
> all the Carbon that is auctioned.
>
> The Carbon-intensive industries and businesses are those that will buy
> the Carbon, and continue burning.
>
> It will be wealth-as-usual as well as business-as-usual.
>
> BY CONTRAST : Contraction and Convergence is the correct framework for
> operating scarcity economics - effectively making Carbon a parallel
currency.
>
> jo.
> +44 77 17 22 13 96
> http://www.changecollege.org.uk
> http://www.blackoutbritain.org.uk
> http://groups.google.co.uk/group/blackoutbritain
> http://www.planet-positive.org.uk
> http://www.workface.co.uk
> http://groups.google.co.uk/group/climate-energy
>
>> Date: Mon, 17 Mar 2008 00:07:35 +0000
>> From: [log in to unmask]
>> Subject: Critique of contraction and convergence?
>> To: [log in to unmask]
>>
>> I've been reading about Kyoto2 recently, and I'm not sure C&C is the
>> way forward - it doesn't account for embedded energy - all those
>> Chinese beavering away to make consumer junk for the West have the
>> emissions involved counted towards *their* budget, which is obviously
unfair.
>>
>> I wonder if a scheme involving auctioning of emission rights to
>> energy corporations, with the proceeds going to an international body
>> like the UN, would be better. They could then use the revenue to help
>> the majority world develop along a zero carbon pathway, putting money
>> into R&D, renewables etc. And we could do away with all those
>> loopholes in Kyoto, like the CDM, which are supposed to finance this
>> development of renewables there, but have hardly made any difference
>> and which are effectively preventing the setting of a real cap, the
>> most important think we need now.
>>
>> I know that C&C is supposed to finance this, but the trouble is,
>> payment for emission rights goes to governments, and I think the UN
>> would be better, since so many governments are corrupt, and even if
>> they aren't, they are under so much pressure to cut taxes there will
>> be a great temptation for them to use payments they get for emission
>> rights to fund general government expenditure, rather than low
>> carbon, or zero carbon, development.
>>
>> But I might be wrong. What are people's views on this?
>>
>> Chris
>
>
>
> __________________________________________________
> Get up to 33% off Norton Security -
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