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Cap And Trade Power plant emissions

Published on October 9th, 2013 | by Silvio Marcacci


Carbon Markets Cut Emissions 17x Cheaper Than Subsidies

The cornerstone appeal of carbon markets is their ability to cut emissions while creating clean energy investments – but it turns out they may be far more effective at the task than anyone could have ever imagined.

Carbon markets reduce greenhouse gas emissions nearly 17 times cheaper than paying power generators renewable energy subsidies, according to new analysis of 15 nations by the Organization for Economic Cooperation and Development (OECD).

OECD’s research once again shows the power carbon markets can have in fighting climate change and funding clean energy, especially when linked across international systems, and is another example that cap-and-trade is far from dead.

Carbon Markets Cut CO2 17 Times Cheaper

Emissions reduction efforts have traditionally focused on decarbonizing the global power sector by boosting clean energy generation, but OECD’s findings hint at a better way to spend limited government funds.

According to the report, the cost of cutting carbon dioxide (CO2) from electricity generation through carbon markets is roughly €10/$13.50 per metric ton on average. Compared to average feed-in tariff costs of  €169/$228.40 and capital subsidies costing €176/$237.80, the potential for rapid decarbonization is evident.

Before dismissing the OECD’s findings, consider the list of countries analyzed in the report: Australia, Brazil, Chile, China, Denmark, Estonia, France, Germany, Japan, Korea, New Zealand, South Africa, Spain, the United Kingdom, and the United States.

The analysis covers nearly every potential energy market – from developed economy to developing, from high renewables to fossil fuel dependent, and those with mature carbon markets to those just starting out or under consideration.

No “Climate Bailout Option” If We Fail

Considering the Earth has 30 years at most until its carbon budget is exhausted and the planet is locked into dangerous climate change, “consistent carbon pricing must be the cornerstone of government actions to tackle climate change,” says OECD.

By combining policies that include pricing every ton of CO2 emitted, placing an implicit price on emissions, removing fossil fuels subsidies, and transparently operating carbon market functions, OECD maintains both consumers and investors will be incentivized to reduce emissions while offsetting power price increases.

“Cherry-picking a few easy policy measures is not enough…and we don’t have any time to waste,” said Angel Gurria, OECD Secretary-General. “Unlike the financial crisis, we do not have a climate bailout option up our sleeves.”

But beyond the world’s carbon budget, OECD’s analysis also tackles the carbon bubble – the potential financial meltdown that could occur when fossil fuel corporations and the investments that depend on their stability are suddenly devalued as a result of proven reserves coming off balance sheets as they’re forced to remain in the ground as “unburnable assets.”

By one OECD-cited estimate alone, over 55% of pension fund portfolios is invested in high-carbon assets or sectors greatly exposed to climate change-related regulation – forcing a decision of “either stranding those assets or stranding the planet.” This figure doesn’t even consider the $523 billion in fossil fuel subsides governments paid in 2011: How well would Big Oil perform without that support?

In addition, governments face a “carbon entanglement” where they hold a major stake in bringing fossil fuels to market and being paid their share of the profits – around $200 billion annually from royalty payments and taxes on oil and natural gas in OECD states alone.

Funding A Fossil-Free Future

And that’s where dedicated revenue from the transition to a clean energy economy comes in. Carbon markets are pouring money into energy efficiency, climate mitigation, and renewable energy projects across the world. With roughly 60 carbon pricing systems currently in place or under development, a clear path forward is apparent – if governments choose to make the right policy decisions.

“We are on a collision course with nature, and we need to take bold decisions to change that path,” concluded Gurria. “ There is only one way forward – governments need to put together the optimal policy mix to eliminate emissions from fossil fuels.”

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About the Author

Silvio is Principal at Marcacci Communications, a full-service clean energy and climate-focused public relations company based in Washington, D.C.

  • JamesWimberley

    Asuume tha that OECD´scalculations are correct, and they are not just banking trivially easy efficiency gains that would probavly happen anyway. There´s a horizon problem.

    Carbon markets work in the short term: promoting efficiency, closing down the worst coal plants tomorrow, that sort of thing. But the energy transition requires alternative zero-carbon technologies, and the sunsetting of even optimally efficient fossil fuel uses like natural gas plants and modern European ICE cars.

    The development of zero-carbon technologies is initially much, much more expensive than efficiency gains. Somebody had to pay for getting the cost of solar cells down a hundred-fold from $77/watt to 77c/watt. It was first American, then Japanese taxpayers, and finally German consumers. The long-tem legacy liability to the last group ha sben cited(by opponents) as $130 bn, it´scertainly very large. But there was no cheap way to do it. And nowehave a (crude and bumpy) roadmap to a sustainable future.

    • Jouni Valkonen

      Thanks, I thought to write exactly this same correspondence to this article. Especially your remark: “The belief that radical new technologies routinely emerge from market price signals is ahistorical fantasy.” is extremely important. The demand drives technological progress and we can and we must create artificial demand to boost technological progress.

      After all, we need electric vehicles, solar panels and windmills. There cannot be sustainable economic growth without them, because the rising third world needs lot more energy than what can be saved.

      There is additional worry. We may need to suck out the carbon dioxide from the atmosphere according the recent IPCC report. And only sustainable way to suck out carbon dioxide is to transform as much agriculture into old growth forests as possible. European old growth forests e.g. can be carbon sinks for more than 800 years, but this is only possible if we substitute some horizontal agriculture with energy intensive vertical greenhouse agriculture. And most of the Earth bulk crops should be cultivated in grass lands or deserts where forests do not naturally grow.

      As temperate forests are best in absorbing carbon dioxide this means in practice that Europeans must get rid off agricultural subsidies and instead we must buy bulk food from African countries and direct development aid into investments on irrigation projects. In Africa there is plenty of rivers for irrigation, but also solar power for creating fresh water from see water.

      This way we can fulfill three important goals:

      (1) We can efficiently combat global warming by removing carbon dioxide from the atmosphere.

      (2) We can efficiently combat desertification with irrigation and planting of trees.

      (3) We can efficiently combat deterioration of natural ecosystems and protect old growth forests.

      (4) We can help to fight global poverty if the rich European countries buy food from the poor Africans. Today Americans and Europeans are instead exporting surplus subsidized food into Africa that is harmful for the local food production and does not create sustainable revenue for the third world countries.

      • JamesWimberley

        You are right that we need a big research and deployment effort on sequestration. Carbon storage coupled to big fossil generators is a dead end, and the promising approaches are in land use.

    • A Real Libertarian

      $130 bn is peanuts compared to how much not spending that money would cost.

    • Matt

      While I would agree with your statement “The belief that radical new technologies routinely emerge from market price signals is a historical fantasy.” this is because governments historical support exist tech and try to slow new tech. So instead of do a FIT, what would have happen if in 1980 if the following happened.
      World government all agree to and do the following.
      1) Put a carbon tax on every ton of coal as it comes from the ground. Same for oil and gas. It starts small but goes up every quarter. They could have started at say $4/ton impact CO2. Goes up $2 each quarter for 2 years, then $5/q for 5 years, then $10/q until $400.
      2) All subsidies to coal/oil/gas are dropped to zero Jan 1 1981.
      3) All indirect support is remove from cola/oil/gas (takes a little longer since they are hidden).

      Above (1) would be $10 end of 82, then raise $20/year, so $110 end of 87, then $40/year, $240 end 1990, $400 1994. Spread the money 3/4 per person refund. 1/4 on public space eff, public transportation etc.

      Now that means that everyone know that the cost of fossil fuel is going to raise over that 14 years. And the “market signal” is very strong. And could have produced a much larger CO2 reduction than what happened.

      But we will never know. And of course governments don’t work logically when run by existing PTB.
      In general the “market signal” are to weak and masked by government support old industries.

      • JamesWimberley

        The technologies that drove the original Industrial Revolution in Britain emerged from the market, not the state: coal-to-steam, iron smelting with coke, spinning and weaving machines. But modern ones – chemicals, aviation, pharmaceuticals, ICE vehicles, electronics, space – enjoyed massive government support (often through war needs).

        Can you think of any examples when governments stimulated major (not minor) shifts purely with price incentives? Harrison´s marine chronometer (designed for a very large prize), perhaps, but it was a narrow innovation.

  • Marion Meads

    I think this is a matter of assumptions used in voodoo accounting magic. Extraordinary claims require extraordinary scrutiny and I am not convinced based on all data presented.

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