America's combat on greenhouse gases

Posted on August 17, 2015
Posted By: Ulla Pettersson
 
Untitled Document

Yesterday President Obama announced that America will embark on a program to combat greenhouse gas emissions from power generation. This is a historical announcement which got less space in European news media than expected. These comments are written without further insights about the tools expected to be used and serve the purpose of a platform for thoughts and maybe also a debate.

Which tools can be expected?

Tax

A tax can be implemented on coal or on greenhousegas (GHG) emissions.  The benefit with a tax is that it’s an income to the state and that’s always well appreciated. This income can be used to fill different gaps in the general budget or it can be targeted to special matters. Two examples could be:

  • - In Europe it would make sense to use such an income to fill the gap when we move from heavily taxed petrol to less taxed electricity to fuel our cars. This would make less sense in US with a considerable lower tax on petrol.
  • - The income from the new tax could be used to subsidy renewables or nuclear – both GHG free power generation.

If GHG emissions will be the target for a new taxation, it would also apply on gasfired power plants. They are emitting less, but they are emitting.

If the target for a new taxation instead would be the coal, it raises new issues:  if coal production is the target for taxation, it will not only have an impact on the domestic use of coal but also on export and will be a harder financial burden for the coal industry. In addition to this, it will also have impact on other usage of coal then power production, such as mining and steel.

If the taxation instead is implemented on the usage of coal in power generation, it will only target the power generation industry, but people will argue that it is hypocritical as the American coal will be exported to poor countries and the emissions in the atmosphere will still remain.

Allowances

The other way is to implement allowances. Each company will have their allowance to emit GHG defined as X% of their emissions Y years ago. This system is much more transparent as the government will know the exact amount of future emissions. After all, if power producers continue their emissions but pays the tax, no improvements are made for the climate. The problem with allowances is that it will always be an arena for disputes that the implementation was not fair. One power producer will claim that he only used his plant half of the benchmark year because of refurbishment, another will claim that he has made a major investment in his plant after the benchmark year and that his allowance should be increased by the same percentage. The fantasy will have no border and the legal processes will be numerous.

Europeans still debate if the allowances implemented here were fair, if they were based on true and solid numbers etc, but we has not switched to a taxation.

The benefit with allowances is that this system can be combined with a certificate to have the right to emit GHG. The utility that used to emit Z tonnes gets an allowance to permit let’s assume 60% of it’s former emissions. It means that they have an obligation to cut their emissions with 40%. However, if they for instance recently have invested in a very efficient new plant they can decide to keep it running but for instance close the old, inefficient plant that only had a handful years of remaining life time. In the same way can one utility choose to close more capacity than their 40% obligations and sell their surplus to another utility.

This system with the ability to trade emission rights, is the most cost efficient way to combat GHG because the market economy will solve who can make the emission cuts in the most cost efficient way and I really hope this will be the route to be chosen by United States of America.

If so, the most interesting issue remains to discuss: Shall we combine the two systems?  Can an American Utility lower their emissions by buying a certificate from a European Utility who will lower the emissions in their European power plants instead? From a global climate perspective this will be the most cost efficient way to solve the matter, but will American voters understand and accept the model? In practice, it can be expected that as soon as the economy in Europe as well as in US picks up again, there will be more “low hanging fruits”  in the American power market and American Utilities can be expected to have an earning by closing plants that was to be closed anyhow –and sell the certificate to European colleagues.

There are no political negotiations with EU needed for a similar implementation: there is already a UN-regulated system to trade certificates (often called CDM = Clean Development Mechanism) – mainly issued in 3rd worlds fast growing economies such as India.

When United States of America now have decided to apply severe GHG regulations, I wish the Americans will do the only sensible thing: implement allowances, allow them to be implemented either by an adaptation of domestic power generation, by an ETS certificate traded with Europe or by a CDM certificate through the UN system. This would allow us to have a cost efficient implementation of the necessary cut on greenhouse gases and it would also allow us to help the 3rd world’s economies in their struggle to do the same. It would be the best gift President Barack Obama could bring to Paris!

 
 
Authored By:
Ulla is a management consultant specialized in the energy industries. She regularly work with major European Utilities, her work is often related to strategy development or performance improvement. She is in particular knowledgeable in how to develop a power generation portfolio, and how to best combine traditional sources of power generation and renewables. Her work is mainly focused on the European markets but also incorporates North America and Asia. She
 

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Comments

August, 26 2015

Rinaldo Sorgenti says

You stated above: " .... If GHG emissions will be the target for a new taxation, it would also apply on gasfired power plants. They are emitting less, but they are emitting. "!

Are you sure of that?

In your opinion (considering that we are debating about the CO2 molecula, but we should also consider the

August, 26 2015

Rinaldo Sorgenti says

You stated above: " .... If GHG emissions will be the target for a new taxation, it would also apply on gasfired power plants. They are emitting less, but they are emitting. "! Are you sure of that?

In your opinion (considering that we are debating about the CO2 molecula, but we should also consider the Methane (C H4) molecula and, overall, it is also (in case) important to monitor ALL the CO2 and CH4 emissions in the atmosphere, not just the one coming out from power production, that we could simply call: "post-combustion" emissions.

Have you ether heard about the so called "pre-combustion" emissions, particularly the ones derived from the extraction of Natural Gas from Wells?

August, 26 2015

Rinaldo Sorgenti says

(follow):

Do you know what is referred as "Venting", "Flaring" of CO2 from wells operations and what is "Fugitive Methane Emissions"? Not so many knows about the above, because the UN-IPCC apparently do not bother to examine and determine the amount of those emissions of GHG into the atmosphere!

Ask yourself why (in case you are convinced that it is important and appropriate to make so much ... "noise" about CO2 emissions and why so much attention is just devoted to the "post-combustion" emissions only!

Very probably it would be much more good sense to avoid spoiling so much money for a nonsense and invest (at least) part of that fortune to try solving the real big problems that humanity still suffer: FAMINE and BAD LEAVING CONDITIONS for a large portion of the humanity in the poorest countries. Does that matter ?

August, 27 2015

Ulla Pettersson says

You are absolutely right that the correct terminology is GHG (Green House Gas) and not only CO2. I am very well aware of this, but my point here is not to give a complete inventory of my personal knowledge about the climate issue, nor to compare one threat to humanity (climate change) to another (starvation). My point is to debate how it is possible to use the resources spent on climate adaptations in the most cost efficient way and to point out the unique possibility to co-operate with counties with less resources in the combat on greenhouse gases. How every Dollar or Euro spent could have a bigger impact.

August, 30 2015

peter snell says

The most economic and optimal way of 'combating GHGs' is to not fight until the IPCC's models are verified. Wasting any effort of resources at this point .. when current models obviously are faulty, and no satellite-measured warming is being recorded ... is ultimately silly.

August, 31 2015

Ulla Pettersson says

Well, it's almost a philosophic question: for how long shall we collect evidence and when to start taking precautions? In an academic world the evidence shall prevail, but in real life I personally believe it's a risk/reward matrix involved in responsible decision making. Your comment makes me think of the story about the three little pigs. I am sure the two happy pigs (in the beginning of the story) also thought their bigger brother to be ultimately silly.

However, my article is not written to convince any reader about the existence or non existence of the climate change, I do not have a need to convince anyone else what to believe in. My article is written to argue about different methods for the precaution now decided - to lower the emissions of GHG.

August, 31 2015

Richard Vesel says

Regulation could and should be applied to fugitive methane and other potent GHG's. In addition, the practice of flaring off methane from oil wells should be ended, with a specific timeframe in mind. There is enough technology available to capture and ship, or recirculate, this gas back into the well for enhanced recovery. Burning it to the tune of several hundred million cubic feet per day is environmentally criminal, and economically stupid.

And for Mr. Snell - we will not wait until there is sufficient evidence to convince even the most intransigent denailist. By then, it will be far far too late to "close the barn door". I would prefer that the denialists simply go and buy coastal properties and live with the consequences of their foolishness.

RWV

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