Why Mark Lynas Is Still Wrong
by Jo Abbess
29th May 2008
Requiring the Energy and Fuel companies to buy Carbon Quotas through auction will add to inflationary pressure in the Economy, will not promote de-Carbonisation, and cannot guarantee global Carbon Emissions reductions.
DRAFT – THIS PIECE IS NOT YET FULLY EDITED
Mark Lynas has today published his support for the premises behind the Kyoto2 framework, as proposed by Oliver Tickell, in the New Statesman magazine “Why I was wrong about rationing” :-
Sadly, although his thinking has moved on, he’s travelling down the wrong road. Auctioning of Carbon Quotas to Energy and Fuel companies cannot, of themselves, be effective as a Carbon Emissions Reduction policy.
In order to stabilise the Climate, and protect Life on Earth from dangerous Change, we need to admit the Inevitable Truth : we need to reduce humanity’s emissions of Greenhouse Gases, which come about through the burning of Fossil Fuels and through the destruction of Forests, Soils and Oceans.
This need dictates the Carbon Framework of Contraction and Convergence, admitting the geopolitical need for Carbon Rights, for equality in Carbon Wealth for all peoples.
For each industrial nation, the challenge is to secure significant Carbon Emissions Reductions, either at home or abroad. The Kyoto Protocol offers the Clean Development Mechanism and other vehicles for “outsourcing” Carbon Emissions Reductions in a system of global trade.
The scale of the Carbon Emissions Reductions that are required leads to the next Inevitable Truth, that industrial countries need to cut the majority of their Carbon Emissions on home territory.
Taking the big picture, it can be seen that the whole aim of any Carbon Policy must be to move from a Carbon Energy-based Economy to a Low or Zero Carbon Economy.
Because of the cost barrier to change, this Transition to a Zero Carbon Economy must be done through a clear and concrete programme of investment, supported by strong regulation to set the direction of travel.
If the only Carbon Policy is to tax Carbon Pollution, it will not necessarily stimulate that Transition. At the moment, since the levels of Renewable Energy are so minor, any Transition is effectively equivalent to creating and entirely new Energy and Fuel delivery infrastructure. That’s going to cost.
If the cost of purchasing Carbon Quotas or Permits is less than paying for a whole new set of Energy toys and technologies, which it will be, the gradient will tip towards the “Polluter Pays” principle without gearing up to the “Polluter-Financed Transition”.
As it becomes recognised that it is necessary to place a firm and binding Carbon Cap, it’s quick and convenient to sell the “Polluter Pays” principle as the key mechanism to limit Carbon. In some measure it can help keep to Carbon Budgets, but it cannot tip the Zero Carbon Transition.
Auctioning Carbon Permits to corporate Energy and Fuel producers assumes that Carbon Emissions Reductions can be made elsewhere and that companies can carry on burning.
The Carbon Cap under the European Union Emissions Trading Scheme is only tightened by a small amount each year, working on the assumption that the portion of Carbon Permits that are auctioned will pay for Carbon Emissions Reductions elsewhere in the world.
It seems that all the reciprocal arrangements to make Carbon Emissions Reductions in developing countries in exchange for finance are failing to provide genuine Carbon Cuts.
Given that until now this mechanism is failing to work perfectly, and given that industrial nations are still increasing their emissions, it can be seen that this approach is unable to help, unless the Carbon Trading schemes start to bite because the Carbon Price rises sharply.
The amount of emissions in industrial countries that will need to be “offset” in future, even if projected growth is actively limited, indicate that Carbon Trading in Certified Emissions Reductions and Voluntary Emissions Reductions will not be able to bring enough quality reductions to the marketplace.
Talk of “technology transfer” from industrial to developing nations has obscured the problem : the developing nations do not have a lot of Carbon to Drop. Offering developing nations assistance with Renewable Energy Technologies may help their Economies, but might not replace Carbon Energy.
Put simply, the Developing World cannot reduce Carbon Emissions to cover our Carbon Emissions Debt – the figures cannot add up.
And many technologies that have been proposed to make Carbon Cuts in the Industrialised World have not taken off, such as Carbon Capture and Storage (“Carbon Sequestration by Burial”), the non-starter of non-starters.
The “polluter pays” approach, by itself, cannot produce the desired results.
BUY ONE GET ONE FREE
The best way to think about Transition from Carbon Energy to Zero Carbon Energy, or de-Carbonisation is to consider the Buy One Get One Free sales ploy.
What needs to happen is that incentives are created to precipitate de-Carbonisation, given a shrinking annual Carbon Budget, a regime of progressively less Carbon Permits available.
If an Energy Company wants to make money in this climate, they will need to either put their prices up or de-Carbonise so they can offer more product.
The higher the ratio of Clean to Dirty Energy in their products, the more they can sell. But if it costs more to make their Energy cleaner than it does to put their prices up to pay for the extra Dirty Energy they want to sell, what will they do ? It’s obvious really.
The only sure way to make de-Carbonisation the logical route is to explicitly limit the amount of Carbon that the Energy Companies can sell. In other words, do not make money a proxy for Carbon. Cut the Carbon itself, don’t just put a price on it and assume that will be sufficient to enforce de-Carbonisation !
And there are really only two ways to cut the Carbon an Energy Company is permitted to deliver into the Economy : issue fixed production quotas, or limit the amount that the customers can consume.
COMPANIES RESIST PRODUCTION CONTROL
Imagine the trouble that would ensue if you tried to place a production quota on Energy Companies ! It’s true that Peak Oil is doing some of this job for us, giving us a de facto Carbon Price, but not at sufficient speed.
So the only remaining policy is to Ration Carbon for the Consumer Citizens. Sorry, Mark, that is the only way to enforce de-Carbonisation.
COSTS PASSED ON
If you only use money as the lever, you end up with the same problems as the EU ETS and before that Value Added Tax : the added costs to the supplier are passed to the consumer.
The consumers may end up with a double whammy – the producers rack the prices up higher than their own added costs in order to cover the drop in sales.
In the case of the “Polluter Pays”, the Cap will not be a cap on Carbon but a cap on profits, from the point of view of sales there is no growth possible, and the money that could have gone to de-Carbonise is made unavailable, since the producer is under pressure not to squeeze too much out of the consumer.
TRADABLE ENERGY QUOTAS
The reason why Tradable Energy Quotas are expressed as quotas of Energy and not just of Carbon is not just because it covers other Greenhouse Gases besides Carbon. It indicates that given the range of Energy feedstocks (including nuclear) there is only a certain level of Energy that can flow, now that Peak Oil is here.
There is no growth in the rate of extraction of the most concentrated liquid hydrocarbons that we use, and the energy delivery of all the other Energy feedstocks lacks the same punch.
If Energy is controlled by Quotas, and not by a financial cost substituted for the Quotas, the sooner that Energy can be de-Carbonised, the better.
If we de-Carbonise fast, instead of progressively reducing the annual Tradable Energy Quotas, we can start to increase them.
AUCTION MONEY : WHO GETS IT ?
Where does the Auction money end up ? Really ?
Do you really think that the Energy Companies will reach consensus to do all of these things : (a) meet Production Caps “upstream” at source in the Carbon Pipeline and (b) buy their Permits at Auction and (c) invest in de-Carbonisation ?
Won’t that be too much to ask them ? They’re not going to say “out of the goodness of our hearts and with the full backing of our shareholders we’re going to ramp up the percentage of green energy we produce.” I don’t think so.
Just what is going to incentivise de-Carbonisation ? I don’t mean simply reducing the use of Carbon, but moving all the Energy systems, both production and consumption, over to Zero Carbon ?
And remember, putting another price factor into play through the Auctions will only aggravate the “natural” Carbon Price coming through from Peak Oil.
Pricing for Carbon is already in operation, and not likely to reduce consumption overall by very much. Despite the fact that Americans are driving less in the last few months, they are still using Energy in other ways, probably compensating for the fact that they’re not driving.
Mark, for you to suggest that the funds raised by Auction of Carbon Permits be recycled to the poorest of the consumers to compensate them for the added expense of their Energy and Fuel means that there won’t be an overall decrease in consumption.
If funds raised at Auction of Carbon Permits is reserved for Green Energy development it should be undertaken by new national or regional groups, and should not be given back to the originating Energy Companies as that would make a nonsense of the Auction.
You can’t justify giving Auction money to Companies to de-Carbonise. How can you ensure that the Carbon part of their businesses will be reduced by this repayment ? They’ll spend the Auction money on Renewable Energies if they are forced to, but they won’t wind down their Carbon business.
This is what I call the “Spanish Windmill Problem”. The Spanish Government has taken grants, public and private money to build mountain top after mountain top of beautiful wind farms, but their national energy consumption has only continued to rise.
It’s a bit like receiving a miraculous new medical treatment to re-grow a diseased limb – and you end up with a fantastic new arm or whatever, but the old shrivelled up one is still hanging on in there poisoning you.
There will be much demand on Auction funds – for example to pay for “foreign” Carbon Emissions Reductions, compensation of impoverished customers, Renewable Energy development.
You have to be able to gently block the Big Energy companies from being able to sell so much Carbon – strict Carbon Quotas would be the most effective – from the demand side, the consumer side.
Then the Energy magnates will wake up each morning as say “We can’t make more sales of Energy unless we de-Carbonise our Energy…”
MONEY CANNOT BE A PROXY FOR CARBON
Mark Lynas has fallen into the trap of making money a proxy value for Carbon. But money cannot control Carbon directly, as more money can always be created.
Cost is always relative. Carbon Emissions should be absolute.
You need a regulatory device to force Transition. Tax is not it as it feeds back to the consumer base.
CARBON IS ESSENTIAL – CURRENTLY
Mark makes the mistake of saying that “Carbon is not a necessity like food or water”. In fact, we are highly dependent on Carbon in the industrialised countries.
I could say I’m going Zero Carbon personally, but by living in this country a certain amount of Carbon Energy is continually being used on my behalf that I cannot reduce by myself : Carbon Energy that is used in public buildings, street lighting, offices and so on.
Institutionalised Carbon is not as easy to impact with a price signal as personal Carbon.
By saying that a price signal will mean that people “change their behaviour” and use less Carbon, this does not automatically follow. Following decades of a deliberate policy to stimulate the Economy by encouraging sales of private transport vechicles (cars), and the move to road transport for all goods distribution due to cheap fuel, people and businesses are locked into road transport.
The EU ETS is proposing Auctions of a percentage of all Carbon Quotas, but this will not have the desired effect without consumer rationing.
If you have both upstream and downstream control you increase the effectiveness of the Carbon Cap and the speed of its application.
NOT ALL CONSUMERS ARE END CONSUMERS
Not all consumers are end consumers. There are essential public services and private businesses that use Energy. There are the “middlemen”, such as Supermarkets that use Energy and Fuel in high quantities to sell us food. Each extra trade with a Carbon component risks a “profit multiplier” effect leading to increased burden on the final consumer.
And the workforce will not be able to adapt well to inflation as wage restraint is becoming increasingly necessary.
The pyramid cannot be wide at the top.
Which leads us to the same place : we have to ration by amount and not price.
The EU ETS was originally designed quite well, but since it targetted wealthy “point emitters” of Carbon, it has been subject to modifications after intense corporate lobbying.
Carbon Quotas have been given to businesses for free, in the “grandfathering” compromise. And Auctions will only be a percentage of the total.
If all the Carbon Quotas were sold, you could be sure that there would be more than intense lobbying to ratchet down the Carbon year-on-year slowly rather than at the appropriate science-led speed.
Carbon Quotas will always be “worth” more than the companies pay for them.
The problem with Auctions is that the wealthy always win. Those companies that have become wealthy on the back of Dirty Energy are going to be best placed to buy all the Carbon Permits.
The lesser players, those with Clean Energy start-up costs, are going to be “out-competed”.
Auctions imply “wealth as usual” and “Carry on Burning”. They will not change the Energy sources.
Carbon has a strong negative value. Those stuck with “Sub-prime Carbon Assets” to quote Al Gore, are going to find de-Carbonisation very expensive.
RENEWABLE ENERGY NEEDS INVESTMENT
Britain seemingly cannot do major engineering projects any more. How about small ones then ?
Renewable Energy projects will have to be paid for by the Energy Companies, the only entities with enough wealth !
It will be in the corporate’s interests to de-Carbonise their businesses as their customers become poorer and not so able to make purchases with the rising Carbon cost from Peak Oil affecting the costs of all products.
With this “natural” Carbon Price we are already running the experiment and we shall see what will happen.
WHO WILL DE-CARBONISE ?
Who’s going to lead on de-Carbonisation ? Not any companies in the same sector – the simple logic of competitiveness excludes that.
We cannot convince anyone in the Developed World to de-Carbonise at the moment. Look at the rising emissions !
There comes a time when no more resource can be added in – either because it’s not there or because it hits the price wall – the lowest cost possible for the resource.
Let’s take biscuits as an example. There has been a continual substitution of ingredients until they are the cheapest they possibly can be in order to retain/maximise the profit from production. Butter has been substituted for palm oil from Indonesia and Malaysia in some cases.
Biofuels were supposed to be a great Carbon-saving idea. We were supposed to be growing oilseed rape (canola) all over Europe. But it was too costly when compared to the lowest cost plant oils available – palm oil from Indonesia and Malaysia.
We’ve reached the limit in reducing the feedstock price for the components of biscuits and Biofuels, and the Carbon cost has risen sharply.
If no new Energy and Fuel resources are going in, you cannot justify increasing the money supply, so there is no more growth.
No growth at the upstream input end of the Carbon Pipeline means no investment will be possible, particularly not in Renewable Energy.
SIZE OF THE IMPACT
It’s the size of the costs involved, the proportion of the Economy, that makes Carbon Pricing on all quotas unworkable.
The fact is that costs spiral upwards with Carbon, causing general inflation, as everything is dependent on Carbon.
The United Nations says that we not got a high enough target for Carbon Cuts. This is not a minor manipulation of a business sector this is major upheaval of everything – and immediately.
Do we need to say to companies that some of their business is outlawed ?
Auctions won’t help really – there’s only a small number of players who will get the Carbon Permits because they have the wealth base – it will protect Carbon-based business, not remove it !
A gentler approach will be to remove a part of the consumer base – in other words – Ration Carbon.
Keeping money out of it as far as possible – hence trade by quotas not by money – i.e. strict supply of quotas and this way keep the Economy as stable as possible.
We have to say “you can’t put so much Carbon through the system” to companies. Either we say it to them directly and they try to work out how we could control and check that. Or we say it downstream with Carbon Rations.
Effectively these two approaches are the same but the Companies get a chance to redeem themselves if there is downstream Carbon Rationing in place – they compete to de-Carbonise and win our business. They will be able to afford to de-Carbonise as they will keep their financial wealth. The valuable functions of the Companies are maintained/sustained.
We need to say in effect “BP, Shell, ExxonMobil… your Carbon business is going down. As of now you need to get on with Renewable Energy. It’s no good retrenching from your Green Energy programmes.”
“We will take away your rights to sell Carbon by taking away part of your market share.”
Mark Lynas has made a mistake in conflating the Big Producers (eg. oil importers) and the Point Emitters (eg electricity generation plants).
Part of the problem with Carbon Accounting is that companies such as Shell or BP, who are responsible for vast amounts of Carbon entering the Economy, are quite good with Carbon themselves.
Their Corporate Social Responsibility quotients are quite high and they are cleaning up their businesses to reduce their own Carbon Emissions.
However, they are still piping the same kind of Carbon into the Economy as before. It’s just that someone else burns it. Someone else is responsible for the Carbon Emissions, they say.
They will only need to spend a small amount on buying Carbon Quotas through Auction. Instead they should be spending that money, and much, much more investing in Renewable Energy Technologies so they can stop putting Carbon into the Economy.
But how to make this happen ? By putting in place a downstream Carbon Ration system.
NET END USER EMISSIONS
Electricity generators don’t really care about Carbon Emissions it seems. They have not made plans to reduce their incredible waste of energy in generation and transmission. They say the demand for their product is always high.
Maybe we need to say to the Electricity Generators “you will not be permitted to supply more than X equating to Y Carbon Emissions when used by your Customers.”
POINT OF DECISION
What’s interesting is at present there is an investment decision issue that we could exploit for the good.
Big Oil companies have been holding back from heavy investment spend for expanded oil exploration and production, even though they recognise Peak Oil. Letting the “other” companies explore the smaller, doubtful fields.
The situation is that Big Oil could equally well start Renewable Energy investment as new exploration, and Renewable Energy does offer the prospect of sustainable returns going forward, whereas mined hydrocarbons have probably all peaked now.
CARBON CARRIES ON
The reason why Carbon continues to make good money is a situation analagous to drug dealing – the money stays good – even though there are risks and downsides.
We have to convince Big Oil and Big Energy that things will not go on like this, in terms of policy. Compare energy abuse to smoking. We now have bans on advertising for tobacco products. The same should be done for car and air travel advertising. That would limit sales.
HOME CARBON BUDGET
The thing about Carbon Rationing is some household rationalisation will take place – putting all forms of Energy in competition with each other – and it would naturally favour the less Carbon-intensive.
Rations are good because Cost is not equivalent to Carbon intensity, and this will reflect in the Energy bills.
The decision about which energy source to use should be made on Carbon content / impact rather than price.
COSTS OF CARBON RATIONING
It will not cost as much as the study calculates to set up a Carbon Rationing system.
It will not be necessary to have a full ID scheme in place to identify those who are entitled to a Carbon Ration. Identification of persons can be done by a combination of the Electoral Roll and the Health Service/National Insurance registers.
Also, many companies already run a Reward Card scheme, and it would be a simple matter to get them to produce Carbon Cards.
With access to all the computer banking systems it would be a relatively short and easy process to use one of the shadow currencies that already exist to create a Carbon Currency that would run in parallel with all the others.
In fact, if all we want to do in the first instance is Carbon Ration home energy, fuel and travel, that could be most cheaply and easily done by implementing CRAGs – Carbon Rationing Action Groups for virtually no cost but some commitment in each Local Authority.
The costs of a Carbon Rationing system should be borne by the Big Oil and Big Energy Companies who will benefit from the financial stability it will afford them.
GREEN COLLAR JOBS
De-Carbonisation has the potential to create massive new employment, as the feedstocks in Renewable Energy are really free of charge once the infrastructure is in place, giving profits of almost 100% of any return. However, you still need to get over the initial investment cost.
Compare this to the rising costs of crude oil production, and you can see that at some point Renewable Energy investment will become unavoidable. However, we cannot wait that long before we need to make major Carbon Cuts.