Funding The New Generation
by Jo Abbess
27th June 2008
The British Government is slowly cranking the starter motor handle on the policymaking machine, showing a genuine willingness to squeeze out a decent Renewable Energy plan.
But there remains the Rather Large Question of our time : who’s going to pay for the Government plans for new Renewable Energy ?
All the main policy strands currently being developed at national, regional and international level all amount to the same thing : letting the Energy and Fuel consumers pay for the necessary new plant and infrastructure.
The European Union Emissions Trading Scheme, a Cap-and-Trade policy, is already forcing price rises on domestic and small business consumers.
A flat Carbon Tax would cause general inflation in the Economy, and household Energy and Fuel bills would form a much higher proportion of domestic expenditure than at present.
An Auction of Carbon Permits under the proposed Kyoto2 policy would advantage Big Energy producers and generators, who have the wealth to snap up the rights to burn, and then pass on the added cost to their consumers.
Cap-and-Dividend, Cap-and-Share or an Income-Neutral Carbon Tax, would reimburse consumers for a portion of the increased Energy and Fuel Bills, but would probably not protect ordinary householders from enormous price rises resulting from the inflation caused.
The reason for this stems from two very simple principles regarding the way the corporate Energy and Oil groups operate.
PASSING ON THE COST
Any price on Carbon Dioxide Emissions, the so-called “Carbon Price Signal”, is primarily intended to limit Carbon Emissions.
The Big Energy and Big Oil operations are managed as profit-making enterprises : any reduction in sales reflects on their bottom line.
Any form of Carbon Cap or Carbon Tax will invariably threaten the profits of the Big Energy and Big Oil companies, because it will limit the amount of Energy and Fuel that can be sold, and so their prime directive to make a profit will need to be satisfied by raising prices for their customers.
All of the measures above fall into this trap, and yet none of them address directly the matter of financing the transition from Fossil Fuels to Renewable Energy that is essential to cope with both Climate Change and Peak Oil.
Peak Oil has already established a foothold, and the automatic reaction to this entirely natural “Carbon Price Signal” has been immediate and divisive.
Some consumption has been cut, but there has been much protest from small Energy and Fuel consumers that threatens to derail Climate Change policy as a whole.
DIVERTING FUNDS FROM DE-CARBONISATION
Worse than that, it threatens the scope for investment in Renewable Energy technologies, plant, grid and infrastructure.
In a very transparent move, Gordon Brown, the Prime Minister of the United Kingdom Government, has invited the leaders of the oil-producing nations group, OPEC, to invest their profit in Renewable Energy in Europe.
This attempt to “close the loop” on funding new Renewable generation and fuels is clearly at risk of severe stress on the oil supply from rapidly rising demand.
OPEC are not going to invest in Renewables, in their own countries, let alone in Europe, if they seek to shore up their money-making core activities.
The logical move for OPEC and Big Oil is diversification, but without strong Carbon Laws at an international level, diverse supplies will mean deep drilling in the Arctic, tar sands, oil shale and other Fossil Fuel alternatives : cheap and dirty.
So the question of funding Renewables remains : but there are competing demands on the same pot of Big Energy money. Can they really turn a profit from going truly Green ? They probably do not feel that they can, and we will continue to see Renewables projects fall by the wayside as the Carbon Crunch continues.
A CARBON PRICE IS NOT THE ANSWER
The natural Carbon Cap on the international oil supply, brought about by decades of lack of investment in new sources of Fossil Fuels, troubled by extreme weather damaging infrastructure, and beset by sharply rising demand, is showing us that money control of Carbon is not the route to pursue.
It also indicates strongly what Big Oil and Big Energy will do to protect their financial baseline : put the prices up for consumers. It’s the simplest “first aid” “band aid” for their businesses. It doesn’t involve real investment in increased Energy Efficiency, Energy Conservation and Renewable Energy.
There seems to be an acceptance that the reality of investment in Green Energy is that the end consumers will bear the cost burden. The headlines warn the already pressed domestic consumers that they face the double whammy of being made to pay for Carbon Caps and also de-Carbonisation of Energy :-
Rising bills will pay for low-carbon economy
“Friends of the Earth supported the government’s drive to use far more renewable power, but said loading the cost onto the consumer ]was misguided. [Minister John] Hutton said he was sure that the City was ready to help stump up the £100bn of new investment needed, saying it would be “bonkers” not to take money from sovereign wealth funds in nations such as Saudi Arabia, as Gordon Brown had called for on a trip to Jeddah last weekend.”
“Sounds expensive. Well, full blown industrial revolutions don’t come cheap. The government reckons we’re looking at £100bn of investment over the next 12 years and it wants it all to come from the private sector. How are they going to convince them to do that? With the promise of cold, hard cash. The reason this strategy is so different to all the vague commitments the government has made to the renewable sector in the past is that it is backed up by some serious policy instruments – most notably in the form of generous incentives.” (that is : taxpayer money, the Citizen consumers pay).
Gordon Brown vows to drive out fossil fuels https://www.telegraph.co.uk/earth/main.jhtml?xml=/earth/20….
“And by 2050 globally the industry could be worth $3 trillion per year employing more than 25 million people. But the plans will come at a price – Ministers have acknowledged that although gas and electricity bills will not increase initially they will rise, possibly for five successive years, after 2015.”
Green energy plan ‘will force more families into fuel poverty’ https://www.telegraph.co.uk/earth/main.jhtml?xml=/earth/20….
“More families will be driven into fuel poverty as a push to generate more electricity from “green” sources like wind, wave and solar power sharply increases household fuel bills, the Government has said. Electricity bills could rise by 13 per cent and gas prices could go up by as much as 37 per cent as consumers are made to pay more to subsidise green energy production, ministers said in a new Renewable Energy Strategy. The move away from fossil fuels is likely to cause a spike in energy bills. At current levels, green tariffs make up around 14 per cent of average domestic electricity bills and 3 per cent of average gas bills. Those tariffs will have to increase as ministers bid to wean Britain off fossil fuels like oil, gas and coal.”
GRADUAL, PARTIAL CHANGE
Whilst it is true that increased Energy and Fuel bills can have an impact on consumption, social policies such as Fuel Poverty winter support payments, and special tariffs for poorer households will simply allow Carbon consumption to continue for the most part unabated.
With every actor, from the “upstream” oil producer or electricity generator, down to the “downstream” household consumer and driver, being financially penalised, there will be intense resistance to Carbon Cuts.
It is my contention that money can never be a proxy for Carbon if you wish to make serious, long-term Carbon Emissions Reductions. That no matter how you price Carbon in order to provoke cuts in emissions, that only a certain amount can be curtailed.
Trying to implement a Carbon Cap, making laws and regulation to step down Carbon, year on year, will eventually lead to something akin to civil war, with every economic sector, including consumers, battling the Government to stop making cuts.
That is, because of the negative price placed on Carbon, the focus will always be there, and nobody will be able to justify Renewable Energy investment.
Cap-and-Something policies basically divert finance away from Renewable Energy investment into simply making Carbon Cuts income-neutral for the private companies and OPEC.
There will come a point in any regime of an annual step-down in the Carbon Budget where no more Carbon can be cut, because there has been no investment in Renewable Energy to take up the slack in the economy.
SUSTAINABLE FUTURE : VISION REQUIRED
Instead of trying to use money as a proxy for real change, as is done with any Cap-and-Something policy, I propose that we keep our eyes on the prize : the de-Carbonisation of the entire economy through the aggressive concentration on Renewable Energy capacity.
This would be not simply through direct investment, but also in indirect subsidies and regulations along the lines of : “if you want to supply Energy or Fuel in this country, you have to do so without using a specified set of Energy sources : coal being the main prohibition…”
The only way that a true Carbon Cap can be enforced is by discriminating in favour of Zero Carbon technologies and investment, and forbidding “conventional” both Fossil Fuels and Nuclear Fission.
Any other way could well descend into a Carbon-generating, asphyxiating morass.
from: b d
to: jo abbess
date: Wed, Jun 25, 2008 at 7:07 PM
subject: Your criticism of Mark Lynas
Wherever I go I see your criticisms of Mark Lynas on an upstream cap – I don’t agree with your criticisms.
I don’t think you have understood how an upstream cap works and I think your criticisms are based on that failure to understand. I have my own differences with Mark Lynas but I really think more deeply about the idea of the upstream cap.
The idea of an upstream cap is NOT to produce a high carbon price which will then deliver a behaviour change which will then deliver a fall in carbon used.
Your mind, like so many other people who approach these issues, appears to me to slip over into thinking about effects on price and money flows before you have taken in the effect of a cap as an administered limit imposed on physical quantities – on physical amounts of carbon allowed to enter the economy.
One of your criticisms of Mark Lynas is based on criticisms of the ETS – since the ETS is a partial downstream cap – with a huge, so called “safety valve” in the shape of the CDM – it is not remotely comparable with what he, Oliver Tickell or Cap or Share and Feasta for that matter are arguing for. This is even more the case as permits under the ETS are mostly given to companies for free.
The idea of an upstream cap is a reducing cap carbon imposed on first suppliers of fossil fuels. Upstream. In physical quantities. Full stop.
As you are a very radical person imagine that you are blockading Grangemouth and only allow out 9/10 of the tankers that came out of it as compared to last year because you decided that you were going to reduce the amount of carbon coming out by 10% per annum. Now imagine doing that at the coal ports, at the coal mines, at the gas terminals….now you are getting the idea of an upstream cap (being reduced at 10% per annum).
Of course the government does not need to blockade things – it can make a law and do the same job with a permit scheme – the companies operating at those locations would not allowed be allowed to take the tankers out of the gates without a permit for the carbon of the fuel in the tanker when burned and the numbers of permits available throughout the economy would be reduced year by year.
If you do that you have then achieved your carbon reductions….
Of course, “downstream” people and companies will find they have to cope with and accomodate themselves to less fuel (carbon) available – but they will be accomodating themselves to a fait accomplis. From a climate point of view the reduction in emissions for that year inside the economy will have been achieved…
Now do you get it?
The price rises are the subsequent effects as the consequences spread downstream and companies and individuals adjust to what has already happened.
You appear to have a fixed idea that only downstream caps actually stop the physical quantity of carbon reaching the atmosphere.
Au contraire – the point of an upstream cap is that the physical quantity of fuel and carbon coming out of the refinery gates, out of the coal ports, out of the gas pipelines coming into the country – will be reduced year on year. The PHYSICAL QUANTITIES WILL BE CAPPED AND REDUCED.
It is a no nonsense approach because it is so easy to do and so difficult to evade. In the UK there are only about 60 -70 locations where all the fuel which gives rise to emissions enter the economy. Blockade…..sorry impose a permit scheme at those locations and you have achieved your goal.
Now instead of a blockade – much simpler if you limit the number of permits and you make the first suppliers running the refineries, the coal ports, the gas terminals buy them if they want to sell fuel. That’s the auction.
Where the money from the auction goes is a subsequent matter. If the fossil fuel suppliers are forced to buy supplier permits in an auction then there is revenue available from their purchase of the permits to the auctioning agency. What happens to that money is an open question and a matter for debate and a policy decision.
But whatever happens to the auction revenue it will not undo the effect of the cap – at least not directly. Of course Mark Lynas is quite right that if some or all of the permit revenues are to flow into funding renewables sector investment and energy efficiency that will lead to a more rapid energy transformation of the economy. Well, it might. But it might also lead to much more social and political resistance against the rapid tightening of the cap as people find it really difficult to cope. In that sense it might actually slow down the transformation – which has to achieve a difficult balance act with public acceptability. In terms of political and public acceptability I happen to believe that it would be better that that revenue goes to the public equally – also because in a Zero Carbon Britain households will need resources to get their homes and gardens in order and the biggest transformation of all has to take place at household level where resources should therefore be concentrated…..
But whatever happens to the revenue from an auction (if that is the way permits are distributed) it will not somehow undo the effects of the upstream cap as some of your criticisms seem to imply.
For example if people on a low income find that they have more income as a result of getting some or all of the permit revenues of an upstream cap – and if they can even use this extra revenue to buy some more fuel for themselves in the first few years of the process it will NOT mean that the fall in the physical quantity will somehowhave been thwarted. It will still be the case that each year less will be coming out of the refinery, coal mine, gas terminal gates and pipes – so downstream of those gates and pipelines it is physically impossible for there to be an increase in the amount supplied –
What is in the economy to be distributed can only still be what has previously been allowed into the economy – no more can magically appear from anywhere.
What might happen because of price changes is, however, that the way that the declining quantity is distributed between different groups in society might shift from one group to another to some degree because of the price changes – and depending on who gets the permit revenues.
But just because some people might be better off as a result of their share of higher permit revenues does not mean that, if and when they spend their extra money on more fuel (if they do) that the cap is somehow rendered nul and void. All that is happening is that the more limited amount of fuel that is available might be distributed more in the direction of those who are now better off and away from those who are worse off – without any change in the total amount available changing at all (Because that’s been capped!!!)
Also if there is less fossil energy then the price of fossil energy rises. That makes renewables more competitive. If people want the same amount of energy in the economy then they will have to invest in creating non fossil energy sources – which are not capped.
I hope you understand the issues better now.
from: jo abbess
to: b d
date: Thu, Jun 26, 2008 at 12:31 AM
subject: Re: Your criticism of Mark Lynas
it’s late, so i’m not going to read all of your paragraphs properly just now.
my objections to proposing an “upstream” cap are, briefly :-
1. sign up
at the current time, i cannot envisage the big energy companies doing more than lip service to assenting to being capped.
the big energy companies exist to make profits for their shareholders. they will either do this through selling more product, or they will do that by making more profit per unit of product.
they will not sign up voluntarily to having their business capped. even worse than that, they will find any way possible to get round the cap if it is enforced through law and regulation.
more pernicious, they will do everything they can to block the laws and regulations for the cap being made in the first place.
the only way to engage the upstream operators in any form of cap-and-something is to include a price signal : that is, either carbon permits, the auctioning of carbon rights, or rebate for quota (is there another way ?)
this inevitably creates “property”, and the ownership of this carbon property goes to those who are carbon wealthy, that is, their capital and assets are built on the use of carbon energy from the past.
this will inevitably serve to perpetuate inequalities, and also, it will ringfence protect the carbon-dependent businesses. they, after all, will have the right to burn.
the purpose of setting any carbon reduction goals is to actually reduce the amount of carbon emissions, permanently, to create a more sustainable energy future.
every scheme that creates carbon rights and prices them diverts funds from the real way to cut the carbon – de-carbonisation, in every process, machine, energy source.
the future is renewable energy. we need to finance this. it won’t happen if companies are raising prices in order to stand still in terms of profit-making.
i had some more to add, but it has temporarily vanished from my mind.
from: b d
to: jo abbess
date: Thu, Jun 26, 2008 at 7:54 AM
subject: Re: Your criticism of Mark Lynas
Jo – you write a 341 word reply before, as you admit, you have actually read properly what I have to say. Your points 2 and 3 were covered in my e mail.
As regards point 1 that too quite simply gets things upside down – the energy suppliers want downstream capping because it means that they don’t have to do anything and because they know that downstream capping will be immensely complicated and so will take ages to come into existence, if it ever does.
Upstream capping would be directly a reduction in their rights to sell – they would have to pay for the privilege of having their right to sell limited.
When Gordon Brown was Chancellor he was asked who the most powerful people in the country were and listed Lord Browne, that time CEO of BP, as, at that time, the most powerful person in the country.
Of course politicians and parliament will be reluctant to take on the sellers of fossil fuels because they are so powerful – but that’s just the point – an upstream cap focuses the political attention at the source of the problem.
Leaving aside land use caused emissions, the climate crisis is caused by the use of fossil fuels – so they are toxic goods and progressively reducing the allowed amount of these toxic goods allowed in the economy is the obvious solution. That means taking on the political and lobbying power of the sellers of fossil fuels. The point of politics is to create a political momentum so that the energy companies have no choice but to participate – because it would be illegal not to.
I answered your points 2 and 3 already in my first e mail. Indeed the whole point of my e mail was to answer those points so to repeat them without reading my response to those points is very frustrating to me.