With the recent passing of the climate legislation in the US Congress it is important to look at two aspects of a cap and trade system. One is the effect of free permits and the second the value of carbon offsets.

Good lesson for the Australian ETS. Both links are the courtesy of Greg Mankiw.

On the free permits:

In simple economic models, a cap-and-trade system can be identical to a carbon tax. If the government sells all of the permits to firms at auction, it raises the same revenue as if it had imposed a tax on carbon. Like a carbon tax, a cap-and-trade system is a market-based regulatory mechanism to reduce carbon emissions. These mechanisms impose a cost on carbon emissions by requiring emitters to either pay a tax or obtain a permit. Ideally, this cost should be equal to the environmental damage caused by emissions. Market-based solutions tend to be the most efficient regulatory approach for correcting environmental externalities because producers and consumers are left free to choose the most cost-effective way to reduce emissions. This efficiency can be lost under regulatory systems that dictate particular ways to reduce emissions.

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Therefore, under a system of free permit allocation, the stockholders of companies that receive free permits would receive windfall gains. A cap-and-trade system with freely allocated permits is equivalent to a carbon tax in which the tax revenue is given to stockholders. This gift does not provide the economic benefits of a reduction in taxes on business investment, because the gift is not linked to firms’ current investments.

On Carbon offsets:

So what is the problem with offsets? In a nutshell, it is a problem of measurement. One of the nice features of a cap-and-trade program is that it is fairly easy to measure emissions. The existing acid rain cap-and-trade program requires power plants to install sulfur dioxide monitors in their smoke stacks, which provide precise information to the Environmental Protection Agency at low administrative cost. (The acid rain program does not allow sulfur dioxide offsets.) For a carbon cap-and-trade program, emissions would be measured based on the carbon content of different fossil fuels, which is also a relatively straightforward procedure. But offsets require the measurement of emission reductions, rather than emissions. This simple difference introduces a host of problems, because it is awfully difficult to know what would have happened to emissions absent a given offset project. For example, planting a tree will only lead to a net reduction in carbon emissions if 1) the tree would not have been planted without the offset provision, and 2) the tree will not be subsequently destroyed after the offset purchase takes place. If these two conditions, known as additionality and permanence, are not met, then offsets will not amount to real reductions, and allowing them will loosen the pre-established emissions cap.

The House learned this lesson the hard way. Shortly after purchasing carbon offsets from the Chicago Climate Exchange, the Washington Post reported that the emissions reductions were rather illusory. To take just one important example, the House spent $14,500 to pay farmers for carbon-reducing “no-till” farming, even though the practice was started prior to the purchase of the offsets. Farmers might have been motivated to practice no-till farming to reduce fuel use or to qualify for federal soil-conservation funds. By failing to meet the additionality requirement for offsets, the money spent by the House on no-till farming did not result in the intended amount of carbon reductions.

So what’s the conclusion? I think that if you really want to help the poor, prepare to develop some technology that will benefit the rich (so that they will pay for the development). That prescription is as paradoxical as the admonition that if you want peace, you should prepare for war. The Zen of Development.

- Atanu Dey

The Federal government Renewables Australia Fund is not covering the two most promising renewable energy sources for base load power for Australia.

Is this due to design or oversight?

Design, because they will be economically competitive without government support compared to wind, solar panel, solar hot water and biomass.

I would rather see solar thermal and geo thermal being supported in the fund because they have the largest potential for being a credible alternative energy source.

A cleantech conference in Feb 2010 in Adelaide.

“Hosting Clever Green will build on South Australia’s reputation as a leader in the green economy,” he said.

“The CleanTech sector and the green jobs it will provide will be a significant part of South Australia’s future. Clever Green will provide benefits for the state’s economy, while building momentum to reduce South Australia’s greenhouse gas emissions and ensuring the ecologically sustainable use of our natural resources.”

This is Australia’s nuclear energy.

He cites the potential of harvesting geothermal energy from Australia’s hot rocks, near the earth’s surface. Australia’s geothermal industry is growing with about 400 geothermal tenements nationwide and $1.5 billion in work programs underway, according to the report.

In particular, Cooper Basin, a sedimentary geological area located mainly in the northeastern South Australia and extending into southwestern Queensland, holds energy potential, according to the report. And it’s an area companies like Sydney, Australia-based Origin Energy are already tapping into. In 2008, the company upped its investment in a geothermal joint venture it owns with Milton, Australia’s Geodynamics (see Origin Energy puts more cash into geothermal venture).

By 2050, the report states, geothermal energy could cut one-quarter of emissions coming from electricity generation. It also estimates if 1 percent of Australia’s geothermal energy was utilized, it could provide more than 26,000 times the country’s annual energy consumption.

Via – Cleantech

Memo from Rwanda: Eat Your Heart Out Al Gore

My driver was a bit confused about my excitement exploring and photographing the whole operation, given there was also a stunning sunset happening over the lake that I was mostly ignoring. Maybe my electric car series for TechTicker is making me into a cleantech nerd, but there are so many things to like about the potential of this project. First off, the rarity of an emerging country fueling its ascendancy into the modern age with cleantech is enough to make Al Gore swoon. But the idea that a potentially life-threatening exploding lake could prove a low-cost solution for the landlocked country and even a new cash-generating natural resource is an apt metaphor for Rwanda’s ability to rebuild itself so admirably in the aftermath of one of the ugliest chapters in modern world history.

Despite all the dire warnings of eco Cassandras, Planet Earth – which has been around for 4.54 billion years and is a good bit tougher and more resilient than we give it credit for – is not in mortal danger. It’s we, homo not-so-sapiens, who are in peril of death, be it from the so-called swine flu, or anything else.

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Science and nature commentator Oliver Morton in a thought-provoking book ‘What is your dangerous idea?’ has cogently argued that climate change – which, unlike George Bush, he in no way denies – is not threatening the existence of the planet.
“A planet that made it through the massive biogeochemical unpleasantness of the late Permian (a geological period about 290 to 240 million years ago) is in little danger from a doubling (or even quintupling) of the very low carbon dioxide level that preceded the Industrial Revolution, or from the loss of a lot of forests and reefs, or from the demise of half its species, or from the thinning of its ozone layer”, he asserts.
But while the planet is pretty safe, we are far from being so. Morton acknowledges that many hundreds of millions of people – particularly those in poorer, agrarian countries – might die as polar ice melts, seas rise and inundate coastal areas and a cycle of floods and droughts is set into motion, pushing humanity as a whole to the verge of extinction.

So how did this literally Earth-size misconception arise that it is the planet which is in danger? Morton suggests a combination of factors: attention-grabbing sensationalism on the part of eco activists, media hype, lack of grass-roots scientific knowledge, and not least, the human ego itself (Wow! Look at us. We’ve endangered not just our own miserable species but a whole planet! The first – and obviously last – creatures in the history of the world to be able to do so. Is that something, or is that something?).

Jug Suraiya from the Times of India.

An App, the GoodGuide, Aids in Careful Shopping – NYTimes.com

These days, every skin lotion and dish detergent on store shelves gloats about how green it is. How do shoppers know which are good for them and good for the earth?

It was a similar question that hit Dara O’Rourke, a professor of environmental and labor policy at the University of California, Berkeley, one morning when he was applying sunscreen to his young daughter’s face.

He realized he did not know what was in the lotion. He went to his office and quickly discovered that it contained a carcinogen activated by sunlight. It also contained an endocrine disruptor and two skin irritants. He also discovered that her soap included a kind of dioxane, a carcinogen, and then found that one of her brand-name toys was made with lead.

And in looking for the answer, he hatched the idea for a company that used his esoteric research on supply chain management. “All I do is study this, and I know nothing about the products I’m bringing into our house and putting in, on and around our family,” Mr. O’Rourke said. But when he wanted to find that information, he could. Most consumers would struggle to do so.

Hence GoodGuide, a Web site and iPhone application that lets consumers dig past the package’s marketing spiel by entering a product’s name and discovering its health, environmental and social impacts.

Google closing in on cheap renewable energy – Technology – livemint.com

Weihl said the odds of success had gone up in the last year or so from a long shot to a real possibility of demonstrating working technology in a few years’ time.

“It is even odds, more or less,” he said. “In three years, we could have multiple megawatts of plants out there.”

The company has made investments in advanced geothermal and wind, but engineers inside Google are focused mostly on solar thermal, in which the sun’s energy is used to heat up a substance that produces steam to turn a turbine. Mirrors focus the sun’s rays on the heated substance.

By contrast, photovoltaic solar cells, the most commonly known form of solar power, turn the sun’s rays directly into electricity.

“We are looking at ways of cheaply getting to much higher temperatures and also making the heliostats, the fields of mirrors that have to track the sun, reflect the sun, keep it focused on the target we are trying to heat up — make those much, much cheaper. And I think we’ve made some really interesting progress in the last six to nine months,” he said.

Solar thermal has the best economics right now for a competitive energy resource. Solar PV is many years away and Google is doing the right thing by concentrating on this.

The three years timeframe is really great. This would be the start of the energy revolution. May be the next stage in cheap energy for the world and especially for developing countries. And it took only $50m till now!

I like the way Google has encapsulated a very important idea in a simple, mathematical form of Renewable Energy is less than Coal – RE<C.

More on this in the following videos (from Reuters)

Bill Weihl on RE<C

Weihl on solar thermal

Leaving profits on a jet plane – Views – livemint.com

The International Air Transport Association (Iata) noted earlier this week that though India comprises 2% of global air traffic, it accounts for nearly 25% of global airline losses this year. India is, then, a high-cost environment—slowdown or not.
First, infrastructure imperils airline finances. There are few airports in India, and that too with poor facilities that leave aircraft circling for hours. Yet, their monopoly lets them levy high charges: Noting the 207% increase in airport charges in Mumbai and Delhi over the past year, Iata has put them on a “wall of shame”. Personnel costs are high for similar reasons.
Second, government interference decreases profitability. The high sales tax on fuel, along with government guidelines on what routes airlines can fly, leaves balance sheets bleeding. These have been in place for long, and weren’t going to disappear suddenly.

In any industry this will create a reduction in profits.

Charlie Munger commented a long time ago that in total the aviation industry has created a loss of shareholder value.

The Indian aviation industry needed to go beat this history but handle a couple of its own little issues.