Thursday, May 14, 2009

Cap and trade for beginners, Part I...

I have been working to get a handle on how cap and trade works at the fundamental level, because, as I have discovered in conversations with farmers, while some of us think we know, we really don't.

So slog along with me as I try to grasp how this massive undertaking could function and what it means for my farm.

One good start is here:
There are three basic ways to reduce our GHG emissions. First, we can reduce our use of carbon-emitting technologies and devices. For example, buying energy efficient products reduces the need for utilities to burn fossil fuels to create your electricity, and therefore reduces total world carbon emissions. Second, we can improve the technologies we use by reducing the emissions they create. Third, we can develop projects that actively reduce atmospheric GHG. These projects are varied, from planting trees   (PDF) to recovering methane from landfills  , but they all serve the ultimate purpose of capturing greenhouse gases rather than letting them be released into the atmosphere.
Cap-and-trade schemes   (PDF) are an attempt to incorporate all three of these methods in the most economically efficient way. Under a cap-and-trade system, an overall cap is set on total emissions. The goal of the system is to reduce emissions below that level. Each participant in the cap-and-trade scheme either buys or is given so-called “allowances.” These are amounts (generally expressed in metric tonnes CO2 equivalent) of greenhouse gases that they are allowed to emit. The total number of allowances adds up to the cap. [More]

Let's proceed with this helpful (albeit somewhat dated) introduction to cap and trade:


Sort out whatever persuasion is embedded, and I think you can learn some helpful facts.  But one is most important: controlling emissions will cost YOU money - no matter how it is done.

This is because we use so much energy which is derived from buring carbon-rich fossil fuels.  So whether it's electricity from coal/oil/NG or gasoline, we are the reason carbon dioxide gets released into the air, for the most part.  It's about our burning habits.

The permits will be an added cost, which can only be recaptured from the consumer - and we're the folks with the electric toothbrushes, remember?

But the economics of how this cost lands in whose lap has other wrinkles to be ironed out.
Will there be offsets — and if so, how many, and what kind?
In addition to buying emissions permits from the government, companies might be able to get extra permits by investing in a wide variety of carbon-offset projects, from planting trees to burning the potent greenhouse gases released by landfills and factory farms.

Environmentalists have mixed feelings about this. Carbon offsets have been scoffed at in the press and compared to papal indulgences. Although some offsets are clearly better than others, it's tough to measure how much carbon they really reduce. And since each kind of offset comes with its own complicated accounting system, cap and trade would be much simpler without them.
But on the other hand, offsets give skeptical farmers and financiers a reason to get on board the green bandwagon. After all, there's money to be made by selling them.
Who gets the money?
Think of cap and trade as a giant Monopoly game about to get underway, with the government holding a stack of carbon permits instead of Monopoly money. To get the permits into the market, the government has a choice: it can either give them away for free, or force companies to buy them at auction. An auction could raise money for tax cuts, which would help ease the burden on ordinary Americans. But power companies want free permits, and they're lobbying fiercely for them. This debate is so hot, the recent ACES bill — the current front-runner among the cap-and-trade bills that have been filed in Congress (see "Generation Green") — wouldn't even touch it. Obama wants 100 percent auctioning, but he's got a fight on his hands. [More]
Which brings us to offsets, which you probably glommed onto in the paragraph above.  Farmers think they should have a piece of this action.

Stay tuned.


Anonymous said...

Hi from Australia a belated signatory of the Kyoto Protocol.
This protocol has two classes of offsets loosely called the gross-net and net-net methods.

The first method endeavours to ignore any CO2 sequestration of the resources replaced by the new offset and any greenhouse gasses used in developing this offset. The offset created is allowed to ignore any annual variations caused by climate wind etc.
The net-net system requires complete accounting measuring and auditing of all greenhouse gas production or sequestration.

Naturally agriculture (except for new forestry) is in the net-net system and soil sequestration is not counted. Forestry, wind farms, methane capture from rubbish tips is in the the generous gross-net system.
Food for thought.

You also might have a look at a book just published by Ian Plimer "heaven+earth Global Warming the Missing Science" 3 reprints in a month a very popular book in China.


BrianOH said...

I just love the fact that in Australia, they call their landfill a "rubbish tip." Why don't we have names like that?