Emissions trading end of the world Greg Barrett Economics Lecturer University of Canberra Carbon...
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Transcript of Emissions trading end of the world Greg Barrett Economics Lecturer University of Canberra Carbon...
Emissions trading
end of the world
Greg BarrettEconomics Lecturer
University of Canberra
Carbon cycle ecologyObjectivesTheoryPractice
Carbon CycleAsset
Atmosphere750 Gt carbon (stock)
+3 Gt pa (flow)
AssetPlants600GtSoil
1600GtOceans40,000Gt
AssetFossilfuel
3300 Gt FlowDeforestation
2 Gt pa
Flow4 Gt pa
Flowburning
5 Gt pa
GreenhouseResponse(damage function)
AmbientlevelW>A
emission(dose)
CO2 concentrationsparts per million
1800s 290 1960 315 1988 350 2005 379
Allen Kneese
Opposed•Direct regulation•Subsidies
Supported•recycling•green taxes•tradable permits•ethics
Ethics
Who polluted most?
Who is responsible?
Who should pay?
Objectives
Effectiveness: reduce pollution•regulate quantities
ogovernment
Efficiency: minimise pollution cost
•price externalityogreen taxes
Efficiency & Effectiveness•emissions trading
omarket
Production & consumption externalities
output & W
output & W
output & W
SP
SS
SS
DP
DS
DS
production
consumption
MECMNPB
XS
XS
XP
XP
XPX
A
XS
PS
PS
PS
PP
PP
$
$
$
EU air pollution
Shorter life span• 8.6 months
o cardiovascular & respiratory diseases
Policy (Clean Air for Europe )• save 2.3 months • worth 161 billion euros a year
Productive efficiency
Regulating quantity by licensing
MAC3
MAC1
MAC2
S2
t2
t3
t1
$/t
tons ofabatement
Marketable permits
Definition•Property rights•Tradeable license
o to pollute or extract resource
Allocation•ownership•initial allocation
o grandfathering vs auctions•reallocation over time
Productive efficiency
MAC3
MAC1
MAC2
S3S2S1
t2
t3
t1
$/t
tons ofabatement
Green emissions taxAllowing trading of licenses
Fox RiverDischarger Impact MAC MC/DO
coeff $US/lb $US/µg/l
1 107 7.20 72
2 189 2.10 11
3 373 1.90 5
4 231 3.10 14
5 184 1.80 11
6 214 7.90 37
7 101 2.60 27
Examples
Resource license trading• fishing quotas• irrigation licenses
Pollution emissions trading• SO2 1970 USA
• lead 1985 USA
• SO2 1990 USA
• CFCs Australia
• Salt 2004 NSW
• CO2 2003 NSW
• CO2 2005 EU
• CO2 2008 NZ
Tradeable permitsAdvantages
• Savings in compliance costs.• Allows new polluters to buy quota from old (economic growth).• Flexible•limits total emissions
o target can be adjustedo pollution outcome certaino target area -bubbles
•lower abatement cost•adjusts to economy
Appropriateness• Compliance costs vary • Sufficient trades & traders • Fixed polluters.• Encourages technological change• Needs market intermediation • Environmental impact same
Problems• multiple pollutants• Concentrating polluters • Economic rents accrue to polluters• High transactions costs• Needs a sophisticated market• set up & administration costs• low usage
Relevance to environmental media
Acid Rain Program SO2 Allowances Transferred
Price of Sulfur Dioxide Allowances
reduction in allowances• initially
oprice not increasing– Technological change?
• long-runo price rise
Outcomes percentage change
“heat input,” = combustion of fossil fuels
* Generation from fossil fuel-fired plants.
** Constant year 2000 dollars adjusted for inflation.Source: Energy Information Administration (electricity generation, retail price); EPA (heat input and emissions, representing all affected ARP units), 2007
NSW Benchmark Scheme
Fine of $10.50/t CO2• NSW electricity retailers
Pollution permits (NGSC)• renewable energy, forests
EU ETS trading problemsPermits not traded
• grandfatheringMarket segmented
• Clean Development MechanismOver allocated
• imperfect informationTime frame too short
• long-term investments
Outcome: price $US/t CO2e• 2005 23 • 2006 22• 2007 0• 2008 27• target 20-50
Cost• 0.1% of GDP per year
Conclusion
Political decision• regulate price or quantity• create property rights
Practical solution• costs are modest• learn from experience
Institutions important• market institutions
o brokerso auctionso fineso information