Not convinced

Technology Review: Carbon Trading on the Cheap

This article about the inadequacies in the US carbon trading scheme (yet to pass the Senate) probably doesn't make any new points that haven't been canvassed elsewhere, but it's not a bad summary.

I remain somewhat puzzled as to why so many economists think it's a great idea when the system in its trial European version showed so many problems.

Yet everyone from John Quiggin, Harry Clarke and even Monbiot (sorry, no time to provide the links yet) have come out saying it's a good thing overall. Monbiot's attitude is perhaps the oddest, as he spends the first half of the article completely rubbishing its ineffectiveness.

Still, the attitude seems to be "it's better to have at least the bones of a system in place, it can always be improved in the future". In other words, they think it is good to have the gesture, even if everyone knows it won't make a real difference. But what is the evidence that such improvements will ever be politically "do-able".

I am not convinced at all. As the Technology Review article says:

Surveys of business leaders suggest that they will not seriously reconsider the way they use energy until the price of carbon exceeds 30 euros per ton. The late Dennis Anderson, a professor of energy and environmental studies at London's Imperial College, concluded in 2007 that significant change will come only when carbon prices "move to the upper end" of a range that he put at 40 to 80 euros per ton. Anderson estimated that the 40-euro threshold would have to be met to make onshore wind farms and nuclear power a better investment than natural-gas or coal-fired power plants, while prices would have to approach 80 euros to make carbon capture and storage worthwhile. Even higher prices would be needed to make solar and offshore wind economical.

Economists at the International Energy Agency have recently calculated that holding global warming to a reasonable level would require an annual investment of $1.1 trillion per year. And it would require a $200 per ton price on carbon, said the IEA, to drive the necessary innovation.

And the current price:

Global recession is now undermining the second phase of the trading system, which started last year. The European Union set the cap for the 2008-2012 period at 6.5 percent lower than the cap for the trial period. Trading volumes initially exploded, according to Point Carbon. But the rally proved short-lived. The EUA price slid to an average of just 11 euros in the first quarter of 2009, as manufacturing slowed in the face of the recession.

The faltering trading scheme may be doing real harm.

11 euros is about $15 US dollars.

I know the ability of the market to determine the price depending on economic circumstances is sold as a benefit. But it's a funny kind of market if you have to keep fiddling with how it works to get it to realistically reflect the price that is really needed to drive investment in new power production.

As I said, not convinced...