Friday, June 09, 2006

Emission Legislation - Pramod Panchanathan

By a good friend/collegue of mine..

Emission legislation: Is carbon trading an Easy Way out?
– Pramodh Panchanadam (2005)

In the era of sustainable operations and growth momentums, emission legislations play an important role by being checks and balances of the system. The United States being the largest producer and consumer of energy has an effective role in this. But, with President Bush do away of federal monitoring systems and the Kyoto protocol; it has become the prerogative of individual states/organizations and the preachers of sustainability, to show some action in regulation of Greenhouse gas (GHG) emission through self regulation and advocation of best practice methods. State Governments for a sustainable economic growth have started imbibing strict emission regulations but the effects of regulation has been interpreted by authors on one end as a driving force for innovation and efficacy in industries; but on the other as an instigating tool of increased cost.

Action in terms of state based federal self-regulation and emission control is presently through the Chicago Climate Exchange (CCE). The mission and vision of CEC is to provide members both from private and public sectors with cost-effective methods for reducing their GHG emissions through building and operating a market-based emission reduction and trading program. The member group operates on a cap-and-trade system at trading prices between $1.15 and $1.35 per Carbon Financial Instrument (CFI) with the base year as 2003. Compliance is through internal reductions, purchase of allowances by members facing emission limitations from others, or purchase of credits from Emission Reduction (ER) projects that meet specific criteria.

But, emission reduction programs / tradables are not “region specific”; by that we mean ER programs are not run at the point of pollution but at “convenient locations” and so are tradables. It can be better explained by the following example (Figure 1). Consider, a Thermal power plant A with X amount of excess over emission regulation; it has the option of,
a) Buying the emission tradable certificates for the excess X (or)
b) Investing in a ER project / renewable portfolio standard (RPS) to provide a sink for excess X
The problem with the scenarios depicted is, they are not region specific; that is, the tradeables or the ER program can be bought/done from any member with no criteria on region of actual pollution control, thus providing no benefits for the stakeholders in the pollution region. This is like “outsourcing” the Pollution Control instead of regulating it at point of pollution.

The future scenario should involve
a) Providing subsidiary and Tax incentives to innovative preventive pollution systems, rather then providing subsidiary across the board for RPS systems.
b) Broader system scope involving pollution abatement technologies executed at point of pollution with stakeholders involvement
c) Basic GHG policy agreeable to all regions at the national level to create universal standards of operation.

As Thomas. L. Friedman puts it as the movement of the herd in his book, “Lexus and the Olive Tree”; one section is looking in to how to abate pollution through innovative technologies and sustainable policies (the Lexus) while, others are involved in stagnant polices involved in subsidized RPS and outsourced carbon sequestering.


At 9:53 PM, January 29, 2007, Anonymous Anonymous said...

Thanks for the interesting post.

I'm not sure I understood the point of ERs not being "region" specific? Clearly GHG reductions do not need to be region specific from a climate change perspective, but rather should be made where it is least cost to do so. Under the European Emission Trading Scheme, ER equivalents are purchased under the Clean Development Mechanism in developing countries, hence, although these reductions exist outside the stakeholder EU ETS countries, it allows for a transfer of technology and capital to those countries where it is least cost to make reductions and also amongst the only current prospect of such reductions.

What I understood from you article was that ER programs should be brought into system boundary 1 only, and the periphery be characterised by government and legal regulations. What I don't understand is why this would be more desirable? Surely under a system of scarce emission allowances, where the CFI price is significantly higher, there exists both the option of technological innovation, fuel switching and efficiency gains all within the stakeholder space, accompanied by ER programs outside this space in developing countries or those states whose leaders are less enlightened as to the benefits of emission trading. After cherry picking of easy carbon sinks, internal reductions will become competitive with ER programs, and resources will be allocated more efficiently.


At 11:11 AM, April 03, 2007, Anonymous Anonymous said...

Hi Jim thanks for your post. The article was written in perspective of Thermal power plants in forefront. Though an argument that most pollutants are from cars and automobiles would then be put and that a concentrate is impossible. Then wldnt it make sense to have them design more efficient automobiles and pbly look at some other system of propulsion rather then the present IC engines ?

It may look that it is better to mitigate at the present model, however it is to my understanding that in a definitive amount of obstruction innovativeness is encouraged through effective leverage of technology. A move to complete allow cross mitigation would only increase “show/dummy” systems – by which I mean install in places where the checks and balances can be fudged. By this, I don’t say every body does that, I mean a good amount would look at that option.

In my view a good balance between local mitigation and a spread in investment in cost effective regions would be a better and sustainable model.

Hope to hear more about this.



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