Nicholas Stern on Climate Change Actions and the Recession
McKinsey’s Matt Hirschland interviewed economist Nicholas Stern in Brussels this past January. You can read the transcript here or click below to watch the video.
Archive for Economics
US Carbon Markets React to Obama’s Budget
Trading activity picks up for carbon financial instruments (CFIs) after the release of President Obama’s budget. Even though the budget does not include revenue from carbon allowances until 2012, future contracts prior to this date moved higher. Some people believe these instruments can be used as early action credits in a federal cap and trade system.
Between 2012 and 2020, nearly $645 billion could be raised from the sale of emission allowances, the budget outline says.
According to Point Carbon (subscription) estimates, that would assume around 80 per cent of the economy would face caps on their greenhouse gas output starting 2012 at 2005 levels, or roughly 7.2 billion tonnes of carbon dioxide equivalent.
This means the budget is banking on carbon prices of nearly $13.70 per tonne by 2012.With the cap declining around 2 per cent per year after 2012, Point Carbon estimates the price of carbon in 2020 would go up to $16.5 per allowance.
President’s Budget Includes Carbon Cap and Trade Revenue in 2012
Earlier this week, the White House stated a climate bill passed in 2010 would be fine as long as it included the critical components President Obama included in his campaign promises. This is consistent with President Obama’s budget which includes revenue for carbon cap and trade allowances of $658 billion in total for the years 2012 through 2019. $150 billion of this will be committed to invest in clean energy along with tax credits.
Plug-in Hybrid Retrofit Plan
Andy Grove has a plan to test the viability of retrofitting US autos into plug-in hybrids fashioned along the lines of GM’s Volt design. He suggest testing this on 1 million cars at a cost of about $10 billion mainly due to the continued high cost for batteries ($10,000 per car). He is also pushing Intel to get back into the battery business, suggesting he sees this idea as more than just idle speculation.
Grove wants to focus on retrofitting a few high volume, low mileage models to test the theory. His goal is to reduce the dependency of our transportation system on petroleum and therefore foreign interests by moving more of our transportation miles to rely on electricity. Arguing that electricity is generated using a variety of fuel sources and a higher carbon productivity rate, this will also reduce GHGs emissions.
His article received a significant amount of feedback encouraging him to prepare a response only a few days after the original was posted. Primary concerns of those writing in were:
Electricity Generation
Electrical Grid Capacity
Small Impact of 1 million Cars
Getting Political Support
and one reader who suggested he stick to his knitting and leave energy to others.
EU to cut CO2 emissions 20% by 2020
The European Parliament has approved a deal to cut greenhouse gas emissions in the 27-member bloc. The package will obligate EU nations to cut carbon dioxide emissions by 20 percent by 2020 from 1990 levels. The package also seeks a 20 percent energy savings and increasing the use of renewable energy sources up to 20 percent of the total. Lawmakers in Strasbourg also agreed measures to cut CO2 emissions from new cars by 18 percent by 2015.
Analysts cut EU Allowance Price Forecast
Citing lower forecasts in 2009 output along with an increase in the number of firms announcing temporary shutdowns, analysts are scaling back their forecasts for carbon emissions and the price for allowances for those emissions. Societe Generale has cut their forecast for EUAs a third to 17 euros a ton. They went on to say prices could rise to 20 euros by 2012, sharply down from estimates earlier this year that prices would reach 37 euros during this timeframe.
Deutsche Bank believes EU emissions in 2009 could be 10% below 2007 levels. This would push emissions below allowances for 2009. The excess allowances for 2009 can be “banked” for use through 2012 and the forecasted emissions for 2009-2012 remain slightly above the EU carbon allowances. As a result of reduced emissions and smaller shortfall, UN-approved Certified Emission Reductions (CERs) which EU industry can import from developing nations to meet compliance, may be able to meet the entire shortfall. Price estimates for EUAs and CERs clearly indicate analysts believe CERs will set the pricing for EUAs for the next few years.
The good news is EU will be able to meet the allowances under phase 2 with a small “carbon price” in this recessionary period. This is also the bad news, as the lower price reduces the investment per ton of CO2 available for carbon abatement projects. The net is by 2012, the European Union will have done less and perhaps much less to lower the Green House Gases (GHG) they produce per unit of energy they consume than anticipated when the allowance allocations were set.