Carbon Dioxide

Carbon Markets or Recessions: Which Cuts Greenhouse Gases More?

The global financial crisis is responsible for 80 percent of Europe's GHG reductions.

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CarbonTrading
Euractiv

In 2005, the European Union launched the world's largest carbon market. The European Trading Scheme (ETS) aimed to reduce member states' carbon dioxide emissions by putting a price on them. Under the United Nations' Kyoto Protocol, the European Union agreed that by 2012, it would cut its greenhouse gas (GHG) emissions by 8 percent below the levels emitted in 1990. In 2012, the E.U. announced that it had achieved that goal.

This year the non-profit Climate Group hailed the ETS, citing the fact that "from 2005 to 2013 the sectors covered by emissions trading have reduced their emissions by 13%."  But it also acknowledged that "the economic recession could also have played a role in emissions reductions." In other words, part of the reduction might just be a result of people using less energy as the Great Recession hammered their economies. So how much of the European Union's emissions reductions can be attributed to the effects of the ETS and how much to the global economic recession?

A new study by the University of Barcelona economists Germá Bel and Stephan Joseph, published in the journal Energy Economics, tries to answer that question.

The ETS is a cap and trade system that applies to around 45 percent of the EU's total greenhouse gas emissions. About 11,000 big emitters, including electric power companies, oil refineries, steel mills, cement manufacturers, pulp and paper mills, and the makers of bulk organic chemicals, are required to cover their emissions with emission allowances. Each allowance permits the emission of one metric ton of carbon dioxide. Most of the allowances were handed out to companies for free.

In the initial phase, between 2005 and 2007, countries allocated far more allowances than there were actual emissions. Consequently, the price of allowances fell to essentially zero. After 2008, the EU tightened up the issuance of allowances, but carbon market prices have continued their drift ever downward.

Examining emissions data from 2005 to 2012, Bel and Joseph find that the European countries cut their overall emissions by 294 megatonnes annually (a megatonne is equal to a million metric tonnes), with countries averaging a reduction of just under 12 megatonnes each. But "the most striking revelation," they write, "is the impact of the economic downturn on industrial GHG emissions, with an average reduction per country of 10.174 MgT of GHG emissions in sectors under the EU ETS between 2008 and 2009." This massive one-year reduction amounts to 86 percent of the total GHG abatement achieved between 2005 and 2012.

Interestingly, the United States also experienced a sharp 6.5 percent drop in its greenhouse gas emissions in 2009. Of course, this steep fall in emissions meant that emission permits were once again oversupplied, resulting in a price collapse in the carbon market.

To get a clearer idea of how much GHG abatement can be attributed to the European carbon market, Bel and Joseph estimate ETS reductions by comparing the production trends in industrial sectors included in the carbon market with those sectors not covered in the ETS. They also look at consumption of electricity, oil, natural gas, and coal over the period. After running the numbers, the two find that "the total share of emission abatement due to the EU ETS is about 61 MgT of the 294 MgT of the total reduction of emissions" in the European Union. In other words, the carbon market was responsible for only about 21 percent of the overall emissions reductions.

So if the global financial crisis hadn't suppressed the European Union's industrial production and energy consumption, it would most likely have failed to meet its Kyoto Protocol emission reduction obligations. An interesting question is whether causality would work the other way: Would trying to impose stringent limits on greenhouse gas emissions spawn a recession? We may have the opportunity to find out, since the nations of the world are supposed to agree to a binding greenhouse gas reduction treaty at the United Nations' climate change conference in Paris later this year.

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  1. The last paragraph should be the lead. If recession leads to carbon reductions, will carbon reductions lead to recession? I don’t see how the answer could be negative.

    An even more interesting question, in this time of hand-wringing over inequality, is this: How much carbon emission would be allotted to each person in the world if the total were limited to the amounts prescribed by the IPCC, and it were spread equally, and what lifestyle would result, given current technology?

    1. CPAD: I actually calculated that back in 2008 when activists asserted that CO2 emissions must drop from 28 billion tons to 5 billion by 2050:

      Assuming 9 billion people by 2050, that means that each person can emit only 0.6 tons of carbon dioxide annually, which is lower than the average emissions in India today. In fact, if one divides the 1360 pounds of carbon dioxide annually allotted in 2050 to each person by 365 days per year that means each person would be allowed to emit only 3.6 pounds of carbon dioxide every day. That is the equivalent of burning less than a quart of gasoline or one-and-a-quarter pounds of coal per day. Burning that much coal would keep a single 60 watt light bulb lit for nearly 20 hours. According to some calculations, producing half a cheeseburger would exceed an individual’s daily carbon dioxide quota. But in fact, Jackson says, it’s much worse than that.

      Assuming no economic growth for the next four decades, Jackson’s calculations imply that people will be permitted to emit only 0.1 tons of carbon dioxide for every $1,000 of GDP in 2050. What if global economic growth proceeds at current rates? Jackson calculates that that would mean producing $1,000 of GDP emitting only 0.03 tons of carbon dioxide. That is equal to 66 pounds of carbon dioxide which is slightly more than burning 3 gallons of gasoline or 23 pounds of coal.

      1. How that doesn’t make you run screaming into the night in horror is beyond me Ron. That is what it would take to solve this “problem” these idiots want solved. Those two paragraphs alone should make any discussion of global warming as any kind of a significant factor in policy making a non starter. If the only way to solve the problem is to reduce the entire world to grinding poverty, then it is not a problem, it is an assumption.

        I just cannot understand how you can treat these idiots with anything but contempt.

        1. Bailey does a good job of saving his undisguised disdain for the truly horrific cases, like the GP scum who destroy golden rice.

          I would lose my mind if I had to do his job.

        2. That’s why Kingsmen was awesome. This kind of calculation is exactly what villain’s plan is all about.

    2. “The last paragraph should be the lead. If recession leads to carbon reductions, will carbon reductions lead to recession? I don’t see how the answer could be negative.”

      In the short term it would have to product a recession. In the mid to long term the answer depends on how much leeway to innovate governments give the marketplace.

      Without any other government interference strict carbon limits rigidly enforced would by necessity lead to the development of new ultra low to no carbon technologies that replaced those we use today and it probably would not take that long to develop them as long as government stays out of the way.

      1. Really? What makes you thinks those technologies even exist? Moreover, if they do, why wouldn’t people develop them anyway? Why do you need to destroy the economy to force the development?

        1. The technologies don’t exist, that is my point.

          They are not developed because the need they fill is already being filled by burning coal, oil, and gas so there is no incentive to develop them.

          If however you make it prohibitively expensive to burn coal, oil, and gas then you create a market demand where none previously existed.

          You will note, I did not claim those new technologies were a good idea or that we should ration carbon because of them. I merely made the point that the act of rationing will create a demand in the market where none previously existed and left to their own devices people will do what they always have done, they would find creative new ways to meet the demand and profit from it. I mean how is that even a controversial statement?

          1. If however you make it prohibitively expensive to burn coal, oil, and gas then you create a market demand where none previously existed.

            Note however, this does not happen over night. And so, while we wait for these new technologies, the poor and vulnerable in the US and developing countries will be the most likely to suffer.

            I merely made the point that the act of rationing will create a demand in the market where none previously existed

            Just as prohibition has created demand for seedy pushers and protection rackets. The demand for alternative energy already exists. We don’t need the government to use bans (which is what carbon credits ultimately boil down to) to “create” the demand.

            There are all sorts of reasons for renewable energy- from the pious zealots who want to signal their goodness to actually sane applications such as consumption in areas where it is not easy to get steady fuel resources. And there are all sorts of reasons why people don’t spend more money developing these technologies- they are extremely expensive and extremely risky. A carbon market is not going to change those reasons- and so even forcing people to ignore them just means we are wasting money on still-developing technology.

            1. Markets are already moving towards renewables, but at a slower pace than is possible. There are large costs to emissions that are not born by the emitter, in effect subsidizing dirty energy. If burning coal is cheaper for the user, but it leads to increased sickness in the surrounding community, not to mention the carbon emissions, the costs of burning coal are paid for by everybody else, but the user gets all the benefit. Just like car emissions hurt the surrounding population through smog, but only move the people who are in the car. The people who get sick are paying for the driver to travel.

              1. Those large costs are entirely open to interpretation- not that rafts of socialists don’t try to pin the largest price possible on them.

                Nevertheless, I agree that pollution (real pollution, not bullshit CO2-as-catastrophic doom gas) is an expense that is easily quantifiable and settled through tort.

                The problem is the government has systematically destroyed a private owner’s ability to seek recompense for these damages, both by granting risk free monopolies to pollute on companies and also by nationalizing much of the pollution producers in the country (c.f. roads). The answer to this is not to use government to double down on stupid- re-legislating what it already fucked up.

              2. “[…]Just like car emissions hurt the surrounding population through smog, but only move the people who are in the car. The people who get sick are paying for the driver to travel.”

                How sick would they get if the food wasn’t delivered by those horrid motor vehicles?

              3. No, markets are being forced into “renewables” (as I understand the 2nd law of thermo, that word always kills me) either through direct government mandates or through incentive programs that hide the true cost.

            2. “Note however, this does not happen over night. And so, while we wait for these new technologies,”

              Yes I did say that it would by necessity cause a depression in economic activity in the short term. Replacement technologies would only come online to fill the new market need in the mid to long term and then only if the government does not interfere. It would be trivially easy for the government to act to utterly prevent those new technologies from ever coming into existence, and unfortunately more likely than not this is what would happen.

              “Just as prohibition has created demand for seedy pushers and protection rackets. The demand for alternative energy already exists. We don’t need the government to use bans (which is what carbon credits ultimately boil down to) to “create” the demand.”

              Agreed, My comments should never have been interpreted as an endorsement of carbon credits. I was merely pointing out the resiliancy of markets even in the face of overt interventionism by government.

              Markets being organic have wonderful self healing qualities that command and control economies simply do not have.

              1. Markets aren’t unicorns or tachyons. They can’t overcome basic physical limits. The only affordable and functional replacements for fossil fuels are nuclear (fission now, maybe fusion in the future) and the ecotards will never allow that.

                1. No, there are a few others. Space Based Solar would do the job nicely and ocean thermal energy conversion could play a role as a baseload supplier or even more likely as an energy source for hydrogen production (build large OTEC facilities in the deep ocean and use the electricity to generate Hydrogen that you then ship or pipe to the coast to be burned).

                  Wind and Solar would of course have a small supplemental role to play but they could never be the baseload source.

                  Nuclear of course would be the initial option but there are other options which would also emerge

                  1. I did say affordable. Space based solar makes for good fiction but it’s not a practical solution for decades at least. And by ocean thermal energy I assume you mean the thermal gradient. That is an extremely inefficient, read diffuse, energy source. It makes solar and wind look good by comparison. Cracking water to make hydrogen and then shipping that is hardly ideal. You’re much better off with high voltage DC transmission lines, but it’s still a terrible option. Again, markets can’t overcome Carnot.

                    If you don’t want carbon and you want to maintain your lifestyle based on a practical EROI, then nuclear is your only option.

          2. They are not developed because the need they fill is already being filled by burning coal, oil, and gas so there is no incentive to develop them.

            Conflating energy sources used to generate electricity with those used for transportation is a red flag that the person is ignorant.

            Without any other government interference strict carbon limits rigidly enforced would by necessity lead to the development of new ultra low to no carbon technologies …

            Yea, your definitely ignorant. It is government interference that has resulted in the the most energy dense source of electricity (nuclear) to be stifled. Outside of nuclear, all energy sources that can be supplied on demand are carbon based. There are no technologies possible that can change that basic reality.

            1. Gee and what would someone who did not know that Oil and Natural gas are burned for baseload electric generation?

              You also don’t seem to be capable of understanding I am not advocating for carbon credits or any other form of carbon taxes merely stating the fact that markets adapt if given the chance to.

              You are also incorrect about the nature of technologies for baseload generation. Space Based Solar and Ocean Thermal Energy Conversion both will work just as well as Nuclear and carbon based fuels and while neither is immediately available the only problems that need to be solved with either are engineering issues, the science behind each is well understood.

              1. Ugh, no. Cost. Cost. Cost. Cost. Even with the fatal flaw called “night” terrestrial solar is a much more practical option than orbital and it’s still totally impractical at that.

                The thermal efficiency of using ocean temp gradients is theoretically a max of a few percent. You’re just not going to be able to harvest much power without a huge amount of infrastructure and cost.

                1. Even with the fatal flaw called “night” terrestrial solar is a much more practical option than orbital …

                  To add to that space based panels degrade much faster. They degrade due to the cosmic ray background about 10% in 7 years and almost 2% for each Solar Proton Event. There is also no practical way to get that energy down to earth in the quantities needed.

                2. http://www.otecnews.org/2012/1…..ectricity/

                  “This effort confirmed a maximum for global OTEC power production, but a significantly higher one (? 30 TW). As OTEC flow rates increase, the erosion of vertical seawater temperature gradients is much slower in three-dimensional ocean models, because any heat locally added to the system can be horizontally transported and re-distributed at a relatively fast rate. Another distinctive feature of the model results is the persistence of slightly cooler surface waters in the OTEC region. This is compensated, however, by a warming trend at higher latitudes. A boost of the planetary circulation responsible for the overall supply of deep cold seawater is also shown. Taken at face value, predicted environmental effects at maximal OTEC power production suggest that lower outputs should be considered. On a positive note, a more modest OTEC scenario with a global potential of the order of 7 TW showed little impact. The corresponding net power density is shown in the Figure, and should be interpreted as cautiously conservative. Work with better numerical resolution and improved physics is under way.”

                  7 TW is not going to power the whole earth but it certainly could be a key player and could within the next century provide about 1/4th of our global electricity generation needs and cost would realistically not be terribly higher than Nuclear

              2. Gee and what would someone who did not know that Oil and Natural gas are burned for baseload electric generation?

                Oil distillates account for less than 1% of U.S. electricity production. The oil distillate that is used for electricity generation is low value residual oil that has limited practical uses. In essence, the supply of residual oil used for electric generation is driven by demand for transportation fuels. To include oil in a discussion of removing carbon based fuels from electricity production is pure ignorance.

                You also don’t seem to be capable of understanding I am not advocating for carbon credits or any other form of carbon taxes merely stating the fact that markets adapt if given the chance to.

                Actually your the one that doesn’t seem to understand that markets are constrained by the fundamental physics of energy production. Forcing the costs of carbon based fuels can not lead to technologies to replace them since (outside of nuclear) no other energy sources of suitable energy densities exist.

  2. A look at China’s former government controlled energy sector reveals yet again how horrible they are at managing things, and how horrible they can make things.

    After China let private power companies do business there, the power grid went from many small gross polluting power stations of the state, to modern super critical power stations with the latest environmental controls.

    The government is great at retarding technology, with up laws, favoring select special interests and preventing things from coming about. Beaming power to homes would open up the market to various competitors, and people could choose a greener portfolio, or a mix and so on.

    Look at the ISOGO power plant in Japan. Emissions from that coal plant are on par with a natural gas plant of a similar output. Yet roadblocks by the gov’t prevent these plant from being built, which would help to bring cheaper power along with it.

    Places like NY have high power rates because there is one main provider in town that benefits from a government regulatory commission that never denied them a rate increase. Newer generation that is more efficient and would bring lower rates can replace current plants. They are prohibited, because KoAl!!! and companies don’t like KoMpeTITion.

    1. Yet roadblocks by the gov’t prevent these plant from being built, which would help to bring cheaper power along with it.

      Cheaper power would mean people wouldn’t turn things off when they were done using them? and conservation is what environmentalists want!

      Newer generation that is more efficient and would bring lower rates can replace current plants.

      At least until 10 years ago, power plants couldn’t upgrade their facilities without upgrading everything to the latests clean air standards because of clean air laws.

  3. V: You may like my new book, The End of Doom, in which I explain:

    Energy production, especially for electricity, approximates a government-sanctioned monopoly that has the unfortunate side effect of stifling private innovation in energy production technology.

    1. You can’t fool me Bailey, you’re just a shill for Big Energy!

      /sarcasm

    2. Before I buy your book, include an edit button for our posts.

      :0P

    3. Meh, I liked it better when it was called the Rational Optimist.
      That said, the issue isn’t if technology can make like better for more and more people. It’s that you’re not going to get rid of the people in sandwich boards declaring that the end of the world is nigh.

    4. I’m going to check this out. Thanks.

  4. Wait, I have it! Let’s reduce the global economy to, I dunno, one percent of its current levels and let Gaea heal.

  5. Is “market” the right word for cap-and-trade schemes? Something whose demand is 100% coerced?

    1. If Obamacare can operate as a “market” then sure. Why not? I mean its not like words have specific meanings or anything.

      1. It’s also touted as a success, even though it only insured at best 25 percent of the previously uninsured at a cost of $72k/year per insured.

    2. I’d like to buy some liberty credits to offset my oppression.

      1. No Liberty Credits – all out.

      2. Make checks payable to The Clinton Foundation.

        1. If they were truly cunning, they’d have figured out that scam themselves.

          1. Yeah, but the whole incompetence thing.

          2. Carbon trading, the 21st century version of selling indulgences

            1. I’m nailing 99 theses on Al Gore’s door.

    3. You libertarians are always talking about how much you love markets. Why the sudden hatred for an innovative market in ration stamps?

      1. +1000

        Thank you. That is all carbon markets are. They won’t keep carbon rationing from making us poor. They just might make the process a little more efficient. Woo Hoo.

    4. Is “market” the right word for cap-and-trade schemes? Something whose demand is 100% coerced?

      It is unfortunate, but a good use of the term. The product being sold is solely created through government fiat. However, it is still a product, and its trade is still influenced by market forces.

      When a government simply must meddle like this, a market is probably best since it leaves the coerced actors more latitude to innovate. I’m not arguing for Cap-n-Trade, but it is the least intolerable of all the options.

      This is why I tend to focus on the wrongness of regulating this shit in the first place, and point out the opportunity cost of essentially forcing the poor to increase the cost of their basic needs by a factor of 10 or 100

      1. Emissions shouldn’t be regulated? Even though they effect everybody surrounding?

        What did Los Angeles look like before emissions regulations? Growing up, I remember every summer had air quality warnings. We weren’t allowed to play outside. There’s nothing like that now. The market didn’t do that.

        1. “The market didn’t do that.”

          And it does not follow that the market couldn’t do that.

        2. The market didn’t do that.

          “The market” absolutely did do that. Suppose the government banned auto pollution but nobody could design a car that wouldn’t pollute. Then what? Either we’d have no cars or no pollution bans. It took better technology to clean up the air; the government just increased the cost.

  6. Uh, volcanoes?

  7. “You assaulted a federal officer.”
    Tar. and. feathers.

    1. wrong thread.

      1. Way to ruin the discussion sheisser pants.

        Now you shall be cheesed and macaronied!

  8. “Would trying to impose stringent limits on greenhouse gas emissions spawn a recession?”

    Why would artificially driving up the price of energy needed to do everything from cultivating crops to incubating premies have a detrimental effect on the world economy and human life?

    I started reading Epstein’s book a couple of nights ago, which was the first time I’d given serious thought to framing the question of carbon emissions in terms other than the uselessness of IPCC models and questions re: sensitivity. When you consider emissions & economic questions in terms of human lives lost, they take on a new significance.

    1. What book is that?

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    1. Is it making money selling carbon credits?

  10. i see no reason this should have to be an either/or.

    just slash carbon allowances until you get a recession.

    allons-y!

  11. 99% of the world should be Amish. Now that that’s fixed, us 1%ers are going to have a tire bonfire and aerosol fight yeeeee hawwwwww!!!

  12. your question is a false dichotomy, based on a huge lie. The whole “carbon footprint” scam is just that.. a wild hoax. Carbon dioxide level need to increase, as they are at historical lows for the past milennium or so. Plants grow larger and more quickly when CO2 levels are up a few percentage points from there they are now. So since we need more, why dither over how to release less? False dichotomy.

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  14. Population growth is the source of many, if not most all of our problems. While government subsidized living may go a long way in producing economic growth, it does produce many unresolvable consequences.

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