Emissions Trading: A Brief Negative Resume

Posted on February 02, 2009
Posted By: Ferdinand E. Banks
 
INTRODUCTION
The clock of stupidity is attached to a bell, and it tolls for your descendants

- Donald E. Carr (1976)

Rex Tillerson, CEO of Exxon Mobil (XOM) -- the energy firm that is often Number One on the Fortune 500 List -- has now come to the conclusion that emissions trading (or cap-and-trade) is doomed to fail. Instead, in a speech at the Woodrow Wilson Center, he declared that he was in favour of a carbon tax, which he called “…a more direct and transparent approach.”

Direct and transparent and, as a result, featuring (relative) certainty about carbon prices, which is very important for (physical) investment in energy intensive industrial countries. In addition they are an easily understandable alternative for Kyoto-like forums to contemplate and discuss, as compared to relatively complicated options like tradeable emissions permits that feature uncertainty in the matter of pricing, are susceptible to ‘gaming’, and if the evidence has any significance, cannot be systematized internationally The influential Al Gore, and the climate scientist James Hansen prefer a carbon tax, and British Columbia (Canada) installed this arrangement last year.

An example of quasi-gaming might be useful here: EU firms buying carbon credits from abroad which sell for about 75% of EU permits, and probably less on various occasions. The effectiveness of this option for reducing emissions has apparently been questioned, as well it might, because emissions from enterprises that trade permits continued to rise during the first two years of the system, and I would be very surprised to hear that there was any change before the recent economic meltdown reduced economic activity.

For what it is worth, I am also in favour of carbon taxes, because they are not only direct and transparent but because, ideally, the revenues from these taxes can be used to help finance a new energy ‘portfolio’, which to my way of thinking should include nuclear energy as the principal component. I will not treat this subject in the present article however, because it is spelled out in some detail in the long survey of nuclear energy that I am completing (2009).

The interesting thing here is that Mr Tillerson – and perhaps most of his executives – have at one time made a point of vehemently denying global warming. Perhaps he has adopted the attitude of this teacher of economics and finance, which is that a new energy ‘portfolio’ is absolutely essential, regardless of whether excessive global warming is real or fictitious, or will not put in an appearance for another five hundred or five thousand years, and any strategy (or program) for combating global warming that does not explicitly contribute to obtaining that portfolio should be designated suboptimal. This includes carbon taxes.

THE MAIN ARGUMENT

According to Robert Frank (2006) in his important textbook, “if a single agency had the power to enact globally binding environmental legislation, it would be a straightforward, albeit costly matter to reduce the build-up of greenhouse gases. But in our world of sovereign nations, this power does not exist.”

This conclusion can be adjusted. If a miracle had taken place, and the Kyoto delegates had specified that climate issues should be exclusively dealt with by heads of governments and senior civil servants from the major greenhouse gas emitting countries, meeting several times a year, we might already be in possession of the correct environmental legislation, instead of the superficial bunkum affiliated with emissions trading that was eventually put into circulation. Moreover, the cost mentioned by Frank might have been quite tolerable.

My favourite approach to the interior mechanics of emissions trading almost always begins with a perusal of the exchanges for electricity pricing, and in particular the Nordic Electricity Exchange (NORDPOOL), whose endeavours I usually described to my students as a ‘scam’, and deserving the attentions of serious-fraud researchers in every institution of higher learning in Scandinavia. Let’s consider a simple example.

Over the previous year, electricity prices in Sweden almost doubled. The explanation provided by NORDPOOL turns on the increased cost for emissions permits by electricity generators in the north of Europe, as well as the increased price of energy inputs for power stations. But since all except seven or eight percent of Swedish electricity is generated with nuclear and hydro, emissions permits and e.g. higher oil and coal prices should be, ceteris paribus, largely irrelevant for the remaining ninety-two or ninety-three percent of Swedish electric generators. Even so, Swedish ratepayers are faced with higher prices due to the presence of fossil fuel based equipment in other countries associated with NORDPOOL, as well as the occasional appearance of a very high demand for electricity in those countries.

Now consider the situation in the future where emissions permits are concerned. Regardless of good intentions by fossil fuel users and politicians, fossil fuel consumption will (ceteris paribus) still increase by a large amount because estimates are that in the next twenty-five years, the global output of electricity might increase by fifty percent. Even if Sweden were to restart the two nuclear reactors that were shut down, increase the number of windmills in this country by the absurd amount desired by the industry minister, and force a large part of the electricity intensive Swedish industry to leave the country, an increase in the demand for fossil fuel based electricity exterior to this country, and a possible rise in the price of emissions permits to various enterprises outside Sweden, would almost certainly boost electricity prices in Sweden. What this means is that emissions trading functions as an unjustified tax on the good citizens of this country, and the same might apply to the citizens of any country who have their electricity priced in an exchange of the NORDPOOL variety.

Given these circumstances, it should be made clear to all interested persons that at best emissions trading reduces to a highly efficient way to get rid of excessive carbon dioxide (CO2) emissions in what the game theorist Ken Binmore calls a “toy market”, by which he means a textbook market that is devoid of annoyances like risk (or uncertainty), monopoly, irrationality, spillovers (i.e. externalities), dishonesty and anything else that prevents a few simple equations from being put on a blackboard for the delight of drowsy teachers and students in some storefront university. Despite a statement in Newsweek that in order to suppress excessive CO2, the United States needs a cap-and-trade system of the kind providing ‘magnificent’ results in Europe, the sad truth is that the European arrangement is a cynical deception that mainly benefits the brokers and ‘intermediaries’ who expect to get rich by playing games with ‘emissions credits’ or ‘carbon trading’ or marketable emissions permits or whatever bizarre and/or misleading term that charlatans in the financial districts of North America and Europe dream up in order to make this activity appear socially beneficial. Mr Francis Sullivan, the environmental adviser at the large European bank HSBC, spent a few months evaluating the market for ‘carbon credits’, which led him to suggest that the police and their experts should look into the trading of these permits. To his way of thinking, irregularities in this market are so great that people might lose faith in them. This is naiveté, because I have taken the same approach with NORDPOOL, however that organization is sailing along at a more relaxed pace than ever.

An interesting short account of the flaws of emissions trading originates with Emma Johansson (2003), who points out that “…a utility that runs fossil fuel-fired plants will be exposed to an additional price risk that affects risk and return. As a result the classic spark spread (price difference between the price of electricity and the price of the fuel used to generate the electricity) will have an additional component.” What Ms Johansson forgot to add was that according to mainstream economic theory, this increase in risk will almost certainly reduce the investment in physical capital, and therefore many of the new electric generating plants that are essential for maintaining our standard of living later in this century might not be constructed. After reading the Johansson paper interested parties can scrutinize a short article by Uwe Maassen in the same publication, which examines some further inconveniences that can come about if an unreasonable confidence is placed in ‘carbon trading’.

According to Andrei Marcu of the International Emissions Trading Association, “Europe is now clearly committed to action on climate change, whatever happens to the Kyoto treaty.” I’m sure that he is sincere in this belief, because his salary (and bonuses) will depend on the trading successes of carbon permits, and not the fate of the Kyoto Protocol nor a reduction in the stock of physical carbon in the atmosphere. For him and his collaborators, cash comes first, and carbon in its various forms somewhere to the rear. Another heavyweight player in this burlesque, Professor Michael Grubb of London’s Imperial College, as well as the ludicrously named ‘Carbon Trust’, informed The Economist (UK) that “Kyoto was designed for the rich countries to miss their domestic targets. That’s why we included international emissions trading.” (April 3rd, 2004). The identity of the “we” to whom he was referring was not clarified, however for the purpose of the present contribution it could apply to everyone with expectations of a first-class ticket on what they hope will become a carbon-trading gravy train.

That brings us to a scrutiny of the truth of emissions trading in Europe, as compared to the fantasies that evidently have been foisted on the new American president and his ‘energy team’ by energy-economics know-nothings.

It is often argued that the most effective device for reducing harmful emissions is via a tax on emitters, which in the theoretical literature is called a Pigou tax – after the Cambridge (UK) economist Arthur Pigou. Japan and France have adopted this approach, however it was ignored at Kyoto because the delegates at that meeting did not want to lose access to future talk-shops by being accused of adding to the tax woes of citizens in the most important industrial countries, and especially the United States.

In the chapter on the environment in the next edition of my energy economics textbook, I intend to extend Pigou-like schemes beyond their present use in the countries mentioned above. I might also spend some time examining present and/or intended emissions trading in Europe, where in the interest of expanding this practice, the European Union Emissions Trading Scheme (ETS) was established. Apparently this clumsy arrangement has been pictured as theoretically attractive and operationally successful, which is an egregious departure from the truth. The emissions permits that (in theory) were to be auctioned off were instead provided free, and since estimates of carbon emissions by the authorities and their ‘experts’ were grossly inaccurate, it was impossible to establish a stable market – by which I mean a market in which a (dynamically) sustainable or nearly sustainable supply-demand equilibrium was established, and therefore the ‘natural’ volatility of prices was minimized.

For instance, permit prices were at times so low that instead of investing in superior technologies – which was the object of the exercise – heavy polluters resorted to buying permits, which enabled them to continue generating a heavy flow of pollution. In addition, some of them were undoubtedly able to raise the price of their output by enough to pay or almost pay for these permits. What about auctioning these permits off, as Lord Turner – head of the UK’s Climate Change Committee – has mandated for his country, and the European parliament is in the process of specifying for all EU countries? Given the lack of information about the sources of pollution and the districts that are most polluted, the impossibility of combining meteorological information with economic data, and the shortage of relevant economic training on the part of the individuals who will work with these matters, it is likely that we have another example of what Jean-Paul Sartre called “a fire without a tomorrow”.

FINAL REMARKS AND CONCLUSION

The governor of California would not take kindly to this presentation, because he has formed an international emissions trading ‘syndicate’, however his focus is on show business rather than economics. Moreover, I often receive mail from critics, whom I immediately inform that I would be genuinely overjoyed if they appeared in Uppsala some fine day for the purpose of ventilating their objections in an open forum. But if they did, I would have no choice but to make it clear that the directors of many energy intensive companies in Sweden – despite their traditional preferences for market-based solutions – have for the last few years informed friends and neighbours in this country and elsewhere that emissions trading is one of the worst ideas ever hatched, and may cause irreparable harm to consumers as well as the Swedish industry. Never forget that thanks to the presence of NORDPOOL, some energy intensive industries in this environmentally superior country will have to pay unreasonably high prices for emissions permits, and in addition would experience a higher price for the electricity they consume, despite much of it being generated in ‘emissions-free’ facilities.

Unfortunately, I can remember failing to convince one of my former mathematical economics students in Australia that he should accept the above assertions at face value. That gentleman wanted some ‘algebra’, but what I gave him instead was some primary school arithmetic in conjunction with a touch of intermediate economic theory. A few years ago the Swedish government planned to issue one group of companies emission permits for 250,000 tonnes of CO2 per year. The emissions from these companies were 450,000 tonnes the previous year, which implied that if those enterprises wanted to maintain the output of the previous year, then they would have to go into a ‘market’ (or perhaps better what the prominent New Zealand economist Owen McShane called a “pseudo-market”) and purchase – at an unknown price – emission permits that gave them the right to emit about 200,000 tonnes of CO2.

Purchase at an unknown price! Isn’t this the kind of short-sighted dilemma Emma Johansson was talking about, and which may be one of the reasons why even Jerry Taylor – senior fellow and environmental researcher at the conservative Cato Institute (in Washington D.C.) – has expressed a preference for carbon taxes over cap-and-trade foolishness. Perhaps, like me, finds carbon taxes more efficient, because among other things it may be possible to design a system in which tax revenues can be returned (in some simple or complicated way) to the aggregate of enterprises paying these taxes.

What kind of system do I have in mind? I could say, but I doubt whether I am more competent where this issue is concerned than President-elect Obama’s energy team, even though I persist in calling them an ‘environmental team’; and while they are working this out, they can also produce a calculation which shows that when all relevant factors are taken into consideration, a slightly larger nuclear commitment should be the foundation of a new energy policy for the United States, and every country with a serious and intelligent government, while any involvement with emissions trading, carbon trading or cap-and-trade should be dumped and forgotten as soon as possible.

REFERENCES

Baltscheffsky, S. (1997). ’Världen samlas för att kyla klotet’. Svenska-Dagbladet.
Banks, Ferdinand E.. (2009). Economic theory and nuclear energy. Forthcoming. _____(2007). The Political Economy of World Energy: An Introductory Textbook. London, New York and Singapore: World Scientific.
Bell, Ruth Greenspan (2006). ‘The Kyoto Placebo’. Issues in Science and Technology: Resources for the Future.
Carr, Donald E. (1976). Energy and the Earth Machine. London: Sphere Books Ltd.
Frank, Robert H. (2007). Microeconomics and Behavior. New York: McGraw- Hill.
Harlinger, Hildegard (1975). ‘Neue modelle für die zukunft der menshheit’ IFO Institut für Wirtschaftsforschung (Munich).
Johansson, Emma (2003). ‘The current status of the greenhouse markets’. Oxford Energy Forum (May).
Maassen, Uwe (2003). ‘The EU’s proposal concerning emissions trading’. Oxford Energy Forum (May)
Victor, David G. and Danny Cullenward (2007). ‘Making carbon markets work’. Scientific American (2007).

 
 
Authored By:
Ferdinand E. Banks (Uppsala University, Sweden), performed his undergraduate studies at Illinois Institute of Technology (electrical engineering) and Roosevelt University (Chicago), graduating with honors in economics. He also attended the University of Maryland and UCLA. He has the MSc from Stockholm University and the PhD from Uppsala University. He has been visiting professor at 5 universities in Australia, 2 universities in France, The Czech University (Prague), Stockholm University, Nanyang Technical
 

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Comments

February, 02 2009

Len Gould says

"Japan and France have adopted this approach, however it was ignored at Kyoto because the delegates at that meeting did not want to lose access to future talk-shops by being accused of adding to the tax woes of citizens in the most important industrial countries, and especially the United States."

Exactly. Perhaps if the levy on carbon at source were called something other than a tax, then it might have a chance to get past the free-ride-seeking majority of voters in the USA. It is very simple logic indeed to prove that a Cap-and-Trade system will be more costly (for end customers) than a smple flat tax, to accomplish the same end. (If the c arbon penalty is the same, then the difference is the admin. costs, which will be enormously higher with a trading scheme).

February, 02 2009

barry hanson says

Upstream: impose a $5 per million BTU tax (fee) on fossil carbon as it leaves the ground or enters the country. Data on this is aready tabulated and part of the record, there are only a couple of thousand entities that mine and ship fossil carbon.

Downstream: Forget it. There are millions of point sources of carbon emissions and therefore much more difficult and expensive to manage, tabulate and keep track of. I agree with the author regarding cap and trade, it's a diversion and a scam.

In the U.S. the $5 per million BTU tax would generate about $300 billion per year in the first years, and enough money to install a clean energy economy over ten years or so by directly subsidizing the consumers and the developers of the clean technologies.

The technologies, which already exist, should have an economic payback of less than ten years based on all associated costs.

The problem of course is that this solution would require strong political leadership and vision.

February, 02 2009

Ferdinand E. Banks says

Someone - I believe that it was Tom Tanton - informed me that the good people in the executive suite at Exxon did not necessarily believe in AWG, but if it came to a tax they prefered an unambiguous carbon tax to cap-and-trade. If I had a deep interest in this topic I would spend some time making it clear that cap-and-trade has not worked in Europe (as far as I know), and that President Obama's energy team should have no difficulty showing - with the help of mainstream economic theory - that cap-and-trade is an inferior option.

And NO, I don't have a deep interest in this topic. Why should I? For the most part the movers and shakers have given the go ahead to cap-and-trade because, as Len Gould suggests, they are afraid of the word tax, although cap-and-trade amounts to a tax.

Needless to say, if economic theorists abandoned the algebraic game playing and got down to real business, the deficiencies of cap-and-trade could easily be made clear to the decision makers.

February, 02 2009

Jim Beyer says

I think an an analogy can be made with Cap-and-Trade vs. Carbon Tax, and CAFE standards vs. a Gas Tax. Both of the formers are basically mandated efficiency improvements over time, and both of the latters are, well, taxes.

It is frightfully difficult for gov't agencies to determine how quickly things can be made more efficient. Taxes, on the other hand, are easy, if unpopular.

February, 02 2009

John K. Sutherland says

Fred and others, Energy is the ultimate and most basic resource - upon which all other social endeavors are built - in any society. Any action which raises the overall cost of energy, kills disadvantaged (poor) people, and sets social progress back for everyone.

Despite this, taxation of carbon dioxide emitting energy sources, is seriously proposed as a means of addressing a hypothetical problem, based upon two false and linked premises - that carbon dioxide is a pollutant, and that it is a serious contributor to Global Warming. Neither premise is true.

Carbon dioxide is an essential nutrient for all life forms, and we are living in a time when carbon dioxide concentrations are sub-optimal for plant growth, and near - or at - the lowest levels in all of paleoclimatological history covering the last billion or more years. Despite this, we listen to one false prophet after another telling us that we must stabilize it at this level, and even reduce it, no matter the social costs or consequences. Pure, unscientific folly!

Not only that, but the temperature data from which this folly has been conjured up, is from weather stations, mostly in North America, from which grossly inaccurate temperature data has been derived. These deficiencies arise from poor maintenance, poor siting, too close to heat sources, on roofs, in parking lots, by sewage plants, at airports, by buildings etc,etc, all of which have been documented by Anthony Watts. His survey data of more than half of the existing sites in NA show that about 70% of them do not meet the standards prescribed for the proper collection of accurate weather data. As if that were not deficiency enough, these data are then subjected to poorly defined - and unjustified manipulation by the likes of Hansen, who has been caught doing it, and yet no-one blinks an eye over it.

Add to that, the fact that climate hysteria is driven by inadequate and unworkable computer models, and the entire unscientific comedy of errors is exposed for what it is; a complete and utter scam. contributing to the wealth and power of politicians and others.

Most of the politicians of the world have truly gone one step too far in buying into any of this. They may awaken from their zombie state when the true consequences become clear to them, as they now are becoming. This event will rank in future years as the most damaging mass delusion in all of human history up to this time.

It is truly to be hoped that Lisa Jackson, incoming head of the EPA will live up to her words of doing only those things that can be supported by good science. If she does, then this labelling of carbon dioxide as a pollutant that must be controlled through draconian means, will be history. Requiescat in pace.

John. K. Sutherland.

February, 02 2009

James Carson says

The problem with markets like 'cap and trade' is that there are really only two market conditions: excess or shortage. There is no such thing as an equilibrium. What do I mean by this? There is virtually no range between the shortage and oversupply condition.

Let's look at the simpler case of excess supply. In CO2 cap and trade, that would amount to an excess of allowances above what is needed by the market. What is the value then? Since price gravitates towards marginal cost, the value on the margin is negligible. So, the price will be very low.

The case of shortage is more interesting. When there is a shortage in allowances, higher prices are not mitigated at all by increased supply, but rather entirely by decreased demand. That decreased demand is essentially economic activity that will be driven out of existence by the inflating allowance costs. The allowance price, then, is being determined, not by marginal cost, but by the opportunity cost of whatever it takes to drive some activity out of existence.

We can expect the cap and trade markets to work like any other market structured like this: Very chaotic. Other markets that look like this would be the (US) SO2 and NOX allowance markets and the capacity markets (US).

James Carson JBCarson@RisQuant.com

February, 02 2009

Ferdinand E. Banks says

James. SO2 and NOX markets have no place in this discussion for reasons pointed out by the good Ed Victor, professor of something at Stanford.

John K., I am strictly OUT of the discussion about AGW. If my wife asks me about it I take the same line as Messrs Gore and Hansen, but otherwise I dont spend a minute of my day thinking about it. Why should I? I dont really know anything about it.

But I know about taxes and scams, which is what this article is all about, and I also know about the comprehensive energy poliicies that will absolutely have to be launched, so I don't see any harm in taking the Gore-Hansen line. In fact the more I think about it the more sense it makes, because it has already resulted in some of the high and mighty thinking about the advantages and necessity of nuclear.

February, 03 2009

Rod Adams says

My preferred nomenclature for carbon taxes is "combustion waste disposal fee". Even climate change skeptics should recognize that our shared atmosphere is being used as a free waste dump for a wide variety of deadly fossil fuel combustion wastes and that the polluters - all of us - should pay for the service to the owners of the resource - which again is all of us. (If you do not agree that combustion wastes are deadly, I suggest that you try sucking on a tailpipe for a while.)

This fee would not be regressive, I am pretty sure that one could compute a reasonably linear relationship between income (or wealth) and energy consumption when inputs like air travel, luxury vehicles, material uses, home and office heating are included.

The distribution of the income from the fee should go to the owners of the atmosphere - every person in the countries that collect the fee should get an equal share. We all have lungs and are all born with an equal right to breathe (life, after all is one of the three inalienable rights that our American forefathers assert).

While it might be more accurate to assess the waste disposal fee on every pollutant, it is a reasonable mathematical approximation to compute the fee based on the carbon content of the fuel. Ergo a carbon tax is really just a fee to pay all of us for the right to use the air as a waste disposal dump.

Such a scheme would do all that is necessary to encourage the widespread development of all energy sources that work to provide reliable power without releasing their waste products to the environment. (In my analysis, that leaves a lot of choices, all of which use fission instead of combustion. However, people enamored with collecting diffuse and unpredictable energy from "natural flows" can feel free to try to compete as long as they do so with their own money and outside of my immediate backyard.)

Rod Adams Publisher, Atomic Insights Host and producer, The Atomic Show Podcast

February, 03 2009

Adrian Lloyd says

Fred,

As per previous posts on the subject of cap and trade vs carbon taxes, I agree with you totally, in particular with your comments about the EU Emissions Trading System (EUETS). IMO it is in distress right now, as evidenced by bleating last Thursday from the European Commission that “EUETS is not working as it is supposed to” As industrial output has declined sharply with the recession in Europe, industrial energy consumption has also fallen. Quite by how much is uncertain, but there is some evidence to suggest that across the EU, the demand for primary energy has fallen by about 4% compared to the same period last year. As energy consumption has fallen, so has the demand for carbon allowances, leading to price falls. So far so good, the “market” is doing what it should do when confronted by a surplus of a commodity.

But this is only part of the picture. What drives EUETS is the fines that are levied on any company that does not surrender allowances equal to its emissions. Companies are given a period of months after the end of each annual compliance period to finalise their position (buy/sell allowances before the fines fall due) Right now, a good portion of the allowances being sold seem to be distressed sales, i.e. companies are selling allowances that they actually need (rather than just selling surplus allowances). They are doing this to raise cash now, because they can’t roll over bank loans/get new credit. This is driving prices down even further.

The gamble is that that if they survive the next few months they will be able to buy back allowances (before they have to finalise their positions) at similar or even lower prices than now (because of continuing falling energy demand putting more spare allowances into circulation). If they don’t survive it won’t be their problem. Either the purchaser (if there is one) will have to buy the allowances that the company needs (or pay the fines) or the company in administration will have to default. This risks massive loss in confidence in the system, even on the part of those players who hitherto have been its biggest cheerleaders. But it is an ill-wind that blows no good - for some of us, trades in the carbon allowance market can now provide useful indications of the financial health of individual companies in advance of their results.

The way I see it is that the EU now has the dilemma of

a) watching carbon prices, compliance and confidence in EUETS collapse or

b) withdrawing more allowances than programmed from the market, which will result in increased perceptions of political risk, higher prices, an increased number of company failures amongst large energy users and more unemployment or

c) changing bankruptcy law throughout the EU so that EUETS compliance ranks below tax but ahead of all other creditors, in which case banks will be even less willing to lend to large energy users than they are now.

d) admit that EUETS is not fit for purpose, is wide open to fraud and complex and expensive to administer and move away from it to a Carbon Tax or a carbon duty.

Based on past experience, my hunch is that a) is what will happen whilst they spend a lot of time thrashing around examining all of their options. One or two EU members will cook the books so that the allowances/fines of distressed companies are paid by the state.

I hope that President Obama will recognise the vacillation and denial (followed by obfuscation and self-congratulation) so typically shown by modern European governments when confronted by the reality of their previous posturing. I then hope he will come to the conclusion that the US can do a lot better by not imitating them.

February, 03 2009

Ferdinand E. Banks says

Adrian, I suspect that President Obama has bought emissions trading. Why not? At the level of Econ 101 it sounds good, but he needs someone to explain to him its shortcomings, using the kind of language that I used when 'trashing' electric deregulation.

Incidentally Rod Adams, I am NOT in favor of revenues from carbon taxes going directly to the 'owners' of the atmosphere. Instead they should go to firms that are willing and able to take part in the construction of a new energy structure. What this comes down to is the owners of the atmosphere receiving the utility from these revenues, though not directly.

February, 03 2009

Len Gould says

So, I'm curious. With no-one here in favour of CO2 emissions trading, why will the US government implement it? Do the traders have THAT much influence over the politicians?

February, 04 2009

David Bush says

Len: "So, I'm curious. With no-one here in favour of CO2 emissions trading, why will the US government implement it? Do the traders have THAT much influence over the politicians?"

No I don't think it is the political influence that is forcing cap and trade. You have stated before and correctly so, it is the simple term "tax." No politician (that wants to be re-elected) is going to propose a new tax in the current economic times. What we need is a new innovative definition of carbon tax and repackaged as benefit in a yet uncreated political spin.

February, 05 2009

Adrian Lloyd says

Len,

My guess is that Fred is right. Why? – who knows. Possibly the new administration thinks that when it comes to carbon emissions it is playing catch-up and therefore to save time it is simply going to adopt what it believes works elsewhere. I doubt that traders, or rather the investment banks that own large carbon trading operations had much to do with it. Most of them are keeping a very low profile right now, and even when they do speak, nobody is really listening to them. It was different in Europe when EUETS was set up, where the investment banks did have political influence (note the use of the past tense).

My take on this is as follows. They were pushing against an open door, very much aided and abetted by large energy users. All EU members had signed up to Kyoto and were anxious to make it work. To do so they had to find a way to monetize the adoption of “climate friendly” development by the third world.

The EU Commission and Parliament had been leaning towards EU-wide carbon taxes and some member states already had them in one form or another. In the UK, their own carbon tax (the Climate Change Levy) had met strong opposition prior to implementation and a lot of resentment afterwards. When the EU wide tax was mooted, large British energy users (supported by the trading organizations) argued that carbon trading would be more cost effective (i.e. cheaper for them). This was music to the UK government’s ears. It was trying to convince everyone that New Labour had ditched its socialist past and was now a party that believed in markets tempered by considerations of “social justice”. Carbon Trading seemed to be the answer to all their perceived problems, including helping the third world out of poverty – carbon credits generated in the third world under Kyoto would be eligible in the trading system.

It therefore brought into being the “voluntary” emissions trading scheme that became the blueprint for EUETS. At its heart it had the same form of toy market that the UK has adopted for “pricing” electricity system imbalances, renewable electricity, renewable transport fuel, renewable heating, recycling of packaging and allowances for landfilling biodegradable waste. As a British colleague of mine says, “they only have one tune in their repertoire, and that is always played on a fiddle”.

February, 05 2009

Adrian Lloyd says

Victor,

IMO EUETS does not work. The actual amount of carbon reduction is completely uncertain, but the costs to EU consumers through higher energy bills is significant (I estimate about $200 per household per year). Some benefit does flow to the third world, but the biggest beneficiary has been Russia, which is the biggest source of carbon credits in the world. So not only has the EU put itself at the mercy of Mr Putin for its supplies of gas and much of its coal, it is also dependent on his benevolence for the achievement of its carbon abatement programs. If this was pointed out to the US public, a carbon tax might seem a little more palatable than emissions trading.

February, 05 2009

Len Gould says

Is there not some way to get this sort of information to the Obama administration in time to convince them to drop the trading scheme in favour of the "Commons Protection Fee" which we suggest instead?

February, 05 2009

James Carson says

Banks << James. SO2 and NOX markets have no place in this discussion for reasons pointed out by the good Ed Victor, professor of something at Stanford. >>

Perhaps you could provide a link so that we can at least find out what he said. All I find is references to David Victor who is a law professor at Stanford with an interest in carbon markets, and nothing about your point.

James Carson JBCarson@RisQuant.com

February, 05 2009

Ferdinand E. Banks says

Ah yes, Mr Victor - or Professor Victor as he is known. One of the high and mighty at Stanford, and also at some important organization in New York. In addition he is a boss of some energy program at Stanford, and has contributed a number of articles to highly visible publications like Newsweek and Scientific American. But listen, don't write or try to communicate with him. He is above contact with the great unlearned - such as my humble self.

The business with So2 and NOX. That's DOMESTIC James. I tried to get in touch with Meester Victor when he wrote something in some publication at some time in the past, in which he pointed out - as I point out occasionally - that domestic and global are two entirely different things, but he was strictly incommunicado - like Greta Garbo. So you see, you don't really need a link. Besides, I aint in the link business unless some money changes hands - in which case I still aint in it, as the donator might find out.

As you know, I am a bottom line sort of person. and the bottom line here is 'who died and left Victor in charge?' Of course, now that Sweden is changing its mind about nuclear, he might show up in Stockholm some sweet day, at which time I will introduce myself to him in the usual manner...if you understand what I mean.

February, 06 2009

Jim Beyer says

SOx and NOx are also different than CO2 because they are pollutants, whereas CO2 is the inescapable by-product of the combustion of hydrocarbon fuels. One thing I DID agree with the Bush administration about is that CO2 is not a pollutant in the typical sense of the word. It's a natural emission that many feel, over time, has become excessive and problematic. (I am NOT trying to stir up some AGW debate here.)

But far more important (in my opinion) of being domestic vs. global, SOx and NOx have at least the theoretical potential of being totally eliminated from waste streams. Not so CO2. At best, CO2 can only be reduced by improving plant efficiencies. Doing so without greatly increased cost is problematic at present, and likely to remain so for quite some time.

I think it would be very, very unwise to assume emission trading of SOx and NOx would provide any insight in dealing with CO2 emissions. For one thing, people do not emit SOx or NOx, but they do emit CO2 (about a gram per minute.) Lots of other things do too.

February, 06 2009

James Carson says

Banks << The business with So2 and NOX. That's DOMESTIC James. >>

So what? My point was that the CO2 market will look and operate a lot like other cap and trade regimes. Whether domestic or international is irrelevant to that point.

Regarding the link to the elusive Professor Victor, I wasn't looking to contact him. I just wanted you to post a URL to an article on the internet he might have published.

To Beyer: Your point questioning whether CO2 is a pollutant is well taken. However, my point related only to how the carbon market would look like other cap and trade regimes. NOX and SO2 cap and trade emission 'markets' can inform us about how a CO2 cap and trade emission market might function. I also mentioned US capacity markets by way of analogy.

To return to my original point: CO2 cap and trade will look a lot like other cap and trade regimes. Prices for allowances will be either in surplus, and worth very little, or in shortage, with prices determined by the opportunity loss of whatever activity is displaced. There is virtually no middle ground in which to establish an equilibrium.

February, 06 2009

Jim Beyer says

Well, again, apparently we all agree that cap-and-trade isn't a good idea for CO2. (And unfortunately, none of us seems to be Steven Chu or Rahm Emanuel, darn....)

James, if you are saying that cap-and-trade also does not work well for SOx and NOx, I suppose I could believe that. I was told it seemed to work best when it was not only domestic, but local.

February, 06 2009

James Carson says

Well... Cap and trade sort of works for SO2 and NOX. The link below shows the price trajectory of the allowances over the past year. Prices are down considerably from their peak a few years ago. Also, the volatility seems to have tempered a little.

http://www.ferc.gov/market-oversight/mkt-electric/overview/elec-ovr-emns-no-so-pr.pdf

The larger issue regarding emissions allowances has been that the US has reduced pollutants by exporting production to parts of the world with less stringent limits. Is that really a good solution?

February, 07 2009

Jim Beyer says

James,

That thing always seemed to bother me as well. I'm all for free trade, but if an import need not met OSHA or EPA regulations that a domestic manufacturer must, that seems somewhat problematic. And unfair to the home team.

February, 09 2009

Len Gould says

Jim: "unfair to the home team" -- sort of "everyone's an internationalist except the workers". Wonder why. COMINTERN mets WTO and the worker gets slowly mashed to a pulp between them.

February, 09 2009

Jim Beyer says

I understand very little galvanized steel products are produced in the U.S. anymore because it's much less expensive for China to deal (or not deal) with the waste products. One company that managed to still compete was a firm that made bicycle baskets. That was because volumetrically, they were difficult and expensive to ship from overseas.

February, 10 2009

Lance McKee says

A carbon tax would have other benefits. Taxing work and investment is counterproductive -- We want people to work and invest! Shifting the tax burden to polluters (and extractors of non-renewable resources) would spur initiative and release productive energy. The poor can be protected from high fuel prices. If the US did this, the resultant rapid growth in US productivity and rapid US transition to energy autonomy might shock other nations into following suit, hastening a global recovery and a retreat from greenhouse gas risks.

But nukes? No! Like automobiles, electric appliances, computers, the Web and cell phones, the Clean Electricity Age is about widespread personal ownership of affordable, high tech, distributed devices (generators, storage devices, cars, appliances etc.) that use a shared -- and mostly fair and open -- network infrastructure to increase opportunities for individuals. When America loses leadership in what it offers individuals, we have lost what makes us great and what makes us unique and admired in the world. Regulated, centralized energy systems exist because we fear change. By the way, a carbon tax (and a free market running on the Smart Grid) would make it easier for owners of solar roofs and small wind generators to compete with green utilities, who will otherwise, in a complex carbon trading world, outmaneuver the little producers and take more than their share of the carbon credits.

February, 11 2009

Ferdinand E. Banks says

Well, Lance, a very smart man in Germany thinks that I am nuts because of my partiality to nuclear.

However I put it as follows: would the people in this country (Sweden) be as prosperous without nuclear as they are with nuclear? The liars, fantacists, politicians, idealists etc say that they would, but since Sweden has had one of the lowest electric prices in the world because of its nuclear, and perhaps the lowest for industry consumers, that argument doesn't sit too well with this humble guy.

What about other countries? I know something about those too. People don't want nuclear in Sweden or the US or Germany or.....just about everywhere. They want solar and wind. As a result they are prepared to listen to crazy and illogical arguments, but this will come to an end some day. A gentleman in Switzerland questioned me about this yesterday, and so I gave a date for the big wake-up day: this is the day when natural gas production peaks. What I really meant was that if nuclear hadn't been generally accepted by then it would be on that day.

But note, I am NOT against renewables or new energy options. On the contrary, but nuclear should provide the base, and in the long run it will provide the base. Moreover, nothing is lost by waiting, because since voters are unrealistic in these matters, we wouldn't get the nuclear sector we need and deserve until those ladies and gentlemen saw the light.

February, 11 2009

barry hanson says

There have been several press releases the past few days regarding CyclonePower; patent holders on an external combustion engine that has received the attention of several goverment projects here in the U.S. and ,in fact, looks very promising. They also have a 10 KWwaste heat recovery engine/gen set. The first one of these is now being installed in Philadelphia using waste heat from an architectural glass furnace and will have a payback of about two years.

Why on earth would anyone even suggest using nuclear power when we can generate electricity from waste heat for under two cents per kWh? If every one of the 30 or so nuclear applications go through the 30 plants would generate about .75 quads per year of elect...we have 75 quads of waste heat for crying out loud. The installed cost for these things is well under $2000 per KW and maintenance is nil.

February, 11 2009

James Carson says

Banks: I am of two minds regarding nuclear here in the US. I agree with you that it looks attractive from technical, economic and environmental (ghg) points of view. Nevertheless, I am very concerned about where the political will is going to come from to properly dispose of the waste. Until we resolve that, I hesitate to support nuclear expansion.

Here in Minnesota the waste from decades of operation of two 500MW reactors at one plant is stored in concrete casks ON AN ISLAND right smack in the MIDDLE of the Mississippi River. I don't care how much anyone likes nuclear energy, that is irresponsible.

JBCarson@RisQuant.com, www.RisQuant.com

February, 12 2009

Ferdinand E. Banks says

Barry, I've been accused of being a shill for nuclear energy, but I'm not. I'm a shill for energy, and I've become convinced that nuclear offers the best prospects. Unfortunately...unfortunately, this is going to take a lot more explanation, but I'm game. The 1600 MW plant in Finland is way over budget now, but that's OK. The bottom line in that country was getting this project off the ground. It's something like the Sands Hotel in Las Vegas that initially caused so much trouble for its backers, and especially Mr Siegal. But as the smartest of his backers - Meyer Lansky - said, it would pay off in the long run.

James, yes, I dont understand that storage, but I might understand it in France where waste is kept relatively close at hand so that it can be recycled in case it is needed. My problem here is that I want a system where the nuclear cycle is closed (in that waste is always recycled, preferably in a new type of equipment).Naturally that raises a lot of problems, and I am not sure that I know enough yet to deal with them.

February, 12 2009

barry hanson says

Professor Banks: To avoid digression and keep the discussion away from the emotional aspects of nukes I merely selected out two interesting features of the energy debate;

1. I suggested that a source of primary energy could easily be waste heat since of the 75 quads that we lose up flues and is rejected in condensers about 40 are potentially recoverable. Multiply that number by any conversion efficiency you want, there is upwards of five times more than all the nuke projects under consideration in the US could generate. So there is no fuel cost and almost no O&M costs.

2. I pointed out one of many interesting emerging technologies that are now available but was not available only a few months ago. This particular one can be installed at almost any scale (local, regional and distributed for example), they started out with a 10 KW model that has a capital cost of less than one fifth that of a nuke.

Mr Carson is referring to Prairie Island; when the license was extended a few years ago Northern States Power (now Excel) had a lobbyist for every two Minnesota legislators and they pretty much bought the conference committee that OKd that fiasco...that's how nuclear is implemented in this country. The political system must be corrupted...look at Bennett (UT) today, Domenici (NM) previously...and the taxpayer always has to be forced to accept the risk, the waste, the permitting fees, the legal fees, the stranded assets, the insurance, the decommissioning, the loan guarantees, the R&D nonsense. Please explain how nukes make more economic sense that the waste heat recovery I mentioned where ithe capital cost is way below two cents per kWh and they can be installed within months.

February, 12 2009

Ferdinand E. Banks says

I'll gladly tell you how I would handle this issue, Barry. I would summon to the White House about a dozen scientists and engineers, and ask them about your claim. If they said that it made sense, I woud immediately remove about ten thousand US soldiers from Afghanistan and Iraq, and give somebody a contract to make your claim come true - if possible. Of course, I would have to be president to do this, and I don't think that the voters in the US would be interested in my good self, but I mean well.

BUT, until the voters change their minds, and elect me, I am going to do some serious work on nuclear economics, and try to show both the voters and non-voters that with the possible exception of your favorite process for generating electricity, nuclear is cost-wise optimal. This isn't going to be easy, but I think that I have what it takes.

Incidentally, I don't...DON't believe that those scientists and engineers would tell me to bring those troops back to the Big PX, because I'm not sure that any valuable conclusions can be derived from a 10kW model, but somebody else in this forum is going to have to deal that quandary.

February, 12 2009

Len Gould says

barry: "Excel) had a lobbyist for every two Minnesota legislators" -- Is that one lobbyist for every two total members of the state legistature, or one for every two members who attended that partcular conference? Precision is important. If the first case, then your argument has merit. If the second, then I tend to require more detailed information, and suspect a hidden agenda.

There are many future paths for presently stored spent nuclear fuel, and none of the logical ones include bulk burial in an irretrievable geological repository. Its just far too valuable in future as a fuel for energy generation. That path (burial) is pure temper tantrum spoilt child stuff.

February, 12 2009

Edward Reid, Jr. says

Gentlemen,

I understand Fred's issue wit the "trade" component of "cap & trade". I also appreciate the concern for the "verify" component of "trust but verify" regarding international "trade".

However, I would suggest that the likelihood of achieving the magical "80% by 2050" without a schedule of declining caps over the period is somewhere between slim and none. I understand that, theoretically, the tax can be increased until the desired result is achieved. That might well be politically impossible, unless the increasing taxes can be rebated to all but the "evil rich", however that term may come to be defined.

I refuse to believe that the "Great Oz" waves his magic wand in 2050 and the US is emitting only 20% as much CO2 as it did in 1990, with a 50+% larger population. I also refuse to believe that the rest of the nations on the globe will have done likewise.

Ed

February, 12 2009

barry hanson says

Len: For weeks on end lobbyists for Xcel energy infested the state house, an extrodinary number of them...not at one conference...in the capitol building day in and day out. They practically lived in the office of Sen Steve Novak, their special lackey. I read where there were literally half as many Xcel paid lobbyists as there were members of the Minnesota state legislature. My point is that nuke is not viable unless they can corrupt the political process and force all of those externalities onto the taxpayer.

"Hidden agenda" on whose part? I asked a pretty straight forward, simple question comparing the economics of nukes to the scenario I suggested above and haven't seen anything close to an answer. So let's see an answer professor.

There is no spent high level nuke waste with heat recovery, why deal with it? France can't to this day...they've polluted the ocean from LaHague, they have not solved the nuke waste problem.

Please explain the economics: nuke vs waste heat recovery to electricity in terms of all costs involved...$/kWh. The installed cost for the waste heat recov unit will be well under $2000 per KW with a 98% capacity factor and virtually no maintenance. Other waste heat recov systems based on Organic Rankin Cycle expanders cost about the same, under $2K installed...some operate at over 35% efficiency, they all can operate at low temps. All are commercially proven and off the shelf.

Professor Banks: the 10 KW unit is not a "model" it is now going into full production I understand. As for the troops in Iraq: they'll be home when the production sharing agreements are in force for the benefit of Total, Exxon, Texaco, BP and Shell. Otherwise it was a success...for Halliburton e.g. they made off with $20 billion. Not a success for the taxpayer...my point. But our policy is not driven by the taxpayer nor is it driven by folks trying to, in good faith, solve energy related problems I'm afraid.

February, 12 2009

James Carson says

Hanson << Mr Carson is referring to Prairie Island; when the license was extended a few years ago Northern States Power (now Excel) had a lobbyist for every two Minnesota legislators and they pretty much bought the conference committee that OKd that fiasco. >>

Yes, I was posting about PI. Are you seriously accusing Minnesota state legislators of mass corruption??? Admittedly, we do have some bizarre politics up here, but rampant corruption is not part of that.

Hanson << Please explain how nukes make more economic sense that the waste heat recovery I mentioned where ithe capital cost is way below two cents per kWh and they can be installed within months. >>

It might be nice if they had built a gigawatt or two of these plants before you post a diatribe like this. I presume you mean Cyclone Power. They have a market cap of $18mm. They haven't posted financial reports in over a year. They are listed on the Nasdaq pink sheets. Do I have the right company?

http://www.cyclonepower.com/

Hanson << I read where there were literally half as many Xcel paid lobbyists as there were members of the Minnesota state legislature. >>

They had nearly one hundred paid lobbyists??? LOL. Don't be absurd. I doubt that there are that many paid lobbyists in Saint Paul all totaled. Besides, I, myself, participated in that process as a citizen. The Xcel lobbyists were ineffectual. What turned the tide was simply the prospect of shutting down 1gw of cheap, reliable generation if they didn't renew the license. Senator Anderson overreached and stumbled.

Hanson << My point is that nuke is not viable unless they can corrupt the political process and force all of those externalities onto the taxpayer. >>

Given your penchant for polemics, why should we take your point seriously?

February, 12 2009

Jack Ellis says

A couple of points. First, whether in the form of an explicit tax or via carbon trading, the price at which low carbon alternatives start to drive out coal-fired generation in the US is quite high, even when one disregards the effects of increased demand for relatively clean burning natural gas. In California, the cost of adding renewable generation to replace natural gas works out to around $100/ton of carbon reduction. It's not a whole lot less for coal. I can't see any meaningful reductions from either a carbon tax or carbon trading in the US until the economy improves because there's no way the public will accept the costs.

Second, nuclear as an alternative in the US is going to be a tough sell in many places. Whether the public's fears are rational or not is irrelevant. Whether a few are causing harm to the many is also irrelevant. Public officials are loath to buck public sentiment on this issue. Moreover, the Senate Majority Leader is adamantly opposed to both nuclear power and coal-fired power plants.

I'm not an economist so I'm sure I will be corrected on this point but it seems to me that an important difference between a carbon tax on the one hand and cap-and-trade on the other is that the carbon tax, at least according to Dr. Banks's Swedish example, affects the marginal cost of producers that use fossli fuels but its impact on consumers is greatly diluted via averaging. It would seem that proponents of a carbon tax on producers are assuming producers are in the best position to do something about carbon emissions at the margin. On the other hand, the limited amount of analysis that's been done in California suggests energy efficiency is the most cost-effective way to reduce emissions, but of course to be effective, energy efficiency must either be heavily subsidized or it must be motivated by ensuring that the marginal price paid by consumers is roughly equal to the marginal cost of production, where the marginal cost of production includes in some form both capital and operating costs.

.

February, 13 2009

Ferdinand E. Banks says

I don't know if I said everything I wanted to say, or should have said in this short paper, but what was probably left out was that I am not interested in having brokers and middlemen involved in this carbon suppression business. Without bringing into the picture global warming and the like, I basically want to see the establishment of a new energy economy, and if the voters insist that something has got to be done about carbon suppression, then a carbon tax fits into that agenda: carbon is taxed and the tax revenues go back to the firms and individuals who paid that tax in the form of a more efficient energy structure, as well as some other things - which, in a textbook world, might include some cash payments. Here of course I use the Swedish experience with nuclear, in which TAX PAYERS AS A GROUP DID NOT PAY ANY SUBSIDIES FOR THE CONSTRUCTION OF 12 REACTORS. (NOTE: AS A GROUP!).

About Barry and the issues he has brought out. I can't help you Barry. When it comes to energy I seldom look farther than the borders of Sweden, and when I do I look at France. Sweden produced perhaps the lowest cost electricity in the world and sold it at - they say - at perhaps the lowest price. Economics is about optimality, and my argument is that what they achieved in Sweden they can achieve elsewhere. I hope that they can do this in the US, but I know that they can do it in Canada, for example. As for nuclear waste, it is clear to me that the French intend to recycle that waste, as do the Japanese, and this is what the Swedes should do. Of course, you can't talk about things like that in public, although you can talk about almost everything else.

What about renewables. Of course, but the base should be nuclear because as I point out in my new textbook, WITH NUCLEAR YOU KNOW WHAT YOU ARE GETTING! About the rationality of "the public", or the voters or what have you, the less said about that the better. But consider the situation in Finland. Everywhere I turn I hear bad news about their new giant reactor, but even so talk has begun about constructing still another nuclear facility. Why is this? Perhaps it is because the Finns may be the best educated peoples in the world. They have put enormous resources into education and as a result it may be possible to explain to the average Finn why that two plus two is equal to four. Thus, when you tell them that large amounts of oil and gas might be unavailable in 50 years, you don't always have to hear nutty talk about the sun, moon, stars and wind.

February, 13 2009

Len Gould says

Barry: The process you describe about the Minnesotta legislature simply amazes me. All I can tell you is that no-one needed to lobby the (liberal) government of Ontario to convince them that the only way to shut down most of the coal-fired generation in Ontario is to build at least 4,400 MW of new nuclear generation. Sure, they've been commissioning new wind generation as fast as private operators will build it, but it's been making almost no difference.

February, 13 2009

barry hanson says

Len In truth MN has always had a tradition and reputation for intelligent, sensible, progressive politics with a well informed electorate. I think that may be changing somewhat these days but I don't llive there anymore. I think the situation in MN was a little different than what you describe in Ontario. At that time NSP (now Xcel) just needed to get relicensed and they needed permission for more dry cask storage. Part of the problem, as Mr Carson noted, was the fact that the storage was on an island in the Mississippi River, something many of us objected to. NSP did have over 60 people on their payroll working this one issue at the capitol at this particular time, this was reported in the local papers. They needed the votes to stay operating. As a concession NSP was forced to install the wind projects at Buffalo Ridge in SW MN. My point though is a more general one as far as lobbying ,where the political process is basically controlled by money and corporations as exemplefied by the fact that in DC there are 35,000 registered lobbyists...65 lobbyists for every one congressperson.

James Carson: My point here on energy seems to be totally ignored. I'm simply asking a straightforward engineering/economic question not having a whole lot to do with CyclonePower but having to do with the conversion of low and medium grade heat to electricity. This is being done by UTC, York, Carrier, Ormat, Yazaki, ElectraTherm, WOW Energy, Energy Concepts, Raser Technologies, etc it's also being done to convert low grade geothermal heat to electricity in some cases where they use Organic Rankin in lieu of steam. Cyclone just has a different way of using the BTUs to get mechanical energy...which I happen to think is pretty interesting since it is an external combustion process so if you don't use waste heat you can use waste carbon (biomass, garbage, anything). They happen to be a poorly capitalized startup, does that really affect the merits of the concept? The thing works, by all accounts.

The point relative to nuclear is simply the fact that there is 5 times more potential electricity available from recoverable waste heat than all 30 proposed nuclear reactors could generate. With off the shelf technology, it doesn't have to be Cyclone, in fact where they use a "cascading closed loop" Organic Rankin Cycle they get efficiencies of 35% from 500 degree F waste heat. The company that is doing this, as you probably know, is also young and underfunded. So it seems that a reasonable strategy might be TO fund THEM, not nuclear...especially since the cost is 20% that of nuclear without the other attendent issues. There is nothing really new about any of this, these are operational improvements on old technologies, very risk free and with short financing times and most importantly thay are modular...you don't have to commit to GW scale, you can put in a few thousand of the 10 KW units. With loan guarantees private capital and banks would fund it because it has a short payback and the technolgy risk is very low. I am only suggesting that this makes more sense than nuclear, after all we are only trying to make some electrons flow, right?

February, 13 2009

James Carson says

Hanson << My point here on energy seems to be totally ignored. I'm simply asking a straightforward engineering/economic question... They happen to be a poorly capitalized startup, does that really affect the merits of the concept? The thing works, by all accounts. >>

On the contrary. Your point is neither being ignored nor is your question simple straightforward engineering economics. The fact that this technology has yet to be demonstrated even once beyond bench testing is relevant.

Hanson << the 10 KW unit is not a "model" it is now going into full production I understand. >>

Sorry, Banks is right. 10kw is a model, a toy. It barely qualifies as bench testing.

Hanson << NSP did have over 60 people on their payroll working this one issue at the capitol at this particular time, this was reported in the local papers. >>

There are 201 members of the Minnesota legislature. Sixty is nowhere near half. And, yes, I remember the number sixty being reported. However, I believe that the number includes every lobbyist and advocate, regardless of whether they were paid NSP lobbyist, a regular employee of NSP exercising their constitutional right of petition, paid by another power interest or unpaid concerned citizen (such as myself), who showed up at the capitol to lobby in favor of the extension.

However, this kerfuffle sidesteps the real point. The number of lobbyists is irrelevant. It is a weak excuse for their failure to make their case. The anti-nuke crowd misgauged the tone at the capitol and overreached. In fact, the Xcel (NSP) lobbyists were especially inept. They failed many times to articulate their case because, as lawyers, they understood neither the engineering nor the economics. However, unanimity of the whole sector impressed the legislature. I know this because I was part of the process, myself.

<< They practically lived in the office of Sen Steve Novak, their special lackey. >>

The bill was introduced, considered and passed in 2003. Novak left the legislature in 2001 to become a lobbyist after losing his bid for Congress.

<< As for the troops in Iraq: they'll be home when the production sharing agreements are in force for the benefit of Total, Exxon, Texaco, BP and Shell. Otherwise it was a success...for Halliburton e.g. they made off with $20 billion. Not a success for the taxpayer...my point. >>

This forum is not an appropriate venue for moonbat politics.

<< The point relative to nuclear is simply the fact that there is 5 times more potential electricity available from recoverable waste heat than all 30 proposed nuclear reactors could generate. >>

The key word there is 'recoverable' and would add economical. I will leave that debate to the engineers for now.

<< it seems that a reasonable strategy might be TO fund THEM, not nuclear... >>

If the economics are there, the money will flow. If not, it won't. Simple. Let me add one final point. The power sector in the US built something like 250 gigawatts of natural gas generation from 1998 through 2004 at the behest of environmental interests. The result was an unqualified catastrophe. Forgive us if we are a bit wary.

February, 14 2009

Michael Keller says

Barry, The drawback with low grade heat applications lies with the practical ability to actually use the energy. Generally, the low-grade energy can be used in cogeneration activities such as district heating/cooling, some industrial applications, etc. However, such applications are relatively few and far-between while the actual energy needs are extensive.

Stated somewhat differently, the needs vastly overwhelm the capabilities of the technology. That is not to say the technology does not have merit, but more in niche applications as opposed to widespread mainstream use.

February, 14 2009

Michael Keller says

By way of a different approach to carbon taxes/trading/etc. dilemma, would the following approach make any sense?

Use the localized Regional Transmission Operators (RTOs) to impose some form of sliding fee on generators based on excessive CO2 emissions - dollars per ton of CO2 per megawatt hour generated. This would be placed in an escrow account. Conversely, generators with lower emissions would receive a payment from the escrow account for having “good” emissions. Wall Street Traders, the federal government and other not entirely helpful folks would not be involved. The regional and local governments (who are more directly accountable to business, industry and consumers) would establish the specifics.

As I understand the RTO system, should not be that difficult to make this work as they are already integrally involved in the daily contracts for power.

As the system is currently configured, the generators with the “old –iron”, inefficient coal burning behemoths make a killing in the power market because they’ve paid off their debt and are not penalized for “grandfathered” emissions. The newer, more efficient and cleaner plants struggle to be competitive is such a market (or do not get built) because of the debt incurred in building the investment.

February, 14 2009

James Carson says

Keller << Use the localized Regional Transmission Operators (RTOs) to impose some form of sliding fee on generators based on excessive CO2 emissions >>

Where they operate, this is possible. However, they do not operate everywhere. The Pacific Northwest, the Intermountain West and most of SERC are not under RTOs.

<< As the system is currently configured, the generators with the “old –iron”, inefficient coal burning behemoths make a killing in the power market because they’ve paid off their debt and are not penalized for “grandfathered” emissions. The newer, more efficient and cleaner plants struggle to be competitive is such a market (or do not get built) because of the debt incurred in building the investment. >>

The profitability of the older units is not explained by their debt structure. Most, in fact, have been re-financed several times over the past 5-15 years. They are profitable because they use fuel that is extremely cheap per MBtu, especially where PRB coal is available. The old units are required to make substantial upgrades to control emissions. New units have trouble getting built mostly because of the regulatory process.

February, 14 2009

Don Hirschberg says

Michael wrote: As the system is currently configured, the generators with the “old –iron”, inefficient coal burning behemoths make a killing in the power market because they’ve paid off their debt and are not penalized for “grandfathered” emissions. The newer, more efficient and cleaner plants struggle to be competitive is such a market (or do not get built) because of the debt incurred in building the investment.

Perhaps someone can help me. I was under the impression that coal plants have for decades been operating at nearly the best we can get from the Rankine Cycle - about 34% thermal efficiency measured in terms of fuel value to Kwh. What is it about these "old-Iron" inefficient behemoths vs "newer, non-behemoths, and more efficient cleaner plants." How much more efficient (fuel to Kwh) and cleaner?

February, 15 2009

Don Hirschberg says

Am I all wet but didn’t fossil fuel power plants reach near practical attainable Rankine thermal efficiency maybe fifty years and more ago? Am I all wet but didn’t Commonwealth Edison (Chicago) try stack gas scrubbers in the nineteen seventies? Am I all wet that for decades lower sulfur coal has been hauled from Colorado to eastern cities rather than using their local higher sulfur coal? Am I all wet that when car manufacturers tried to market better mileage cars they lost their shirts because buyers opted for the larger engine options? Am I all wet because Peak Oil people were universally ridiculed and placed severe restrictions placed on importation of $2 foreign oil rather than reduce our rate of depletion? Am I all wet that to this day we hear all those who do not call for the end of fossil fuels as wicked. Am I all wet because I see overpopulation as the fundamental cause of all our “shortages?” Am I all wet that making fuel out of food when over a billion people don’t have enough to eat? Am I all wet to think that those who have more children should pay less in taxes?

February, 16 2009

Ferdinand E. Banks says

I wouldn't open the population barrel of worms if I were you, Don. I mentioned something about that in the first chapter of a book I wrote, and was subsequently informed by the Mr Big of Swedish economics that the world would have no problem providing about 20 billion human beings with victuals and shelter. About the same time an Australian scholar put that figure at 40 billion. As for the rest of it, maybe instead of getting upset, you should just go home and take a shower.

February, 16 2009

Don Hirschberg says

Prof Banks. When I am drunk I don't drive, fight, get lecherous or boorish - I email.

February, 16 2009

Jeff Presley says

Fred,

Thought you'd enjoy the following article concerning California's green jobs experiment

email me if you need a free link instead, not sure if this is part of the wsj's paid content area since I'm a subscriber.

A relevant quote: The environmental plan was built on the notion that imposing some $23 billion of new taxes and fees on households (through higher electricity bills) and employers will cost the economy nothing, while also reducing greenhouse gases. Almost no one believes that anymore except for the five members of the California Air Resources Board (CARB). This is the state's air-quality regulator, which voted unanimously in December to stick with the cap-and-trade system despite the recession. CARB justified its go-ahead by issuing what almost all experts agree is a rigged study on the economic impact of the cap-and-trade system. The study concludes that the plan "will not only significantly reduce California's greenhouse gas emissions, but will also have a net positive effect on California's economic growth through 2020."

February, 17 2009

Len Gould says

Don: Near as I can tell, the only relevant issue among all your "Am I's" is "should dumping of CO2 into the atmoshpere be allowed free of charge?". I would vote "no" based on IPCC's review of the relevant science. Once there, then I vote "No Cap-and-Trade", but a fuel source carbon tax.

February, 17 2009

Jim Beyer says

Jeff,

I always like it when I can find a point that I can agree with you on. I think CARB has been one of the most destructive and damaging organizations that this country has ever had the misfortune to experience. A winning combination of power, arrogance, incompetence, and corruption. I wouldn't necessarily care, but it is a de facto organ that is able to export California craziness and impose it on the rest of the country.

Former CARB Chairman Alan Lloyd killed the Electric Car, and his payola was the directorship of the Fuel Cell Institute.

Ugh, don't get me started. Oh, you just did....

February, 17 2009

Ferdinand E. Banks says

Thanks Jeff. Yes, that link was beautiful. Makes me feel wonderful to know that so many people agree with me about cap-and-trade. Of course they don't in Sweden because anything international or global or UN oriented is virtually holy in this country For instance, we've got to help with an environmental clean-up in the South Pacific or on the rim of the Kalihari, despite the fact that the air in this Sweden is so clean that you can almost breathe it without it lowering your IQ.

The tragic thing about it is that the terminator makes sense a part of the time.

Fred

February, 17 2009

Don Giegler says

Carson <>

Presumably, you are familiar with the safety analysis that was done for the casks and the USNRC review that was involved. If you are able to show that these are incorrect, you shall have done all of us great service. If not, you put it best w.r.t. another commenter's polemics...

February, 18 2009

Michael Keller says

Re: Plant efficiencies

Coal Units: (1) Older subcritical units 30 to 35%, bulk of the current US fleet, built in 1950’s and 60’s; (2) Supercritical units, ~36% to ~38%, 1970’s technology; (3) ultra-critical units, +39%, 1990’s technology. Natural Gas: (1) conventional thermal units ~35%; (2) Combined-cycle, ~55 to 60%. Conventional Nuclear: ~34%

The older coal units are not particularly helpful to the environment, owing to their inefficiencies and rather Spartan emissions controls. The more modern units do much better due to their pollution control equipment. The newer coal plants reduce emissions by very roughly a factor of ten or so (depends on the pollutant), relative to older units. All coal plants are physically big and imposing, particularly when compared to gas turbines and combined-cycle plants. The older units are a pain-in-the-butt to operate and are physical big – makes them behemoths in my book.

Brand new, cleaner power plants of any type have to pay off their construction debt. Older plants generally do not have anywhere near that kind of debt, nor are they subject to the more stringent pollution controls and other regulations imposed on newer plants. Generally, older power plants have a distinct competitive cost edge over the newer and more efficient plants, absent a really huge step improvement in efficiency (like the difference between natural gas thermal units and combined cycle plants). Because there is not a really large efficiency difference between older and newer coal plants and because the older coal plants are easy to re-tube (i.e. fix when they break), we’ll keep running them until the Feds come up with some way to prevent it. Say a “carbon tax” or some other way to put more money in the hands of the government at the expense of the ever poorer taxpayer.

Appears the Feds (and environmental folks) have come up with ways to prevent new coal plants from being built, which is too bad because they are reasonably clean and are cost effective compared to the alternatives.

As much as I like nuclear plants, I suspect economics and a very hostile Obama administration will pretty much put the kibosh on new units. Instead, we’ll end up with hundreds of thousands of wind mills (do the math, that’s what it works out to be). How quaint, but then we will be a third-world country at that point, so perhaps it won’t really matter.

February, 19 2009

Jim Beyer says

What an informative comment by Mr. Keller. Suitable for printing out....

I heard a talk by some DTE folks wherein they updated an existing plant to confirm better with SOx, NOx, and mercury emissions. (I think the mercury improvements come from one of those other scrubbing operations as sort of a freebie) They reduced these emissions by about a factor of 10, like Keller says. This update cost well over a billion dollars for a 1200-1500 Megawatt coal plant. Obviously, it did nothing for CO2 emissions, which frankly, the DTE people were dumbfounded to even consider the technical aspects of capturing such a quantity of CO2 (let alone what in the world they'd do with it after they captured it.)

Until the economy improves, I don't see much pressure in putting up new plants. Perhaps at some point. I am crossing my fingers that Obama is not as anti-nuke as some think he is. Anyway, it looks like we will have some time for those permitting processes, as demand pressures are somewhat reduced at this point.

February, 20 2009

James Carson says

Don Giegler, I am indeed familiar with the technical analysis that were done wrt Prairie Island. Nevertheless, I remain skeptical that storing decades of nuclear waste on an island in the middle of the Mississippi River is good public policy. I do not consider that difference of opinion any kind of 'polemic'.

February, 21 2009

Malcolm Rawlingson says

Mr Hanson, I was planning to stay out of the discussion because you so obviously have no idea about nuclear energy and trying to persuade you otherwise is a pointless waste of time.

So you tell us that there is an new and promising external combustion machine from Cyclone power that can solve all our energy needs. That has got to be about the millionth device invented to date that has the power to change the energy world. I suggest you sell your house and sink all your dollars into it because if you are right you'll be a trillionairre in two weeks. Post me when you are.

Basic error number one. In order to get "waste heat" something somewhere must have converted the energy in the first place. There is no such thing as waste heat or waste energy it's just energy in a different form. Learn this please energy cannot be created nor destroyed. Not even CyclonePower can do that.

Basic error number two. Presumably the glass factory is burning natural gas for its processes. So what do we do when the glass plant moves to China because they can make architectural glass cheaper there. No plant no electric generator- lights go out. Good for China bad for us.

Basic error number three. There is no nuclear waste problem because there is no nuclear waste. Used nuclear materials can be reused and recycled indefinitely.

Basic error number four. You suggest the French Government has "polluted the ocean from LaHague, they have not solved the nuke waste problem." With what have they polluted it dear Lisa dear Lisa. Not radioactive isotopes I wager since the IAEA would be all over them.

And finally I can probably get 10kw from my old Meccano set. It is a toy.

But feel free to invest your money in it. Has a hint of sub prime mortgaes to me...too good to be true and it probably is.

Malcolm

February, 21 2009

Malcolm Rawlingson says

Michael, By new nuclear units I presume you have your blinkers on and are referring only to the USA. Most of the rest of the world thinks otherwise. Here are a few of the countires that are building nuclear units. Canada, France, Finland, India, China, United Kingdom, Romania, Russia.

Since the US economy is in tatters it will presumably take only a few dozen Obama windmills or two of three 10kW Cyclone power devices to run the whole lot. Now there is energy efficiency for you. Collapse the entire economy then you won't need to build anything.

Malcolm

February, 21 2009

Malcolm Rawlingson says

I just could not resist doing the math Barry - just for the sake of comparison.

I live close to a 3600 MW(e) nuclear plant. You have a 10kW waste energy machine. So 3600 x 1000 kW(e) = n x 10kW where n is the number of 10kW machines required to produce the same amount of electricity.

So n = 3600 x 1000/10 = 3600 x 100 = 360,000 Machines.

So to replace one nuclear plant running 24 hours a day seven days a week you will need to locate 360,000 factories or other waste heat producers that also operate 24 hours a day seven days a week and will be running when the economy goes belly up as it appears to be doing.

I think that is a big problem for you. Please do not invest your money.

Malcolm

February, 22 2009

Ferdinand E. Banks says

Now wait a minute, Malcolm. Obama hasn't 'collapsed' the economy. It was that other guy, although I can understand how his name is already forgotten.

But you can be sure of one thing. Without more nuclear President Obama's good intentions where energy is concerned are not going to be realized. What somebody should explain to him is that he should get the new nuclear show on the road immediately if he is going to be able to shine on the energy front during his second term in office. They can also try to make him understand that if he doesn't do it, his successor willl, because the dreams and fantasies of the anti-nuclear crowd are not going to work so well in the immediate future, due to the macroeconomic meltdown.

You mentioned that France is going to increase its nuclear inventory. I was in Paris last year when the charming President Sarkozy explained that the reason for doing so had to do with the coming shortage of oil and natural gas. The question might come up as to what does nuclear have to do with a shortage of those two items, and the answer here is EVERYTHING. I was thinking of explaining that to the Great Unlearned in Stockholm later this week, but as I understand the situation, my presence would not be appreciated.

Well, so much for that. It's snowing and so out comes the skis.

February, 27 2009

Don Giegler says

Carson <>

If you mean recycling the spent fuel in those casks with subsequent vitrification and storage of unrecyclables is better "public policy", I agree.

March, 02 2009

Jon Goffaux says

You are absolutly right on Carbon Trade / Taxes, it will only open the door for manipulation and fraud.

Carbon trading and Carbon taxes may not be necessary. Please checkout the SWAP processes at http://www.swapsol.com/media-downloads.php

These processes offer real solutions to the GHG and World Economy issues.

The Proclaimer, from Seeking Alpha

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