Free speech and cap 'n trade troubles

[saltine]

Re: Regulating Price

Well, it seems to me that that would be more prone to exploitation than a cap-and-trade system, largely because energy costs vary significantly from place to place.

Could you give an example of how it would be exploited? I want to know more what an energy company would do in such a situation. Is there existing situation where the government regulates the price of things?

There is minimum wage. It is similar but opposite.

The government regulates the security deposit of rental agreements. I think the max at where I am is three months (the tenant cannot be asked to pay more than three months of security deposit, regardless of reason). In San Francisco, there are regulations that the rent could only increase so much each year, and that if a tenant lived at a place for 10 years, the landlord cannot evict the tenant.

Could there be a similar regulation based on carbon emission? Suppose a power plant has high carbon emission, the government can have a forumla and calculate the maximum increase in energy price. For plants that are really bad, the rate limit might less than 1, meaning they have to lower their price. These increases and decreases are based on the current price. Any customer could check their bills.

Suppose a law is written with the intention to reduce carbon emission, could the law have a clause saying that the company cannot try to shift the cost to the customer, that the company will take the responsibility itself? This allows the customers to sue the companies if they find the companies trying to shift the burden.

 

[Chalnoth]

Could you give an example of how it would be exploited? I want to know more what an energy company would do in such a situation. Is there existing situation where the government regulates the price of things?

Well, my main concern about such a thing is that it would have to be very complex to work. And complexity leaves the way open for more loopholes to get inserted by lobbyists and whatnot.

My impression with cap and trade is that it doesn't need to be nearly as complex to work. As with all government legislation, of course, there's always the possibility for abuse, but it seems to me it's somewhat easier to avoid that.

As for a current situation, power prices are actually very tightly regulated in many places in the US.

Could there be a similar regulation based on carbon emission? Suppose a power plant has high carbon emission, the government can have a forumla and calculate the maximum increase in energy price. For plants that are really bad, the rate limit might less than 1, meaning they have to lower their price. These increases and decreases are based on the current price. Any customer could check their bills.

The nice thing about cap and trade is that most of this is determined more-or-less automatically. I tend to think it's usually easier (and thus less prone to abuse) to let the market manage the details, and just regulate the market, than it is to micro-manage things like prices.

Suppose a law is written with the intention to reduce carbon emission, could the law have a clause saying that the company cannot try to shift the cost to the customer, that the company will take the responsibility itself? This allows the customers to sue the companies if they find the companies trying to shift the burden.

I don't think this really makes much sense. Bear in mind that many consumers will benefit from their power plants selling carbon credits (the more efficient ones should have excess credits).

I suppose it would make good sense to ensure that the power companies don't retain windfall profits by using the excuse of carbon credits to raise prices more than is required to pay for the credits. But I don't think it is entirely reasonable to expect no increase in areas that have poor efficiency.

I'd have to look into the current cap and trade proposal more specifically, but the way to make this really powerful would, I think, be to push the electrical grid in the direction that neighboring power stations can compete for customers. That way if power company X is really inefficient, and rises its prices to cover the costs of the carbon credits, it will lose its ability to sell its electricity on the market, and thus get pushed out.

The intermediate alternative that we have today in many places is that the prices power companies are allowed to charge are very strictly regulated.

 

[kote]

Well, the nice thing about cap-and-trade is that the money is automatically redistributed to more efficient (in terms of CO2 output) energy sources. With a carbon tax, you not only have to rely upon the government to do a good job applying the tax, but also in redistributing it.

Basically, the effect on carbon production is the same either way. But with cap-and-trade, because the market is allowed to take care of redistribution, redistribution of funds is made optimally cost-effective.

Of course, we will also need to pay the energy traders and market makers for redistributing the funds for us. Energy traders have been the heaviest lobbyists for cap and trade and they stand to skim (earn?) billions from the new market in fees.

And we will still have the government, not the market, establishing the caps.

I'm not saying it's a bad idea, but it's interesting to follow the money. I don't know enough about the issue to say whether I favor the inequality of a government tax or the bankers fees and potential manipulation of a new market.

 

[Chalnoth]

Of course, we will also need to pay the energy traders and market makers for redistributing the funds for us. Energy traders have been the heaviest lobbyists for cap and trade and they stand to skim (earn?) billions from the new market in fees.

And we will still have the government, not the market, establishing the caps.

I'm not saying it's a bad idea, but it's interesting to follow the money. I don't know enough about the issue to say whether I favor the inequality of a government tax or the bankers fees and potential manipulation of a new market.

Any scheme you might come up with to place an economic cost upon CO2 emissions, though, is going to necessarily have overhead, as well as room for exploitation. I think the goal of placing an economic cost on CO2 emissions is a good one, and the only question is which way of doing that is the most reasonable. Cap and trade seems to me to be a pretty good way of doing that.

 

[Nebula815]

IMO, no economic cost should be placed on CO2 emissions until we develop the technologies allowing us to actually reduce them. As has been said, there is no known technology that can actually reduce CO2 emissions. Cap-and-trade/tax will just let a very few people become rich off the backs of everyone else, raise energy prices, hamstring the economy, and create a huge bureaucracy allowing the government to dictate to the people more.

Now the EPA has been given authority to regulate CO2 emissions as a pollutant.

 

[saltine]

Re: Regulating Price

Well, my main concern about such a thing is that it would have to be very complex to work. And complexity leaves the way open for more loopholes to get inserted by lobbyists and whatnot.
. . .
The intermediate alternative that we have today in many places is that the prices power companies are allowed to charge are very strictly regulated.

If regulation is already in place, why not just make it even stricter? Wouldn't it be the simple solution? Regulating it stricter then inefficient companies won't be making a profit. It makes them invest in cleaner energy or die (and be taken over by competitors).

On the other hand, if the prices are already regulated, when wouldn't it make the argument that "Carban Tax is bad because the customers will bear the cost" invalid? The power companies already can't shift the burden the customers.

What are energy traders? Would power companies prefer them to exist? Why don't they just trade directly among themselves?

 

[kote]

IMO, no economic cost should be placed on CO2 emissions until we develop the technologies allowing us to actually reduce them. As has been said, there is no known technology that can actually reduce CO2 emissions. Cap-and-trade/tax will just let a very few people become rich off the backs of everyone else, raise energy prices, hamstring the economy, and create a huge bureaucracy allowing the government to dictate to the people more.

Now the EPA has been given authority to regulate CO2 emissions as a pollutant.

Nuclear power is a technology that reduces CO2 emissions. Your light switch is a technology that reduces CO2 emissions when you flip it as you leave the room.

Economic incentives are already reducing emissions. Power companies have incentives to get more and more power out of less and less fuel - they don't want to have to pay for fuel. This has created a market that supports the R&D of more efficient power plants.

By taxing emissions, we further incentivize this development and also incentivize R&D around emission reduction in addition to just fuel use reduction. Of course all of this costs money, but it works, and the money always comes before the R&D. No one is going to do any research if there is no market to develop for.

 

[saltine]

Re: Tax

But if you tax it the money is going to get spent on weapons. If you regulate the price, the money stays at the End Users. They keep their money and they can spend it the way they would, such as buying things and improve the economy.

 

[Chalnoth]

If regulation is already in place, why not just make it even stricter? Wouldn't it be the simple solution? Regulating it stricter then inefficient companies won't be making a profit. It makes them invest in cleaner energy or die (and be taken over by competitors).

Well, the regulation currently is a spotty mess of state and local regulations. What we'd be talking about would be a new set of federal regulations, and I'm not sure that would work very well.

On the other hand, if the prices are already regulated, when wouldn't it make the argument that "Carban Tax is bad because the customers will bear the cost" invalid? The power companies already can't shift the burden the customers.

In some places they could, in some they couldn't. But in any case if we had competition, it wouldn't matter so much.

What are energy traders? Would power companies prefer them to exist? Why don't they just trade directly among themselves?

Well, there should be a central exchange for trading them. Ideally it would also be very tightly regulated (as all current stocks/securities markets should be) so that it's very boring and doesn't allow excessive profits to the traders.

 

[Chalnoth]

Re: Tax

But if you tax it the money is going to get spent on weapons. If you regulate the price, the money stays at the End Users. They keep their money and they can spend it the way they would, such as buying things and improve the economy.

Well, I don't really agree with the statement that the money would be spent on weapons. We're doing fine on spending on those without the taxes to pay for them as it is.

However, I agree that taxes probably wouldn't be the best way here, though they're definitely one avenue. The nice thing about cap and trade is that it doesn't necessarily add or take away anything from the economy (though that depends upon the implementation). Instead it just forces power companies to redistribute money amongst themselves based upon their CO2 emissions.

 

[kote]

Well, there should be a central exchange for trading them. Ideally it would also be very tightly regulated (as all current stocks/securities markets should be) so that it's very boring and doesn't allow excessive profits to the traders.

Did you just say traders don't make excessive profits on the markets?

The Commodity Futures Trading Commission will most likely regulate the market, which is expected to be 2 trillion dollars.

http://www.nytimes.com/cwire/2009/0...ee-supports-carbon-market-oversight-9875.html
http://www.cftc.gov/newsroom/MediaAdvisory/2009/mediaadvisory061109.html

 

[Chalnoth]

Did you just say traders don't make excessive profits on the markets?

No, I said the markets should be tightly-regulated so that it isn't really possible to do so.

 

[kote]

No, I said the markets should be tightly-regulated so that it isn't really possible to do so.

Oh, sorry. I saw the "current markets" and missed the "should be." Some promising reform is being discussed, but for now the view of markets free of manipulation and excessive profits is still a pipe dream.

Still I think it's better to have them than not, but there are definite issues. Wall Street hires lots of physics PhDs in part to help get around the regulations (as they should).

 

[Nebula815]

Nuclear power is a technology that reduces CO2 emissions. Your light switch is a technology that reduces CO2 emissions when you flip it as you leave the room.

It is virtually impossible to build new nuclear plants, as others have described in the thread earlier.

Economic incentives are already reducing emissions. Power companies have incentives to get more and more power out of less and less fuel - they don't want to have to pay for fuel. This has created a market that supports the R&D of more efficient power plants.

So then leave it to the market right now. We do not need another tax to give the government more control or raise prices further or hurt the economy.

By taxing emissions, we further incentivize this development and also incentivize R&D around emission reduction in addition to just fuel use reduction. Of course all of this costs money, but it works, and the money always comes before the R&D. No one is going to do any research if there is no market to develop for.

Emissions will increase anyhow because energy needs will continue to increase.

 

[kote]

It is virtually impossible to build new nuclear plants, as others have described in the thread earlier.

Really? We'll sell you one. We can run it for you too. And finance it.

http://www.ge-energy.com/prod_serv/products/nuclear_energy/en/new_reactors.htm

The problem is that no one wants to make the investment. That's what the economic incentives are for. Properly incentivize and magically nuclear becomes the best business choice.

Edit: From the ABWR subpage:

The Advanced Boiling Water Reactor (ABWR) already has an impressive track record. In Japan, four ABWR units are in operation; another three units are under construction in Taiwan and Japan, and nine more units are planned in Japan. It is feasible that an ABWR plant could be built in the United States and be commercially operational by 2012.

 

[saltine]

I drew some graphs comparing the methods. Are they correct?

http://albatross.x10hosting.com/images/2009-12-08 - Methods 01.PNG"

The first picture shows Carbon Tax. My conclusion is that the more the government taxes a power company the more the price would increase. So if there isn't price regulation to go with it, the effect is that government takes customer money.

The second picture (lower left) shows Carbon Dividend. It is meant to earmark the tax collected from bad emission power companies and credit the public with that money. But the effect is just that CB is paying CG. That is unfair. Why is CB penalized by being in an area with PG?

The third picture shows Carbon Cap and Trade. The government makes PB pay PG. The effect is still CB bearing the increased cost.

The fourth is Price Regulation. The government restricts the price PB can charge CB. To keep itself operating with profit, PB would need to lower its emission or reduce its supply. In the worst case scenario, PB cannot make any profit. It closes and CB does not get any power.

 

[saltine]

More diagrams:

http://albatross.x10hosting.com/images/2009-12-08 - Business as usual.PNG"
This shows that the customer has an energy demand, which determines energy production level. Production level and technology determine pollutant emission. Emission affects comfort. The Power Company determines how much it wants to spend on improving its technology. But there isn't a reason to do so unless the pollutant affects the Comfort of the customers so much that they don't want to get energy any more. At that point, to maintain profit, PB would spend money on research to improve its technology.

http://albatross.x10hosting.com/images/2009-12-08 - Cap and Trade.PNG"
A new property called carbon credit is created. PB buys credit from PG to avoid a penalty, which is determined by its emission and the credit it holds. Without further regulations, PB would maintain its profit by shifting the burden to the CB. CB are the customers that happen to be in an area where they can only get energy from PB.

http://albatross.x10hosting.com/images/2009-12-08 - Price Regulation.PNG"
The government regulates the price based on emission. To maintain its profit, PB invests on technology to reduce emission in order to charge more or to be certified to have more customers/output.

 

[mheslep]

Really? We'll sell you one. We can run it for you too. And finance it.

http://www.ge-energy.com/prod_serv/products/nuclear_energy/en/new_reactors.htm

The problem is that no one wants to make the investment. That's what the economic incentives are for. Properly incentivize and magically nuclear becomes the best business choice.

Edit: From the ABWR subpage:

42 months for NRC approval of an application, so no 2012 is no possible.

 

[Chalnoth]

Still I think it's better to have them than not, but there are definite issues. Wall Street hires lots of physics PhDs in part to help get around the regulations (as they should).

Well, that's a relatively new phenomenon. It's only really been this way since the 80's, when deregulation of the financial markets caused earnings to soar and made them so attractive to the best and brightest.

 

[Nebula815]

Really? We'll sell you one. We can run it for you too. And finance it.

http://www.ge-energy.com/prod_serv/products/nuclear_energy/en/new_reactors.htm

The problem is that no one wants to make the investment. That's what the economic incentives are for. Properly incentivize and magically nuclear becomes the best business choice.

Edit: From the ABWR subpage:

I agree, but I think the way to do thati s not by raising the cost of coal plants, especially with all of the onerous regulations one needs for a nuke plant, but rather cheapening the cost of a nuke plant.

 

[Chalnoth]

I agree, but I think the way to do thati s not by raising the cost of coal plants, especially with all of the onerous regulations one needs for a nuke plant, but rather cheapening the cost of a nuke plant.

Well, if the nuke plants get as many carbon credits per unit power produced, which would only seem fair given that they're providing the same public service, then nuclear plants would automatically become cheaper.

 

[mheslep]

I almost agree. While I'm sure the concept can be demonstrated on a science fair scale, I'm not convinced the viability has been studied in detail (much less even theoretically described) on a national, industrial scale. The difficulty isn't in the capture, it is in the disposal.

Astronuc provided some of the best articles I've seen about the subject, but even they just discuss the issue roughly. What is needed is a 1000 page government study of the true national scale viability. It would look like this:

Take the biggest 500 coal plants and analyze the technical and economic viability of carbon capture/sequestration for each of them and all of them as a group. The study would need to figure out:
-What is the quantity of CO2?
-What would the retrofit cost?
-Does the plant have the remaining lifespan necessary for that to be worth it?
-Where can you put the CO2?
-How do you get it there?
-Does the geographic layout of plants lend itself to a pipeline?
-How much would that cost?
-How much storage capacity does that location have?
-What are the risks of failure in the storage location?

Now the end result of such a study might be that it appears technically viable to store all of our emissions for 10 years (or half for 20 or 1/5 for 50, etc.) - and that would still be worth doing if the economics look reasonable. Either way, the study would have answers to the questions of technical and economic viability. But then moving toward implimentation, you need a nationalized strategy to properly implement it. Pipelines, in particular are not something you can do without government involvement.

And what happens if the study finds it is only technically viable to store 10% of our emissions for 10 years at a cost of $20 billion per 1000 MW? Then the idea would have to be abandoned as a viable national energy strategy. [...]

Apropos. AEP is the biggest US coal burner (world?). Owns 38GW(e) of capacity.

Big Utility Turns Bullish on Carbon Capture
http://online.wsj.com/article/SB126032092489782773.html?mod=wsjcrmain

Mike Morris, chief executive of Ohio-based AEP, said his company's early experience with a carbon capture and storage project at its Mountaineer power plant in West Virginia had exceeded expectations. As a result, he believes AEP will be able to retire 25% of its coal-burning power plants and install advanced carbon-capture equipment on the remaining 75%.
[...]
Mr. Morris says it now looks like it will be possible to cover all the costs of carbon capture and storage by roughly doubling the cost of electricity from plants like Mountaineer, to 8 cents a kilowatt hour from 4 cents, before subtracting for subsidies that may be available. He believes that still will be cheaper than electricity from the next generation of nuclear plants. As such, it could be more affordable to keep retrofitted coal-fired plants operating than to replace them.

A 4 cent premium is better that expected - 8 to 12cent premiums were being cited. Elsewhere I see the Florida Power and Light CEO claims they are generating wind at 3-4 cents / kWh.

AEP's Mountaineer project is one of the first attempts to put the technology to the test in the U.S. The utility is capturing less than 2% of the carbon dioxide produced by the 1,330-megawatt power plant. But, with the help of $335 million in Department of Energy funding, it plans to capture about 18% in the next few years. The gas is being injected nearly two miles underground "where it's staying put," Mr. Morris said.

More background on this project here:
http://www.co2captureandstorage.info/project_specific.php?project_id=112

http://blogs.wsj.com/environmentalc...-expectations-for-carbon-capture-and-storage/