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Lecture 6 CHE4161 1
CHE 4161 – Environmental Management
Lecture 6
• Setting a Carbon Price
• Emissions Trading
• Carbon Tax
• Australian GHG Legislation
• Carbon Capture and Storage
Lecture 6 CHE4161 2
What is a carbon price?• Goal is to create a change in an economy
• market can differentiates between goods & services based on carbon
footprints
• A carbon price can be established explicitly
• through carbon taxes or emissions trading
• or implicitly
• ie regulations, emissions standards, Best Available Control
Technology (BACT) requirements
• choice of specific policy tools depends on:
• a country’s national circumstances
• the characteristics of affected economic sectors
Lecture 6 CHE4161 3
Climate Change / Carbon Policy
• carbon price is one element of a broader climate change
policy framework
• comprehensive policy approaches should include:
• funding for research and development
• fiscal support for early large scale demonstration of near-
commercial technologies
• removal of subsidies that support carbon intensive activities
(eg fuel subsidies)
• over time national policy approaches should
• complement each other, link or converge
• to create a global mechanism which reduces emissions for
the least cost
Lecture 6 CHE4161 4
Successful Carbon Policy• will trigger the implementation of emission reduction projects and actions
throughout the economy
• lowest cost result delivered by encouraging the most economically
attractive projects to be developed first
• abatement concepts progressively move from left to right across the
abatement curve
http://www.wbcsd.org/Pages/EDocument/EDocumentDetails.aspx?ID=152&NoSearchContextKey=true
Lecture 6 CHE4161 5
Market based approach• carbon can be priced in two ways:
• fixed- price schemes, or carbon taxes
• set the price of emissions
• market decides how much it will reduce emissions
• floating price schemes
• set the quantity of emissions
• permits to emit are issued up to that amount
• permits are tradeable between businesses - market sets the price
• Various hybrid approaches combine:
• fixed prices for a period with floating later on
• floating prices at some price levels with
• a price floor or
• a price ceiling
• or both
http://www.garnautreview.org.au/update-2011/garnaut-review-2011/garnaut-review-2011.pdf
Lecture 6 CHE4161 6
The economics of a carbon price• Carbon price is initially paid by the emitter or fuel provider
• paying a tax, purchasing allowances (permits) or implementing a
required project
• Price is generally* passed through to end consumers
• Resulting in:
• increase cost of goods and services with a carbon footprint
• products with a high carbon footprint will be less competitive
• the emergence of a new cost ranking within the economy
• driving manufacturers to invest in projects to lower the footprint
• forcing the removal of some products from the market
*Special allowances are generally built into a scheme to account for industries
which are highly ‘emissions intensive’ or ‘trade exposed’ (EITE) to prevent carbon
leakage
Lecture 6 CHE4161 7
Carbon revenue
• revenue raised by a government from carbon pricing is
typically directed to the treasury as part of the overall
national budget process
• it should be used efficiently:
• to offset any net change in costs to consumers by reducing taxes
• encourage emission reduction activities
Lecture 6 CHE4161 8
The flow of carbon revenue in the economy
http://www.wbcsd.org/Pages/EDocument/EDocumentDetails.aspx?ID=152&NoSearchContextKey=true
Lecture 6 CHE4161 10
Emissions Trading
• a market-based tool
• markets trade ‘emissions’
• cap-and-trade schemes or
• credits that pay for, or offset GHG reductions
• a cap is set (generally by government) on allowable emissions
• emissions allowances (permits) up to the cap distributed or auctioned
• distribution of a % of ‘allowances’ (issuing free permits) is often used at the
commencement of a scheme to give a ‘soft start’
• liable entities who do not have enough allowances must either:
• reduce emissions
• buy another entities spare permits
• buy ‘credits’ (offsets)
• entities with extra allowances/permits can sell them or (under some
scenarios) bank them for future use
Lecture 6 CHE4161 11
Successful Emissions Trading• A successful cap-and-trade scheme relies on a strict but
feasible cap that decreases emissions over time
• If the cap is set too high
• an excess of emissions will enter the atmosphere
• the scheme will have no effect on the environment (eg EU ETS)
• A high cap can also drive down the value of allowances
• causing losses in firms that have reduced their emissions and banked
credits
• If the cap is set too low
• allowances are scarce and overpriced
Lecture 6 CHE4161 12
Successful Emissions Trading
• Some schemes have ‘safety valves’
• keep the value of allowances within a certain range
• if price of allowances gets too high
• the scheme's governing body will release additional credits to
stabilize the price
• if price gets too low
• the scheme's governing body can cancel allowances
• the price of allowances is usually a function of supply and
demand
Lecture 6 CHE4161 13
Key Principles of an ETS
• Direct investment capital towards lower CO2 emission
projects, via a market price for CO2 emissions
• Trading system should not remove that capital from the
industries or firms covered by the system
Important Design Features • The point of regulation
• Allocation of allowances
• Recognition of technologies
• Constraints and limitations
• External projects mechanisms (or offsets)
EMISSIONS TRADING OR ‘CAP-AND-TRADE’
Allowance trading between facilities
$ CO2
Initial emissions
100 Mt p.a.
Government issues
88 million allowances
into the economy
EMISSIONS TRADING OR ‘CAP-AND-TRADE’
Allowance trading between facilities
$ CO2
CCS
Project
Initial emissions
100 Mt p.a.
Government issues
88 million allowances
into the economy
EMISSIONS TRADING OR ‘CAP-AND-TRADE’
Allowance trading between facilities
$ CO2
Efficiency
Project
CCS
Project
Initial emissions
100 Mt p.a.
EMISSIONS TRADING OR ‘CAP-AND-TRADE’
Initial emissions
100 Mt p.a.
Allowance trading between facilities
$ CO2
Efficiency
Project
CCS
Project
Offsets
Lecture 6 CHE4161 24
Other Mechanisms - Carbon Tax
• environmental tax levied on the carbon content of fuels
• increases the competitiveness of non-carbon energy
• revenue raised can be used to:
• fund non-carbon technologies
• offset higher prices for certain sectors of the economy (ie low income households, trade exposed industries)
• success of a carbon tax to reduce overall CO2 emissions depends on how carbon tax revenue is managed by the body collecting the revenue
• must be invested back into ‘clean’ technology, otherwise benefits of scheme are limited
• price signal not enough to drive significant reduction
Lecture 6 CHE4161 25
Carbon Tax
• an indirect tax
• a tax on a transaction
• as opposed to on income
• also called a price instrument
• sets a price for emissions
Lecture 6 CHE4161 26
Carbon Tax Vs Carbon Trading
• both have theoretical benefit to reducing emissions
• Pro’s and Con’s of specific legislation can be compared –
cannot compare ‘general’ Tax and ETS concepts
• some ETS’s have poor platforms
• some Carbon Tax schemes direct proceeds to
consolidate revenue, thus do not drive emission
reduction technologies
• Australia’s ‘Carbon Tax’ 1 July 2012 – 30 June 2014
• not a ‘Tax’
• was a ‘Fixed Price’ element of a Carbon Trading Scheme
Lecture 6 CHE4161 27
Carbon leakage
• When some manufacturers (competing in the same market)
incur the cost of carbon and others do not
• manufacturer incurring a carbon cost is penalised, b/c the
market price is set by a lower cost provider who does not
incur a carbon price
• result is “carbon leakage”
• higher cost manufacturer struggles to compete
• market share gained by producer not subject to carbon price
• no change in consumption, change in location of emissions
• emissions ‘leak’ to the country/economy without a carbon price
Lecture 6 CHE4161 28
Carbon leakageExample
• Corporation A in Australia producing widgets must pay a carbon price
for its manufacturing emissions
• Corporation B in Asia producing the same widgets, but without a
carbon price and importing them to Australia
• Corporation A closes down manufacturing in Australia and produces
product in Asia for import to Australia
• no net change in global emissions
• jobs / profit sent elsewhere
• emission ‘leaked’ (escape from pricing system for products still
consumed in Australia)
Lecture 6 CHE4161 29
The Clean Energy RegulatorEmissions Reduction Fund &
Carbon Farming Initiative
Renewable Energy Target
National Greenhouse &
Energy Reporting
Carbon Pricing Mechanism
(repealed)
Australian National Registry
of Emissions Units
Clean
Energy
Regulator
Lecture 6 CHE4161 32
Emissions Reduction Fund
• Three elements of ERF1. Crediting emissions reduction
2. Purchasing emissions reduction
3. Safeguarding emissions reductions
• $2.55B* in 2014-15 Budget for ERF• develop bid for abatement, funding committed under contract
• payments as emissions reductions verified
• Gov’t will purchase lowest cost abatement • Eg: $35,000 Project cost for 2000 tCO2e abated
• Bid $17.5 / tonne CO2 abated
Lecture 6 CHE4161 33
ERF Methods
Draft Methods open for comment
(until 15 April 2015)
Commercial and public lighting
High efficiency commercial appliances
Oil and gas fugitives
Refrigeration and ventilation fan upgrades
Draft Methods closed for comment
Aggregated small energy users
Avoided land clearing
Beef cattle herd management
Facilities
Fertiliser use efficiency in irrigated cotton
Industrial Fuel and Energy Efficiency
Reforestation
Savanna fire management
Sequestration of carbon in soil using modelled
abatement estimates
Wastewater treatment
Sector Methods
Energy
efficiency
Commercial building energy
efficiency
Mining Coal mine waste gas
Transport Aviation
Land and sea transport
Vegetation
management
Avoided clearing of native regrowth
Designated Verified Carbon
Standard projects
Waste and
wastewater
Alternative waste treatment
Landfill gas
Lecture 6 CHE4161 34
ERF Safeguard mechanism (draft)• Covers facilities > 100 ktCO2e / yr
• ~140 facilities , 50% of Australia’s emissions
• scope 1 emissions from energy production
• electricity generators, not users responsible
• No revenue budgeted from Safeguard
• Intensity Vs Absolute emissions?• Intensity allows growth in output
• More effort: calculate, report, audit emissions
• Legislation must be complete by 1 October 2015
• Consultation complete by June 2015
• Draft legislation imminent
Lecture 6 CHE4161 35https://www.tai.org.au/downloads/tug-of-war.pdf
Lecture 6 CHE4161 37
Technologies for reducing CO2 emissions
http://www.iea.org/publications/freepublications/publication/etp2010.pdf
Lecture 6 CHE4161 38
Man-made carbon ‘sinks’ (CCS)• Carbon Capture and Storage (or sequestration)
• capturing CO2 emissions
• transporting to a storage site
• injecting into an underground geological formation
• allows fossil fuel combustion without emissions
• GHG emissions injected into:
• Aquifers
• Depleted oil reservoirs
• EU CCS video
Lecture 6 CHE4161 40
Sources which CCS might be relevant for
http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch4s4-3-6.html
Lecture 6 CHE4161 41
CCS
• http://www.afr.com/p/national/carbon_capture_and_storag
e_no_easy_Qi2ViTwWPWoiKUGoVIw6EN
• Carbon capture and storage no easy task
• PUBLISHED: 18 JUL 2013 00:27:00 | UPDATED: 19 JUL
2013 11:42:12
Lecture 6 CHE4161 42
Full scale CCS plants
Currently 4 operational commercial-scale CCS plants
globally:
http://www.ccsassociation.org/faqs/viability-and-timescale-of-developing-ccs/
Salah: Algeria, Sahara Dessert: • operational since 2004
• > 1 million tonnes of CO2 / yr
Snøvit plant: northern Norway• operational since 2008
• ~ 700,000 tonnes of CO2 / yr
(full production)
Sleipner: North Sea, Norway• operational since 1996
• >1 million tonnes of CO2 / yr
Weyburn: Canada: • operational since 2005
• 26 million tonnes (net) over project
lifetime
Lecture 6 CHE4161 43
CCS in Australia• CCS demonstration projects underway in Australia
• November 2008, the Australian Government developed the
Offshore Petroleum and Greenhouse Gas Storage Act 2006
legislation
• enable CCS activities in Commonwealth offshore waters
• Vic, Qld and SA have CCS legislation
• Legislation is being developed by NSW and WA
• Further info at Dept Resources, Environment & Tourism website
• Article on why CCS is lapsing
Lecture 6 CHE4161 45
Other references• General GHG Information
• The Greenhouse Gas Protocol (GHG Protocol) is the most widely used international
accounting tool for government and business leaders to understand, quantify, and
manage greenhouse gas emissions.
• http://www.ghgprotocol.org/
• GHG Myths Vs Realities Report:
• www.euractiv.com/25/images/Climate_change_myths.pdf
• McKinsey & Company
• www.mckinsey.com
• Pathways to a low carbon economy
• www.mckinsey.com/globalGHGcostcurve
• The McKinsey Quarterly is the business journal of McKinsey & Company
• http://www.mckinseyquarterly.com/home.aspx
• wbcsd energy & climate
• www.wbcsd.org/web/energy.htm