{"id":5970,"date":"2020-02-07T18:44:17","date_gmt":"2020-02-07T17:44:17","guid":{"rendered":"https:\/\/blog.mr-int.ch\/?p=5970"},"modified":"2020-02-11T19:05:12","modified_gmt":"2020-02-11T18:05:12","slug":"carbon-business","status":"publish","type":"post","link":"https:\/\/blog.mr-int.ch\/?p=5970&lang=en","title":{"rendered":"Carbon Business"},"content":{"rendered":"\n

One of the policies to reduce the impact of carbon dioxide on the climate \nis for states to auction a limited quantity of emission allowances each \nyear and let an open market determine their value. Thanks to this \npolicy, states\u2018 revenues increase and a juicy trading market of now 215 \nbn US$ was created, which includes churning these certificates several \ntimes over. However, the auctioned quotas representing 0.72% of the \nworld\u2019s annual consumption of fossil fuels, and covering 1.9% of its \nvolume, it still has all the aspects of a symbolic measure, inflation \npassed over to captive customers being its most likely outcome. Even if \nit were to develop on a truly global scale, its real impact on the \nclimate is doubtful, since states cannot afford to kill all the \nbusinesses \u2013 including the so-called \u201egreen and renewable\u201d ones \u2013 that \ndepend on the availability of reliable and affordable energy sources, 85\n per cent of which are fossil fuels.<\/em><\/p><\/p>\n\n\n\n

Carbon footprint and its convoluted bookkeeping is insignificant. It \ncould gain importance if and when alternative energy sources would \nactually compete at arm\u2019s length with fossil energy sources, i.e. free \nof manipulation through subsidies-and-the-like, taxes-and-the-like, or \ncommands-and-bans to the financial markets. Current technologies are not\n yet at any useful scale, far from it if considering the whole of the \nsystems to be changed over. Nevertheless, while I\u2019m not the one \ndictating ill-fated policies, I am trying to understand whether, in one \nway or another, they make any difference.<\/p>\n\n\n\n

Carbon emissions are the<\/strong> exemplary actor in the \n\u201etragedy of the commons\u201c, which this time does not concern the pastures \nof one village but the whole World. As they continue to increase, the \noverall objective is in any case not being achieved, even if energy \nefficiency is improving in some places. We have seen also in a previous post<\/a>\n that \u2013 in absolute terms \u2013 the World needs fossil fuels to sustain its \ngrowth (for demography and well-being) and to develop and implement \nalternatives technologies. So\u2011called renewables contribute to only one \nfifth of the growth of the primary energy consumption; they can\u2019t even \nbuild themselves up.<\/p>\n\n\n\n

In 2018, fossil fuels account for 85% of global primary energy consumption.<\/p>\n\n\n\n

\n\n\n\n\t\n\n\t\n\t\n\t\n\t
<\/td>Mtoe<\/th> Price US$<\/th>per<\/th>bn US$<\/th>Gt CO2<\/th>USD\/t CO2<\/th>\n<\/tr>\n<\/thead>\n
Fossil fuels <\/td>11 744<\/td>217<\/td>Mtoe<\/td>2 550<\/td>36.86<\/td>69.19<\/td>\n<\/tr>\n
Oil<\/td>4 662<\/td>60<\/td>barrel<\/td>1 913<\/td>13.43<\/td><\/td>\n<\/tr>\n
Gas<\/td>3 309<\/td>3<\/td>MMBTU<\/td>367<\/td>7.22<\/td><\/td>\n<\/tr>\n
Coal<\/td>3 772<\/td>50<\/td>t SDK<\/td>269<\/td>16.2<\/td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nTable 1: Fossil fuel consumption 2018. Source: BP and own calculations with average prices <\/span>\n <\/p>\n\n\n\n


On average, one ton of emitted CO2<\/sub> is a side product \nof 70 US$ spent for fossil primary energy, the main product being food \nand fibres, mechanical functionality, mobility, heat, information \nsystems, etc. needed in everyone\u2019s life. One of the decarbonizing \npolicies is to auction a limited amount of carbon emission allowances \n(\u201ccarbon certificate\u201d) every year that can subsequently be traded on the\n open market, diminishing constantly the amounts of issued certificates \nuntil a net-zero carbon balance would be reached. This is the theory, \nconsidered the less bad solution in the eyes of half-blind free market \neconomists.<\/p>\n\n\n\n

According to Carbon Pulse<\/a>,\n the World carbon certificate market has reached a value of 215.1 bn US$\n in 2019, growing by 34% (by a mix of prices and volumes) from \n160.5 bn US$ in 2018. However, this figure is puzzling since it adds \ntogether the primary auctions of certificates with their subsequent \ntrading. With everybody and her sister claiming how important is \ndecarbonizing, it is surprising how partial, inconsistent and shallow \ndata are available to the public, the only source of information of the \nauthor.<\/p>\n\n\n\n

Table 2 below shows that the carbon certificate market has a value corresponding to 0.72% of the World\u2019s annual fossil fuel consumption, and covers 1.9% of its volume. Quite understandably, only a portion of the World operates such carbon market which explains in part these low figures. However, even after extrapolating the European situation to a global size (by a ~7-fold multiplicator) these ratios would remain modest.<\/p>\n\n\n\n

\n\n\n\n\t\n\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t
<\/td>2018<\/th>2019<\/th><\/td><\/td>\n<\/tr>\n<\/thead>\n
Market value<\/td>160.5<\/td>215.1<\/td>bn US$<\/td><\/td>\n<\/tr>\n
CO2 Volume (EUA)<\/td>9.1<\/td>8.73<\/td>Gt<\/td><\/td>\n<\/tr>\n
Price<\/td>17.64<\/td>24.64<\/td>US$\/t<\/td><\/td>\n<\/tr>\n
<\/td>Primary market (auctions)<\/td>Trading<\/td>\n<\/tr>\n
<\/td>Value<\/td>Volume<\/td>Price<\/td>Value<\/td>\n<\/tr>\n
<\/td>bn \u20ac<\/td>Gt<\/td>\u20ac\/t<\/td>bn \u20ac<\/td>\n<\/tr>\n
Europe<\/td>14.5<\/td>0.589<\/td>24.62<\/td>154.3<\/td>\n<\/tr>\n
North America<\/td><\/td><\/td><\/td>22.37<\/td>\n<\/tr>\n
South Korea<\/td>0.373<\/td><\/td><\/td><\/td>\n<\/tr>\n
New Zealand<\/td>1.75<\/td>0.119<\/td>14.71<\/td><\/td>\n<\/tr>\n
Others<\/td>0.039<\/td>0.008<\/td>4.88<\/td><\/td>\n<\/tr>\n
Total primary market<\/td>16.66<\/td>0.716<\/td><\/td><\/td>\n<\/tr>\n
in US$<\/td>18.33<\/td><\/td>0.5<\/td><\/td>\n<\/tr>\n
in % of 2018 fossil market <\/td>0.72<\/td>1.9<\/td><\/td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nTable 2: Emission allowances 2019. Source: Carbon Pulse<\/span>\n <\/p>\n\n\n\n

Interesting for the trading business, the market churns approx. 10 times the revenues obtained at states\u2019 auctions. While this does not contribute to one gram less emitted CO2<\/sub> it certainly brings nice margins to this new financial sector. State revenues are also increased, and even more so when additional carbon taxes are levied on other uses of fossil fuels such as heating oil for households, or diesel fuel.<\/p>\n\n\n\n

All this fuss is being made in the hope that demand for fossil fuels \nwill fall \u2014as theory tells that it should\u2014 if it were sufficiently price\n sensitive; this is clearly not the case. For companies, their \ncontinuous efficiency improvement programmes are more justified by their\n innovation and investment cycles than by these relatively modest cost \noptimization parameters. Only the threat of a drastic reduction in the \nquantity of auctioned allowances can create febrility. But which \ngovernment will deliberately kill certain industries and the \ncorresponding jobs? It would be political suicide or the cause of a \nbloody revolution, as some are hoping.<\/p>\n\n\n\n

In the meantime, thus a long time, inflation passed over to captive customers will be the system\u2019s response to this ill-fated policy.<\/p>\n\n\n\n

Originally published on the Blog of Carnot-Cournot-Netzwerk<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

One of the policies to reduce the impact of carbon dioxide on the climate is for states to auction a limited quantity of emission allowances each year and let an open market determine their value. Thanks to this policy, states\u2018 revenues increase and a juicy trading market of now 215 bn US$ was created, which … Continue reading \u00ab\u00a0Carbon Business\u00a0\u00bb<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":5977,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"iawp_total_views":3,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[37,7],"tags":[],"class_list":["post-5970","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-climate","category-economy"],"_links":{"self":[{"href":"https:\/\/blog.mr-int.ch\/index.php?rest_route=\/wp\/v2\/posts\/5970","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.mr-int.ch\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.mr-int.ch\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.mr-int.ch\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.mr-int.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5970"}],"version-history":[{"count":0,"href":"https:\/\/blog.mr-int.ch\/index.php?rest_route=\/wp\/v2\/posts\/5970\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.mr-int.ch\/index.php?rest_route=\/wp\/v2\/media\/5977"}],"wp:attachment":[{"href":"https:\/\/blog.mr-int.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5970"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.mr-int.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5970"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.mr-int.ch\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5970"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}