Well, duh.
From the DOE/Lawrence Berkeley National Laboratory
New research suggests cap and trade programs do not provide sufficient incentives for innovation
Cap and trade programs to reduce emissions do not inherently provide incentives to induce the private sector to develop innovative technologies to address climate change, according to a new study in the journal Proceedings of the National Academy of Sciences.
In fact, said author Margaret Taylor, a researcher at Lawrence Berkeley National Laboratory (Berkeley Lab) who conducted the study while an assistant professor at the University of California, Berkeley’s Goldman School of Public Policy, the success of some cap and trade programs in achieving predetermined pollution reduction targets at low cost seems to have reduced incentives for research and development that could help develop more appropriate pollution control targets. Taylor is a scientist in the Environmental Energy Technologies Division of Berkeley Lab.
“Policymakers rarely see with perfect foresight what the appropriate emissions targets are to protect the public health and environment—the history is that these targets usually need to get stricter,” said Taylor. “Yet policymakers also seldom set targets they don’t have evidence that industry can meet. This is where R&D that can lead to the development of innovative technologies over the longer term is essential.”
In the study, Taylor explored the relationship between innovation and cap and trade programs (CTPs). She used empirical data from the world’s two most successful CTPs, the U.S. national market for sulfur dioxide (SO2) control and the northeast and mid-Atlantic states’ market for nitrogen oxide (NOx) control. (Respectively, Title IV of the 1990 Clean Air Act and the Ozone Transport Commission/NOx Budget Program.)
Taylor’s research shows that before trading began for these CTPs, analysts overestimated how difficult it would be for emissions sources to achieve targets, in a pattern frequently observed in environmental health, safety, and energy efficiency regulation, including all of the world’s CTPs. This was seen in overestimates of the value of allowances, which are permits to release a certain volume of emissions under a CTP. If an entity can reduce emissions cheaply, they can either sell these allowances for whatever price they can get on the market or they can bank these allowances to meet later emissions restrictions.
The cap-and-trade programs Taylor studied exhibited lower-than-expected allowance prices, in part because program participants adopted an unexpected range of approaches for reducing emissions sources in the lead-up to trading. A large bank of allowances grew in response, particularly in the SO2 program, signaling that allowance prices would remain relaxed for many years.
But this low-price message did not cause the policy targets in the CTPs to change, despite evidence that it would not only be cheaper than expected to meet these targets, but it would also be more important to public health to tighten the targets, based on scientific advances. The lower-than-expected price signal did cause emissions sources to reassess their clean technology investments, however, and led to significant cancellations, Taylor reported.
Meanwhile, the low price also signaled to innovators working to develop clean technologies – which are often distinct from the emissions sources that hold allowances – that potential returns to their research and development programs, which generally have uncertain and longer-term payoffs, would be lower than expected.
This effect also helps explain the study’s finding that patenting activity, the dominant indicator of commercially-oriented research and development, peaked before these CTPs were passed and then dropped once allowance markets began operating, reaching low levels not seen since national SO2 and NOx regulation began in 1970.
“There are usually relatively cheap and easy things to do at the start of any new environmental policy program,” said Taylor, who specializes in policy analysis, environmental and energy policy, and innovation. “But if doing these things has the tradeoff of dampening the incentives for longer-term innovation, there can be a real problem, particularly when dramatic levels of technological change are needed, such as in the case of stabilizing the global climate.”
Lawrence Berkeley National Laboratory addresses the world’s most urgent scientific challenges by advancing sustainable energy, protecting human health, creating new materials, and revealing the origin and fate of the universe. Founded in 1931, Berkeley Lab’s scientific expertise has been recognized with 13 Nobel prizes. The University of California manages Berkeley Lab for the U.S. Department of Energy’s Office of Science. For more, visit www.lbl.gov.
Discover more from Watts Up With That?
Subscribe to get the latest posts sent to your email.
Craig Moore says:
March 18, 2012 at 7:53 pm
Gail Combs says:
March 18, 2012 at 7:06 pm
I LOVE vegetarians, YUM! I am eating some cooked medium rare right now.
The game wardens will be paying you a visit if you poach them. At least that’s what I see on the Nat Geo channel. Try some other cooking method.
___________________________________
Not a problem. I sell my overstock to a deputy. Besides the police dept. around here is crookeder ‘than a dog’s hind leg
Gee, a phony artificial “market” gets adaptive results orthogonal to those the creators expected?
I’m shocked, shocked I say, to learn that a berated teenager only pays lip service to the goals of the one doing the berating…
Mao Stlong*’s CAGW Lepolt.
…-
“China Halts 10 More Airbus Orders”
China has suspended the purchase of 10 more Airbus jets, two people familiar with the matter said on Thursday, raising the stakes in a potentially damaging trade row over European Union airline emissions charges.
The move to delay the purchase of extra A330 planes brings to $14 billion the value of European aircraft caught up in tensions over the EU’s Emissions Trading Scheme, which has angered countries including China, India and the United States.
It comes amid urgent efforts to find a solution to the row, which airlines fear could provoke an aviation trade war capable of causing travel disruption and hitting air traffic rights.
Earlier this week, European planemaker Airbus said China had blocked the purchase of 35 long-haul A330s and 10 Airbus A380 superjumbos worth a total of $12 billion.
Airbus did not name the airlines involved, but industry sources said the A380s were earmarked for Hong Kong Airlines, 46-percent owned by HNA Group, the parent of Hainan Airlines.
The row is over a cap-and-trade scheme which could levy charges for carbon emissions for flights in and out of Europe.”
http://www.freerepublic.com/focus/f-news/2860855/posts
*Meet Mao Stlong:
“Maurice Strong: The new guy in your future!
By Henry Lamb
January, 1997”
http://www.sovereignty.net/p/sd/strong.html
DirkH says:
March 18, 2012 at 4:51 pm
here in Europe we DO have Cap&Trade; and in Germany, skyrocketing electricity prices due to renewables
The Northwest European Benchmark price for a tonne of steam coal has gone from $35 in the year 2000 to $95 in 2010. As a rough approximation every $20 increase in the price of a tonne of coal adds 1 cent to the price of a KWh of electricity. So the price of coal added ~ 3 cents/KWh.
Renewables and carbon taxes probably added some as well making it all particularly painful.
DirkH says:
March 18, 2012 at 4:51 pm
” here in Europe we DO have Cap&Trade; and in Germany, skyrocketing electricity prices due to renewables. Now how DO companies adapt to such a regime? As you have noticed they adapt quickly. One such adaptation is currently happening in Duisburg, where Thyssen Krupp sells their steel mill to the Finnish Outokumpu who will shut it down, dismantle it and move it somewhere else. ThyssenKrupp plans to get out of steel completely.
Of course, this frees up some carbon credits for the remaining industry and also helps to reduce electricity usage, as unemployed steelworkers only need a little electricity to run their playstations.
THAT’s “the ability of free enterprise to innovate and to comply with policy requirements at low cost” for you.”
That’s just a copy of what happened to Redcar,(formerly) the UK’s largest steel mill. It attracted a huge Carbon credit to reduce it’s CO2 output. It was bought by Tata of India (where a well-known railroad engineer has his day-job) who closed Redcar and mades the workforce unemployed. pocketed the huge carbon credit, moved the plant to India where it now produces as much steel as Redcar used to make. They also pocketed a large subsidy for doing so. Now India produces all (and more) CO2 than Redcar ever did!
How does that suit you Lazy teenager?
It should not take an academic study to determine that Cap & Trade programs structured like those for SO2 and NOx would not “induce the private sector to develop innovative technologies”. Anyone remotely familiar with these successful EPA programs could have told you that.
Ms. Taylor appears to lack a fundamental understanding of the original goals of these programs. Specifically that the purpose of the CAIR cap and trading programs was to reduce overall regional SO2 and NOx levels under circumstances where it was recognized that: 1) the goals could be meet using existing technology and, 2) not all utility plants had to be controlled to meet the regional goals.
Since there was no economic need for any NEW “innovative Technologies”, the private sector properly invested in BUILDING and IMPROVING the capabilities of the best technologies commercially available at the time. Specifically the Wet FGD and the SCR. Any needed adjustment to meet the emission goals in these programs is/was taken take of by constructing the next marginal cost unit in the region. No new technology was needed.
Furthermore , I would disagree with Ms. Taylor’s implied proposition that the private sector did not develop innovative technologies to meet these goals. To the contrary there were significant advancements in the performance of the existing technology of the time. And these advancements continue.
I would agree with the statement “the dominate indicator of commercially-oriented research and development peaked before these CTPS were passed”. This always happens once a regulation is passed, simply because the utilities have to shift their R&D resources (both manpower and money) to build pollution equipment that can meet the regulation within tight deadlines. Simply put, key personnel are shifted from the R&D role to a design and construction role. This should not be a suprise; becuase, from a practical standpoint, utilities simply do not have time to do more R&D at that junction… it’s time to deliver usable product.
Once the initial construction phase passes the Utility/Engineering R&D people shift emphasis to “lessons learned” and lowering operating cost.
In my experience, the reduced reliance on “new technolgy” research (with the passage of any regulation) is a sore point to the academic community… because they are never too pleased to find that companies can’t afford to waste time on ideas which are… hmm “academic”. So, I’m entirely not surprised the researchers at Berkeley Lab are appalled at the natural outcome of this economic reality.
I would also disagree with Ms. Taylors observation that cap-and-trade programs “exhibited lower-than-expected allowance prices” that “did not cause the policy targets to change”. Perhaps she is not familiar with the drop in the CAIR Phase 2 emission limits or the more stringent drop in emissions required by the CSAPR rule. Nor does she appear to recognize the periodic tightening of the best available technology standards.
All-in-all a pretty sloppy “policy” paper.
Regards, Kforestcat
Isnt’ that the tell tale sign of the ones getting frivolous subsidies already, but that continue to demand more?
Regarding
Dear LazyTeenager where you say:
“March 18, 2012 at 2:58 pm
“So the message is:
1. Don’t underestimate the ability of free enterprise to innovate and to comply with policy requirements at low cost, even if they complain bitterly ahead of compliance.
2. Innovating to reduce carbon emissions will not be as expensive as many people expect and therefore will have minimal impact on the economy.”
I’m afraid you may be making the rookie mistake of assuming that market-based allowance prices reflect the total cost a pollution technology. Normally this true only during the first three to five of years of a new regulation – when pollution equipment is scarce and demand for allowance reflects the total cost of controlling an emission.
This ceases to be true once a country’s industry has matured to the point that it has built-up its “fleet” of pollution technology to meet the annual emission “cap”. In a mature market, the allowance prices only reflects the operating cost of the control technology (i.e. reagent cost plus operating O&M). Typically the capital cost is not recovered, it is passed to the consumer as a fixed cost.
To place this in context, the economic decision in a mature market, is wither to operate your pollution equipment or not. When allowances market prices drop below a control technology’s operating cost, the owner simply shuts-down the pollution equipment and buys the allowance instead. This provides companies with the flexibility to provide the consumer with some “cushion” in unusual circumstances (for example, if reagent prices are unusually high or if pollution equipment unexpectedly fails). But the consumer is still “hurt” .. as the “hidden” capital cost cannot be avoided.
With regard to your statement above, I would caution you not to assume than any discussion/examination of “low” allowance prices should lead you to assume “carbon emissions will not be as expensive as many people expect”. Or that you can assume that any discussion of that historical emission allowance prices trends will tell anything about the actual cost of controlling an emission.
Best Regards, Kforestcat
Indeed, the whole d*** thing is a version of Bastiat’s ‘Broken window fallacy”. The real costs are the “unseen”, the foregone productive activities the diverted funds would have covered and sustained. The 2-4:1 ratio of lost jobs in the private sector to new “green stimulus jobs” is one example.