Emission trading and issues pertaining to Irish consumer

ifconfig

On another forum I've been reading some coverage on the fact that the French courts deemed the CO2 tax unconstitutional.

A wider discussion ensued ...


In some of the ensuing blog comments,etc someone alluded to issues to do with the way in which Irish energy consumers had benefitted over a period around 2006-2008 on the basis of some windfall gains due to free emissions allowances under the earlier phases of the ETS scheme.

They also seem to indicate that those benefits to consumers changed in the intervening period and that somehow the energy suppliers were benefitting.
I'm guessing this may have been due to the fact that the economic downturn meant that electrical and energy demand reduced so the producers had excess profit due to unused allowances ? The same commentator mentioned further change due to the 3rd phase of the ETS scheme due in 2013.

Can anyone shed light on the issues involved as I must say that , while I think I understand the principles of emissions trading, I don't understand the nuances and some of the odd fallout on energy regulation issues and how the consumer benefitted or was left shortchanged over certain periods of time in recent years due to the way in which emissions trading has played out with changes in the economy, etc.

ifconfig

To simplify my question.. (having read up a bit more on emissions trading)....

I understand the issue isn't an Irish issue per se but more fallout of how the European emissions trading scheme was setup to give out free allowances to the power util companies at the outset. I understand the term is grandfathering of permits and the alternative would have been to issue them via some kind of auctioning process. I think the irony has been that the first phases of the ETS have resulted in power util companies getting a windfall profit because they could pass through costs of the permits they received for nothing to customers and the state had no official way of clawing back that portion of their profits.

Is there anyone on this forum who has a handle on the politics and economics of the ETS ? I'm interested to understand how an auctioning of permits would have worked or whether it would have led to an initial price shock in power costs to consumers even though it would have been a fairer way of issuing the permits in the first instance ?...

I understand that part of the reason the French CO2 tax failed constitutionally at this stage was because the exempted parties (mostly power gen and heavy industry) were still benefitting from these windfall gains which are a side effect of how the initial phases of the ETS was instituted -- so, on that basis there exists an inequity in the treatment of Joe Soap the polluter versus big industry and powergen polluter.

Macha

Hi ifconfig,

yes it was the over-allocation of national allowances that caused the price per tonne under the EU ETS to drop drastically. The price also dropped because of the economic crisis and lack of demand, as you pointed out.

We are currently in the middle of the 2nd phase but suggested changes for the 3rd phase (starting 2013) include:
-the inclusion of aviation emissions
-no national allocations but rather a central allocating body (and the problem of over-allocation, while always a tricky one, will naturally diminish as the overall cap is lowered).
-i think a price floor is being considered to deal with the price volatility problem - price volatility is an inherent problem in all trading systems.

I believe that the cost of carbon should be clear to the end consumer, as this is an integral part of the concept of pricing carbon. As such, in my opinion, the amount of the end energy bill that goes towards paying the carbon credits of utility companies should be written on bills and a clear database of contributions, prices and costs should be available online so that consumers and the public can see where the money is coming from and where it is going.

Edit: I would say that the claim of windfall profits from carbon credits is partly untrue as much of the price increase came from an rise in world energy prices.

ifconfig

TAConnol - many thanks for the informative reply.

I read that caveat you mention about the price hikes around 2006 being only partially due to pass-thru of fictional costs of acquiring permits and it makes sense.

I'm naturally a bit of sceptic until I know a lot of the facts on items as complex as carbon trading mechanisms.

I saw a headline the other day where Minister Eamon Ryan was giving his visionary take on the fact that Ireland could become a central hub in green energy trading. Given how contentious the whole bootstrapping of the CO2 emissions trading market has been I wonder how much of that is purely political posturing and a pipe dream.

I read somewhere else where another NGO/Quango had proposed turning Anglo Irish into a green bank.

Macha

ifconfig wrote: »

I read that caveat you mention about the price hikes around 2006 being only partially due to pass-thru of fictional costs of acquiring permits and it makes sense.

I'm naturally a bit of sceptic until I know a lot of the facts on items as complex as carbon trading mechanisms.

It is an incredibly complex mechanism and the constantly fluctuating price is one of the arguments for having a carbon tax instead. There are so many factors that influence the price.

So if we look at the basket price for oil in the last decade, it looks like this:

2000 27.60
2001 23.12
2002 24.36
2003 28.10
2004 36.05
2005 50.64
2006 61.08
2007 69.08
2008 94.45
2009 61.06

So you can see how much it has fluctuated.

ifconfig wrote: »

I saw a headline the other day where Minister Eamon Ryan was giving his visionary take on the fact that Ireland could become a central hub in green energy trading. Given how contentious the whole bootstrapping of the CO2 emissions trading market has been I wonder how much of that is purely political posturing and a pipe dream.

I read somewhere else where another NGO/Quango had proposed turning Anglo Irish into a green bank.

Well..green energy trading and a green bank are two separate concepts that are themselves separate to the idea of emissions trading. I imagine with the green energy trading, we'll be trying to act as the hub for transactions by countries/corporations trying to fulfill their renewable energy requirements. And the green bank is about making capital available for green projects like retrofitting of the housing stock which would give investors a safe, if low-return, place to invest and help provide jobs.

You might find this useful: it's Patrick Birley of the European Climate Exchange speaking in Dublin recently. Although of course he has hardly a bad thing to say about the idea of emissions trading:

http://iiea.com/events/europe--global-leadership-in-the-development-of-carbon-markets