I think I have been able to convey the nuances of the Cap and Trade system through the printout analogy. We will be using that a lot in the coming weeks to further strengthen the concepts and cap the whole topic off.
In this post, I will be meandering off a little from the energy focus here and talk a bit about my summer time here:) No no, I am not reneging on the basic principle of this post of not putting any personal stuff here. So I will not be telling you how I am having a great time in Boston this summer, how it has been fantastic weather for the most part, how I have been enjoying the morning runs, weekend beaches and the generally lively atmosphere, minus the nagging workload of courses and going through the easy-paced research life:P Nothing of this sort here...don't worry!
I wanted to write something about the extremely enriching conferences that I have attended over the past 2 weeks. Just to back it up a bit, I had got an internship at The World Bank for the summer in their Carbon Finance Unit. It was the kind of place I wanted to work at, the kind of place for which I had come to this program in the first place. But then, as is with life, I had to give that up and work on my research to get a paper by the end of the summer. I was so angry at this turn of events....so ANGRY!! However, it has turn out to be a great experience so far, mainly because of the conferences I have been to in a span of a few weeks and the amount I have learned from them!
So last week there was this 40 year celebration of the Apollo landing on the moon. Technically, a month earlier as 20th July, 1969 was when that happened. I have always been a little critical of the Space programs, mainly from the developing country perspective. When we don't have money to feed our people, I thought it preposterous for civilization to engage in a space war to land on the moon and then come back with tonnes of moon rocks! As if, we didn't have enough rocks on earth. I have been pretty opinionated on this regard and got into lengthy conversations with my peers in the Aero/Astro department here. So, this celebration were a chance for me to see what did we learn from all the trillions of dollars spent on space missions!
Was I swept over! The man's inquest of space has shaped the way we do things in a phenomenal way! From the area of telecommunications, to education to life sciences, to the food industry! You look at something and you find it linked to the space related research efforts. I must say, this was a big eye-opener for me and I accept my rather naive opinion of this whole area.
And now for the biggest part: I met Neil Armstrong and Buzz Aldrin at the conference! Yes, the first 2 people on the surface of the moon! Yes, the men about whom I used to read in the books in my school! Yes, the same voice which said something to the effect of "A small step for man, a giant leap for mankind":) I fall short of words to describe how I felt when I met them...goosebumps would be a euphemism!:P In one of the sessions, we were asked to clap for the people involved with the Apollo missions and I must say I would be right up there in terms of the decibel level of my clapping:)
The contribution of the space program in the realm of climate science is also crucial. The ozone layer problem was first spotted through a satellite image over Antartica that led to the Montreal Protocol. These space borne cameras have been very vital in the fight against carbon dioxide accumulation and we will have to increasingly depend on them in the future in the face of a climate treaty post Kyoto. Any global effort in this area will hinge on the confirmation that every country is following suit, primarily due to the global nature of the problem. So, if any country/region is not adhering to the assigned emission target, the problem is not getting solved and even those places that are managing their emissions well are getting hurt. These space systems will keep everyone in check and make sure that the offenders are punished/reprimanded. They have been doing a great job in the ozone layer maintenance by providing a region wise data on the emission levels globally.
So this proselytistic self is all about space program now! Go ISRO! Go NASA!
The other conference I was talking about was on Engineering Systems, the most recent discipline of Engineering that brings together an integrated approach on problems. It is the new belief of the complex nature of the problems in the 21st century and how only one discipline of engineering, or even social sciences, is not enough to solve them. It was an enriching experience, in its own way, looking at the evolution of a whole new field that could be taking up all the space in the future.
I would finish with a quote from the movie Apollo 13, motivated from my new found love for space! Tom Hanks was asked by a Senator in the movie the relevance of going ahead with space programs once they had already landed on the moon and led in the space race against the USSR. What more benefit can they derive from going to a place they have already explored a couple of times. The actor, very prophetically retorts that wonder what had happened if people after Christopher Columbus had the same logic!
Back to climate change in the next post!:)
Thursday, June 18, 2009
Sunday, June 7, 2009
Cap and Trade system: The Panacea!
Cap and Trade (CAT) has been in the news for quite a long time now, and is big in the Climate Change domain. People have been citing this system as a solution to the externality problem of Climate Change, something I talked about in a previous post. It is also a market based solution and is lapped up by the developed world. I had alluded to it, briefly, in the last post on the Waxman Markey bill. Today, I wish to provide a primer to this concept.
I was looking for an apt analogy to present this concept for this past week until today morning! We had an Officer's Retreat of my dorm at MIT today, where all the elected/selected officials were huddled in a room trying to brainstorm about major problems for the coming year. A major concern has been the amount of paper wasted for trivial printouts,a s they are subsidized here, at the dorm's computer center and somebody proposed a cap and trade set up to reduce the number of printouts . Lo and behold, there was my analogy!:) And the sign to write my blog today! I must say, sometimes I have to believe in the concept of 'signs', the much hyped about concept in Hollywood/Bollywood but much maligned in the real world. What, aren't you convinced that this is a good enough sign!?!:P
Anyway, so back to the issue at hand. Let's take the case of papers we use for printouts. Say, and this is not that chimeric either, the incessant use of paper is causing a huge drain on the number of trees left. Things come to a point that we need to overtly preserve the trees and at the same time have enough papers for printing out the essential items. This can be done by calculating a sustainable yield of papers that we can use, without consuming too many trees that it threatens their existence. Lets say this number is 1000 pages. So, we have got to limit the number of printouts to less than or equal to 1000 pages.
Now that we know the number of pages we can possibly use, we need to find a way to distribute them among the people that need it. The market based solution, that is the Cap and Trade system, would go for an auction on the pages. So, people will bid a price and a certain number of quantity they want and the highest bidder will get his bid amount, say 100 pages, and then it will trickle down till all the allowance, i.e. pages, are sold off. There is a huge debate over the exact process of giving away the pages right now, for this will hurt a lot of people. The cost of printout, which so far used to be only the cost of the cartridge and the cost of paper, assuming an infinite flow of paper, will go up when the cost of paper goes up as a result of this auction. Not only is the cost of paper the cost of making it, but is also includes the externality of cutting down a tree, a valued resource and what monetary impact it might have on our future.
We will add a level of complexity here. If you assume that it was not an MIT dorm where only students, having similar economic statuses, live but a residential place where students and working professionals live together, you will have to agree that the cost would break the back of the students, who will not be able to afford such a high price and most necessarily need a lot of print outs. The professionals will most essentially be printing their movie schedules and their restaurants directions from google maps when the students have to solve their problem sets off the internet. A more telling situation would be if there were some students in the dorm who were sons and daughters of big oil barons in the Middle East, or their parents had deep pockets:) Wonder what that would do to the printout disparity!
Hence, the housing officials can decide to relax the rules a bit and give out free allocations to the students a minimum number of pages. This allocation would then reduce the pool of papers left to be auctioned and would raise the price for the professionals, the affluent sections, forcing them to use paper judiciously. We will play around with this analogy further to introduce all the concepts. But first, let us look at the real system to make the connection clear.
In the cap and trade system for the carbon dioxide emissions for climate change will need to start by, again, deciding the amount of CO2 we can emit that does not harm the environment beyond repair. Hence, we will need to define a sustainable rate of emissions, keeping in mind the different climate dynamics. The starting point will be deciding the atmospheric CO2 concentration at which we are comfortable. Lets say that is 450 ppm in 2100, refer to my first post for details here. From that concentration, we will have to figure out the amount of sustainable emissions each year that will keep the atmospheric concentration below 450 ppm by 2100. This is the most tricky part as a lot of climate science comes into play in this calculation between the atmospheric concentration and the amount of emissions. We shall look at some of the science later, once we are through with the economics! Afterall, economics is the more interesting part, right?:P
Once we have figured out the quantity of emissions, we could go on to auction all of them. This will raise the price of almost all commodities available, the price of your food, clothes, water, oil, housing repair etc. everything will go up since prices now includes the cost of externality of environmental damages! This will almost kill the underprivileged section of the society, who will not be able to bear the additional cost on essential items. Hence, to insulate them from this, the government can decide to give away the allocations free, something that the dorm officials did in the case of handing out papers free to the students. This is called the system of phased auction, which leads to a lot of interesting scenarios we will see in later posts!Just to point out here that EU has a Cap and Trade system in place for CO2 and they have been 'freely' allocating a major part of their allowance so far. Full auction will kick in at a later date.
We have seen the cap part of it so far, the part where the number of allocations are decided and then allocated through auctions or similar mechanisms. The second, and by far the more exciting part, is the trade part! Here, this system allows the entity to trade the allocations. So, if in the paper case, I had bought extra papers that I cannot use and somebody else is in a dire need of papers, I can trade my extra papers with him that it gives me a profit on my investment and is lower than the market price of the paper for the latter student. In the climate side, if an industry has allowances that it cannot use, it can trade them with one that needs them at a cost that is mutually beneficial.
This post can go on for another 15 pages and we will still be short of the exact nuances of a Cap and Trade system:) Hence, in the interest of time and space, I shall put this one to rest here. I hope I have been able to convey the basics of a Cap and Trade system and will pick it up from here for some other details of it.
Until then, take printouts with care. You never know when the externality kicks in:P I must say, my meagre graduate student salary will most essentially go into buying papers, if that happens!
I was looking for an apt analogy to present this concept for this past week until today morning! We had an Officer's Retreat of my dorm at MIT today, where all the elected/selected officials were huddled in a room trying to brainstorm about major problems for the coming year. A major concern has been the amount of paper wasted for trivial printouts,a s they are subsidized here, at the dorm's computer center and somebody proposed a cap and trade set up to reduce the number of printouts . Lo and behold, there was my analogy!:) And the sign to write my blog today! I must say, sometimes I have to believe in the concept of 'signs', the much hyped about concept in Hollywood/Bollywood but much maligned in the real world. What, aren't you convinced that this is a good enough sign!?!:P
Anyway, so back to the issue at hand. Let's take the case of papers we use for printouts. Say, and this is not that chimeric either, the incessant use of paper is causing a huge drain on the number of trees left. Things come to a point that we need to overtly preserve the trees and at the same time have enough papers for printing out the essential items. This can be done by calculating a sustainable yield of papers that we can use, without consuming too many trees that it threatens their existence. Lets say this number is 1000 pages. So, we have got to limit the number of printouts to less than or equal to 1000 pages.
Now that we know the number of pages we can possibly use, we need to find a way to distribute them among the people that need it. The market based solution, that is the Cap and Trade system, would go for an auction on the pages. So, people will bid a price and a certain number of quantity they want and the highest bidder will get his bid amount, say 100 pages, and then it will trickle down till all the allowance, i.e. pages, are sold off. There is a huge debate over the exact process of giving away the pages right now, for this will hurt a lot of people. The cost of printout, which so far used to be only the cost of the cartridge and the cost of paper, assuming an infinite flow of paper, will go up when the cost of paper goes up as a result of this auction. Not only is the cost of paper the cost of making it, but is also includes the externality of cutting down a tree, a valued resource and what monetary impact it might have on our future.
We will add a level of complexity here. If you assume that it was not an MIT dorm where only students, having similar economic statuses, live but a residential place where students and working professionals live together, you will have to agree that the cost would break the back of the students, who will not be able to afford such a high price and most necessarily need a lot of print outs. The professionals will most essentially be printing their movie schedules and their restaurants directions from google maps when the students have to solve their problem sets off the internet. A more telling situation would be if there were some students in the dorm who were sons and daughters of big oil barons in the Middle East, or their parents had deep pockets:) Wonder what that would do to the printout disparity!
Hence, the housing officials can decide to relax the rules a bit and give out free allocations to the students a minimum number of pages. This allocation would then reduce the pool of papers left to be auctioned and would raise the price for the professionals, the affluent sections, forcing them to use paper judiciously. We will play around with this analogy further to introduce all the concepts. But first, let us look at the real system to make the connection clear.
In the cap and trade system for the carbon dioxide emissions for climate change will need to start by, again, deciding the amount of CO2 we can emit that does not harm the environment beyond repair. Hence, we will need to define a sustainable rate of emissions, keeping in mind the different climate dynamics. The starting point will be deciding the atmospheric CO2 concentration at which we are comfortable. Lets say that is 450 ppm in 2100, refer to my first post for details here. From that concentration, we will have to figure out the amount of sustainable emissions each year that will keep the atmospheric concentration below 450 ppm by 2100. This is the most tricky part as a lot of climate science comes into play in this calculation between the atmospheric concentration and the amount of emissions. We shall look at some of the science later, once we are through with the economics! Afterall, economics is the more interesting part, right?:P
Once we have figured out the quantity of emissions, we could go on to auction all of them. This will raise the price of almost all commodities available, the price of your food, clothes, water, oil, housing repair etc. everything will go up since prices now includes the cost of externality of environmental damages! This will almost kill the underprivileged section of the society, who will not be able to bear the additional cost on essential items. Hence, to insulate them from this, the government can decide to give away the allocations free, something that the dorm officials did in the case of handing out papers free to the students. This is called the system of phased auction, which leads to a lot of interesting scenarios we will see in later posts!Just to point out here that EU has a Cap and Trade system in place for CO2 and they have been 'freely' allocating a major part of their allowance so far. Full auction will kick in at a later date.
We have seen the cap part of it so far, the part where the number of allocations are decided and then allocated through auctions or similar mechanisms. The second, and by far the more exciting part, is the trade part! Here, this system allows the entity to trade the allocations. So, if in the paper case, I had bought extra papers that I cannot use and somebody else is in a dire need of papers, I can trade my extra papers with him that it gives me a profit on my investment and is lower than the market price of the paper for the latter student. In the climate side, if an industry has allowances that it cannot use, it can trade them with one that needs them at a cost that is mutually beneficial.
This post can go on for another 15 pages and we will still be short of the exact nuances of a Cap and Trade system:) Hence, in the interest of time and space, I shall put this one to rest here. I hope I have been able to convey the basics of a Cap and Trade system and will pick it up from here for some other details of it.
Until then, take printouts with care. You never know when the externality kicks in:P I must say, my meagre graduate student salary will most essentially go into buying papers, if that happens!
Monday, June 1, 2009
The Waxman Markey Bill
First of all, I need to acknowledge the two very wonderfully positive feedback about my blog this week which gives me immense pleasure to keep at the task:) Man is a creature of habit, they say. And this habit is greased and facilitated by appreciation, I say:) Heartfelt thanks to the people who appreciated the effort!
So, now to the most written topic of my blog: The American Clean Energy and Security Act of 2009, popularly known as the Waxman-Markey bill. This bill is being reviewed by several committees in the House and one of them,Energy and Commerce Committee, just approved the bill, though in a slightly different version. All these slicing and dicing by the various committees will produce a version of the bill that will be tabled on the floor of the House for voting. There is still a long way to go for this bill, or any of the radical measures included in it, to become a reality. However, it much be acknowledged that this is the first time a serious climate bill has gone this far in the US political arena. Nobody knows what the final version of the bill will end up becoming but anything with such a starting point will not go that awry! Anyway, we shall deal with the changed version passed in the House committee later, first the initial draft of the bill!
The bill has 4 titles in it, which are:
Title I: Clean Energy
Title II: Energy Efficiency
Title III: Reducing Global Warming pollution
Title IV: Transitioning to a clean energy economy
There are such radical thoughts in it that one cannot be left unimpressed by the enormity of the changes it seeks. Some of the salient features of the bill are:
- Renewable portfolio standards of 6% by 2012 and 25% by 2025. This means that 6% of the total energy by 2012 and 25% of the same by 2025 HAS to be produced from renewable sources like wind, solar, biomass etc. Imagine what impact such a policy would have on the renewable sector. This would provide the much needed fillip for this sector in the form of government backing, something that it always yearned!
- My favorite: Money has been allocated for demonstration plants for Carbon Capture and Sequestration(CCS). If this clause passes the muster, well....I must say I am smiling from ear to ear while writing this one:)
- There is some talk on cleaner fuels and vehicles and smart grid. We shall look into what a smart grid is at a later date.
- A major emphasis is on improving the energy efficiency of the economy. Logically, the more efficient you are, the less you need to consume. Simple,right? Well, keep in mind that things are not that logical in politics always:) Refer to my last week's post for more details!
- Cap and Trade system: This is the most radical proposal of the bill. It seeks to reduce the Green House Gas (GHG) emissions by 3%,20%, 42% and 83% below 2005 levels by 2012, 2020, 2030 and 2050 respectively. This is to be effected by putting a cap on the emissions, creating credits for the level of emissions and allowing the different players in the economy to trade these credits among themselves at a market determined price.One more market is being created and this one will be bigger than anyone can imagine. In the interest of time, I shall take this again in a later post. You should not be spending hours on a blog! Reading this post is not your primary job, right?:P
- There are other schemes to make a transition to a cleaner energy economy and some provisions to make this transition seamless.
This is a HUGE HUGE bill in the climate arena! I just hope it passes, in some form. I still remember the day Obama talked about this bill, I decided to go ahead and apply for a PhD after my MS. Stopping after a Masters degree would be a crime in this radical area, right? Any more doctoral candidates in the making?:P
P.S.: I intend to take a lot of the issues I briefly touched in detail in later posts. Let me know if anything is not clear above and I shall make sure to enunciate that point later.
So, now to the most written topic of my blog: The American Clean Energy and Security Act of 2009, popularly known as the Waxman-Markey bill. This bill is being reviewed by several committees in the House and one of them,Energy and Commerce Committee, just approved the bill, though in a slightly different version. All these slicing and dicing by the various committees will produce a version of the bill that will be tabled on the floor of the House for voting. There is still a long way to go for this bill, or any of the radical measures included in it, to become a reality. However, it much be acknowledged that this is the first time a serious climate bill has gone this far in the US political arena. Nobody knows what the final version of the bill will end up becoming but anything with such a starting point will not go that awry! Anyway, we shall deal with the changed version passed in the House committee later, first the initial draft of the bill!
The bill has 4 titles in it, which are:
Title I: Clean Energy
Title II: Energy Efficiency
Title III: Reducing Global Warming pollution
Title IV: Transitioning to a clean energy economy
There are such radical thoughts in it that one cannot be left unimpressed by the enormity of the changes it seeks. Some of the salient features of the bill are:
- Renewable portfolio standards of 6% by 2012 and 25% by 2025. This means that 6% of the total energy by 2012 and 25% of the same by 2025 HAS to be produced from renewable sources like wind, solar, biomass etc. Imagine what impact such a policy would have on the renewable sector. This would provide the much needed fillip for this sector in the form of government backing, something that it always yearned!
- My favorite: Money has been allocated for demonstration plants for Carbon Capture and Sequestration(CCS). If this clause passes the muster, well....I must say I am smiling from ear to ear while writing this one:)
- There is some talk on cleaner fuels and vehicles and smart grid. We shall look into what a smart grid is at a later date.
- A major emphasis is on improving the energy efficiency of the economy. Logically, the more efficient you are, the less you need to consume. Simple,right? Well, keep in mind that things are not that logical in politics always:) Refer to my last week's post for more details!
- Cap and Trade system: This is the most radical proposal of the bill. It seeks to reduce the Green House Gas (GHG) emissions by 3%,20%, 42% and 83% below 2005 levels by 2012, 2020, 2030 and 2050 respectively. This is to be effected by putting a cap on the emissions, creating credits for the level of emissions and allowing the different players in the economy to trade these credits among themselves at a market determined price.One more market is being created and this one will be bigger than anyone can imagine. In the interest of time, I shall take this again in a later post. You should not be spending hours on a blog! Reading this post is not your primary job, right?:P
- There are other schemes to make a transition to a cleaner energy economy and some provisions to make this transition seamless.
This is a HUGE HUGE bill in the climate arena! I just hope it passes, in some form. I still remember the day Obama talked about this bill, I decided to go ahead and apply for a PhD after my MS. Stopping after a Masters degree would be a crime in this radical area, right? Any more doctoral candidates in the making?:P
P.S.: I intend to take a lot of the issues I briefly touched in detail in later posts. Let me know if anything is not clear above and I shall make sure to enunciate that point later.
Subscribe to:
Posts (Atom)