Carbon goes away

When the World coughs and stops working, less energy is consumed, and less riches are produced. Along with this sudden event, less carbon is emitted to the atmosphere, a logical consequence albeit a disturbing one for climatic bureaucrats. Why? Because their abstruse allocation certificate systems no longer work, if it ever could.

The news is:

EU to withdraw another 330 mln carbon allowances from ETS after supply glut drops 16%
More than 330 million more carbon allowances will be withdrawn from the EU ETS through next summer and inserted into the MSR, the European Commission announced late Friday in its annual ‘TNAC’ update, with the market’s oversupply falling by over 16% from 2018 levels.

To put these 330 Mt CO2 in perspective, it suffices to compare them with the EU reduction commitment for 2017 to 2030 that are 81 Mt CO2-eq per year. In 2018, the Total EU emissions amounted 3 335 Mt CO2-eq, of which 1 682 Mt were regulated under the EU Trading Scheme.

An economist of my friends –yes it might exist– tells me “if you believe in a certificate solution or similar ones, then this destroying of certificates is not so stupid”.

How right he is to be cautious with this “If… Then”.

For once, let us set aside the overall absurdity of the objective of the scheme itself and consider only its management, the “Then” of the “If…Then”.

The scheme has the goal of nudging industries to abandon using fossils fuels by artificially making their use too expensive. To this effect, a diminishing number of permits to emit is put each year on the market by the way of an auction; these allowances can be subsequently traded as any other financial product. Thus, the authorities decide each year how many certificates the market must buy in order for the industries to have an incentive to switching over to carbon-free or carbon-poor primary energy sources and raw materials while continuing their operations and maintaining employment.

To achieve this, too many variables need to be set simultaneously:

  • The number of certificates to be auctioned;
  • The assumed social cost of carbon that should be cancelled by the paid price at the auction or the subsequent trading. Lacking such equivalence, the incentive to actually reduce emissions will also be lacking.  
  • The speed at which the carbon emissions should be reduced.
  • The fluctuating definition of strategically critical activities to which emission allowances need to be granted anyway, hoping that none will remain at the end of the exercise, in 2050 or 2100. Examples: steel mills or coal fired power plants serving as back-up to intermittent production of wind and solar power plants.

Squaring the circle is easier!

A Measurement & Control specialist knows that such overdetermined system cannot be maintained in stable conditions, in particular with unexpected time delays that viruses, politics, and whatever unexpected event can put on the way.

In fact, the solution is no secret: allow for more emissions as it is theoretically programmed and the system may remain stable; though, the goal will never be achieved. Filled with the importance of being earnest, many bureaucrats will continue to believe acting with laudable intentions, oblivious to the futility of their endeavour. 

What would you do with a project whose objective is an aberration and which lacks all the means to be accomplished?

The reader is kindly asked to provide the answer and to pass it on to his parliamentary representatives and to his executive government.


3 thoughts on “Carbon goes away”

  1. I’m not sure I understand the reasoning.
    1. Political rationality ist different from technical rationality.
    2. With an “overdetermined system”, politics and bureaucracy have to resort to a trial and error process, e.g. in estimating the social cost of carbon.
    3. Isn’t the number of certificates the dependent variable, in other words the result of resolving the “equation”?
    4. The speed of carbon reduction is politically determined by the national or EU-wide obligations to reduce CO2 emissions.

  2. Wenn je Periode – z.B. für ein Jahr – die Emissionsmenge beschränkt wird, die Nachfrage aber aufgrund des Carona-Schocks noch unter diese Maximalmenge fällt, dann fällt der Zertifikatspreis im Handel sofort auf Null. Der Rückzug von Zertifikaten kann ja wie ein Kauf von Zertifikaten zum Preis Null betrachtet werden. Der Staat kann Zertifikate zurückziehen und so dafür sorgen, dass am Markt wieder ein positiver Preis resultiert… d.h. dass wieder Knappheit herrscht.

    Im Unterschied zu Michel bin ich der Auffassung, dass gerade die Zertifikatslösung mit Schocks bestens funktioniert. Das Ziel ist ja, eine bestimmte Emission je Periode nicht zu überschreiten.

    Ob das Zeil sinnvoll sei, ist jetzt hier nicht mein Thema. 😉

  3. In a system that aims at physical changes, wishful political thinking has no sustainable future.
    Political rationality is what one politician thinks about her or his policies (and the policies of opposing politicians will be deemed irrational).
    The dependant variable, the underlying goal, is not the number of certificates but net zero megatons of CO2-eq emissions, a physical dimension, to constrain the warming to no more than 1,5 or 2 ℃, another physical dimension.
    Political decisions have no transcendental value. The national commitments could (or, rather, should) be changed.
    This house of card system is doomed to get out of control or to never achieve anything.
    In the mean time, States accumulate undue revenues that are ultimately paid by consumers, and traders take their margin on every transaction. A nice system without influence on the climate.

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