Sounds Crazy #12 | Fossil fuel subsidies

Here’s a thing. Why would you have any international agreement to reduce carbon emissions when governments across the globe are spending 8.5% of tax revenue on fossil fuel subsidies?

Allow yourself to imagine that you come from a nation where the per capita emissions was less than the global average of around 4.5 tCO2e — you could choose any from around 120 different ones.

You would not be too chuffed at any international agreement on emission reduction when you find out that a big chunk of taxpayers money goes to propping up the problem. You could ask this perfectly sensible question: Why not reduce the subsidies? Wouldn’t that make emitting more expensive and be the very market force that complex trading schemes were designed to achieve?

Now you would be told, well yes, but it’s not as simple as that.

Except that it is.

Lost post | big challenges for carbon offsets

This is a lost post that languished as an unpublished draft for over a year. As with most things with any resemblance to climate change policy the comment remains relevant a year later…

 

The ‘elephant in the bathroom may have farted’ post tells us that the possibility we all knew was there — that market forces can go in both directions — now seems likely for the Australian carbon market.

At the end of the fixed price period in 2015, the carbon price in Australia may well be considerably less than $24. The new estimate is $10 per tCO2e, a shortfall that would deliver a $4 billion budget ouch on forward projections for the government.

Late last year the Australian government decided to remove the collar on the carbon price originally proposed for the 2015-18 period, presumably to allow alignment with the EU carbon market. It also allowes Australian companies to buy up to 50% of their permit requirement from international credits. This means that the domestic carbon price is more likely to track international markets, hence the potential permit price of $10 at the end of the fixed price period in 2015.

Not quite what is supposed to happen if the policy is to work, not least for the nascent offset market.

Here are three big consequences of $10 tCO2e for carbon offsets.

Big consequence #1 — few offset activities are viable at $9/tCO2e

When the permit price is low, then carbon credit prices will be lower still, around 10-15% usually. This makes sense because why go to the trouble of buying an offset credit if it is the same price as a permit? The only time you might is when you have some desire to commit a random act of kindness or to get PR advantage from the co-benefits that offset credits can bring. So usually credits are cheaper than permits.

Reminder of what offset credits are all about — short version is that credits can be generated from activities that abate, reduce emissions or sequester carbon into the landscape [e.g. capturing and burning landfill gas, growing trees on degraded land, managing manure from piggeries] so long as the activity complies with a several important carbon accounting rules

A $9 carbon credit will severely limit the number of offset activities that can be financially viable whilst still complying with all the rules.

In energy, infrastructure, waste and land based carbon projects it will be very hard to cover activity, transaction and opportunity costs of project implementation from a $9 tCO2e return.

Big consequence #2 — revenue from offsets do not go to Treasury

When projected revenue is halved the last thing a government would want is for emitters to buy offset credits instead of permits. Large-scale emitters will act rationally and buy offsets if they are cheaper only this money goes to the offset provider and not treasury. This makes the fiscal hole deeper.

There is also the significant risk that too many offsets could further deflate the price by increasing supply. This was probably the main, but rarely stated, reason for why REDD [reduced emissions from degradation and deforestation] mechanisms that generate credits from protection of tropical forests have not been embraced — too much credit volume further depresses the carbon price.

So we can expect government to be much less enthusiastic about offset credits, at least the complaint kind that can be exchanged for permits. They will, of course, continue to promote and talk up voluntary offset credits, the ones you might buy to offset a flight or a company might purchase in order to be carbon neutral.

It should be no surprise that, despite the fanfare, Australia’s domestic offset scheme called the CFI is taking a very long time to get going.

Big consequence #3 — not enough pain to change behaviour

Remember that the climate change policy that puts a price on carbon was all about reducing greenhouse gas emissions from human activities by making it increasingly more expensive for emitters to carry on emitting under business as usual. Create sufficient pain in the hip pocket and there will be a change in behavior.

Emitters will become more efficient, saving energy themselves, or pass the price on to consumers who will become more frugal. If it the price continues to rise and efficiency gains are exhausted then it pays to make more substantial shifts in behavior, mostly toward alternative energy sources.

At $9 tCO2e for an offset there is not enough pain to make the change.

 

May 2014 Postscript

See what I mean?  A year on and offsets are still a pipe dream for all but a very few activities such as landfill gas capture that was already there anyway [so much for additionality].

And sometimes glacial pace of progress helps people forget the problem the policy was supposed to address.

Not good enough I say.

 

Slow, slow, quick, quick | Postscript for the contentious mind

CO2 enrichment Cumberland Plain WoodlandA recent upbeat post on the importance of soil biology ‘slow, slow, quick, quick’ went by without comment.

Except that loyal readers wouldn’t imagine that Alloporus could really let a taxpayer spend of $40 million on infrastructure and operating costs of $1.5 million per year just for the CO2 for one experiment to pass without comment — especially when you look closely at the image to see that the patch of woodland is so small that the enrichment plots and controls will be subject to huge edge effects.

If significant funds are to be spent on a given research topic then there will always be those for and those against its import. On balance we could concede that understanding the effects of climate change on plant growth and ecosystem dynamics will be important. Findings will help lay the foundations for selecting the most effective responses to climate across ecosystems we rely on. We might say research on some of the more acute effects of climate change [temperature, severe weather, seasonal shifts] might yield better bang for buck, as would a focus on adaptation, but for the moment we could concede these points too.

When I visited the CO2 enrichment experiment at the Hawkesbury Institute of the Environment it was a windy day, the air was moving through the ‘cages’ freely and rapidly. We were told that high-tech control systems monitor wind and try to match the delivery of CO2 to maintain consistent enrichment levels. But I could not see it myself.

The experiment is sited in a small, naturally open patch of woodland constrained far more by moisture and temperature extremes than CO2, blitz occasionally by fire and with plant growth potential moderated by old soils. For me it was simply the wrong manipulation, implemented at the wrong scale and at a site too small for what was being tested.

So it’s not actually about the money. What seems unacceptable is the quality of the science.

Sounds crazy #5 | Carbon price forecasts

August 2013 is silly season here in Australia. We have a federal election in just a few weeks time and the inevitable merry-go-round of vacuous media grabs and absence of policy debate is upon us. It is actually rather depressing as the main parties jostle to hog the middle ground to spend money they don’t have whilst no one else can come up with anything better than “vote for me”.

It is also rather absurd. On the rare occasion when media do delve beyond the rhetoric, or for some unknown reason you dig yourself for evidence to help make a voting choice, what emerges are gems like this pre-election outlook from Treasury.  Somehow the economic boffins that work for the ministry have managed to predict that the carbon price that in Australia is currently fixed at $23 will first fall to $6.20 in 2014/15 [fair enough as the start of the flexible price period when the domestic scheme is pegged to the EU market has been brought forward a year] and then rise to $18.90 by 2016/17 reaching $38.0 by 2020.

Now we should remember that this is what is supposed to happen to a carbon price. The whole idea was that to ensure steady emission reduction the carbon market is capped so that supply is squeezed over time causing prices to rise. A rising price on carbon would encourage energy thrift and starts to make clean energy sources economically viable with the net effect of lower emissions. Except that the political will to set, stick to and steadily lower the cap has been conspicuously absent.

Alloporus borrowed a graph of the historical carbon price in the EU published by Point Carbon and appended the Treasury projections.

It looks like this:

CarbonPriceProjections

As regular readers will know Alloporus is no economist, but whilst $20 seems possible, $40 by 2020 is hugely over-optimistic. It would require a significant step change around 2015 to reverse a market that has a t best been steady but mostly fallen. Such a change would need considerable and coordinated global political will to achieve. No single nation would stick their neck out that far [probably why the Australian government linked the domestic scheme to the international market so as to neatly sidestep the pressure to go it alone].

Then consider that by 2020 we will have seen price shocks in oil [and possibly coal too] that, even if temporary, will have the required effect on emission reduction without the need for a separate policy. In other words fluctuations in energy needs in response to inevitable pulses in the global economy will allow the modest emission reduction targets to be met most of the time.

Of course politically it is best if the carbon price is low, but for any cap-and-trade policy to be effective the price needs to rise steadily. Alloporus suspects that the carbon price forecast from Treasury sound like some middle ground plucked from the ether for political expedience.

The craziness here is that a lot of money has been spent and committed to deliver emission reductions — a ‘clean energy future’ as the policy was tagged. Except that the cap-and-trade approach chosen only works if the price of permits [the carbon price] rose steadily over time. And this required that the market was manipulated buy controlling permit and offset credit supply. Now that governments have shied away from that part of the plan, the whole policy falls over and monies spent on free permits for exposed sectors and, in the case of Australia tax threshold adjustments and cash payments to households, turn into welcome handouts that have no impact on emissions at all.

$38.0 by 2020 is what they would like it to be, except wishful thinking cannot make it so. You actually have to implement the policy.

Soil carbon | What we think

I wonder what went through Steve Jobs mind just after the image of the iPad came into it?

Perhaps it was an original idea that formed in a flash of inspiration from the ether — the sort of thing that happens to imaginative types.

Or it could have been a steady accumulation of images, ideas and bits of less elegant technology that came at him from all and sundry that suddenly coalesced into something elegant.

Maybe it arrived as he peered over the shoulder of an Apple designer.

No doubt Wikipedia or the upcoming biopic knows the answer to what the origins were, but we can only speculate as to what he was actually thinking.

It was probably something like…

Hey, I’m really onto something here. Finally a device that everyone will want to have and fits our brand so well our competitors will just have to make copies. And hey, there’s big bucks in it.

You can bet he wasn’t thinking…

Oh boy, I have seen this all before. Crazy how it takes so long to get good ideas to stick, I mean I dreamt this little design up years ago. It will cost so much to develop that I can’t see anyone wanting to buy one from a store or even eBay — that is if the hardware people can even make the thing.

I reckon a big part of the reason Mr Jobs enjoyed so much success is that he didn’t ever think the glass was half empty.

And I don’t mean this in the ‘ra, ra, ra’ kind of can do attitude that Americans are so prone. I get the feeling that his was more a sense of knowing when the idea is right and that it would work.

Recently I attended an ‘Agriculture, Soil Health and Climate Change Forum’

organized jointly by the United States Study Centre, University of Sydney and the DIICCSRT [the Australian federal government department of many acronyms that includes the bureaucrats responsible for implementing climate change policy]. There were 80+ people present who all had more than a passing interest in promoting soil health. Some were just crazy passionate about it… and good on them.

Soil heath is a timely and critical topic. In many ways it is a ‘Jobsesque’ idea being simple, elegant, functional and ultimately something that we cannot live without. A global population that will rattle around 10 billion for at least half a century will go hungry if we stick with the current paradigm of soil as a place to put plant roots and inorganic fertilizer. The biology of soil is what gives its potential to sustain and provide, and whilst we do not fully understand why, managing for soil biology is the agricultural equivalent of an iPad.

So it was depressing [a carefully chosen word] to listen to an apologetic speech outlining how DIICCSRT, who as part of their atmospheric responsibilities also deliver the Carbon Farming Initiative, have failed to get soil carbon management onto its list of CFI offsets.

It wasn’t that there are technical challenges to soil carbon accounting for everyone knows there are. They are as fundamental as decisions to measure or model or even to go with simple activity reporting. They also involve gathering in uncertainty about what agricultural management does to soil carbon stocks [although here I believe we know more than we realize].

It wasn’t even that it has taken so long. We all knew it would.

What was so depressing was that the glass was half empty… and oh so hard to fill

Whatever Steve Jobs thought when the iPad first registered in his mind, you can be sure it was hugely positive.

Luckily the tone of the soils workshop was rescued thanks to a presentation from an overseas guest from the research arm of the US Department of Agriculture. His was a glass ready to be filled. He knew we had a problem with soil and that it was a big one. He knew that it was going to be hard to convince his research staff that they didn’t yet have all the answers and that the solutions would probably come from left field, possibly even from the ‘snake oil’ salesmen. It was going to be about going where we might not be wholly sure of ourselves because that was where the answers would be found.

He didn’t quite say, “boldly go”, but that was what he meant. I was hugely enthused.

It could be argued that we need both of these opposing attitudes to challenges. We need the naysayers to keep out feet on the ground and we need the ‘gung ho’ types so we can keep putting one foot in front of the other.

I think that we don’t yet know how to get the balance right and, in Australia at least, we are stuck. When it comes to environmental policy we have become paralyzed, exquisitely versed in stalling tactics and so fearful of innovation that we fear it like the devil. This is not good and may well be our undoing.

Mr Jobs would have shaken his head.

Farming not fracking

land-clearing-farmingStrolling through the village, as you do on a sunny winter’s Saturday morning, is a real treat.  It is a privilege just to take in the bustle of folk going about their weekend business — buying the paper, greeting a neighbor or settling down for coffee with friends serenaded by a teenager with a guitar and dreams of fame and fortune from his songs. This is why we are so fond of community.

Abruptly my reverie was rudely broken.

“No thank you,” I said to a brusque individual who ambushed me from behind the ‘vote green’ placards that were cluttering the pavement. The pamphlet purveyor was most indignant at my refusal and gave me the death stare. If that had happened in the playground it would have been called bullying.

I strolled on by and observed both the wave of annoyance that passed over me, and the slogan on one of the placards that read ‘ farming not fracking’.

For the uninitiated fracking is the controversial process of getting gas from coal seams by injecting fluid into deep rock layers to fracture them. This releases the pressure that holds onto the gas. Once free the gas can be piped to the surface. It is similar physics that happens when the seal is broken on a soda bottle and bubbles start to rise.

The Greens are on to fracking because it is another nasty resource exploitation process that results in burning of yet more fossil fuels, risks pollution of groundwater or local subsidence, and worst of all, will displace farmers from the land. Not all land, but the land gas companies might buy to exploit the gas reserves beneath the paddocks.

No matter that in greenhouse gas terms natural gas is cleaner than the coal that will be burnt instead to meet growing energy demand, that boreholes have always coexist with farming, and that legislation already prevents anything nasty being used as the lubricant.

As a slogan ‘farming not fracking’ is just silly. It is not even the issue.

Deliver it with a ‘holier than thou’ look on your face and even your supporters will cringe. Everyone else will tell you to take a hike, probably far less politely.

How about this instead?

We don’t like fracking or exploitation of coal seam gas so we have come up with this solution.

The energy that would have come from gas can be generated from alternative sources [solar, wind, wave, geothermal] plus some savings from improved energy efficiency. Both initiatives could be resourced from a small but compulsory ‘no fracking’ investment of say $500 from every household in the country — this one-off payment from everyone  would raise roughly $4 billion.

The return on investment is twofold. Cheap energy in the long run as alternative sources would get over the commercial hump and there will be environmental benefits from avoiding pollution risk. Plus, there would be lower greenhouse gas emissions from the soon to be necessary shift to alternative energy sources again saving money on transition costs.

All this for the annual expenditure to households of one weekly coffee and cake in the village.

The pamphleteer would probably look at me aghast and blurt out, “You mean to ask people to give up their Saturday morning coffee and cake, what are you thinking?”

Then he would spontaneously take up the chant “farming not fracking, farming not fracking…”

And no doubt the young songwriter could weave it all into a lyric.

Carbon farming | when to rant and rave

carbon farming farmland

The other day I received an invitation from the Australian government’s Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education to a forum with the Domestic Offsets Integrity Committee (the DOIC). This is the committee that approves carbon accounting methodologies for the Carbon Farming Initiative (CFI) scheme that was touted as providing Australian farmers with the opportunity to earn carbon credits from land management change.

The invite was keen to point out that “there are now 16 methodologies available for farmers and landholders to undertake carbon offsets projects” and that “The CFI is a ground-breaking scheme offering Australian farmers and landholders the opportunity to earn carbon credits while potentially achieving environmental and productivity benefits”.

What to do?

My first rational thought was not to go. Why should I spend my own funds and contribute to greenhouse gas emissions by travelling from Sydney to Melbourne to attend a 2 hour discussion on a policy that so far has delivered nothing that a farmer could actually use. The 16 approvals to date are for methodologies related to capture of landfill gas [that most landfills had the infrastructure to do anyway], various approaches to growing trees that you cannot cut down, and avoided emissions from a few specialist activities such as piggeries. These have nothing to do with the bulk of real-world farming practices.

My instinct, however, was to attend and at some point in the proceedings stand up and bellow at the top of my lungs a string of obscenities to vent my frustration at what has been a slow and hugely inefficient process of bureaucratic numbness — not to mention the unnecessary reinvention of a wheel already fashioned by international carbon offset schemes.

Unfortunately such actions would only give me temporary relief and would be be swiftly followed by long-term personal damage. Even writing down my thoughts in this post is probably not very smart.

So instead of the rage filled rant, I will reply to the invitation politely saying, “unfortunately I am unable to attend”.

It is worth looking more closely at my frustration [and maybe at my copout].

The frustration

I have never been wholly convinced by the global approach to climate change policy.

I accept that 7 billion humans plus 10,000 years of agriculture and 200 years of global commerce have had an impact on the climate system and I know that we need to take some action.

What has always troubled me is the premise of the chosen policy that we can actually fix the damage we have caused simply by reversing our actions. As I have blogged before, King Canute really had a better chance.  That we can take an engineering solution as naive as emission reduction to a problem of this magnitude seems to be a scandalous inflation of our capability.

Does it also mean we going to fix Milankovich cycles by tweaking the tilt of the planet or take on the variation in the solar wind [both major climate drivers]? Craziness.

That said, emission reduction is prudent for two key reasons: 1) it will help economies transition away from fossil fuel energy sources to sources that are cleaner and less likely to run out and 2) in the short run will help make business more efficient. Both of these are important outcomes that have little to do with the climate.

What is missing from the policy is an understanding of the need to adapt to climate change particularly in the way we manage landscapes. Yes indeed, the very landscapes that supply almost all the food and water for all those people.

So for the CFI not to have methodologies that give farmers an opportunity to sequester carbon into soil, to rehabilitate vegetation in grazing lands, and to obtain co-benefits from more sustainable land management practices is a huge failing of the policy. And not least because these actions will also deliver adaptation as the climate changes.

So carbon, and by extension the CFI, is really about creating more sustainable and resilient landscapes and helping farmers leave behind unproductive practices  – and by the way, there is the potential for around 100,000,000 tCO2e per annum on the positive side of the national carbon account.

What is more, should carbon permit price track the international markets and come in below $10 tCO2e, land management practices that deliver carbon sequestration into vegetation and soil as well as avoiding emissions may still be cost-effective. Most land management activities sit towards the left of most cost-abatement curves and so are cheaper per ton of abatement than many of the engineering solutions.

The cop out

So why did I choose not to accept the invitation when it provided a great opportunity to scream and shout?

There is an element of shooting the messenger. Public servants are there to deliver the policy frame not necessarily to create it. It is likely that there are higher political forces that have chosen to slow down policy delivery and to steer away from the farming sector, higher than those charged with delivery.

Attending only to have a shout at the wrong people makes no sense.

There is also a feeling that attending would both validate a process that I do not agree and have little impact, particularly as providing feedback seems to have had little effect in the past. The system is still slow, lacks focus, and technical clarity.

An example from the many challenges faced by methodology developers is that the positive list cannot actually be a list of activities to take care of additionality if each methodology has to prove the validity of an activity already on the list. That negates the whole concept of a positive list approach [one tried and rejected by other schemes] seems to fall on deaf ears.

Ultimately though, I have folded and chosen not to point out the faults but to stay silent.

This does not make me feel any better.

Postscript

Whilst I was drafting this post I received n update from one of the major laws firms with an interest in the carbon market. Their take on the status of the CFI is quite contrary to mine — it seems that everything is dandy. In fact they must be drinking out of a glass so half full it’s overflowing.

If only I still had the energy to talk it up.