Cap-and-trade full of hot air

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As previously mentioned on this blog (here, here, and here), we have many issues with a cap-and-trade system. They are very difficult to account for. The video below, clearly explains the risks of carbon markets. With Copenhagen on everyone’s mind, it is important to realize the inherent problems with carbon markets.

The logic is that large emitters will finance renewable energy through the purchase of carbon credits. If carbon credits are to be a form of financing for projects, we have big problems ahead of us. Heavy industry, with powerful lobbies, receive too many credits – which they then sell or dump on the markets. The flooded market, manipulated by traders, becomes extremely volatile. If a project developer, who needs to plan for a return of at least 15 years, cannot rely on carbon credit revenues – what use are the credits?

The Alberta energy market is a spot market, which means the price of electricity is determined by a market. In other provinces, the price of energy is set by the government. In Alberta, the price has gone from about 0,14$/kWh to 0,03$kWh – causing many renewable energy projects to be put on hold. In fact, at that price, coal based power does not even make sense. This volatility is very bad for project development. Voluntary carbon credits on the Chicago Board of Exchange have gone from 8$ to 35 cents! How can you plan a project based on revenues from carbon credits when they risk to completely collapse.

In my view, the first item to tackle carbon emissions is to remove the subsidies from the oil & gas industry. Not only will that lower carbon emissions, it will save our government valuable dollars. Secondly, let’s make large emitters pay a simple tax for the damages they cause – soil contamination, health of their workers, water pollution, …. If we keep the system simple, people might actually respect it.