January 2014 – Cabot Institute for the Environment blog

The carbon mountain: Dealing with the EU allowance surplus

Posted on January 31, 2014April 19, 2023 by janet.crompton

It’s not news that the EU emissions trading system (EU-ETS) is in trouble. A build-up of surplus emission allowances has caused dangerous instability in the carbon market and a plunge in prices since the economic slump in 2008 began (See Figure 1, courtesy of David Hone).

Figure 1, courtesy of David Hone

The discussion at the All Party Parliamentary Climate Change Group’s (APPCCG) meeting on the 28th of January centred on the causes and consequences of the EU-ETS allowance surplus. The majority of speakers at this session had a background in the discipline of economics, so inevitably the exchange of views was… frank. The panel were in agreement that EU-ETS is in crisis; but can and should it be saved?

Emissions trading schemes, of which EU-ETS is a canonical example, are an attempt to allow market forces to correct the so-called ‘market failure’ that is carbon emission. From the point of view of a classical economist, the participants in carbon emitting industries do not naturally feel the negative effects their activities cause to the environment. Emissions trading forces carbon emitters to ‘purchase’ the right to pollute on a market. In effect, they pay to receive permits (or allowances) to emit a certain level of emissions. If they do not reach this level of emission, the excess can be sold back onto the market, allowing others to make use of it. The prices of permits are determined by market forces, so cannot be fixed by the EU. The quantity of permits is within the control of the EU, and this is where the problem lies.

In the aftermath of the 2008 slump, a surplus of allowances began to build up, leading to a crash in the price of allowances. Many commentators blame EU economic forecasting for this problem, as the recession and consequent reduction in economic activity was not factored in to the EU-ETS control mechanism. Criticism has been forthcoming for the economic models used, and some go as far as to liken the mismanagement of EU-ETS to the ‘wine-lake and butter-mountain’ days of the 1980s, where the Common Agricultural policy was allowed to consume over 70% of the EU’s budget. Perhaps the models are too simple – James Cameron, a speaker at the APPCCG event, spoke of the ‘premium on simplicity’ that exists in creating policy. Maybe that approach has extended itself into the mathematical models used to predict the performance of EU-ETS, rendering them over-simplistic?

Personally, I see things a little differently. It’s clear that economic models are often far from perfect; however, I’m not sure that’s where the problem lies. In the implementation of policy, decision makers have to draw on the implications of many separate models; for instance, they must consider the GDP growth of EU member states, their adoption rate of new energy efficiency standards and the relative industrialisation of their economies. To my mind, the greatest source of error is in the gaps and interfaces between these economic models. Policy makers must make decisions on how to interpret the way economic predictions will interact with one another, and these interpretations are always subject to value judgements. What we need is a more joined-up approach.

Climate science has long used ‘macro-models’ to incorporate a variety of physical processes into their predictions, an approach that could be adopted by economists as well. While the first economic macro-models may not achieve even a fraction of the accuracy of climate models, that is not to say they cannot be improved through collaboration and quantitative criticism. Perhaps now is the time to make a start?

This blog is written by Neeraj Oak, Cabot Institute.

Neeraj Oak

India-UK scientific seminar: Developing new records of global change

Posted on January 22, 2014April 19, 2023 by janet.crompton

The Royal Society of London, which was founded in November 1660, is the oldest existing scientific society with a long history of working internationally. Indeed, in 1723, the Royal Society established the post of Foreign Secretary, nearly 60 years before the British government did. In 2014, science remains a global endeavour which requires both international discussion and collaboration. In order to facilitate international and collaborative study, the Royal Society recently funded a three-day seminar for Indian and UK climate scientists. The aim of the proposal was to help develop new records of past global change in India using a variety of geological and geochemical techniques.

The seminar, hosted by Professor Paul Pearson (Cardiff University) and Professor Pratul Saraswati (IIT Bombay), was held in Bhuj between the 15th and 18th of January. Bhuj is a relatively small city in the district of Kutch and is located approximately 100km from the Indian-Pakistan border. In 2001, Bhuj was devastated by a magnitude 7.7 earthquake. The death toll approached 20,000 and over 600,000 people were made homeless. However, since then, Bhuj has become an outstanding example of a town rebuilt from scratch thanks to government support and corporate involvement. The city has become the focal point of western India’s growth and more than 200 companies have been established in the region since 2001. Of particular importance is the cement manufacturing industry which exploits the abundance of lime- and clay-containing materials (e.g. limestone and shale).

The UK was represented by five scientists whose research encompassed the major disciplines in past climate research. Attendees were selected from a range of universities, including two participants from the Cabot Institute at the University of Bristol (Dr. Dan Lunt, a climate modeller based in the School of Geography, and myself, Gordon Inglis, an organic geochemist based in the School of Chemistry). Ten Indian scientists were also in attendance, including members from academia and industry. The primary aim of the seminar was to develop stronger international collaborations between India and the UK, with an emphasis upon developing new climate records from the Indian continent. The first two days were designated for individual presentations and focused upon the regional geology of India and a variety of analytical techniques available to both parties. The third day was spent in the field and allowed participants to visit the geological successions discussed in the seminar.

A particular highlight was a visit to the Deccan Traps. Encompassing most of central and western India, the Deccan Traps is the world’s largest continental flood-basalt province outside Siberia. The eruption is thought to occur between 68 and 65 million years ago, approximately coinciding with the Cretaceous-Paleogene mass extinction event, and is associated with the demise of the dinosaurs and other marine and terrestrial species. Although the event has been attributed to a large bolide impact in Mexico, the Deccan Traps were almost certainly a major contributor to this extinction. Ken Caldeira, an atmospheric scientist who works at the Carnegie Institution, has argued that the Deccan Traps may have been responsible for a 75ppm increase in carbon dioxide during this interval. Although this is relatively small in geological terms, it is comparable to the increase in CO2 that has occurred over the past 50 years as a result of anthropogenic climate change. In more recent times, geologists are studying whether the Deccan Traps can store CO2 derived from coal-fired power stations in an attempt to reverse anthropogenic climate change.

Although the visit to India was brief, the seminar was a success and both Indian and UK scientists showed a great deal of enthusiasm for developing future collaborations. In particular, there is great scope to reconstruct past climate records over the past 70 million years and how that has corresponded to major biotic events.

This blog was written by Gordon Inglis, a PhD student in the School of Chemistry.
You can follow Gordon on Twitter (@climategordon)

For information on Royal Society funding opportunities, click here.

Growth and energy use – a surprising relationship

Posted on January 9, 2014April 19, 2023 by janet.crompton

One assumption that is often made in public discourse is that the size of the economy and the consumption of energy are firmly and linearly linked; the growth of one inevitably requires the growth of the other. But are things really that simple? I’m not so sure.A great place to start when considering a question like this is the excellent dataset maintained by the World Bank. Let’s start in the UK: how does GDP relate to the usage and production of energy? These are plotted in Figure 1. The economy has grown steadily since 1960, but the same can’t be said of energy use or production; indeed, production can be seen to be in steep decline since 2000.

Figure 1

To get a clearer picture, let’s consider the relationship between UK energy use and GDP in Figure 2. Clearly, the trajectory is far from linear. In fact, since 2000 the UK economy has both expanded and contracted, whilst energy use has been in rapid decline in the same period. It’s likely that advances in energy efficiency and the decline of heavy industry in the UK may be responsible for this effect, but the fact remains that there is little evidence that a growing UK economy will always need more energy to sustain it. It may even be possible that a larger, ‘greener’ economy may need even less energy in years to come.

Figure 2

So, does that mean that humanity has finally broken free of its addiction to energy? Can the world economy grow without draining the Earth’s energy resources? I’d say no.

Before the industrial revolutions of the 19th century, the basis of a country’s economy was predominantly agrarian, and the engine of agricultural production was muscle power. This was replaced by mechanical fuel-driven devices as countries industrialised, and led to the strong correlation between growth and energy use. This effect is still very visible in the fast growing economies of recently industrialised nations. An excellent example is that of China, visible in Figure 3 and Figure 4.

Figure 3

Figure 4

While the UK does appear to have reversed the trend of energy usage, this is due to a large extent to globalisation. Today, we in the UK import a much larger selection of goods from overseas than we did before the industrial revolution. Industrial economies are often still shackled by the old linear relationship between energy use and economic output, and by purchasing goods from these countries we are simply ‘outsourcing’ our energy needs elsewhere. Perhaps nations that are in the process of industrialisation will eventually adopt more energy-efficient means than they currently use. But until then, my conclusion is that it is possible to grow the UK economy without increasing our energy use. However, we do so at a cost to world energy use, and perhaps that should be the statistic that we pay more attention to.

This blog is written by Neeraj Oak, Cabot Institute.

Neeraj Oak