Friday, January 11, 2013

Limiting Carbon Emissions: Getting It Done in Ireland and California

Essentially all of the world’s governments recognize the need to reduce emissions of greenhouse gases in order to contain the effects of global warming. In spite of that fact, it does not seem possible for them to agree on an overall plan to address the issue. This is not an unusual circumstance in the history of mankind. The sticking point seems to be settling on precise levels of emission cuts to be imposed on each country.

Given the determination by many countries to not be held to specific targets, is this a reason to despair? Not necessarily. Many countries are going about their business and initiating energy conservation and renewable energy policies that are effective and contributing to the common good. It makes good economic sense for them. Even developing countries are recognizing that building efficient factories and planning cities with minimization of energy consumption in mind are good policies. It may be possible that the sum of these individual actions might be more effective than the constraints imposed by a highly-compromised plan arising from global negotiations. Let us be optimistic and applaud good news where we find it.

We recently reported on Germany and its plans in Germany and Energiewende: Going for Broke with Renewable Energy. Here we will discuss developments in Ireland and the state of California.

Ireland decided to limit its carbon emissions by imposing a carbon tax. The net result is beneficial to humanity, but the initial motivation seems less lofty: they needed the money. Elisabeth Rosenthal reports on the situation in an article in the New York Times.

"Over the last three years, with its economy in tatters, Ireland embraced a novel strategy to help reduce its staggering deficit: charging households and businesses for the environmental damage they cause."

"The government imposed taxes on most of the fossil fuels used by homes, offices, vehicles and farms, based on each fuel’s carbon dioxide emissions, a move that immediately drove up prices for oil, natural gas and kerosene. Household trash is weighed at the curb, and residents are billed for anything that is not being recycled."

"The Irish now pay purchase taxes on new cars and yearly registration fees that rise steeply in proportion to the vehicle’s emissions."

The Irish admit to not having been the best citizens of the planet given that they had per capita carbon consumption rates almost as bad as those of the United States. But, when put in the position where it made sense to cooperate, they delivered admirably and easily met the targeted emission reductions.

"....when the Irish were faced with new environmental taxes, they quickly shifted to greener fuels and cars and began recycling with fervor. Automakers like Mercedes found ways to make powerful cars with an emissions rating as low as tinier Nissans. With less trash, landfills closed. And as fossil fuels became more costly, renewable energy sources became more competitive, allowing Ireland’s wind power industry to thrive."

"Even more significantly, revenue from environmental taxes has played a crucial role in helping Ireland reduce a daunting deficit by several billion euros each year."

"The three-year-old carbon tax has raised nearly one billion euros ($1.3 billion) over all, including 400 million euros in 2012. That provided the Irish government with 25 percent of the 1.6 billion euros in new tax revenue it needed to narrow its budget gap this year and avert a rise in income tax rates."

Has the imposed tax been particularly painful?

"The prices of basic commodities like gasoline and heating oil have risen 5 to 10 percent."

While the price rise is surely noted by the poorer citizens, it should be recognized that those prices will also jump by that much or more whenever there is a run of bad news (or good news) in the headlines of the day.

California has recently held its first auction of carbon emission permits under its cap-and trade-program. Rather than impose a direct and immediate penalty for carbon emitting behavior via a tax, a cap-and-trade system imposes a gradual and indirect penalty on consumption. A permit allows a company to emit a specified amount of carbon. The number of permits issued is determined by the state’s emission target. To lower emissions in the future, the amount allowed by the permits is decreased in accordance with the state’s master plan.

This plan and a direct carbon tax both result in costs being passed on to consumers. However, the cap-and-trade approach should provide more flexibility to industries in meeting goals. The permits will be traded on a market so companies that invest heavily in reducing emissions, or find it easy to do so, can make money by selling unneeded permits. Those who have difficulty reducing emissions, or chose not to, can buy time by purchasing excess permits. The emission level allowed by the possession of the permits is said to "enforceable." Presumably that involves a fine, or, in extreme cases, a shutdown of operations.

California passed a law requiring it to reduce emissions to 1990 levels by 2020. This program will be combined with conservation and other efforts in order to meet that requirement.

This is no small effort. As of 2011, California had the eighth largest economy in the world, and comprised about 13% of the United States economy. The only bigger cap-and-trade system in the world is that of the European Union.

Progress is being made. Hopefully, successful implementation of either approach will encourage others to follow.

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