Emissions trading - notes on a scandal

Another day, another broadside against carbon emissions trading. The FT's Martin Wolf offers advice to the new Chancellor, including:

While simplifying tax, he should also take a close look at green taxation. Simple taxes that apply across-the-board are what is needed. The grant of valuable rights to big polluters through systems known as “cap-and-trade” is a scandal. [here]

This is an increasing theme, with even American giants like Alan Greenspan and Paul Volker coming out against cap 'n' trade and in favour of a carbon tax [see article]. I have to say I'm ever more swayed by this view, see my posting To Cap or to Tax.

But is the EU system 'a scandal', as Martin Wolf says? You can certainly make the case - the permits are given away to businesses, but they are valuable because they are scarce 'property rights' - the right to use the atmospheric sink for carbon. It's hard to put an exact value on these permits - see charts of the market price for EU allowances from Point Carbon showing the collapse of price in 2007 but a steady price of about €20 so far for the future price of 2008 EUAs... but in total they are worth a great deal.

€billions for what purpose?
So if, say, €20/tCO2 is used to give an illustrative value of the ETS price, the value of the rights to emit over 200MtCO2 to UK industry comes to over €4.3 billion. To the power sector alone, it comes to €2.7 billion (see numbers in this Google spreadsheet based on 2005-06 ETS results [XLS]. The power sector is especially annoying because it actually passes these costs on to the consumer, even though it doesn't actually pay for the permits, which are mostly given away in the EU system. They have adopted this as an accounting convention, reflecting the opportunity cost of holding the allowance for each unit of electricity sold. They can pull this trick off because they are an oligopoly and don't face competition from producers outside the system. So even allowing for the permits that they have to buy because they are given fewer allowances than they need, the power companies profit from this by €1.8 billion... and the bigger and dirtier they are, the more they make, because allowances are given to them in proportion to their historic emissions! What exactly is the public purpose served by transferring billions from energy consumers to energy company shareholders in approximate proportion to how polluting they are? Is that a scandal? Well you could defend it by saying that it was necessary to get the system off the ground - an argument that works if and only if the system is changed as soon as possible. Alternatively, you could see it as gullible fearful governments and bureaucrats being outsmarted at every turn with the poor public bearing the cost for nothing.

What to do?
This does in fact partially implement the polluter pays principle, in that the consumer is effectively 'taxed' for their pollution through this system because the permit costs are passed on. It's just that the 'tax' revenue goes to the companies not the government - and therefore the scope to do something useful with €4+ billion in the UK is lost. The answer is to auction the permits so that the government gets the revenue. The international competition arguments against making them buy their right to pollute are mostly hogwash and really apply only with force where the industry is energy intensive and highly traded internationally. Excellent analysis by Grubb & Neuhoff summarised by the Carbon Trust, [here] suggest that competitiveness is a minor concern and only aluminium should be a worry. There should be no question of violating the polluter pays principle, options include ideally reaching international sectoral agreements through the Kyoto Protocol or tax adjustments at borders to correct for ETS costs for trade across EU borders.

A novel approach for aviation in the ETS...
My suggestion is to bring as much EU aviation as possible into the system but give the sector no initial allowances at all. This would mean it would have to buy CDM credits or allowances from other emitters in the EU system. This has the equivalent effect of making 'carbon offsetting' mandatory for all flights. It's economically equivalent to taxing aviation and spending the proceeds on reducing emissions in developing countries.

This lot needs to be agreed in time for the third phase of the EU ETS - which starts after 2012, but is under discussion now.
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Women - cycle and live!

Mia culpa on the cycling and jumping red lights thing [see silly Cyclists obey the law and die post]. An excellent analysis by Marianne Promberger completely fillets the figures and trashes conclusions drawn in the media (and reported uncritically by me...) read her analysis here. For London, the proportion of cycle casualties (fatal, serious and slight) has been stable at around 79% male to 21% female since 2002 [source]. In 2001, the split of London cycle journeys was 73% male to 27% female [source] - which suggests that men have more casualties per journey. These figures are summarised here.

But a 2005 survey showed female cycling has now risen to 40% [cited here - ref 4] and this is backed by the evidence of one's own eyes... So this suggests although the female proportion cycling is rising, the female proportion of causalities is stable. It is lower than male as a proportion of trips made and it is getting lower over time.  More analysis follows...
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Cyclists - obey the law and die...!

Women are more at risk of dying in cycle accidents, it seems, because they are more likely to obey the law and stop at traffic lights than the typical male 'warrior of the road' [see article in The Times: Women cyclists 'risk death' by obeying traffic lights].

After endless close shaves or nerve grinding moments, every cyclist eventually comes to feel risk instinctively. (One of the obvious consequences of the recent expansion of cycling in London is the large number of new cyclists who haven't yet developed this instinct, and are apparently oblivious to hair-raising situations!). But I can believe the report about jumping lights being safer - one of the risky moments is pulling away from traffic lights when other traffic or pedestrians can make quite unpredictable moves and it is easy not to be seen. From now on, I resolve to carefully disobey traffic lights where this will reduce risk - it's a health and safety matter, or even a matter of survival. But what do we know of the risks...?

And survive we must because per kilometre, a cyclist is 14 times as likely to be killed as car user. The chart shows the risk relative to car driving [data from Social Trends 2007 table 12.18]. Good news is that the mortality rate has halved since 1981 for cyclists... but the data still give the lie to the familiar complaint from car users that cyclists are dangerous: "endangered" would be a better word. Motorcyclists over 40 times as likely to die per kilometre, and that has barely fallen. Is that just unlucky, inherently dangerous - or is motorcycle use preselected by people with high risk appetites?

The data of course reveal the extremely low risks for rail travel - but that wont stop billions being spent on rail safety awhile a few token quid will go on motorcycle safety.
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Road pricing politics - the art of listening and counting

The politics of the now-closed road pricing petition have been terrible for the environment and quality of life, with 1.8 million people given a space to vent mob rage and duck difficult choices. Progress will slow, unjustified concessions will be made, and hesitation and equivocation will be the order of the day - at least that is the impression left by the PM's e-mail response to the petition.

I've already gone through the arguments about this sorry saga in No 10 road pricing petition, beware what you wish for... so I wont repeat that here... But I did wonder how the counter petitions were doing. There are probably two that are worth looking at: at 8.30pm 26 Feb, this was the position...

1. We the undersigned petition the Prime Minister to Introduce road pricing nationwide and channel the money into improving public transport and conditions for walking and cycling. Submitted by Greg King – Deadline to sign up by: 07 November 2007 – Signatures: 2,250


2. We the undersigned petition the Prime Minister to Don't Scrap the planned vehicle tracking and road pricing policy. Submitted by Tim Lewis – Deadline to sign up by: 11 March 2007 – Signatures: 4,384

Er, not that well then. I wonder why the environment groups haven't mobilised their supporters-base? You wouldn't think it would be that hard to get enough signatures aligned with a soundly-worded petition to get a self-sustaining reaction underway. What signal does the relative silence and tiny response send to ministers, who are always being asked to take difficult decisions for the environment?

As Tom Burke says, the two skills needed for political influencing are listening and counting. Anyone listening and counting on road pricing would not be rushing in to road pricing. ... continues. Read full post.

Food miles... wrong idea, stop using it!

I do occasionally enjoy an early morning BLT sandwich at Paddington station en route to the Bristol head office of my employer - a small comfort before what inevitably lies ahead. But imagine my horror to be informed that the humble bacon, lettuce and tomato sandwich may have 31,000 "food miles" embodied in it (and much more besides) - see Ecologist article here. Horreur!

This is one of the more nonsense applications of the concept of food miles - for example, it turns out that 5,961 of these ecologically destructive miles were accounted for by the yeast that would be used to make the bread...! Presumably a single freight container of yeast shipped by sea would keep the UK in bread for months and have minimal environmental impact. This is a bit of a weakness in the food miles concept, isn't it...? Especially when applied to specific products that may have only tiny quantities of ingredients shipped many miles. Many of the international food miles are done in bulk by container ships that have very low economic and environmental costs per kilogram-kilometre of freight movement.

What's the real story...? It might be more interesting to look at the whole food chain - see charts (left) from an assessment by AEA Technology for Defra: The Validity of Food Miles as an Indicator of Sustainable Development (the Exec summary is well worth a read). Here we see that the food miles (measured by vehicle-kms) are dominated by the car - people going to and from stores to buy food. But the carbon dioxide emissions are dominated by the heavy goods vehicles within the UK - the elaborate logistics system that supplies the shops. Looking further, AEA-T estimates the 'social cost' - ie. all external costs associated with food transport, finding that this is dominated by congestion and accidents (rather than CO2) and the impact of the car is again the greatest - see extract here.

What about other energy use and inputs? Other critiques have asked why the focus should be on transportation, and not on the full production cost... researchers from Lincoln University Agribusiness and Research Economics Unit in New Zealand showing that transport from that far-off land mattered less than the fertiliser inputs and other costs of farming and food production [see here]. It concludes:

This report has shown that in the case of dairy and sheepmeat production NZ is by far more energy efficient even including the transport cost than the UK, twice as efficient in the case of dairy, and four times as efficient in case of sheepmeat. In the case of apples NZ is more energy efficient even though the energy embodied in capital items and other inputs data was not available for the UK. In the case of onions, the UK is more energy efficient in production than NZ. However, when storage costs are included for UK onions to replace imports from NZ the UK is less energy efficient than NZ.

Food miles are useless. There is no doubt that transport intensity in the food supply system has been increasing - driven by forces of globalisation, consolidation in retailing, larger shops with more choice meeting demand for year-round supply, car-based shopping etc. But "food miles" are barely useful in capturing or articulating any of this interesting complexity. The Stern Review got in a jam over the food miles for New Zealand kiwi fruit ... allegedly claiming that 1kg of fruit caused 5kg of emissions if air freighted (I say allegedly, because I can't find this - but it illustrates the point). But the environmental impact depends on whether they are freighted by sea or air - see furious accusations of environmental protectionism at the Stern alleged gaff... see Alarm erupts over climate tax on trade / Fuelling the myths around food miles. Same sort of thing applies to the impact of food miles on attempts to promote fair trade and implications for development through trade - see Eliminating Poverty: making globalisation work for the poor DFID's 2000 globalisation white paper.

Interesting development... More useful will be the fruits of research into carbon footprints - such as the new approach by supermarket giant Tesco to label all its products with a measure of its embodied carbon footprint and to fund an institute to help it do it [chief executive's speech / Oxford Sustainable Consumption Institute / sceptical Guardian review].
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Renewable energy targets - why is the European Union involved?

The European Union has been busy setting out ambitious ideas for energy and climate policy - see Energy for a Changing World, and the climate change and energy announcements made in January. But is it trying to do too much of the wrong thing in trying to determine member states' approach to renewables? I think so...

There are three main problems... first, the EU is leaping ahead to set ambitious (perhaps reckless) targets for 2020 when it is far from likely that it will make its 2010 targets; second, it's not obvious if these targets would produce desirable outcomes even if they were achieved; and third, why should targets be set at EU level at all? The EU should let member states decide how to meet their Kyoto objectives - the approach fails on subsidiarity grounds. Let's look at the targets in more detail...

EU Council proposes 'tough' new targets for renewables
The EU's Council of Energy Ministers met on 15th February to finalise a package of energy policy reforms [see communiqué], including policy and targets for renewables to 2020. This will be taken for final agreement to the spring European Council on 8-9 March 2007. The relevant wording on renewables [on p.9 and here] covers two main objectives...

1. Overall target - renewables as a proportion of EU energy consumption
The Council endorsed overall EU target for renewables to reach 20% of the EU's overall energy consumption by 2020, with a process to divide this between the member states but with member state discretion to determine which renewable technologies to use to meet its target. This builds on the existing directive 2001/77/EC which sets an 'indicative' target of 12% primary energy and 22% of electricity from renewables by 2010 (for the EU-27 this has become 21%).

It should be noted that EU renewables share of energy consumption increased from 5% to 6% in between 1993 and 2004 - so the targets represent dramatic sustained increases [Eurostat data for upper chart]. Increasing the share of renewables, means increasing renewable energy faster than the growth in consumption - so those steep slopes on the chart .

It should also be understood that EU's renewable energy is dominated by hydro power - 75% of EU renewable electricity in 2004 - based on long-standing schemes in the Alps, Pyrenees and other mountainous areas that are now highly prized and protected. Meeting the 2010 target to have 21% electricity requires a massive increase in the 25% that is not the installed hydro base [Eurostat data for lower chart]. The Commission's communication [COM (2006) 849] tries to put a happy face on it (literally), but it is clear we are well off track for meeting the 2010 target.

As the EurObserv'Er Barometer puts it in its 2006 assessment: the important European objectives, the 22% of the Directive on renewable source electricity and the 12% of primary energy of the White Paper, shall be far from being reached in 2010. [report PDF]

2. Biofuels target - a leap into the dark...
The Council's 15 Feb communication endorses a binding target for biofuels to reach 10% of transportation fuels for each member state by 2020 - subject to some sustainability considerations and availability of "second generation biofuels". This builds on the existing directive 2003/30/EC, which requires each member state to have 5.75% of its petrol and diesel by energy content from biofuels by the end of 2010 (actually each member state is to have an 'indicative target' and this is a 'reference value' for it - typical EU fudge for saying this is kind of voluntary.) This requires lift off from an even lower base than renewables as a whole [Eurostat data]. There is the added complexity with biofuels of the variable and uncertain carbon reduction, which depends on how and where it is produced, the land take and competition with food, and impacts on water, soil, and biodiversity - and high inputs of fertilizer and pesticides. I hope to return to that shortly... I'm not even convinced that a big move into biofuels is a good idea - though we mustn't lightly rule out options for tackling climate change.

What's to be done?
Let me suggest three things:

a. Actions not words. Focus on meeting (or adjusting) targets for 2010 before dramatically extending them for 2020. And don't set hard targets (ie. for biofuels) for 2020 until lessons have been learnt from the experience to 2010. It's as though ministers want to forget the things they are actually accountable for delivering and focus discussion and political capital on things comfortably far off.

b. Back out of renewables policy. Don't try to run all of energy policy at the EU level - especially not renewables, which are usually highly local in implementation and their impacts on the environment. It is not good policy to have set objectives (like the Kyoto targets) and then to be prescriptive about how to meet them - what if a member state could meet its targets more cost-effectively (renewables are generally and expensive way of reducing carbon at present)? What if a member state doesn't agree with the industrial policy idea of subsidising renewables to build up the business - or thinks it will just suck in exports? Should the EU be requiring member states to act together in this, eve though it isn't necessary. I can see a case for the EU insisting on particular 'policies and measures' when it looks like particular countries are going to miss their CO2 targets as some sort of 'remedial treatment', but not unless.

c. Do things that the only the EU can do or does best. I think it would be better if the EU stuck to policymaking on environmental energy policy issues where it involvement is critical - and that is a lot:

• Achieving an ambitious post-2012 Kyoto agreement in which EU leadership is catalytic
  
• Engaging with the US, Russia and major developing countries on behalf of the 27 member states
  
• Realising a fair burden-sharing regime between members states of an ambitious Kyoto commitment
• Making the emissions trading system work better
  
• Tackling 'stateless' aviation and maritime emissions
• Setting high emissions standards for traded products in the single market - vehicles, appliances, industrial equipment
• Ensuring high quality consistent consumer information is available across the EU
• Regulatory requirements for carbon capture and storage on new power plant
• Converting the European Investment Bank into an investor in limiting and adapting to climate change and strengthening energy security
• A bunch of things about competition, liberalisation and markets that underpin energy security
  

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No 10 road pricing petition - beware what you wish for...

A new system for citizens' petitions on the Prime Minister's web site has attracted well over 1 million signatures for a motion to: "Scrap the planned vehicle tracking and road pricing policy". Extensive news coverage [BBC] and ministerial response [BBC] have followed. Despite a recent speech on Winning the debate on road pricing, Transport Secretary Douglas Alexander looks as though he may in danger of losing it.

The idea of the petition is great in some ways, but flawed in others - it allows propositions that are incomplete or misleading, or leading questions in a way that polling companies would never permit. For example, the proposition doesn't encapsulate the problem or choice of how to deal with rising traffic - see chart above [data from DfT]. In this case, the effort for a petitioner to find a counter-proposition is much greater because the home-page for the petitions lists the most popular, whereas a search is required to find counter proposals - creating an amplifying advantage for popular petitions. There are in fact several counter petitions to anti road pricing one, but with tiny numbers of signatories:

• We the undersigned petition the Prime Minister to Don't Scrap the planned vehicle tracking and road pricing policy (sic) - 345 signatures at the time of writing
  
• We the undersigned petition the Prime Minister to Introduce road pricing nationwide and channel the money into improving public transport and conditions for walking and cycling - 137 signatures

...and there are others, if you look hard enough for them. Perhaps the system could be improved by linking counter-petitions from the main petition (at least those that have the home page advantage - so a that a minority can more easily find its voice. There are well over 1,000 live petitions now - a search on 'road' reveals a really nasty set of angry motorist petitions.
But what is the right thing to do?

1. Recognise the powerful underlying drivers of demand
The government's policy on road pricing and the recent Eddington Review [Exec summary - 64 pages! / index / BBC coverage] favour road pricing - and are grounded in some difficult realities. As the chart shows, real incomes have risen rapidly, the cost of motoring has been relatively flat, costs of alternatives have risen - so motoring has become far more affordable see chart [data from DfT]....

Economic growth, falling motoring costs and the convenience of the private car mean that motoring will continue to be Britain's transport of choice for many of the trips we need to make. But if road traffic levels continue to rise in our urban areas and on our national road network, traffic congestion will become an increasing problem. [Road pricing background]

2. Understand the consequences for infrastructure - and accept that road capacity is limited by other things we want land for
At the same time, the road network has not and cannot expand to keep pace with this growth. The statistics are quite hard to follow as definitions have been repeatedly changed, and road length is not the same as road capacity, but it seems unlikely that the development of roads could ever keep pace - see chart [data]. It would itself generate more traffic by effectively reducing the time cost of travel (this being a prime objective of roads policy) - an 'induced demand'. Even where there is space to expand road capacity, it funnels traffic into places where there isn't - shifting congestion to 'pinch points'. The last time we had a road building programme that was attempting to do build out of congestion, it ended in huge protests [see history of Reclaim the Streets] as people concluded they also didn't like to have everything concreted over.

3. Recognise that some sort of instrument is needed to control demand and congestion
The map of congestion (left - click for larger version)) cannot easily be redrawn by physical extensions, but it can be managed with prices asn other interventions that manage demand at the poinst of greatest stress. Road space is a scarce and valuable asset, its suboptimal (ie. excessive) use imposes costs on its users - and time penalties do not discriminate between high value and low value uses iof the same road. Placing a price on its use at the margin where it is used excessively has to be the right way to allocate the scarce resource. The best outcome will only be achieved if the prices faced by motorists reflect external costs - including congestion. This does means pricing some people off the roads, promoting cost saving measures like car-sharing, and redistributing demand by time of day and year. This is necessary but not sufficient for dealing with the pressure on the road system. A proper transport pricing strategy is needed...

4. Introduce a new transport pricing strategy
Introduce a package of pricing measures that more accurately reflect costs for different aspect of motoring:

1. Road tolling to pay for infrastructure and maintenance
2. Congestion charging to ration scarce road space
3. Fuel duty and regulatory standards to address pollution (not justCO2, but NOx, particulates, noise etc)
4. Higher rates of Insurance Premium Tax on motor insurance to reflect accident costs and burden on the NHS
5. As a revenue base that is less distorting and damaging to the economy than taxing income or investment

These measures should be seen as a package, and not traded off amongst each other – for example, fuel duty should not be reduced to accommodate a congestion charge as these are pricing different aspects of the impacts of transport.

5. Embed it in a wider behaviour change strategy
However, this cannot be enough - as the No 10 petition shows. In line with the Sustainable Development Strategy approach to behaviour change [see chapter 2], as well as 'encourage' through pricing incentives, ministers need to also 'enable' people to make better choices, and (above all) 'engage' the public in a big discussion about how these problems will be faced and solved. See posting on Soft paternalism: changing behaviour for the greater good without giving orders. Ken Livingstone pulled it of with the congestion charge because he did a deal with Londoners: control the traffic for those that need to use the roads, provide better buses and make the city a better place to live in.

Whilst an attractive idea in theory, I'm not sure the provision of a petition facility by No 10 helps that much - creating a sort national bar room for incubating mass opinions into mob opposition. Perhaps it's useful to remind ministers that they have a lot of work to do to take people with their rhetoric on climate change and the environment without getting booted out of office.
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Cooling the Tube - a smug cyclist writes about how hot it gets on the Underground and why

Now back from hols and ready for the next blogging season, but I must turn first to a seemingly obscure but urgentsummer matter - heat transfer in the London Underground. This summer saw headlines proclaiming temperatures reaching 47 degrees (BBC) and than the rather forlorn and inadequate survival advice to passengers from Transport for London. The bad news is that this is all going to get worse.

Huge amounts of energy are pumped into the Tube system, mostly as electricity that powers the trains (about 90%), with the rest coming from station lighting, signalling etc and of course respiring people. The electricity that goes in virtually all eventually ends up as heat through friction in moving parts, braking, air resistence, turbulence etc. I've donned the numbers anorak and estimated from TfL's Environmental Reports that the 1,148 GWh of electricity used to power the Tube each year equates to having a one-bar (1Kw) electric heater placed every 3.1 metres along the 408 Km of track that makes up the London underground, and switched on night and day. About 40% of the track (the busiest 40%) is underground so this heat has to dissipate into the surrounding earth for the deep tunnels.

Adding air conditioning to trains provides but temporary respite for the tortured traveller - the waste heat still needs to be dissipated, plus the energy consuption of the air-conditioner. There are several ambitious, and costly, cooling schemes under consideration (article) involving the use of groundwater to cool deep tunnels like the Victoria Line and the Railway Engineers' Forum has held seminars to worry about it. Needless to say, climate change only makes things worse, by generally heating up everything. The Mayor offered £100K to anyone coming up with a good idea, but the Cool the Tube prize went unclaimed having generated amusing but unworkable schemes.

Not much discussed in all the noise about this problem is the fundamental solution - much more energy efficient (lighter) rolling stock, probably with better track to reduce rolling resistence to reduce the amount of energy going in to the system and regenerative braking - this reducing the energy demand. I hear at a conference earlier this week that the £16 billion 30 year public private partnership (PPP) to overhaul the Tube is silent on the question of energy and the energy efficiency imperative of the rolling stock. If there was ever a win-win opportunity for procurement to do something sustainable then this is it. I was reassured to hear that at least one of the PPP players, Tubelines, is now on the case.

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Treasury all talk - tax vehicles as if carbon emissions really matter

News reports that the Environmental Audit Committee (EAC) recommends raising the top rate of Vehicle Excise Duty to £1,800 (Reducing Carbon Emissions from Transport report para 52). This would be for the most polluting cars. At present, the lowest band is £40 per year and highest band of VED is just £215 for a vehicle producing more than 225 grams of CO2 per kilometre (see rates).

An excellent calculator at the Vehicle Certification Agency gives CO2 costs and VED for any make and model. The range is from 104 gCO2/km for the most fuel efficient car (Toyota Prius) up to 488 for the most monsterous SUV (Crysler Jeep Dodge SRT-10) or 520 for the most OTT sporst car (Lamborghini Diablo 2001 model).

In his March 2006 Budget speech, the Chancellor claimed that with this system of taxation: "I want to do more to encourage cleaner fuels and cars. I propose to radically reform vehicle excise duty."

The point is that the current VED will do little to encourage cleaner fuels and cars and is anything but radical. The chart shows just how feeble the VED incentive is in relation to the purchase price of the vehicles - the chart shows 10 years VED (because it is imposssible to even see one year when plotted on the same scale as the purchase price). So I think it makes perfect sense to raise the tax to a meaningful level - like £1,800 per year for then worst cars and to have a strong gradient - using a feebate system if necessary to maintain fiscal neutrality.

When I was quizzed on this by the EAC, the Committee Chairman Tim Yeo suggested it should be £5,000-£10,000 per year for the most gas guzzling vehicles (see EAC Report on the Pre-Budget Report page 101 - Q135). So it looks like the motorists got off lightly.
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