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Sunday, July 02, 2006

Carbon Trading for SUV Makers?

Using carbon trading to reduce CO2 emissions in the automobile industry:

Car industry needs carbon trading, by James Mackintosh, Commentary, Financial Times: Breathing in exhaust fumes in central London as I cycle to work, I can easily understand why carmakers get so much of the blame for global warming. Few people own anything that produces more visible – and smelly – pollution than their car, so it is no surprise that public and political pressure is focused on making them cleaner.

But just because cars churn out nasty gases does not mean that everything done to make their engines produce less of the carbon dioxide responsible for global warming is automatically a good thing. This point seems to have been lost on environmental lobby groups and politicians...

Hybrids have become synonymous with green awareness while, in the imaginations of both public and policymakers, biofuels, made from plants, must be a good thing. But neither makes environmental sense and the government-sponsored rush to adopt them pushes up the cost of both cars and petrol.

It is not that hybrid petrol-electric cars or biofuels are bad for global warming, although some biofuel, made in coal-burning facilities, produces more CO2 than petrol. The problem is that both are expensive – and far more so than other ways of reducing CO2. ...

Research from the European Commission ... shows that it will cost from €207 (£143) to €239 a tonne to reduce CO2 by using biofuels made from the most common European sources, sugar beet and wheat, in 2010. ... Hybrid cars – transport of choice for environmentally-minded government ministers – will cost €1,062 per tonne of CO2 saved, as well as being loss-making for almost all manufacturers.

As I sat on my bike watching the haze over a queue of traffic, this did not immediately bother me and few in Brussels, Washington or Westminster are overly concerned about the profitability of car and oil companies. But if the money is spent on making engines produce a little less CO2, it is not being spent on other ways of reducing CO2 that are more effective and cheaper.

Chief among these are combined heat and power plants that burn straw or wood, which are alternatives to coal-fired power stations and to fuel oil used for heating... According to one of the authors of the Commission’s study, the straw-fired power station ... in East Anglia costs just €35-€100 per tonne of CO2 saved. Europe’s carbon trading scheme valued cuts of a tonne of CO2 at a peak of €31, because there are still so many cheap ways to save energy in less efficient industries.

This is not to say that carmakers should be free to ignore carbon emissions – their vehicles produce a quarter of man-made CO2 emissions, after all. But they should be free to choose how to reduce carbon, not be locked into certain technologies by governments. (One of the technologies being pushed by Washington and Toyota – a “plug-in” hybrid with an external recharger – actually results in more carbon emissions than a plain petrol car because so much US electricity comes from coal.)

A well-designed trading scheme would give manufacturers the choice of meeting CO2 reduction targets in the most cost-effective way. This could involve paying to clean up other industries by buying their carbon credits, funding carbon capture systems to store CO2 in undersea tunnels or, if it made financial sense, new car technologies. Unlike existing average emission goals, it would also provide an incentive to outperform targets as excess carbon credits could be sold at a profit.

Carmakers would still have a reason to research hybrids or biofuels, as both promise to come down in cost over the next decade. Prices of carbon credits from other industries will also rise as they take advantage of the easiest ways of reducing CO2, often a proxy for energy use. But instead of rushing to sell unprofitable vehicles to meet arbitrary carbon reduction targets, they would have an incentive to reduce carbon emissions by as much as possible. If the EU study’s numbers are right, between twice and 30 times as much carbon could be saved by replacing current technologies with a trading scheme.

Automotive carbon trading might not provide politicians with the image boost they get from driving a Toyota Prius hybrid or filling up a car with ethanol from Iowa’s cornfields, but it would be far more effective at fighting global warming. Or you could just get on your bike.

Those darn budget constraints make everything a lot harder. It's difficult to argue with a program that induces the most efficient reductions in carbon to be pursued first. Why pay €1,062 to reduce just one tonne of carbon when, at €31 per tonne, you could save 34.26 tonnes by applying the resources elsewhere?

    Posted by on Sunday, July 2, 2006 at 01:26 PM in Economics, Environment, Policy, Regulation | Permalink  TrackBack (0)  Comments (12)


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