Carbon Cap-and-Trade Could Increase Coal Usage

It’s official. President Obama wants cap-and-trade. “So I ask this Congress,” he said in his speech last week, “to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America.”

But will cap-and-trade drive the production of more clean energy? Or will the law of unintended consequences take over, leading to more, not less, coal being burned to generate electricity?

Everyone assumes that it is going to cost between roughly $30 to $70 to buy a one-ton carbon credit in the open market Obama’s legislation would create. What if the price is significantly less than that? What if the price is so low it is more economical for a power plant owner to keep burning coal, instead of switching to cleaner natural gas, and simply buy enough credits to offset the plant’s excess CO2 emissions?

In that case, coal usage will be likely to increase, not decrease.

It isn’t just coal-fired power plants but CO2-emitting enterprises of all kinds that might choose to keep spewing CO2 into the atmosphere because it’s cheaper. Indeed, every smelter, landfill, factory and farm in the world might do the same thing.

The current depressed state of the global economy has caused the price of carbon credits to plunge in the European market. Point Carbon, a provider of advisory services for energy and environmental markets, predicts that even though the global volume of carbon trading will be up 20% in 2009 over 2008, the market will be worth only $79.7 million, down 32% from 2008.

Even when the global economy recovers, prices may stay under pressure as Russia (and other countries) unload millions of certified credits that they have been keeping off the market because of low prices.

Further, who is to say if, even after carbon credits recover sufficiently in price to make switching to natural gas the cheaper option, there won’t be another recession in, say, 2015 or 2020 that causes carbon prices to collapse once more?

That’s the thing about markets – prices go down as well as up. Then again, scientists are in near universal agreement that something must be done, and carbon taxation could be a heavier financial burden on the U.S. taxpayer than cap-and-trade.

For now, investors might want to take a closer look at Climate Exchange PLC (CXCHF.PK), parent of both the European and the Chicago climate exchanges, which logically should benefit from increased trading volumes whether or not cap-and-trade succeeds in reducing carbon emissions. Another firm worth considering is Peabody Energy Corp. (Symbol BTU), the big coal producer that logically would do well if cap-and-trade winds up increasing coal usage.

Comments

[AlexS:]

I have a simpler reason. You're going to have to handle the CO2 rather than just put it in the air. That will require energy. Since much of our energy comes from coal, much of the incremental increase in energy will come from coal. Well done! Thanks from those of us who invest in energy stocks.

Mar 01 11:15 PM

[john s. gordon:]

energy input to make the buckyballs from CO2 has to be considered, more coal burned to provide the necessary energy. chasing our tails on this?
> jack

Mar 02 08:16 AM

[Andy1234:]

I think the fact that we are already burning sub-butinumous coal very quickly......will eventually lead to a shortage of coal that is energy dense enough to make it worth while to burn......we already peaked in terms of energy gathered from coal since the anthracite coal is already produced.

the peaking from oil and coal in terms of energy output and reduced EROEI will force us to go to alternative energy sources.....regardless of any of these cap and trade schemes.

Mar 02 08:23 AM

[varmet:]

The Holy grail of coal combustion was announced last week.
See Babcock Power's TIPS technology. No Smoke Stack, CCS in pure liquid form ready for beneficial re-use and can burn all forms of coal,gas, bio-mass and creates water 2 tons of water for evey ton of coal burned.

Mar 02 08:34 AM

[The Saved S...:]

"Then again, scientists are in near universal agreement that something must be done.."

A statement like that brings into doubt the rest of the article. www.petitionproject.or.../ has a list of over 31,000 scientists of which more than 9,000 have PhD's who doubt the "earth is warming, it is primarily caused by man-made emissions, AND it will lead to catastrophe" scenario that left is using to destroy capitalism and seize more and more power over people's lives. Note that most of the people and groups pushing this agenda were formerly or currently are members of the Socialist/Communist type parties. Since those have been proven failures, they have jumped on this issue. Follow the money and follow the power.

Global warming, errr make that "Climate Change" (since the earth has been cooling for the last decade) has poorly substantiated theories that people will suffer harm some time in the future. Meanwhile access to inexpensive energy (coal, oil, natural gas, nuclear power) GREATLY improves the living conditions and saves lives NOW. By making energy more expensive you are guaranteeing widespread human suffering, especially in the 3rd world. How's that for compassion and caring?

Mar 02 08:56 AM

[satchv2:]

I suggest everyone read the FT article at this link www.ft.com/cms/s/2/678...

It is time for us to consider what is needed to improve the economy and quick worrying about the price of "carbon credit".

Mar 02 09:02 AM

[Ferdinand E...:]

For 'carbon tax' versus 'cap-and-trade', go into Google and check out CARBON TAX. The arguments there are easy to understand. In fact I have an article on that subject that was published in 'EnergyPulse' and maybe '321 Energy'. What I did not take up in detail in that article however is that firms that pay carbon taxes should eventually have these taxes refunded in one form or another. With cap-and-trade, the big winners would be the 'brokers/intermediates... - or, as a student informed me when I asked him about cap-and-trade, "just a scam".

Mar 02 09:30 AM

[Erich J Knight:]

My questions are what happen to the volital Hg , which doesn't fall out with thorium and other heavey metals?

Its' my understanding that the lignin structures in Biochar are primary for it's value in the soil, for providing increased cation exchange and providing refuge for soil web wee-beasties. Fossil carbons have none of these structures, so would have to be re-engineered.

Ultimately we must leave the combustion age behind. Charcoal to the soil is a bridging first step as other energy conversion technologies bloom from Nano and bio reasearch. Thankfully we can do TP now.

Oil interest must come to see the overwhelming value of their carbon as the feedstock for the manufacture ( via carbon nanotubes, fullerines, DNA programed nano self assembly, etc.) of virtually all things in the near future.

This convergences of different technologies will end the Combustion age.
Terra Preta starts as a soil nano technology with increased CEC, than a micro tech with our wee- beasties / fungus, and macro with bugs and worms.

Biotic Carbon, the carbon transformed by life, should never be combusted, oxidized and destroyed. It deserves more respect, reverence even, and understanding to use it back to the soil where 2/3 of excess atmospheric carbon originally came from.

We all know we are carbon-centered life, we seldom think about the complex web of recycled bio-carbon which is the true center of life. A cradle to cradle, mutually co-evolved biosphere reaching into every crack and crevice on Earth.

It's hard for most to revere microbes and fungus, but from our toes to our gums (onward), their balanced ecology is our health. The greater earth and soils are just as dependent, at much longer time scales. Our farming for over 10,000 years has been responsible for 2/3rds of our excess greenhouse gases. This soil carbon, converted to carbon dioxide, Methane & Nitrous oxide began a slow stable warming that now accelerates with burning of fossil fuel.

Wise Land management; Organic farming and afforestation can build back our soil carbon,
Biochar allows the soil food web to build much more recalcitrant organic carbon, ( living soil biomass & Glomalins) in addition to the carbon in the biochar.

Un to Recognize Soil as a Carbon Sink;
UNCCD Submission to Climate Change/UNFCCC AWG-LCA 5
"Account carbon contained in soils and the importance of biochar (charcoal) in replenishing soil carbon pools, restoring soil fertility and enhancing the sequestration of CO2."
www.unccd.int/publicin...

This new Congressional Research Service report (by analyst Kelsi Bracmort) is the best short summary I have seen so far - both technical and policy oriented.
assets.opencrs.com/rpt... .

Mar 02 12:43 PM

[AlexS:]

I don't know what the SWAP is and their site seems pretty sketchy on information. I'd be skeptical that taking CO2 out of air or converting it into something else could be exothermic.

Mar 02 01:12 PM

[john s. gordon:]

varmet - is there a website describing babcock's TIPS?
> jack

Mar 02 03:49 PM

[The Proclaimer:]

AlexS: Some of the SWAP processes are precombustion and others are postcombustion. Go to The US Patent Office site for a detailed description.
www.faqs.org/patents/a...

According to the swapsol.com website: "Dr. Roy Drayton, president of THS, Inc. verified the chemical kinetics proving
the SWAP is ready for full-scale industrial implementation." I believe that qualifies the SWAP processes to be a DOE stage Four company. Are you wondering how something like this happened without becoming news before now? Start with No government funding, then add a heaping measure of the best guidance available.

I do not blaime anyone for being skepticle. I have known Ray since 1963. For me investing in SWAP was an easy decision. Proclaimimg the SWAP processes was easier for me because of Ray covering all of the bases. And I have the documentation to back up my statements.

Mar 02 04:49 PM

[cyberclark:]

I think carbon cap and trade is a sham. In my mind it allows companies to move revenue around as an expense where otherwise it would have been taxed.

Cap and trade carbon targets are not measurable in reality . They remain best guess and "should produce etc"

In Alberta, the Government has elected to tell people that all carbon dioxide going down hole is a sequestered carbon. They are using it to scrub oil in old oil strata which is not deep enough to sequester the carbon.

albertathedetails.blog... is an article on carbon with graphics and the links.

Apr 01 11:11 AM

[Bayan ko:]

I think "carbon cap and trade" only transfers pollution to Timbuktu on paper. It doesn't address the real problem of climate change and global pollution. The polluters remain the polluters and another problem will be created: corruption! If corruption in anyway is behind the present global financial meltdown, wait till you see the corruption being created by this legislation. What we really need is developing new technologies that tap the kinetic energy of horizontally flowing water like ocean currents and the power of the wind. Let's "repower" the world with these two sources of renewable and infinite energy without burning fossil fuels.

May 13 03:10 AM

[Bayan ko:]

bbb

May 13 03:22 AM