BizResearch

Simpler, Smaller and More Stable: Designing Carbon Markets for Environmental and Financial Integrity

The type of carbon trading system that would be created by the energy bill recently passed by the House of Representatives would be complex, volatile and prone to gaming. That’s the conclusion of a new report released today by Friends of the Earth. It also finds that emerging proposals to regulate derivatives are necessary but not sufficient to ensure the integrity of carbon markets. Instead, the report concludes, if policymakers wish to use a cap-and-trade system as a tool to reduce global warming pollution, they must design the system to be much simpler, smaller, and more stable than current proposals.

In general, it argues that the more “bells and whistles” included in carbon market design e.g. strategic reserves, trigger prices, offsets, banking, borrowing, free allocations, the more chances there are to game the system. Therefore, a prudent rule of thumb is to design carbon markets to be as simple as possible.  It goes on to say that carbon markets should be large enough to satisfy the environmental objective of the system, but not so large that they become simply another way that financial speculators can make money off of money. Excessively large markets are harder to regulate, and can create systemic risks without providing proportional policy benefits. A managed price approach, in combination with principles of simple market design (i.e. prohibiting offsets, free allowance allocations, and banking/ borrowing) would not only reduce opportunities for gaming, but keep the size of the carbon markets manageable.  In addition, adopting this hybrid approach, with its predictable and stable carbon prices, would incentivize more rapid and significant investments in low carbon technologies and infrastructure, thus addressing a structural weakness in emissions trading schemes.

The report also concludes that policymakers must take a realistic view of how even the most robust regulatory regimes developed today will erode in effectiveness over time as they are whittled away.

Click here to read the full report

Photo from Creative Commons: Flickr: Seb Przd

Geo-Engineering – Giving us time to act?

This report from the Institution of Mechanical Engineers argues that geo-engineering could be a vital component for tackling climate change, providing the world with extra time to decarbonise the global economy.

With global temperatures continuing to raise due to greenhouse gases many believe that we are fast approaching a critical point in dealing with climate change.  The consensus is that we cannot allow global average temperature to rise by 2oC above pre-industrial levels.  If we do, many believe that this will cause dramatic changes to our climate which could jeopardise modern civilisation.  For many years, governments have primarily focused reducing the amount of CO2 each nation emits into the atmosphere.  More recently, climate change adaptation has been embraced: an approach which sets out to ensure that critical assets, such as power generation, transport links and the urban environment, are redesigned and rebuilt to protect against future changes in climate.   A third, less explored approach, is geo-engineering: where technology is used to remove CO2 from the atmosphere, or where the planet is cooled by reflecting solar radiation back into space. 

The Institution of Mechanical Engineers has undertaken an assessment of a range of potential geo-engineering options available under its ‘Cooling the Planet’ programme.  Of the many options reviewed, the three most promising have been outlined in this report. 

• Artificial trees: research is being undertaken into building machines which, like trees, can remove CO2 from the atmosphere.  This occurs when air passes through the device and CO2 sticks to a sorbent material.  The CO2 is then removed and buried underground in the same way as conventional carbon capture and storage (CCS).  

• Algae-coated buildings: algae naturally absorbs CO2 through photosynthesis.  Strips of algae can be fitted to the outside of buildings and then periodically harvested from e the surfaces and used as biofuel.  

• Reflective buildings: reducing the amount of solar radiation absorbed by the earth’s climate has the potential to cool the planet. This can simply be achieved by making surfaces more reflective and thus lowering the heating effect the sun’s rays have on us. 

The Institution proposes a climate change roadmap over the next 75 to 100 years, in which geo-engineering is an integrated supporting element in global climate mitigation and adaptation plans.

Click here to read the report

Photo from Creative Commons: Flickr: nima

EU ETS Exchange Trading in First Half 2009 Exceeds Full Year 2008

EU ETS Exchange Trading in First Half 2009 Exceeds Full Year 2008

Trading in the rapidly expanding global carbon markets jumped 61 per cent in 2008, with the volume of carbon dioxide emissions transacted worldwide rising from 2.98 billion tonnes of CO2 to 4.81 billion tonnes.

This finding is reported in the latest edition of the Carbon Markets report from International Financial Services London (IFSL), the independent organisation promoting UK financial services around the world, which also reveals that London is continuing to build on its leading position in global carbon markets.
 
EU ETS: The EU’s Emissions Trading System (EU ETS) continues to dominate international activity in allowance-based markets. Exchange trading on EU ETS totalled 3.2 billion tonnes of CO2 in the first half of 2009, exceeding the full year total of 2.7 billion tonnes in 2008. Spot trading on EU ETS has mushroomed since last autumn as companies have used allocated allowances as a ready source of finance. Trading in EU ETS futures and options has risen in parallel with the spot market.
 
The bulk of futures and options trading in EU ETS takes place on the London-based European Climate Exchange (ECX), with 92 per cent of exchange trading in 2008 and 99 per cent in the first half of 2009. Trading of energy brokers in London rose by 82 per cent to 1.13 billion tonnes CO2 in the first five months of 2009, up from 618 million tonnes in 2008.
 
Project Market: China dominates the project-based market with 84 per cent of volumes supplied under the Clean Development Mechanism (CDM) in 2008. India, Brazil and Mexico are also important countries for CDM investment, although projects tend to be smaller. CDM investment has slowed since mid-2008 due to the financial crisis; constraints in the registration process; and uncertainty about the outcome of the Copenhagen summit in December.
 
Duncan McKenzie, IFSL’s Director of Economics, said, “Alongside the dominant position of ECX in the EU ETS and prominent role of London-based energy brokers, the UK remains the leading investor in project-based transactions with 39 per cent of CDM credits purchased in 2008. Major verification agencies are based in the UK and LSE’s Alternative Investment Market (AIM) is a magnet for companies developing renewable technologies.”

A total of 78 companies developing renewable technologies are listed on AIM raising a cumulative £1.6 billion. About 70 of these companies have joined AIM since 2004 although less favourable market conditions meant that there were only 2 IPOs in 2008.

Read the report

Picture: Flickr:Creative Commons:Kusaker.

Environmental, Economic and Policy Aspects of Biofuels

 
Foundations and Trends® in Microeconomics
Volume 4 Issue 5

Foundations and Trends provides state of the art review articles in business and economics by opinion/research leaders in accounting, econometrics, entrepreneurship, finance, marketing and microeconomics.

Students, staff and faculty of the London Business School can access the reviews via the list of databases in the Library Services section of Portal. 

Environmental, Economic and Policy Aspects of Biofuels

"This review provides a timely summary of the current understanding of the various impacts and contributes positively to the policy debate.

We have several key conclusions: (1) Biofuels are diverse and evolving; (2) Greenhouse gas (GHG) benefits vary significantly across various types of biofuels and are dependent on market conditions and policy situation; (3) Increase in income in the developing world would increase the demand for both food and fuel; (4) A diverse set of policies, which has been introduced or proposed, impacts biofuels directly; and (5) Much of the impact assessments of biofuels thus far are ex-ante estimates based on either optimization or equilibrium models.

The short-term economic impacts of biofuels will depend on a variety of factors such as the harvest in any given year, the oil price, economic growth, strength of the dollar, and level of inventory. The long-term impacts will depend on factors such as investment in technological change, population and economic growth, climate change, and long-term policies toward energy, agriculture, and the environment. The biofuel policy debate is likely to be an ongoing one in the near future.

Source:

Deepak Rajagopal and David Zilberman (2008) "Environmental, Economic and Policy Aspects of Biofuels",
Foundations and Trends® in Microeconomics: Vol. 4: No 5, pp 353-468.
http:/dx.doi.org/10.1561/0700000029

Picture: Creative Commons:Flickr: Jurvetson

Will plant fuels fly?

Even though commercial aviation contributes a small percentage of total man-made global carbon dioxide emissions, the industry continues to be a target for environmental campaigners and politicians. Cutting carbon emissions is a growing priority for the industry.  In this article, Paul Steele, the environment director for the International Air Transport Association (IATA) discusses the potential role of biofuels for the aviation industry.

Last year the industry produced some 670 million tonnes of carbon dioxide, accounting for around 2% of the global manmade total of more than 34 billion tonnes. In 2007, IATA produced a strategy for dealing with aviation’s climate change impacts which included: investing in technology; flying planes better; building and operating efficient infrastructure; and positive economic arrangements such as tax credits and funding of research and development.

Second or new generation biofuels offer one of the greatest opportunities and an enormous amount of effort is being put into this. IATA has set a target of 10% of global aviation fuel to be derived from alternative fuels by 2017. However, requirements for jet fuel are stringent; a high-energy content is required and it must not freeze at low temperatures. First generation biofuels, derived from crops such as colza, corn, soybeans and sunflower seeds, do not meet these criteria. These fuels also compete with food crops for agricultural land and water and are inefficient and non-sustainable sources of energy. At worst they can lead to food shortages, deforestation and rising food prices. The aviation industry is therefore looking at second-generation biofuels from sustainable non-crop sources. These include algae, halophytes, babassu, switchgrass jatropha and camelina. They are far more efficient because they use new biomass-to-fuel-conversion technology. Aviation biofuels can even be created from waste products such as coffee grounds and forest residues. Click here to read the full article

This article is form the March issue of The world today, a monthly online magazine produced by Chatham House (free access to current issues only)

Picture from Creative Commons: Flickr: Snuskie

Best practice in Green IT: implementing Green IT in the enterprise and its cost benefits

According to the latest market research report from Business Insights businesses accounted for 68% of the UK’s total carbon fuel consumption in 2005. Despite the fact that modern IT systems are more efficient, the sheer growth in volume and demand for computing power, has made IT responsible for a growing proportion of energy consumption, energy costs and consequent CO2 emissions. Indeed, IT office equipment currently accounts for around 15% of the total electricity used in offices, with the figure expected to rise to 30% by 2020. As a result, there has been a growing movement towards adoption of ‘Green IT’. The report defines ‘Green IT’ as the manufacture, usage and recycling or disposal of any IT-related device, system or process in a way that minimizes or removes damage to the environment. Green IT can be split into four broad categories: responsible manufacturing; power management; consumables; and recycling/disposal

Responsible manufacturing refers to the components and production methods used in the manufacturing of IT equipment. This means that procurement decisions should consider the following factors: the amount of harmful chemicals used in the making and design of products; the use of recyclable components; the amount of packaging used; the transport miles required for delivery of the product; and ‘disposability’ of the product at the end of its lifetime.

Power management refers the procurement of energy-efficient IT hardware, such as PCs and servers, and their management and operation in such a way that reduces power consumption over the product or system lifecycle. This can cover anything from complex technologies through to simple policy strategies, for example, educating employees of the benefits of switching off desktop PCs and printers whenever they leave the office.

Consumables refer to issues such as the procurement of recycled printer ink to only printing out documents that are absolutely necessary. A number of large organizations, such as KPMG, have significantly reduced paper consumption through the latter policy. This not only reduces costs, but also reduces harm to the environment in terms of both paper production and recycling.

The issue of e-waste is a growing problem for the global environment. In turn, it is driving regulatory and ethical pressures that require hardware vendors and enterprises to ensure that IT-related waste (‘e-waste’) that is not recyclable has a minimal impact on the environment.

The full report is available to current London Business School students, faculty and staff from the Business Insights database on the A-Z list of library databases via Portal.

Picture from Creative Commons: Flickr: gordon2208

Green Business Awards 2008

Ends and Management Today announce the winners of the Green Business Awards 2008 in this month’s issue of Management today. The award categories are organised into broad industry sectors and, with nearly 130 entrants, present a barometer of the most innovative and effective green initiatives across these industry sectors.  This year the overall winner in the large companies’ category is Eurostar.  A typical Eurostar journey produces just 10% of the CO2 produced by an equivalent plane journey; the company is pushing train travel as a genuinely lower-carbon transport alternative. Through its ‘Tread lightly’ programme, it has introduced a series of environmental improvements and is targeting a further 25% reduction in carbon dioxide emissions per traveller by 2012.  Other winners include:

Best micro-organisation - Dcarbon 8: This 10-strong company is a specialist in measuring organizational carbon footprints. It has developed a supply chain network, members of which share knowledge and aim to reduce emissions and to offset 110% of the remainder.

Best consumer goods or retail company: McCain Foods
Last year McCain’s launched major investments in renewable energy at one of its manufacturing plants, resulting in a reduction of 7,500 tonnes of carbon dioxide in only six months.

Best new product – Nu-Phalt
Britain’s roads and pavements are marked with potholes and other surface defects. Traditional repairs are not only costly but create substantial waste, noise and air pollution. Warwickshire based Nu-Phalt have developed an alternative to infra-red road repair systems, which produces a heat-sealed repair with limited need for new material. This system is cheaper, quicker and less disruptive and slashes carbon emissions associated with traditional road repair methods

Click here to read Management today’s special feature on why these companies were chosen ahead of their peers.

The November issue of Management today can be found in the journals collection located in the library basement.

Picture from Creative Commons: Flickr: rubberpaw

The hottest clean technology companies in Europe

The hottest clean technology companies in Europe

"In its simplest form, clean (or green) technology is anything that helps consumers or industries to use basic materials such as energy, water and waste more efficiently and, while using it, lessen their environmental footprint. Unlike IT, biotech or telecommunications, there is no agreed definition of "cleantech" but it is a hot area, thanks to heightened awareness of climate change and the rising cost of fossil fuels.

And it is poised for a boom: according to the analysts Library House, venture capital investment in European cleantech companies went from £407m in 2006 to £805m last year. Ben Goldsmith of WHEB Ventures, an investment firm specialising in environmental businesses, says that globally the figures are even more impressive: "around $850m in 2004 against $6bn in 2007".

Clean technology represents more of a theme than a specific sector, says Patrick Sheehan, a partner at the Environmental Technologies Fund. He says that waves of investment in the arena have come and gone for more than 20 years, and identifies the most recent as starting with investors in the US, mainly those used to dealing with technological startups in Silicon Valley, around 2004.

Library House, in collaboration with the Carbon Trust, proposes the idea that cleantech can be divided into four parts along the energy chain: the discovery and development of new energy sources; generation of clean power; the infrastructure needed to store and distribute energy; and, finally, more efficient use of energy by consumers."

To see the list of top companies click here.

To find out more about Library House who research and profile fast-growth, innovation-led private companies, their people and investors click here.

Picture: Creative Commons: FlickR: pilipala9