1. Environmental Trading –
Commercial Opportunities
EI Ideagen workshop
University of Limerick, Kemmy School of
Business, 18:45 November 23, 2010
Professor Frank J Convery, Director, UCD Earth
Sciences Institute (frank.convery@ucd.ie)
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2. What it takes to create a new business
Market opportunity – a product or service that gives
consumers what they want, and that you can deliver at
a cost lower than you can get in the market place.
Courage – to go where no one has gone before
Skills –
technical, financial, managerial, communicative, persev
erance
Luck – timing and interest
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3. Which of these is the most important?
Calvin Coolidge: Nothing in the world can take the
place of persistence. Talent will not; nothing is
more common than unsuccessful men with talent.
Genius will not; unrewarded genius is almost a
proverb. Education will not; the world is full of
educated derelicts. Persistence and determination
alone are omnipotent. The slogan ‘Press On’ has
solved and always will solve the problems of the
human race.
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4. Focus here
Opportunity because of:
1. The creation of the carbon market (European
Union Emissions Trading Scheme – EU –ETS)
2. The introduction of a CO2 tax in Ireland.
Scope: if you can sell a product or service in
Ireland, the EU market is available.
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5. Still some deniers our there..
Michael O’Leary CEO of Ryanair: Irish citizens and
visitors are now going to be penalised by the
mindless bureaucrats of Brussels, encouraged by
these eco-loonies, whose predictions about global
warming are the modern-day equivalent of those
doom-mongers in the middle ages who used to run
around towns and cities preaching that the end of
mankind was nigh! It wasn’t, nor will the world’s
climate pay the price for low cost flights
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6. European Union Emissions Trading
Scheme (EU ETS)
Reference: Pricing Carbon, by Denny Ellerman, Frank J
Convery and Christian de Perthuis, Cambridge University
Press, 2010.
Undertaken because of failure to introduce carbon tax.
Who: Power sector and heavy industry in EU 27 – about
50% of EU CO2 emissions
What: CO2 emissions
When: Pilot in 2005-08, real programme 2009-2012, and
2013-2020
How: Fee allocation of allowances to installations – must
have enough allowances to cover emissions at year end.
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7. Learning by doing
1. Price rose for 18 months in pilot period, then collapsed in 2007,
because:
Too many allowances given out
And couldn’t bank them forward from pilot period
Solution
Tighten up supply (2008-2012)
Reduce supply some more in 2013 to 2012 (-20%)
Allow banking to 2020
2. Utilities captured rents – passed through value of allowances in
electricity prices, but had got allowances for free
Solution
Auction allowances from 2010
In Ireland – impose a levy
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8. Transaction Costs for Participants
Three categories
• Set up costs
• Meet compliance requirements
• Trading costs
Survey of all Irish participants
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9. Transaction Costs per tonne low, but….
Category Total Costs
per tonne CO2 (€)
All 0.09
Large 0.06
Medium 0.87
Small 2.02
Key point: very low cost per tonne, except for
small installations
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10. Estimate of Total Transaction costs for
all firms in EU ETS in pilot period
Million Euros
Large 282
Medium 178
Small 12
Unidentified 351
Total 822
This is about the same amount they spent on
abatement.
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12. Key sources for EU ETS – staying
informed.
Carbon Market News published by Point Carbon
http://www.pointcarbon.com
http://www.pointcarbon.com/news/1.1487008
See Irish EPA
http://www.epa.ie/whatwedo/climate/emissionstrading/
The Registry
http://www.epa.ie/whatwedo/climate/emissionstrading/registry/
Inventory and Projections
http://www.epa.ie/whatwedo/climate/emissionsinventoriesandprojections/
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13. Energy Prices and carbon prices closely
linked
Consumers often regard carbon and energy as
two elements in the same ‘bundle’.
But energy prices don’t always move together..
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14. Oil and natural Gas prices in real terms
100
90
80
70
US $ per Megajoule (MJ)
60
50
40
30
20
10
0
Oil $/MJ Gas $/MJ
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15. Irish Carbon Tax
1. Rate and relation with EU ETS
Symmetry with allowance price - €15 per tonne
2. Coverage
All non EU ETS CO2 emissions applied to fossil fuels consumed in Ireland
collected upstream, at the earliest point of supply.
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16. Exclusions
Key exclusion is methane and nitrous oxides (about
30% of emissions), mainly associated with
farming.
Why?
1. Measurement Reporting and Verification (MRV)
issues
2. Politics: Pliny the elder: The agricultural
population, says Cato, produces the bravest
men, the most valiant soldiers, and a class of
citizens the least given of all to evil designs.
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17. Impact on Fuels at time of
Budget Announcement
Current Carbon Tax @ % change in
Fuel Type Unit Price €15 (VAT price
€ incl.)
Petrol Litre 1.19* 4.2 cents 3.5%
Auto-diesel Litre 1.10* 4.9 cents 4.4%
Kerosene 1,000 Litres 600 €43.14 7.2%
Marked Gas Oil 1,000 Litres 626 €46.87 7.5%
LPG 1,000 Litres 690 €27.97 4.1%
Fuel Oil 1,000 Litres 660 €52.15 7.9%
Natural Gas 13,800 685 €47.86 7.0%
kwh**
Peat Briquettes Bale 3.85 39 cents 10.1%
Coal 40kg 15.20 €1.79 11.8%
* Price of petrol and auto-diesel in December 2009 when carbon tax was introduced for that fuel.
** Average annual household consumption
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18. Issues with Carbon Tax
Environmental effectiveness? – need to track
performance against the counterfactual
Confounding effect of the Great Recession
Border leakage (land border with UK) – differences
in currency and tax provisions
Symmetry with allowance price (EU ETS) – will it be
sustained?.
Holding onto the tax – abolition possible but
unlikely
But pressure for exemptions….
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19. Carbon Price incentivises innovation
24 hours a day, 365 days a year, the carbon
prices says:
If you find a new, better or cheaper way to
reduce emissions, at a cost that is lower then
the value of allowances, you will have an
immediate payoff.
Unless we get innovation, we won’t succeed in
addressing the challenge.
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20. Kinds of Innovation
We need:
Smart technology
Smart management
Smart policy
The Innovation ecosystem –
enterprise, finance, research and
development, policy
Ireland has got most of this right.
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21. Where we need innovation
Energy efficiency – reducing our consumption
Renewables – increasing supply of low to zero
carbon energy
Wind, wave, tide, photovoltaics, biomass, geotherm
al, heat pumps
Energy storage
Carbon capture and storage
Sectoral – agriculture (methane), transport, energy
supply and transmission, industry, commerce.
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22. Will this ‘artificial’ market last?
Yes. Carbon tax because the Irish government is
broke.
Yes. Emissions trading because so many now
have a vested interest in its continuance.
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23. Can you see a window here for you?
What are your own relevant skill sets and
personal attributes?
How can you build on these to develop a
potentially viable proposition?
Where does your comparative advantage lie?
How would you find out what consumers really
want and are willing to pay something for?
What is your next step?
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