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China and India Reject Carbon Caps

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by Breakthrough Fellow, Siddhartha Shome

India reiterated its staunch refusal to adopt binding emission reduction targets today, when Indian environment minister Jairam Ramesh blamed developed nations for failing to fulfill the promises they made under the Kyoto Protocol. He called this failure--not India and China's resistance to emission caps--the "single biggest issue" currently standing in the way of international climate talks.

Ramesh told a foreign press conference in New Delhi that India is committed to "a meaningful international agreement that all countries will take seriously and implement, unlike Kyoto where countries took on legal obligations and reneged on them."

"Just because we draw attention to the hypocrisy of the West does not mean that we are not conscious of our own responsibility," he said, adding that India has a right "to be recognised as latecomers and stepchildren of the Industrial Revolution."

This comes as the latest in a string of increasingly sharp criticisms from India and China as they maintain their opposition to an international treaty based on reducing emissions.

Consider two events that occurred within a few days of each other last month.

U.S. Secretary of State Hillary Clinton was on an official visit to India. In the midst of the mundane declarations of mutual cooperation and everlasting friendship that are typical of such diplomatic visits, a jarring note crept in. According to a New York Times report entitled "Meeting Shows U.S.-India Split on Emissions",

In a meeting with Mrs. Clinton, India's environment and forests minister, Jairam Ramesh, said there was "no case" for the West to push India to reduce carbon dioxide emissions when it already had among the lowest levels of emissions on a per capita basis. "If this pressure is not enough," he said, "we also face the threat of carbon tariffs on our exports to countries such as yours." Rather than projecting solidarity, the visit ended up laying bare the deep divide between developed and developing countries on climate policy -- a gulf the Obama administration will have to bridge as it tries to forge a new global agreement on climate change later this year.

In India many newspapers cheered the environment minister's stand, one headline even declaring, "Jairam Talks Tough on Climate Change".

Clinton was forced to backpedal, saying, "no one wants to, in any way, stall or undermine economic growth that is necessary to lift millions more people out of poverty".

Just a few days later, U.S. and Chinese officials wrapping up high level talks in Washington D.C. let it be known that they still remain at loggerheads over climate change policy. According to a report in the Los Angeles Times,

"China and the United States are different in their stages of development, national conditions and historic footprints, so I think they should shoulder different responsibilities in tackling climate change," Zhang Guobao, president of China's National Energy Administration, told reporters.

These two incidents, coming so close together, demonstrate how difficult it is to convince fast-growing developing countries like India and China to accept binding regulations on carbon emissions. Not only are such regulations seen as harmful for economic growth, they are seen as fundamentally unfair - rich countries, having already climbed up to a high standard of living, are viewed as pulling up the ladder of economic development behind them, thereby denying people in developing countries the means of upward mobility, and perpetuating today's huge economic chasm between the developed and the developing countries.

The conventional environmental approach towards climate change, which sees carbon emissions as pollutants and hence seeks to regulate them, faces a particularly difficult reception in developing countries, but the underlying difficulties in this paradigm are evident even here in the United States.

Consider, for example, the Waxman-Markey Climate Change Bill that has been approved by the House of Representatives and is now winding its way though the Senate. This bill is premised on the notion that carbon emissions need to regulated as pollutants. However, given the public pressure to avoid imposing stifling regulations that may slow down the economy, the bill has inevitably been watered down so much that its impact on global warming is likely to be negligible. So much so that even proponents of the bill, like New York Times columnist Thomas Friedman, praise it not because it is likely to bring us any tangible benefits in the climate change arena since "so much had to be given away to polluters", but rather for intangibles, such as an international demonstration of American resolve on climate change, and the hope - Friedman calls it a gut feeling - that the passage of this bill will turn American public sentiment against carbon "pollution".

In effect, even its backers concede that give the political and economic realities of the world we live in, it will be almost impossible to make the regulatory mechanism for carbon emissions so stringent that it can deal effectively with climate change.

Given this situation, perhaps what we really need is not a marginally more stringent regulatory regime for carbon "pollution", but rather an entire new paradigm for dealing with climate change.

Instead of focusing on regulating carbon "pollution" and on punishing the "polluters" (which pretty much includes everybody on the planet), the focus needs to turn towards developing realistic alternatives that are economical as well as environmentally friendly. Surely if alternative energy sources become widely available that are clean as well as cheap, people will on their own turn to clean energy sources to meet their energy needs.

The focus needs to turn away from punishing carbon "polluters" and towards finding technological alternatives to carbon-emitting energy sources. Not only is this likely to be more effective in dealing with climate change, it is also much more likely to be welcomed by the public for the economic growth that it would generate.

What is more, with stringent regulations on carbon "pollution" being a complete non-starter for countries like China and India, where much of the future increase in carbon emissions is expected to happen, the alternative paradigm of investing in new clean energy alternatives offers a realistic hope of transforming these fast growing economies from being part of the climate change problem to being part of the climate change solution.

Imagine if on her visit to India Hillary Clinton, instead of trying to push India to accept carbon regulations, had had announced "the U.S. is looking to make large investments in India's clean energy industry and wants to partner with India to develop new clean energy technologies for the future". Surely the Indian minister would not have objected, but would have welcomed the he investment with open arms.

Some countries like China, Japan and South Korea are already investing large sums of money in developing clean energy technologies. This is certainly very welcome. However, without the wholehearted involvement of the United States, there is only so far that such efforts can go. Not only is the U.S. the world's economic engine, American universities and research centers have unmatched capabilities in developing new technologies, and the American venture capital system has unmatched capabilities in producing new technologies and bringing those technologies to market.

A serious and well-funded effort by the United States to find technological solutions for climate change is the need of the hour, and offers perhaps the only realistic way to deal with this problem.

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TrackBacks (0) 16 COMMENTS:

Siddhartha -

Regarding "the alternative paradigm of investing in new clean energy alternatives," how do you see such investment being funded? Do you think there is a role for some form of carbon pricing in either financing research and development or incentivizing commercialization of clean-energy alternatives?

Ken,

Like any other government expenditure, these large investments in clean energy technologies would be funded through taxes. These taxes could indeed take the form of carbon pricing. That would be OK. However, what is most important is that the investment should come first and carbon pricing (or other taxes) should be directly tied to the investment. Say the Federal Govt., announces a large investment in a research program for clean vehicle technologies in Michigan. Obviously the govt. would have to pay for this through taxes of some sort. However (unlike current "green" thinking) these taxes must not be primarily punitive in nature, i.e., the taxes should not designed to punish people for their carbon emissions. Unfortunately, carbon pricing today is seen primarily as a punitive measure - "if we punish the polluters enough they will be forced to reduce their carbon footprint and will have to find alternative technologies". This punitive carbon pricing approach is, I think, deeply flawed. Think of govt., funding in semiconductor technology development. It was these Govt. investments in the 60s, 70s and 80s that has made today's computer technologies possible. These were funded by taxes, which were driven by the govt's decision to invest in semiconductor technology. These were not punitive taxes on typewriters. Nobody said "if we impose punitive taxes on typewriters, people will have to develop alternative technologies". Similarly, jet engine technology matured because of govt investments in technology development,not because of punitive taxes on propeller engines.

Now, if the govt. does decide to make large investments in clean energy technologies the centerpiece of its climate change initiative, then various kinds of taxes could be used to fund this effort. Maybe carbon pricing could have a role here. But I actually think a more broad-based tax would make more sense, since the benefits of clean energy would apply to all. If you think in terms of the "benefits" paradigm instead of the "punishment" paradigm then it makes no sense to pay for investments in clean energy technologies through a regressive tax measure where most of the tax burden falls on those who can least afford it. But maybe a carbon tax coupled with tax rebates to correct for its regressive nature (as has been suggested) could work.

Sid, I fully agree with you that the "punitive carbon pricing approach" is deeply flawed, and yet it is this conception of carbon pricing as a punitive mechanism that appears to be at the foundation of TBI's policy advocacy. As I understand it, TBI's focus on "breakthrough technology" is based on the premise that a meaningful carbon price would not be politically viable, so we need a massive government R&D effort to make clean energy cost-competitive without carbon pricing.

In fact, carbon pricing in the form of commercialization subsidies (rewards) can be much more efficient than punitive taxes for stimulating clean-energy technologies. While clean-tech industries are in their nascent start-up phase a very small carbon fee on fossil fuels (e.g. $10-per-ton), with all revenue applied to support commercialization of clean tech, could give the latter a much larger (e.g. $100-per-ton) price advantage. Clean-tech commercialization would ramp up immediately and would quickly achieve economies of scale, without waiting for some "breakthrough" to overcome the price barrier. This form of carbon pricing, which places the emphasis on positive incentives rather than "punitive" disincentives does not appear to be clearly recognized by TBI's policy platform.

The advantage of using carbon fees from a particular industry sector, rather than more broad-based taxes, to finance decarbonization of that sector, is that this maintains a more precise balancing of revenue sources and expenditures, avoiding the kind of "wealth transfers" that make carbon pricing politically unviable.

The realistic price for capturing a metric ton of CO2 by known chemical methods is $150. http://belfercenter.ksg.harvard.edu/publication/19185/realistic_costs_of_carbon_capture.html That's the real price per ton for actual emissions reduction (not including the transport and storage costs). It's prohibitive.

China and India have a large fleet of pulverized coal plants, which they will not give up, and they are building lots of new ones. They need coal for power and prosperity, and they can't pay $150/ton of captured CO2.

Dreams of solar and wind and biofuels replacing coal in China and India are just not realistic. And let's not kid ourselves (e.g. Waxman-Markey) that alleged Nigerian forests can offset CO2 emissions, even if the diplomatic effort at Copenhagen succeeds. Offset trading is just the latest scam of the Enron crew.

Ken, TBI is certainly NOT advocating a punitive carbon price mechanism. TBI's stance is that imposing punitive taxes on carbon emissions is never going to solve global warming. Instead of pushing up the price of carbon emissions through punitive taxes, we must drive down down the cost of clean energy worldwide, and the way to achieve this is for the govt to make large investments in developing breakthrough clean energy technologies. The approach you suggest of incentivizing nascent clean energy technologies through small-scale subsidies (instead of punishing carbon usage) may be a step in the right direction but cannot concievably make a serious dent on global warming because (as the previous commentor pointed out) the economic gap between existing nascent clean energy technologies and dirty energy technologies is, in most cases, too large to be bridged by small-scale subsidies. Hence the need for a massive investment in breakthrough clean energy technologies to make them price competitive with existing dirty energy technologies, especially in places like China and India.

Sid,

(1) I understand that TBI is not advocating punitive carbon pricing. But they are advocating "breakthrough" investment as an alternative to punitive carbon pricing without considering the merits of "non-punitive" carbon pricing.

(2) I was not proposing "small-scale subsidies". I was proposing large-scale (e.g. $100-per-ton) subsidies, which could be financed by relatively small (e.g. $10-per-ton) carbon fees while clean technologies are in their nascent stage.

You seem to be saying that no serious progress can be made on decarbonizing energy generation until alternatives are cheaper than coal, without commercial subsidies.

Ken, you realize of course that large scale subsidies for clean energy based on relatively small carbon fees only so long as the clean technologies receiving these subsidies form only a very small part of the overall energy usage. Sooner or later these technologies will have to be able to compete economically with coal, gas, etc., without the support of subsidies. Do consider the following points.

(1) To be economically viable, clean technologies will have to eventually stand on their own feet, independent of large subsidies. Otherwise you can forget about clean energy ever displacing coal/gas in China and India (the likely source of much of the future increases in CO2 emissions).

(2) Surely the emphasis should be on driving down the real cost of clean energy, whether it be in the form of temporary subsidies for nascent technologies (as you suggest), or in the form of investments to develop new breakthrough technologies.

(3) Given the vast economic gap between clean energy technologies and coal/gas today, and the impending explosion in energy usage in China and India, it is highly unlikely that subsidies for existing clean energy technologies will suffice in dealing with climate change. So there has to be a major R&D effort in developing new technologies and in further developing existing technologies.

(1) Why limit the available funds for clean technologies to only what can be raised through small "non-punitive" carbon taxes? Why not use broad-based taxes like we do for national defense? After all clean energy, like national defense, benefits all.

The latest issue of Power magazine has an excellent article about the state of the art of carbon capture. http://www.powermag.com/issues/features/Commercially-Available-CO2-Capture-Technology_2064.html No utility-scale project exists, and the use of chemical capture (amine sorbents) in natural gas processing cannot easily transfer to post-combustion capture at coal plants because of the ash and the heat-stable salt precursors in that dirty smoke.

We need a breakthrough, such as mechanically forced vortex gas separation in fractal cyclones. See, e.g. http://www.freepatentsonline.com/y2009/0013867.html

Sid,

I realize that small carbon fees can only give clean energy a comparatively large price advantage while clean energy has small market share. If subsidies are focused on new sources, the fees would initially be near zero, but would increase as renewables become predominant. High carbon fees in a renewables-dominated market would not necessarily be harmful to consumer, however, because competition from a growing, subsidized clean-energy industry would limit fossil-fuel energy providers from passing regulatory costs to consumers.

Clean technologies would not necessarily need to become cost-competitive with fossil fuels without subsidies. That would only be the case if we are unwilling to pay anything for climate stabilization. If carbon fees and subsidies are maintained indefinitely, then the fee revenue and subsidies would automatically become zero as fossil fuels are phased out, but the carbon pricing would still maintain a market barrier to new fossil fuels.

On the other hand, subsidies could accelerate market penetration of clean energy, leading to economies of scale that could quickly diminish or eliminate the need for pricing incentives. Case in point:

"U.S. solar field foresees cost parity with coal, gas"

http://www.reuters.com/article/environmentNews/idUSTRE49F7OH20081016?sp=true

Another case in point:

"Hybrid Production Cost May Drop by Two-Thirds Over Next Decade"

http://www.bloomberg.com/apps/news?pid=20601207&sid=aUj9rsy0Q878

In these cases it is price barriers -- not lack of technological breakthroughs -- that is primarily limiting near-term commercialization of clean-energy technologies. In the longer term, large-scale decarbonization may require government investment, e.g., to develop energy storage technology (for both transportation and electricity generation) and upgrading the power grid to support both dispersed renewable energy sources and an electrified vehicle fleet. These investments could be appropriately funded from broad-based taxes (like national defense). But commercialization incentives for decarbonization of a particular industry should, I think, be preferably financed by carbon fees in that industry. The fee disincentive will complement the subsidy incentive, and this type of self-financing policy will minimize wealth transfers that could be economically destabilizing and politically unviable.

Ken,

Govt. subsidies aimed at driving down the cost of clean energy technologies so as to make them cost competitive with coal/gas, such as the two examples (solar power and hybrid vehicles) you gave, is certainly something that I support. TBI, too, supports this approach. The pursuit of "breakthrough technologies" that TBI advocates does indeed encompass manufacturing technologies, supporting infrastructure, etc., not just pure technical research in exotic technologies. Perhaps the best example of govt driving down cost of a promising technology (through large-scale purchases, contracts, R&D investments, etc.) is semiconductor technology. Something similar might work for solar. TBI does support this approach. However, there are many situations where pure technological breakthroughs are necessary (as the carbon capture example provided by Wilmot McCutchen demonstrates).

As you yourself note, in the long term - and, one might add, to have any real effect on global warming - large scale govt investments in breakthrough technologies and their supporting infrastricture, as advocated by TBI, is alsolutely necessary.

I do not have a strong ideological position on a carbon tax so long as it is not designed to be punitive. I see carbon taxes as a legitimate form of taxes just like sales tax, property tax, etc. Just like sales tax is designed to generate revenue, rather than to punish people for buying things, a carbon tax can also be used as a legitimate form of revenue generation. No reason why clean energy subsidies should be paid only from a carbon tax. Also no reason why a carbon tax should be seen as a taboo to be avoided at all costs.

Breakthrough technologies are indeed needed, but they are not needed more than incremental manufacturing technology improvements, infrastructure development, and commercialization incentives; and I don't see a good rationale for making "breakthrough technology" the highest priority or the centerpiece of regulatory climate policy. I believe the highest priority is developing regulatory policies that can fully exploit the potential benefits of existing technologies, as well as breakthroughs.

The use of my tax dollars for climate-related purposes unrelated to my GHG emissions might seem to be "punitive". More importantly, it would be inefficient because I could not reduce my tax by reducing my carbon footprint.

Ken -


Here's my rationale for making breakthrough technology the centerpiece of climate policy:

Tweaks like conservation, grid upgrades, biofuel substitution, wind and solar can't bend the warming curve in time (20 years). Wind and solar are great and should be much more widely deployed, but they presently account for only about 1% of power demand, and there is a limit to how much intermittent capacity the grid can accommodate. For the foreseeable future, we are stuck with our existing fleet of coal plants to meet our power needs. India and China recognize the realities of coal power, and they are not going to give up their growth (which takes energy, i.e. coal). They plan to install many more coal plants. New energy sources like hydrogen, biofuels, solar, wind, tidal, geothermal, etc. are not enough. Converting to electric cars just means a higher demand for coal power. So the problem is: how do we reduce CO2 and other emissions from pulverized coal plants? We do not presently have the technology to do this, so we urgently need breakthroughs in carbon capture and in CO2 conversion.

The conventional prescription of chemical capture and underground storage (sequestration) is like trying to fly by flapping mechanical wings. Small improvements are ultimately futile, no matter how much money we spend on the effort.

Wilmot - Okay, suppose we develop the urgently-needed "breakthroughs in carbon capture and in CO2 conversion". What's going to motivate industry to commercialize the technology? Should they just sit on their hands until the government comes up with some revolutionary "breakthrough technology" that makes sequestered coal cheaper than non-sequestered coal with no regulatory incentives? How are you going to get your CCS "magic bullet" commercialized?

Ken -

You're right that the incentives are lacking in the US, and therefore CCS breakthroughs are tough to commercialize. What do you think of negotiable tax credits to coal plants to offset the cost of equipment? Their future taxes would go down enough to get started at least.

Wilmot,

The difference between a "tax credit" and a "subsidy" may be semantic, but a tax credit does not normally exceed the tax. You can't have a high credit without a high tax.

I favor a system of new-source subsidies, financed by carbon fees. New low-carbon sources (including CCS) would qualify for high $/MWh subsidies, and new high-carbon sources would incur high $/MWh fees, while old sources would not qualify for subsidies and would initially incur only very small fees. If existing power plants increase generation beyond an established historical baseline level, the excess generation over the baseline would be qualified as "new-source". Also, significant upgrades or refurbishments of old-source generation facilities (e.g., CCS) would result in an additional portion of generation being qualified as "new-source". This would create an immediate market barrier to high-carbon energy expansion, and would remove the market barrier to low-carbon sources including CCS.

See the following link for a more in-depth discussion: http://ssrn.com/abstract=1427106

Ken -

That's a very attractive idea. New-source subsidies for qualified technology, gradually phasing out old sources. Carbon fees (taxes) could start small because the new source subsidies would be small due to the initially small number and capacities of new sources. There would be an expectation of new taxes, which might be enough to change course.

However, the Senate has decided that in any legislation, power consumers will not have a rate hike, so the taxes part can't get started. I doubt that CCS will happen in America, no matter how much "clean coal" happy talk we hear from Obama and the coal lobby. They prefer the Nigerian tree credits offset approach, like the Kyoto Clean Development Mechanism, and that is probably what they will be pitching in Copenhagen this December.

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