Ul enviro trading commercial opps (convery)

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Ul enviro trading commercial opps (convery)

  1. 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) 1
  2. 2. What it takes to create a new businessMarket 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 beforeSkills – technical, financial, managerial, communicative, persev eranceLuck – timing and interest 2
  3. 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. 3
  4. 4. Focus hereOpportunity 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. 4
  5. 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 5
  6. 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 emissionsWhat: CO2 emissionsWhen: Pilot in 2005-08, real programme 2009-2012, and 2013-2020How: Fee allocation of allowances to installations – must have enough allowances to cover emissions at year end. 6
  7. 7. Learning by doing1. Price rose for 18 months in pilot period, then collapsed in 2007, because:Too many allowances given outAnd couldn’t bank them forward from pilot periodSolutionTighten up supply (2008-2012)Reduce supply some more in 2013 to 2012 (-20%)Allow banking to 20202. Utilities captured rents – passed through value of allowances in electricity prices, but had got allowances for freeSolutionAuction allowances from 2010In Ireland – impose a levy 7
  8. 8. Transaction Costs for ParticipantsThree categories• Set up costs• Meet compliance requirements• Trading costsSurvey of all Irish participants 8
  9. 9. Transaction Costs per tonne low, but….Category Total Costs per tonne CO2 (€)All 0.09Large 0.06Medium 0.87Small 2.02Key point: very low cost per tonne, except for small installations 9
  10. 10. Estimate of Total Transaction costs for all firms in EU ETS in pilot period Million EurosLarge 282Medium 178Small 12Unidentified 351Total 822This is about the same amount they spent on abatement. 10
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  12. 12. Key sources for EU ETS – staying informed.Carbon Market News published by Point Carbonhttp://www.pointcarbon.comhttp://www.pointcarbon.com/news/1.1487008See Irish EPAhttp://www.epa.ie/whatwedo/climate/emissionstrading/The Registryhttp://www.epa.ie/whatwedo/climate/emissionstrading/registry/Inventory and Projectionshttp://www.epa.ie/whatwedo/climate/emissionsinventoriesandprojections/ 12
  13. 13. Energy Prices and carbon prices closely linkedConsumers often regard carbon and energy as two elements in the same ‘bundle’.But energy prices don’t always move together.. 13
  14. 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 14
  15. 15. Irish Carbon Tax1. Rate and relation with EU ETSSymmetry with allowance price - €15 per tonne2. CoverageAll non EU ETS CO2 emissions applied to fossil fuels consumed in Ireland collected upstream, at the earliest point of supply. 15
  16. 16. ExclusionsKey exclusion is methane and nitrous oxides (about 30% of emissions), mainly associated with farming.Why?1. Measurement Reporting and Verification (MRV) issues2. 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. 16
  17. 17. Impact on Fuels at time of Budget Announcement Current Carbon Tax @ % change inFuel 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 17
  18. 18. Issues with Carbon TaxEnvironmental effectiveness? – need to track performance against the counterfactualConfounding effect of the Great RecessionBorder leakage (land border with UK) – differences in currency and tax provisionsSymmetry with allowance price (EU ETS) – will it be sustained?.Holding onto the tax – abolition possible but unlikelyBut pressure for exemptions…. 18
  19. 19. Carbon Price incentivises innovation24 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. 19
  20. 20. Kinds of InnovationWe need: Smart technologySmart managementSmart policyThe Innovation ecosystem – enterprise, finance, research and development, policyIreland has got most of this right. 20
  21. 21. Where we need innovationEnergy efficiency – reducing our consumptionRenewables – increasing supply of low to zero carbon energyWind, wave, tide, photovoltaics, biomass, geotherm al, heat pumpsEnergy storageCarbon capture and storageSectoral – agriculture (methane), transport, energy supply and transmission, industry, commerce. 21
  22. 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. 22
  23. 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? 23

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