Comments on: Senate Energy Committee hearing aimed at overselling volatility threat from climate bill, which in fact will make Americans’ energy bills MORE stable

By: danycates

danycates — Wed, 11 Nov 2009 20:17:46 +0000

european early ongoing projections

By: James Handley

James Handley — Wed, 16 Sep 2009 15:59:22 +0000

The witnesses and most of the Senators at yesterday’s hearing seem to agree that a price collar is needed with cap/trade. But many went further to suggest that if we don’t like volatility we shouldn’t let Wall St. set carbon prices. See my report on the hearing at http://www.carbontax.org.

By: Peter Wood

Peter Wood — Wed, 16 Sep 2009 14:07:30 +0000

Philibert, I like your approach to modeling uncertainty in costs of mitigation.

It would be interesting to model the results of a “modified price collar” where there is a limited amount of permits auctioned at a reserve price of something like US$40 per tonne plus 5% per year. It would also be interesting to see the effects of increasing the amount of permits in Waxman-Markey that go into the “strategic reserve”, increasing the amount of abatement if the carbon price stays below US$40 per tonne.

By: Philibert

Philibert — Tue, 15 Sep 2009 13:42:46 +0000

Well conceived price collars would help countries adopt relatively more ambitious targets, and at the end improve the climate results of mitigation policies. Please see http://www.iea.org/ Textbase/ publications/ free_new_Desc.asp?PUBS_ID=2077

By: NFJM

NFJM — Tue, 15 Sep 2009 10:22:22 +0000

Renewable energy or energy efficiency compared to business as usual solutions achieve this reduction of market volatility.

Let me just compare a business as usual solution to renewable energy or energy efficiency based solution:

a)business as usual solution
————————-
* Low upfront investment
* High marginal cost (fuel costs)
* High non accounted costs in externalities
– price fluctuation on international markets
– low safety of supply when sourced abroad
– generally: negative contribution to the trade balance
– low labor intensity
– high market concentrations (prompt to gaming)
=> The incomes are generally difficult to predict
=> Financial (virtual) hedging is necessary to lower the financial risk using derivatives. The risk does not disappear but is ultimately paid for in the form of insurance premium.

b)renewable energy and energy efficiency
————————-
* Higher upfront investment
* Low to close to zero marginal cost (fuel costs)
* Lower non accounted costs in externalities and/or positive externalities
– less impacted by fluctuation on international markets
– high safety of supply: reduced geostrategic risk
– generally: positive contribution to the trade balance
– higher labor intensity
– low market concentrations (less OILigopoles) -> better wealth distribution
– increase in technology level
– often: increased yield on investments with energy efficiency
– increased availability of resources for future generations

=> The incomes are generally predictable. Such solutions are a MATERIAL HEDGING.

… up to them to see whether they want money invested in markets with predictable returns and REAL ADDED VALUE or again into purely speculative ones (Wall Street, I am looking at you and your failure to understand investment opportunities in energy efficiency).

By: Ken Johnson

Ken Johnson — Tue, 15 Sep 2009 05:30:30 +0000

Joe – I like it. Would you trade a safety valve, e.g. at $28 (no strategic reserve), for a $14 floor price (both increasing 5% per year)?

By: David B. Benson

David B. Benson — Tue, 15 Sep 2009 02:28:08 +0000

Or even a bit higher?