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#31 Aldyen Donnelly on Why Carbon Pricing Hasn't Worked So Far

July 17, 2018

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If we don’t learn from history, we are doomed to repeat it. Yet when it comes to reducing carbon in the atmosphere, the current solutions fail to recognize what has worked in the past. So, what can we learn from the pollution reduction success stories in our history? What can those successes tell us about the shortcomings of existing strategies like cap-and-trade and carbon taxes? Why do our current methods of carbon pricing fail so spectacularly?

Aldyen Donnelly is Nori’s Director of Carbon Economics. She has been working to develop market-driven strategies for reducing carbon in the atmosphere since the mid-1990’s, creating a consortium of Canadian energy companies that developed the world’s first ‘emission reduction credit’ or ‘ERC’ purchase agreement to finance soil carbon sequestration as well as the first ERC-financed carbon capture and storage project.

Today, Aldyen joins Ross, Christophe and Paul to explain the fundamentals of cap-and-trade, discussing why allowances don’t represent a real reduction in emissions. They cover the inaccuracy of carbon prices as set by cap-and-trade markets and the Nori team’s eye-opening experience with the CarbonSim trading simulation game. Aldyen speaks to what we can learn from successful pollution reductions in history, describing how market competitors will find ways to innovate if we order fossil carbon reductions in the energy supply chain. Listen in for Aldyen’s insight on the failure of carbon taxes and learn how such measures have resulted in a negligible reduction in emissions while shifting the tax burden from the rich to the poor.

Resources

‘Why Carbon Pricing Isn’t Working’ in Foreign Affairs

Verified Carbon Standard

Climate Action Reserve

The Gold Standard

RECLAIM

CarbonSim

Key Takeaways

[3:48] The fundamentals of cap-and-trade

  • Quota-based management regime
  • Government creates limited amount of entitlements
  • Purchase allowances or buy carbon offsets if go over
  • Allowances don’t represent real reduction in emissions 

[8:23] Why cap-and-trade doesn’t work

  • Theory that allowances purchased from those who reduced emissions
  • Government supplies more quota than everyone needs
  • Intention to decline entitlements over time too hard politically

[12:27] Aldyen’s take on the ‘success’ of RECLAIM

  • Reduced value of allowance by half every four years
  • Punished for overcompliance, banking allowances 

[17:12] Why carbon pricing set my cap-and-trade markets is inaccurate

  • Price per certificate = fraction of cost of permanent reduction of emissions
  • ‘Trading pieces of paper for $12’
  • Storing carbon in cropland looks expensive by comparison 

[20:36] The Nori team’s experience with CarbonSim

  • Trading simulation game, goal to hit cap numbers and make profit

[24:21] What we can learn from successful pollution reductions in history 

  • Order fossil carbon reductions in energy supply chain (e.g.: 3% per annum)
  • Market competitors will innovate (i.e.: lead out of gasoline) 

[28:42] Why a carbon tax doesn’t work to reduce emissions

  • Regulations that dictate solution or price tie hands of private sector
  • Better for participants to compete for market share (innovation)

[31:00] Aldyen’s top insights for government officials

  • Concentrations high enough that removing CO2 from atmosphere is essential
  • Offer same $35-$50/ton tax credits to farmers as gas-fired power plant

[32:53] Why carbon taxes don’t change behavior

  • Recent increase in gas prices of 56¢, total sales still up
  • Retail pump price not same signal as price at wellhead
  • Consumers put off other capital expenditures to compensate

[38:29] How carbon taxes have impacted Sweden, Denmark and Norway

  • Negligible reduction in emissions
  • Massive shift of cost burden for electricity to smallest consumers

[41:58] Aldyen’s view on British Columbia’s carbon tax

  • One 18-month period when gasoline use dipped
  • 100% of dip attributed to low-income group
  • Added $117/year to typical commute by car
  • Increased cost of public transit by $480/year

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