July 29, 2011

Cutting CO2 Emissions Brings Savings in Health-Care Costs

Or What I Call Global Carbon Flows BC  (Before Coal)

By Melvin J. Howard


Environmentalists are in favor of cutting the emissions of greenhouse gas, claiming that investing in this cause further would ensure an increase in health-care savings of around thirty billion euros annually. Cutting the CO2 emissions by 30 percent, instead of just 20 percent that have been settled upon currently, with 2020 set as a deadline, would be to Europe’s benefit. The estimation was made by two campaign groups, “Health Care Without Harm Europe” and “Health and Environment Alliance”, who published the study. The two anticipate that less time would be taken off work as a consequence of suffering from illnesses, less consultations and medicines would be needed and improvements in life expectancy would be registered due to the heightened cut into greenhouse gas emissions. These are the factors that would generate savings in health-care for Europe. According to the researchers, people’s well-being would be increased as a result of the rise in the quality of air. Europe would agree to cut into the emissions further so long as other polluting countries such as China and U.S. would make the same commitment. Discussions on whether to rise the percent have already started. 

Most developed nations have ratified the Kyoto Protocol of the United Nations Framework Convention on Climate Change, including all 25member states of the European Union, as well as Canada and Japan. By ratifying the Kyoto Protocol on climate change, these countries have pledged to reduce their greenhouse gas emissions by a significant amount over the next decade. The U.S. refused to ratify the Protocol. In anticipation, this pro-Kyoto world is gearing up for compliance and is implementing new regulations, markets and market mechanisms - indeed a whole new way of doing business globally. Will the U.S. now be left out of the developments in the global carbon markets that have taken place mostly outside of the United States, and get very little attention in this country. These developments include the world's first international market in carbon-based financial instruments, national taxes and levies on corporate energy use, and even a tax on cow farts yes that’s right I said cow farts and even burps in New Zealand!

But first, let’s start with a refresher on the cycle we can't afford to ignore anymore the global carbon cycle. Just like with the water cycle in the carbon cycle, only a tiny fraction of carbon on earth actually participates in the carbon cycle relevant to us earthly creatures. And just like the water cycle, any carbon we have in our bodies today has certainly done the rounds over thousands or millions of years: through plants, soils, other animals, the ocean and the atmosphere. And you can forget property rights when it comes to carbon! When the carbon in us is ready to depart, it will just go off and be somewhere else. Before the industrial revolution got underway, global carbon flows ran as follows:

ü      Carbon in the air, stored as carbon dioxide (amongst other gases), is used by plants in photosynthesis and becomes part of the plant. Some of these plants get eaten by animals and the carbon in them is then used in various molecules to make body tissue and to burn up energy. Other plants, or parts of them, like leaves, just get old and die. This decomposition releases some carbon back to the atmosphere, as does the process of respiration by animals. The other 99.9 Before fossil fuel use by humans entered the scene, losses of carbon from the earth and into the air from decaying vegetation and animal respiration, in the form of various gases such as carbon dioxide and methane, were pretty much balanced by carbon storage or "sequestration" by plants during photosynthesis. The carbon cycle chugged along in this balance between about 1000 AD and the early 1800s, and so the amount of carbon in the air stayed pretty constant over this time period since the middle ages. To give you an idea of magnitude, this annual exchange was about 100 million gigatons of carbon (where a gigaton is a billion tons), from the earth into the atmosphere, balanced by an equal exchange from the atmosphere back to the earth.

How Carbon Accounts become Unbalanced

ü      But then came the industrial revolution, powered by the burning of carbon rich fossil fuels, and accompanied by massive clearing of forest land for agricultural and other purposes. These two activities have extracted another 7-8 gigatons of carbon out of the earth's sources per year, of which the oceans and the world's forests have decided to absorb just over half of this release. So the remaining 3-4 gigatons of carbon has nowhere to go but into the air. Over the past 250 years, the level of carbon dioxide in the atmosphere has risen by 30. An excess of carbon gases, like carbon dioxide and methane, are known to trap heat in the biosphere, making things toastier for all of us. This so-called "global warming" has many known and unknown impacts on climate. That humans have significantly increased the amount of carbon gases in the atmosphere, and that these gases do contribute to temperature increases is generally not in dispute between the two main parties on either side of the Kyoto Protocol. What is under debate is the degree to which global warming is caused by natural versus man-made factors. The fairly recently discovered indications that the middle ages may have been warmer than the current ages, has the leadership in the US scrambling to promote studies to show that natural causes are a primary contributor to climate change. Satisfied that human activities are contributing to climate change, the countries that have now ratified the Kyoto Protocol on global warming are trying to do what they can to get as much as possible of this excess carbon out of the atmosphere by implementing mechanisms designed to reduce overall carbon emissions.

The naysayers team, reluctant to give up their high carbon diets, led by the United States and Australia, are diverting significant resources into figuring out how carbon wastes can be buried underground or in the sea in a process known as artificial carbon sequestration. The U.S. has also developed a interest in the climate in medieval age when temperatures were much warmer than they are today. If only they can understand why we were so toasty, they can cast doubt on the idea that human induced greenhouse gases are largely responsible for climate change.

The carbon market.

In this new carbon market a monetary value is assigned to a carbon gas emission allowance. Such an allowance could only have a monetary value if there are a finite number of such emission allowances and the total amount allowed in the market is close to, or even below, the total amount that is currently being emitted. For this market to exist in the first place there must be someone or some body, most likely a government body, that sets the total number of allowances for the market. This is exactly what the European Union has done. It has used the "cap and trade" approach to moving towards Kyoto targets. Under the EU emissions trading scheme the EU member states will set limits on carbon dioxide emissions from energy intensive companies by issuing allowances for the amount of gas each is allowed to emit. The total number of allowances will reduce each year until the final target is reached. This list of companies includes approximately 10,000 companies accounting for about half of the EU's cabon dioxide emissions and encompasses the following industries: steel, power generation, oil, paper, glass and cement. A company that is able to lower its emissions at relatively low cost, may sell its excess allowances and hence, the argument goes, the emissions market will act as a catalyst towards finding lowest cost emissions reduction solutions. Other companies that have difficulty meeting their targets inexpensively can buy these excess credits in the market, at whatever the prevailing market price is. In effect then, they are providing the financing to the seller of the credits for the seller's emissions reductions efforts, since this was cheaper than reducing emissions in their own operations. And, if companies decide to neither meet their targets nor buy credits in the market to offset their excess, they will have to pay large fines to the government, well in excess of the market price of credits. Hence the incentives are there for companies to either comply or buy credits, thus ensuring that the total amount of emissions will remain below the target.

This method of allowing the market to cut emissions quickly where it is cheapest and easiest to do will presumably have the least detrimental effect on the health of the economy, an issue largely driving the non-believers" approach to man-made climate change.

It’s a miracle that a bunch of 25 countries as diverse as the European Union and who were at war with each other not so long ago, could unite over a proposal that is bound to bring some shocks to their local economies. Even the European environmental community seems fairly pleased with the EU's approach to global warming.  But, like all such complex agreements involving so many and varied parties and lots of different political interests, this one is not without controversy or room for abuse. During the discussions leading up to the 1997 Kyoto Protocol, some of the most controversial provisions had to do with the ways in which companies and/or countries could accumulate excess greenhouse gas credits other than by cutting emissions below their target level. Some of these so-called "Kyoto Mechanisms" included:

  1. Creating "Carbon Sinks": Such as planting new forests, or even certain types of timber farming; 
  2. Joint Implementation Projects: Which means funding emission reductions projects in other industrialized nations;
  3. Clean Development Mechanisms: Which means funding "clean energy" projects in developing nations.

Many people fear that credit accumulation or emissions offsets gained under these methods may be the most wide open for abuse and therefore may not bring about real change in the battle to stem the release of greenhouse gases into the atmosphere. The original EU Emissions Trading Scheme, that began trading in 2005 did not provide for these Kyoto Mechanisms. But a Directive proposes an amendment allowing two of these mechanisms - Joint Implementation and Clean Development Mechanism Projects in other countries as methods to accumulate carbon emissions credits. Climate Action Network in Brussels discussed their concerns about these mechanisms. Nevertheless, these developments in Europe have really made the EU the world leader in trying to stem man-made contributions to climate change, and without these efforts it is possible that the Kyoto process would have collapsed after the U.S. pulled out.

The United Kingdom set up the first national emissions market of its own, similar to the EU "cap and trade" mechanism. The UK actually plans to significantly exceed, or do better than, its Kyoto targets and they have gone further than just capping, trading and fining violators.The British government imposed a Climate Change Levy in the form of a tax on business use of fossil fuel based energy sources. Relief on this tax can be gained by meeting certain targets in the emissions trading program.

Different countries face very different challenges in meeting their Kyoto targets. For less populated and more agricultural-dependent countries like Australia and New Zealand, carbon dioxide emissions from fossil fuel use are not the main problem areas.Though one doesn't like to talk about these things in polite company, believe it or not, cow and sheep burps and farts are a much bigger problem! Cattle and sheep grazing and their subsequent emissions of smelly gases as by-products of the digestive process, contribute an abundance of the most potent of the greenhouse gases methane. In fact, farm animal farts and burps account for about one half of all greenhouse gas emissions in New Zealand.

Unlike its neighbor Australia, the country of New Zealand has ratified the Kyoto Protocol and had to do something about these smelly air bubbles. In a move that was far less socially acceptable than either the pops themselves or Britain's Climate Change Levy, the New Zealand government took the drastic step of taxing farmers for the natural bodily functions of their farm stock they introduced the world's first tax on farting that’s right farting! Needless to say a farmer's rebellion got underway. Across the Tasman pond, Australia has some similar problems, but more broadly faces the reality that greenhouse emissions have increased over the last decade primarily due to land use changes, including deforestation and agricultural practices. As forest land is cleared and burned to make way for agricultural and other uses, and under certain types of agricultural practices, much carbon that was stored in plants and soils is released back into the atmosphere.

As carbon markets emerge in other countries, you can expect to see the U.S.-based investment banks and brokers getting involved, despite the fact that the U.S. is not a signatory to the Kyoto Protocol. You can also expect some rumbles from multi-national companies based in Europe that also do a lot of business in the U.S. Furthermore, the companies that have start complying with the European rules and who are spending money to comply, will be able to green-wash or brag about their image with some legitimacy. This, in conjunction with growing shareholder activism on climate change in the U.S. will apply significant pressure for change in this country.
It is likely that even U.S. based companies across the financial, energy, and other sectors will be significantly impacted by the Kyoto Protocol, even without ratification by the U.S. There may also be a concern from many companies that they are missing out on opportunities in new markets, such as the carbon markets and new energy markets, because the U.S. is not a party to the agreement.
It's time we move out of the Dark Ages after all, there is green in going green!