Summary
The Cap & Trade system for carbon emissions proposed by President Obama will set absolute targets for industry and can be achievable economically. The system will need to include Canada and eventually Mexico. The system requiring all industries producing carbon emissions to reduce emissions should be addressed now even though the economy is downturned.
Analysis
The Cap & Trade system for carbon emissions should operate similar to that of the Clean Air Act, sulfur dioxide emissions trading system. Synergies can be achieved as there is already the Chicago Climate Exchange (http://www.chicagoclimatex.com/) trading these emissions and adding carbon emissions has already begun at that exchange. There need only be a law drafted that puts all industry on the same footing. The Canadians have introduced a law to reduce carbon emissions incrementally for all industry, that of 18% reduction from 2006 emissions reporting on a per unit produced basis and 2% per year there after. An incremental system although is not ideal it could easily be used as a stepping stone to an absolute Cap & Trade system during these tough economic times. Achieving a target like the Canadians have introduced can be done economically and I will address that later in this commentary.
The Cap & Trade system proposed by President Obama must initially include Canada and eventually Mexico as well for it to work. It must address companies who would move industry offshore in order to avoid upgrades for reductions by taxing those companies for imports back to the US if they don’t meet US emissions targets in offshore production. It must include Canada and eventually tax Canadian imports that don’t meet the US emissions targets should Canada not wish to opt in. I say this as a Canadian living and working in Canada. Mexico needs to be brought into the system on a longer time schedule as currently it is a developing country and needs to have developed countries introduce new technology for reductions there rather than throwing them our old higher emissions technology. Once a threshold is achieved in Mexico then it too should meet and achieve emissions targets. Should President Obama introduce this Cap & Trade system earlier than later, he then will have the international clout to influence other developed countries in forming a more comprehensive world treaty that again puts industries around the world on the same footing and competing from the same starting point. This then creates the better “mouse trap” and economies thrive on the new technology.
The Cap & Trade system for carbon emissions needs to be implemented sooner rather than later and can be. Currently due to the market melt down there are significant amounts of cash available looking for a safe investment. Stop loss policies have created this situation and now the managers are looking for a safe place for those funds. As Barry Schwartz addressed a concept at a TED conference (http://www.ted.com/talks/barry_schwartz_on_our_loss_of_wisdom.html) policy and rules are there for the average time, but when the time is not average then we need wise money managers who know “When and how to make the exception to every rule”. This current economic downturn is the time for wise money managers to make exceptions to the rules that are designed for average economic times. Investments into solutions for reducing carbon emissions even though they may not be cutting edge or even patent-able, but can achieve success with significant economic gain is an exception that a wise money manager should look at, no matter if the investment structure doesn’t currently meet company policy or rules. President Obama might be wise to use some of that stimulus package money to back stop some of these investments. These investments could very well lead the country and even a good portion of the world out of this recession to a better economy and a better world.
Finally, I said that carbon emission can be achieved economically and you want me to back that up. I have two projects that I will refer to, the first using existing technology, the only patent that maybe available is a business process patent. The project reduces carbon emissions in the natural gas producers industry. The payback even at a Henry Hub gas price of $4.00 is under 3 years and with a reserve life index ranging from 15 to 25 years that’s exceptional ROI. Implementation of a project representing 2600 gas wells could reduce CO2e by 800,000 tonnes per year. The project’s structure can offer this solution to the gas producer at no increased cost per tonne of reduction; yes I said $0.00/tonne. The second project addresses the oil sands production. President Obama is concerned with the carbon footprint of the oil sands development (http://www.calgaryherald.com/business/Obama+talks+oilsands+emissions+ahead+visit+Canada/1301417/story.html), but at the same time needs the oil for at very least security reasons. This project reduces carbon emissions for the oil sands production by 15% when a barrel of oil costs $65.00. At today’s price for oil there is a slight increase in costs, but in comparison to new cutting edge technology, the $3.00 to $5.00 per tonne of carbon reduction is considerably better than $40.00 to $50.00 per tonne. Investment managers, oil and gas producers, government officials do you wish to learn of these projects and others? Then contact me through the Gerson Lehrman Group and specifically ask for a consult with Jordan McBean.
