Does cap and trade really reduce carbon emissions? No

Finally, some electricity price relief, to come perhaps in a few years. The Ontario government announced last week it was abandoning plans to expand wind and solar capacity expansions it had written into its most recent energy plan.

But energy prices will continue their upward trend. That is because the government made clear it will continue to bring Ontario into a carbon cap and trade market.

Is this wise? The only opportunity left for carbon reductions in any Ontario sector is heat. That market is dominated by natural gas, and it will stay dominated by natural gas until any of the following things happen.

  1. The market price of natural gas increases more than tenfold.
  2. The price of Ontario electricity drops.
  3. The price of carbon dioxide under the cap and trade scheme into which the government is bringing the province rises and then stays above many hundreds of dollars per metric ton.

Of these three scenarios, the government has control only over the second two.

But for either of those two to happen, the government will have to take a very uncomfortable decision.

Scenario 2, the dropping of the price of Ontario electricity, is achievable only if the government breaks its promise to the current providers of so-called green energy that it will continue to force ratepayers to pay them unreasonably high prices for their low quality inefficient electricity. The prices they are paid, which are extremely high, are the cause of the high overall electricity price. The government promised these entrepreneurs it would make us ratepayers pay the high prices, so as to entice them into the Ontario electricity sector.

This gambit worked, in that the “entrepreneurs” entered the sector in droves—and why not, seeing as they were offered free money. But now the high prices that guarantee their profits are driving the rest of us into the poorhouse. To add insult to injury, green energy has had no appreciable effect in the way of carbon reductions. It was nuclear plants that achieved the reductions.

Scenario 3 involves the government fixing the carbon market so that prices are high. This is very unlikely. No government on the planet has done that. All governments in all carbon markets have indeed fixed those markets, but the fixing has been to keep the price of carbon low.

Germany and the United Kingdom, for example, are in the EU emission trading scheme. The ETS came into effect in 2005. This fact sheet trumpets it as a shining success. But as you can see in the charts below, the only real effect it has had has been to increase the cost of electricity at the household level—household prices for electricity in the UK and Germany doubled between 2000 and 2014.

And carbon emissions? As you can see, the UK’s were the same in 2014 as they were in 2000, fourteen years earlier. Germany’s were higher. Both the UK and Germany in 2014 had electricity that was more than 12 times dirtier than Ontario.

As a scheme to reduce carbon emissions, the EU ETS has been, in the case of two of its biggest members, a total failure.

Only Ontario, as you can see, actually reduced emissions. The bulk of the emissions reductions occurred prior to 2011. That was because coal was replaced with nuclear, in the form of refurbished reactors at Pickering and restored ones at Bruce. The halving of CIPK between 2011 and 2014 was done by the re-entry of refurbished Bruce nuclear reactors to service. The increase in price in the same period was because of “green” energy, which as mentioned above played no significant role in cutting carbon.

The United Kingdom and Germany are perfectly happy with their respective records of non-achievement in carbon reductions in their electricity sectors. That is because they have no desire to see the ETS do what it is ostensibly supposed to do, which is to drive carbon prices so high as to discourage the use of carbonaceous fuels. Both countries are in northern latitudes, where it gets cold in the winter. And in spite of what they say in public, both know that “green” energy—wind and solar—is so lamentably incapable of providing heat during the winter that it would be absurd to expect people to shift to wind and solar in order to get relief from high carbon prices.

So both the UK and Germany have been content to drive up prices of electricity while ensuring that electricity’s competitors in the heat market, mainly natural gas, remain affordable to most people.

The Ontario government will follow suit. And that will ensure absolutely no progress in reducing emissions any further.

As long as the public remains confused and the media remains asleep at the switch or unwilling to walk through the easy numbers and report actual facts instead of the usual he-said-she-said, a useless cap and trade scheme may suffice to buttress the government’s green credentials. That approach seems to have worked in the EU.

But if the public anger in Ontario over electricity prices remains as strong as it is now, there may be no choice but to tear up the existing renewables contracts, or to rewrite them with new prices so low as to make the sale of electricity a non profitable proposition to green energy entrepreneurs.

That is what I hope happens. The green entrepreneur crowd have misled themselves and the province into believing that slapping a liberal coat of greenwash onto whatever get-rich-quick scheme they are involved with entitles them to ratepayer-guaranteed profits. The government has agreed with them, up to now. But only providers of low cost power that is both clean and reliable should be so entitled.

7 comments for “Does cap and trade really reduce carbon emissions? No

  1. Anaximander
    October 4, 2016 at 10:00

    Great article!

    I nearly jumped out of my seat when they announced a moratorium on new wind and solar in Ontario, luckily for us its waaaay to late to actually fix the problem before 2018, and by announcing this they have implicitly admitted “renewables” were the source of the problem in the first place. This will turn out to be a very, very bad move politically, despite being the right thing to do.

    As long as the conservatives don’t completely muddy the situation by blaming nuclear and/or threatening to fire 100 000 people, they should be able to make a very compelling case that the electricity price surge was 100% self inflicted through ideological delusion and technical incompetence.

    NDP and greens will blame nuclear for sure, and Darlington refurb will be a very soft target, its going to be an interesting litmus test, to see who defends it and who opportunistically attacks rational policy.

  2. October 4, 2016 at 16:07

    I’ve recently seen the idea of relatively short (sub-20 mile) hot-water pipelines bandied about, to provide nuclear heat to district heating systems.

    I think this is silly when the pipelines could be much shorter (less than 3 miles) and plants located inside cities, but it’s a start.

    • Andrew Jaremko
      October 5, 2016 at 12:08

      E-P – I absolutely agree. I think there’s a lot more to be done, as well. It’s encouraging to see the start of systems thinking about power and energy.

    • Anaximander
      October 6, 2016 at 10:27

      I don’t think district heat with SMRs is ever going to fly unfortunately, once people catch wind that their building is circulating water heated in a nuclear reactor, the push back will be overwhelming. Besides I think people underestimate the cost, difficulty, and disruption of district heating in general.

      We already have a great way of distributing energy everywhere, called the electric grid. Heat pumps (ground source in Canada) are probably the right answer, I hope we have a future where so much cheap clean energy is produced in advanced reactors that even resistive heating of residential hot water makes sense during off peak. Waste heat from large reactors could be used for industrial process pre heating where it makes economic sense

      • October 6, 2016 at 14:23

        I don’t think district heat with SMRs is ever going to fly unfortunately

        I think it would only take a few words to change people’s attitude to that.

        “4-season outdoor hot tubs on every balcony, FREE HEAT!”

        • Kyle
          October 14, 2016 at 13:48

          Do you think we can thaw out winter roads in the streets of Toronto with a SMR? IMSR sounds like a great way to do it!

  3. Kyle
    October 14, 2016 at 13:55

    My real issue is that electricity is priced too much. It used to be 4 cents per KWh for the longest time. At that rate I would ditch gas and go all electric heating like my grand’s old house.

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