Wednesday, May 1, 2013

Pricing Carbon: Cap and Trade or a Carbon Tax?


Greenhouse gas emissions (GHGs) are one of the most commonly cited examples of a negative externality: when prices in a competitive market do not reflect the full cost of producing a product or service. The days of freely emitting greenhouse gas emissions are numbered and government institutions are in the process of determining the best way to price carbon emissions. Among the plethora of options, carbon taxation, a pricing instrument, and emissions trading, a fixed quantity model, remain the two economically efficient policies.

Putting a price on carbon dioxide is an attractive alternative to providing expensive subsidies to the renewable energy sector. Since carbon pricing increases the price of fossil-fuel based energy sources, the price of renewable energy becomes more competitive in comparison. What’s more, carbon taxation provides organizations with an incentive to invest in greener technologies. In fact, executives of oilsands’ companies have been demanding a carbon tax.

The leading proposal in the United States and globally is to create an emissions trading system, also known as cap-and-trade.  Cap and trade systems place a limit on the amount of pollution that can be emitted. Therefore, firms must pay for each unit of pollution in the form of a permit. The price of these permits varies depending on supply and demand. Firms that can reduce greenhouse gas emission inexpensively can sell their permits to other organizations. The widespread acceptance of cap and trade is no surprise as the system benefits almost all stakeholders. For governments, cap and trade offers the opportunity to take action to combat climate without the negative perception of an added tax. For environmentalists, emissions trading systems ensure governments commit to a fixed reduction in greenhouse gas emissions. Cap and trade systems can work effectively as evidenced by the sulphur dioxide allowance-trading program that was established under the 1990 Clean Air Act Amendments (CAAA). The goal of the program was to reduce S02 emissions by ten million tons relative to 1980. The program was immensely successful; sulphur dioxide emissions declined by 43%, despite electricity generation from coal-fired power plants increasing by over 26% between 1990 and 2007.

Despite being positioned as a market-based approach to curb greenhouse gas emissions, cap and trade systems are not the best tool to combat climate change. First, cap and trade systems can take years to implement because of delays associated with policy implementation. Given the uncertainty over the price of carbon dioxide emissions, in the event that the price of carbon rises, there will be pressure on the government to relax the carbon cap, thereby reducing the overall efficacy of the policy.

A carbon tax levies a tax on each unit of greenhouse gas emissions and provides incentives for organizations to reduce pollution. Carbon taxes are easier to implement than cap and trade systems and can be adjusted if the resulting changes are too strong or too weak. Carbon taxes are supported by economists on the left and right because they are a market instrument that does not require substantial government involvement: change the price and let the market work its magic.

Carbon taxes carry limitations as well. Perhaps the biggest obstacle is the challenge of instituting an additional tax. There are many psychological reasons why people oppose things like carbon taxes. For one, the endowment effect—when peoples' willingness to accept compensation for a good is greater than their willingness to pay once their property right is established—is one reason why taxes are hard to accept.  While both pricing systems increase energy prices, cap and trade is often more viable politically because it is not labelled as a tax. Finally, there is a temptation that politicians will use carbon taxes as a revenue source rather than a neutral tax. Remember that carbon taxes are intended drive down consumption of fossil-fuel based energy source (see British Columbia's revenue neutral carbon tax as a case in point: http://www.fin.gov.bc.ca/tbs/tp/climate/carbon_tax.htm).

Both pricing models achieve the outcome of increasing energy costs and reducing greenhouse gas emissions.  The challenge is that while carbon taxation is a more holistic solution, it is less appealing to voters due to the negative perception associated with an added tax. In short, carbon taxation is a remarkably system that allows governments to reduce spending (particularly on supporting renewable energy), lower our dependence on foreign oil, reduce pollution, and correct a market failure.

By Trevor S.

Sunday, March 25, 2012

Assorted Links and Interesting Reads

  1. An update on transit in Toronto
  2. The U.S. federal government has released an estimate of the number of green jobs in the economy, claiming 3.1 million people are employed in the production of goods and services that benefit the environment.
  3. To mark World Water Day, digital animations conveying the severity of global declines in groundwater went on display in Times Square 
  4. Infographic summarizing the number and type of "green" jobs in the U.S. 
  5. Award-winning German development aims to be "The World's Most Sustainable Neighborhood"
By Trevor S.

Tuesday, March 6, 2012

New York City's Waste Management Practices: the Good, the Bad, and the Ugly

Under the leadership of Mayor Bloomberg, New York City is creating a state of the art facility that will use the “cleanest and latest” technology to dispose of approximately 450 tons of trash per day. If successful, the program’s capacity will be doubled. According to Bloomberg, the plant must be in New York City or no farther than 80 miles away to reduce its environmental impact. The project is part of New York City’s efforts to reduce reliance on landfills as the city currently produces 10,000 tons of waste daily.

New York also has a program called “re-fashioNYC”, a partnership between the City of New York and Housing Works. The program gives buildings with 10 or more units donation bins which are collected by the city within 5 days of placing a request. In addition, individuals can receive a tax receipt for their donation. This powerful incentive encourages individuals to donate items, rather than throw them in the garbage. The program collects an array of items including fabric/material, clothing, towels, linens, curtains, clean rags, shoes, and accessories (belts and handbags).  


re-fashioNYC Collection Bin
While NYC’s waste-to-energy proposal is innovative, the city should investigate long-term solutions to reduce waste. If garbage collection costs follow a progressive model (low fee for a base amount of garbage and an increasingly large fee for each additional bag of garbage), households will produce less waste and recycle more often. Check out this article for more details on progressive user fees. New York City’s recycling rate of 15 percent is derisory compared to the average recycling rate of 39 percent among countries in the European Union. In fact, Germany, Belgium, and the Netherlands have recycling rates of over 60 percent

New York City should look into offering a composting collection program. Toronto’s green bin program led to 44 percent waste diversion in 2008.
Toronto's Green Bin Program
What are some other effective ways to reduce waste production?

By Trevor S.

Sunday, January 8, 2012

Managing Water Effectively: Lessons from Singapore


Although Canada holds 20 percent of the world’s fresh water, we posses only 7 percent of the world’s renewable fresh water. The perception that Canada has an abundance of fresh water has led to misuse and abuse as evidenced by Canada's reprehensible per capita water consumption of 343 litres per Canadian per day. Canada requires more stringent policy to ensure sustainable water use and consumption.

The Canadian government can learn from countries like Singapore- a country that has built robust and highly effective water management policies.

Singapore covers an area of about 700 km2- slightly larger than the city of Toronto. With a population of 4.4 million, Singapore has consistently ranked as one of the least corrupt countries in the world. While Singapore receives 2400mm of rain annually, it is still considered a water-scarce country because of the limited amount of land that can be used to collect rainfall.

In order to provide sufficient water for its 4.4 million residents, Singapore’s water management approach relies on a combination of four strategies: rainfall storage, desalination, water imports and advanced technology for recycling water. Because of its holistic approach, Singapore has been able to successfully balance water quality and quantity considerations in an equitable manner that achieves economic efficiency, promotes public and private sector cooperation, and reduces reliance on external sources.

Let’s take a look at Singapore’s four strategies in further detail:

1.       Rainfall Storage:
Since 86 percent of Singapore’s population lives in high-rise buildings, the city-state has relied indispensably on collecting rainfall for non-potable uses (mainly for toilets). The cost of collecting rainwater is $0.25 USD per cubic meter compared to the cost of collecting potable water which is $0.33 USD.

2.       Desalination:
In 2005, Singapore created its first desalination plant, SingSpring, with the capacity to produce 30 million gallons of water per day. The plant uses three stages to treat water. First, sea water goes through a treatment process whereby suspended particles are removed. Next, water undergoes reverse osmosis. Finally, the water is remineralized.

A second desalination plant with a capacity to produce 70 million gallons of water will be completed in 2013. Combined, these two plants will allow Singapore to meet 7.4 percent of its current water demand.

3.       Water Imports:
Singapore currently relies on water imports from Malaysia to satisfy 40 percent of its water demand.

4.       Recycling Wastewater:
In 1998, Singapore started experimenting with water reclamation—the process of cleaning wastewater to safely return it to the environment. The Singapore Public Utilities Board (PUB) built a prototype plant, The Bedok Water Reclamation Plant, in May 2000 and after two years of testing the plant received a clean bill of health. The water quality was so high that it even met the quality standards of the Environmental Protection Agency and the World Health Organization.  After the success of the Bedok Water Reclamation Plant, Singapore has begun to collect, treat, and reuse wastewater on a larger scale.

Public Policy
Singapore passed the Trade Effluent Regulation in 1976 to ensure all wastewater discharge undergoes extensive treatment. While many other countries have similar requirements, Singapore has strictly enforced and implemented its regulations. When waste from cattle farms became a major source of contamination, Singapore enacted the Cattle Act to restrict the rearing of cattle to certain areas.

By using an approach that collects water from four sources, Singapore has been able to curtail its reliance on external water supplies and institute an efficient, cost-effective, and equitable water management strategy. Singapore’s four tap strategy will allow it to achieve self-sufficiency by 2060 as highlighted below.
















By Trevor S.

Wednesday, November 30, 2011

Vertical Farming: A Viable Solution?

The United Nations predicts that the planet will have over 9.1 billion people by 2050. As the amount of arable land continues to decline, how will we be able to provide enough food for 9.1 billion people? Providing a sufficient amount of food for 9.1 billion people would require increasing current food production by 70 percent. Many are skeptical that we will be able to meet this vast target; however, this skepticism has not stopped scientists from coming up with alternative solutions.

One of the proposed solutions is called vertical farming. The idea of this approach is to grow agriculture on each floor of a building, all year-round in cities across the world.


The benefits of vertical farming are noteworthy: lower transportation costs, a reduction in carbon dioxide emissions associated with food transportation, and less food spoilage. The idea of growing food where the vast majority of the population resides seems logical.

The main challenge with vertical farming is the prodigious amount of artificial lighting (and energy) that is required. However, by using solar panels on the rooftops of buildings , a large chunk of energy requirements can be met while minimizing GHG emissions. 


What do you think of vertical farming? Is it a viable alternative, or should we simply accept that our earth is incapable of supporting 9.1 billion people?

Check out this video from The Economist for more details:

By Trevor S.

Friday, November 11, 2011

Climate-Change deniers have a point

It's been a while since I last posted, too busy with med school these days. But after reading this Naomi Klein article and realizing that this website - http://www.friendsofscience.org/ - is the second item that pops up when "critique of canada's position on global climate change" is googled, I can no longer keep silent.

I don't mean that I'm now going to bash the climate-change deniers. On the contrary, when I read what Naomi Klein wrote, and what "Friends of Science" says, I can't help but think that a few of the denier's denials actually have a point.

(Don't worry, I haven't turned to the Dark Side...just making a suggestion to help all environmentalists become more successful. Let me explain.)

True, environmentalists aren't "sacrificing humans to the gods like the Aztecs". But we all know there are some environmental groups out there who put the environment above all else, even above the needs of fellow humans (ie. greenpeace cutting down whole fields of crops).

In fact, I used to be like this myself back in first/second year undergrad, trying to enforce my own values and standards upon fellow students in getting them not to waste food in the Queen's University cafeterias.

But this attitude is dangerous.

It only weakens support for the environmentalist's worthy ideals, and ostracizes the environmentalist group from society at large.

The environmental movement needs to shift it's focus - from one of "environmentalism" to "humanity-ism".

As David Suzuki says, the world will survive no matter what the humans do. The real question is whether humanity will survive or not, both in the short and in the long term.

The survival of the human race for many, many generations on Earth should be goal of environmentalists. In order to do that, environmentalists need a much more balanced approach - emphasizing the social, economic, and environmental aspects of sustainability, instead of just "environmentalism".

People who truly care about the future of humanity on Earth should not be forcing less privileged members of our society to make the same degree of sacrifice they themselves are making. Until people have their basic needs met and are happy with their lives, it will be virtually impossible for them to care about the natural environment.

So - instead of solely advocating for the environment at all costs, people who care about the planet/human race should advocate for environmental friendliness along with social justice, economic equality, and the like.

This ideal triad of economic, social, and environmental sustainability is not new. But it is much more complicated than just "environmental activism" alone.

Nonetheless, until environmentalists embrace this more balanced perspective, they and their worthwhile ideals will always be vehemently opposed by a significant chunk of our society.

Monday, October 3, 2011

The Economics of Water

Global water consumption has tripled since 1950 leading to vast shortages across the world. It is estimated that 1.1 billion people worldwide do not have access to safe drinking water. Since North America has 21 percent of the world’s fresh water, most Canadians and Americans do not understand or appreciate the value of fresh water.  The average American consumes nearly 350 litres of water a day—twice the global average.

The key challenge is figuring out how to preserve our precious supply of water and eliminate excessive consumption.  As David Zetland—an influential water economist currently working at Wageningen University in the Netherlands—points out in his research, water prices must increase to bridge the current gap between supply and demand. Zetland discusses water policy at length on his website www.aguanomics.com but his solution is to implement a pricing scheme that will eliminate excess consumption.  Zetland proposes implementing a pricing scheme whereby households would receive the first 75 gallons of water for free; however, every additional 75 gallons would cost $5.60. This pricing system would ensure that everyone gets a basic allocation of cheap water while forcing excessive water users to pay more. This model follows the basic economic principle that as price increases demand decreases. Pricing is without a doubt the most effective method to reduce demand because it directly impacts the end user. Further, through incorporating Zetland’s model, municipalities would get additional revenue which could be invested in infrastructure improvements or educational initiatives. Municipalities could even use their increased revenue to provide subsidies to homeowners for switching to appliances with lower water consumption (i.e. low flush toilets, low-impact showerheads, more efficient dishwashers etc).

By Trevor S.