Friday, January 30, 2009
The answer depends on the elasticity of demand and supply of fossils fuel generated electricity,which in turn depend on the degree of electricity market deregulation (in particular, tariff setting mechanisms, demand response and the free choice of supplier by small and large customers), the age of current generation generation plants, the availability and price of clean electricity sources (and their supporting policies), the price of fossil fuels and carbon, and how new transmission investments will be managed. All of the previous determine not only the overall effectiveness of the CO2 price in mitigating emissions, but also whether it's the consumer or the producer who pays the additional cost.
In short, for the price of carbon to be effective in mitigating CO2 emissions, the electricity tariffs must be determined freely in the market to reflect true marginal costs. For that to really happen, there must also be demand response (e.g. smart grids with real time metering). Needless to say, all consumers should have the freedom to choose their supplier in order to give electric utilities the incentive to switch to cleaner energy sources. The age of current plants is important as newly built coal plants are unlikely to be bulldozed as Jim Hansen suggests. However, the possible grandfathering of old coal plants would be a huge mistake. The availability of economical renewable energy sources will also be crucial, and this is not only a question of local resources and support policies, but also one of efficient organizational and regulatory frameworks for new transmission investments. Transmission is a major stumbling block all over the world, and most of the current regulatory frameworks don't support the investments required to make carbon pricing effective and cost-efficient. In Europe, the issue is more severe and complicated when it comes to investments in cross-border transmission lines that benefit several member countries. On that more later.
Wednesday, January 28, 2009
Tuesday, January 27, 2009
Now, since it looks like aggressive climate policies may finally become reality, I want to talk about how a carbon tax or a cap-and-trade system, which is more likely, would impact different parts of various energy chains. However, for now I want to get some sleep. It's late and I just came back from a trip to the Netherlands.
Saturday, January 24, 2009
Thursday, January 22, 2009
IEA's book suggests, rightly so, that non-economic barriers, "such as administrative hurdles (including planning delays and restrictions, lack of co-ordination between different authorities, long lead times in obtaining authorisations), grid access, electricity market design, lack of information and training, and social acceptance, have a significant negative impact on the effectiveness of policies to develop wind power, irrespective of the type of incentive scheme." This is certainly true, but a quota system leaves full price, volume, and balancing risk on the investor's shoulder, making it much less effective in attracting new investments. At the same time, if the FIT-based system has involved lower tariffs than quota-based systems, it's naturally much more preferable to consumers and a more cost-effective policy for the tax payers. From the viewpoint of the utilities, it's also preferable, because it doesn't erode anybody's competitiveness in particular, and it allows a nationwide allocation of the tariff burden to all consumers. It's notable that UK actually has better wind resources than Germany, and so even a lower FIT than the ones in Germany could induce massive investments in new wind power capacity.
Tuesday, January 20, 2009
Monday, January 19, 2009
Sunday, January 18, 2009
If you haven't heard of Alltop.com, it's a convenient tool to track the best blogs of a specific topic. According to their site, it's an "online magazine rack" of popular topics.
Saturday, January 17, 2009
Thursday, January 15, 2009
I'm hopeful that the stimulus plan by President (elect) Obama will increase liquidity sufficiently in the U.S. economy, and that Paul Volcker's recommendations will be embraced to large extent. However, to ensure that we won't have to deal with this kind of crisis anytime soon, I think we should do more. Here's one suggestion: let's make all finance professionals study more economics, and have them go through some kind of "bar examination" to determine whether they qualify to practice finance. (I can hear the crowds roar - at least all investors who've lost their money during this crisis)
Tuesday, January 13, 2009
Sunday, January 11, 2009
"A copy of the monitoring agreement, seen by Reuters, has the handwritten words "with declaration attached" next to the signature of the Ukrainian government's representative.
The declaration, a copy of which has also been seen by Reuters, stated that Ukraine had not siphoned off any transit gas and that it had no outstanding debts to Russian export monopoly Gazprom -- a central bone of contention between the two countries.
It said Russia must supply volumes of "technical" gas, at no cost, to Ukraine to maintain pressure in the pipeline system -- a demand Gazprom described as "an attempt to legalize the theft of gas."
Thursday, January 8, 2009
Wednesday, January 7, 2009
One of Gazprom's objectives is no doubt the speeding up of the Nordstream gas pipe line. According to the BBC, Gazprom's deputy chairman Alexander Medvedev said on Friday that they believe "it is necessary to develop, as soon as possible, alternative transit routes. We hope that Europe takes the necessary steps to support this".All in all, what the Russian counterparties, whether that's Gazprom or Kremlin, want to achieve from all this is less of a mystery. To me, the more relevant question is: what is going on in Ukraine and what are their options? It's obvious that Russia should compensate Ukraine for being able to pump gas through Ukraine, but the proposed price of $ 250 per thousand cubic meters may be the best deal Ukraine can get. Eventually, they might end up paying something close to the full market price. Of course, the gas will be flowing again in a day or two, because Russia must honor the bilateral agreements with its European customers. I'm looking forward to what the talks tomorrow between Gazprom, Ukraine and the EU will result in. However, history has taught me not to expect to fully undestand the game I'm watching. Is it purely commercial? Let's start by asking: to whom?