Carbon price

For a detailed analysis of sector-specific global mitigation options and their economics, as well as of the sectoral economic mitigation potential as a function of carbon price (see Enkvist et al., 2007 and IPCC, 2007c). 

In another report, James and Kalinoski [4] performed an estimation of the costs for a direct hydrogen fuel cell system used in automotive applications. The assumed system consisted of an 80 kW system with four fuel cell stacks, each with 93 active cells this represents around 400 MEAs (i.e., 800 DLs) per system. The study was performed assuming that the DL material used for both the anode and cathode sides would be carbon fiber paper with an MPL. In fact, the cost estimate was based on SGL Carbon prices for its DLs with an approximate CEP value of around US 12 m for 500,000 systems per year. Based on this report, the overall value of the DLs (with MPL) is around US 42.98 per kilowatt (for current technology and 1,000 systems per year) and 3.27 per kilowatt (for 2015 technology and 500,000 systems per year). Figure 4.2 shows the cost component distribution for this 80 kW fuel cell system. In conclusion, the diffusion layer materials used for fuel cells not only have to comply with all the technical requirements that different fuel cell systems require, but also have to be cost effective. 

Figure 1. Value at stake over range 0-100% free allocation. The chart shows value at stake (see text) relative to total value-added by sector, plotted against UK trade intensity. The bars span the range from (NVAS) 100% free allocation, to (MVAS) the theoretical impact of zero free allocation or equivalent carbon tax. Results are for a carbon price of 15 /tC02 and an electricity cost pass-through that increases power prices by lO/MWh, consistent with a coal-dominated power system (CCGTs could roughly halve this rate of electricity price impact for the same carbon price). Scaling the electricity price moves the lower point of the bars in proportion scaling the carbon price scales the length in proportion.

However, rapidly reducing free allocations may be politically very difficult, and benchmarking is generally far more complex than it appears because of the variety of installation types, processes and products and neither in itself offers ready protection against competitiveness and leakage concerns. If the EU ETS is to be sustained over long periods, and potentially at high carbon prices, we see three main avenues that have the potential to meet all the criteria ... 

However, the cost-competitiveness drop of EU producers heavily impacts EU cement trade flows (Figure 5). Under BaU (no ETS), EU countries, on average, import 11% of their cement consumed, 75% of these imports coming from other EU countries. At a carbon price of 20/tCO2, on average, EU countries import 18% of their consumption, of which 75% comes from non-EU countries. EU exports (not displayed here) are halved and focus mainly on other EU countries -90% of exports vs. 70% in BaU. 

But any policy that internalizes the carbon price without raising revenue (such as emissions trading with free allocation) suffers these tax-interaction effects without the benefit of the... 

Auctions offer some additional approaches to providing a basis for a clear, long-term carbon price signal. First, the mechanisms discussed above could be used to create a long-term price floor . This could be implemented by auctioning all allowances with a reserve price equal to the price floor, coupled with a government commitment to repurchase allowances at the price floor. If credible, a price floor would increase investor confidence in the profitability of low-carbon technology investments. 

See Goulder et al. (1997, 1999), Parry et al. (1999) and Fullerton and Metcalf (2001). The tax interaction effect could provide an argument for a carbon price that is below the Pigouvian level. It is not an argument for not raising revenue. 

If the carbon price on the global "carbon market" settles at 41 per ton/ the value of the global carbon credits market would be over 200 billion, which is more than that of most commodities. It is argued that this trading will drive jobs to countries that do not limit carbon. The more industrialized nations emit more carbon and therefore the cap-and-trade approach would penalize them more. It is for this reason that the opponents of this approach call it "economic disarmament." The EPA in the United States estimated that a 2008 bill on cap-and-trade would have reduced the nation s GDP by about 2%. 

By far, the major portion of carbon dioxide emissions in the MTO route is in the production of methanol from either gas or coal. The gas route is less carbon intensive as is illustrated in Figure 11.11, which plots the increase in methanol production cost against carbon price. 

It appears that there is not much to do in order to reduce uncertainties at least in the near future. Uncertainty regarding future allocations can however affect the investment decisions by companies. A recent report from RIS0 National Laboratory (Morthorst etal. 2005) indicates that uncertainties in the electricity market, including uncertainties in future carbon prices and allocations, may postpone investments in the power sector and reduce the security of Denmark s electricity supply. 

Roques, F., W.J. Nuttall, D. Newbery and R. Neufville (2005) Nuclear power a hedge against uncertain gas and carbon prices , EPRG Working Paper 05/09, Electricity Policy Research Group/University of Cambridge. 

Stringency of enforcement is critical in order to ensure adequate market performance over time and to uphold confidence at the level of market participants. Stringency of enforcement will also impact carbon prices. Comparable governmental and enforcement stmctures are therefore essential to a link (Victor, 2007). When linking between OECD systems, comparable governance and enforcement provisions can be assumed. 

To sum up, the major trade-off in a link between the EU and a Waxman-Markey US ETS resides in the benefits of the political signal, uncertain but possibly positive efficiency gains, enhanced domestic acceptance of carbon pricing, and reinforced credibility of climate policy on the one hand. On the other hand, drawbacks include the loss of regulatory control, as well as the potential conflict over differences in system design and policy priorities. In fact, the major benefits might already materialize once the credible prospect of a transatlantic link, perhaps by 2015-2020, has been created. ... 

Prom an economic point of view, the competitive distortions caused by asymmetric carbon prices appear to affect only few sectors, which account for a relatively small share of GDP (e.g. Reinaud, 2005 McKinsey and Ecofys, 2006 Hourcade et al., 2007 Morgenstern et al., 2007) the reason being that carbon is only one among several factors of production for which prices differ. Thus, a significant impact on investment decisions across two capped economies appears unlikely - in particular if the permit prices of the cap-and-trade systems are not too different. 

Of course, pre-link carbon price asymmetries and corresponding efficiency gains from linking are not only determined by the shape of marginal abatement cost curves, but also by the emission reduction targets. 

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