Comments on: Carbon trading: Worthy of Feinstein’s ire?

By: jon@ Carbon Trading

jon@ Carbon Trading — Tue, 28 Jun 2011 09:42:55 +0000

The carbon market is one of the fastest growing financial markets in the world today. it should be managed properly to create healthy environment.
The explosive growth of the carbon market in the last 5 years has established it as one of the fastest growing financial markets worldwide. According to a World Bank report (“State and Trends of the Carbon Market 2011”), the market’s worth expanded to US$ 142 billion in 2010 from US$ 10 billion just 5 years prior to that.

for more information visit http://www.emergent-ventures.com/

By: Sean Casten

Sean Casten — Wed, 26 Aug 2009 12:34:57 +0000

Good examples, Dean – and painfully true.

By: Dean Karafa

Dean Karafa — Wed, 26 Aug 2009 11:51:24 +0000

Anecdotal Evidence of the Regulated Market Inefficiency
Case 1: Time and again I have been in meetings with regulated utilities regarding the interconnection of a new generator(s), from a cogeneration plant, to the utility. Invariably the utility will have 6, 7, maybe even 10 engineers in the meeting to make sure the new generator would meet all interconnection requirements. In the same meeting I would typically have 1 electrical engineer, sometimes 2, able to respond to all of the utility engineers’ comments, questions and concerns.
Case 2: A number of years back a utility, in a northerly climate, had 3 very large fuel oil storage tanks for supplying oil to a power plant. The tanks held heavy oil that was heated by a steam system from the plant. When I pointed out to my client that these tanks were not insulated and loosing heat at an enormous rate he politely told me that they could not get insulation of the tanks included in the rate base but they could get recovery for the energy used to heat the tanks. I would not be surprised if insulating the tanks would have had a payback of less than 2 years.
Given time I’m sure many such examples of inefficiency can be listed. The same circumstances in an unregulated situation would have resulted in electrical engineers from the utility just as versatile as mine and certainly someone being fired for not insulating the tanks in the first place. It would probably take a regulator years to find the gross inefficiency (particularly with the oil tank example) and come up with corrective regulation. Sad but all too common, any corrective regulation would probably result in a new set of unintended consequences.

By: Sean Casten

Sean Casten — Wed, 05 Aug 2009 15:29:34 +0000

Darklamp,

The most obvious objection is that we never fully quantify the costs associated with a regulated market. An electricity fleet that is no more fuel efficient than the one we had 50 years ago is a direct result of a regulated market that favors capital recovery over cost control. Comparably, the fact that the capacity factor of the nuclear fleet is so much higher in restructured states results directly from the fact that in the regulated states, there’s no overwhelming financial reason to preferentially dispatch lowest-marginal cost generators beyond regulator-management.

Thus, when we introduced competition into electric markets, we not only saw a huge increase in nuclear CF, but also a huge increase in the deployment of the most efficient power plants. (Look at the gas fleet chart here, and note specifically how fast it fell after competitive markets opened up in the late 1990s. That’s a direct result of the sudden deployment of CCGTs by unregulated actors.)

So is anti-trust hard? Sure. But the costs of top-down regulation are massive, and vastly under-appreciated until after the fact. It’s the core truth of free-market capitalism’s invisible hand. No one can predict a priori how soul-enriching a neighborhood with lots of good bakeries is, but everyone can agree in hindsight that the breadlines in Soviet Moscow sucked. So too with top-down regulation of the electric sector. The fact that we haven’t realized the benefits of competition under that model doesn’t mean that we aren’t paying a massive economic and environmental price for the suckiness of the status quo.

By: Darklamp

Darklamp — Wed, 05 Aug 2009 15:20:15 +0000

On another note, I wonder what system is more cost effective in administering. Is a consumer protection system cheaper to operate or a anti-trust enforcement agency?

When I looked at how electricity markets in Canada were re-regulating several years ago, it seemed like there were more rules and more consultants and more adminstration to make sure there were no market bullies. I still see a fully regulated market as the easiest to operate since decisions are top down and beaurcracies exist to operate the machine.

In an anti-trust enforcement agency, fairness and equality are a priority, therefore, a concerned effort must be made to ensure this priority is in check. An effort I believe costs more in adminstrating.