## 2021-10-14 Recap
### Energy Trilemma
- sustainability
- carbon emissions
- cost
- renewable systems not always as cheap or easy as fossil fuels
- security
- retiring fossil fuel plants before end of life
- equity (sometimes?)
- consider affect on different economic classes?
### Price Surge Policy Discussion 10-26
- what is happening to energy prices?
- why?
- how to fix?
#### Readings
### [[EU Fit for 55]]
Current proposal for new climate goals
- more ambitious climate goals
- ensure policy is in alignment with goals
- EU Emissions Trading Scheme (ETS)
- carbon credits
- now includes shipping
- road transport and buildings
- 43% reduction by 2030 from 2005 level
- Market stability reserve (MSR)
- Carbon border adjustment mechanism (CBAM)
- limit import and trade of electricity with more fossil-based countries
### Carbon [[Externality]]
Key questions
- How to address directly?
- how to design quotas to work directly?
- How may CBAM work?
Externality shifts marginal cost curve upwards:
![[supplydemandco2externality.png]]
[[Pigouvian Tax]]
Challenges
- needs
1. Know marginal cost
2. Impose taxes
- alternative - set a quota
#### Quotas
Set efficient quantity of pollution
- maximize value from polluting
Who should get it?
- tends to harm new entrants
- discourages new technology
Can trade quotas, permits
#### Attempts to control
- subsidize education
- gov't funded research
- taxes
- regulations
![[quota.png]]
Firms that can lower their carbon emission have a competitive advantage
Greater proportional change in marginal cost for lower emission reductions
##### Simple Quotas
"Grandfathering" = allocate quota based on previous emissiosn
##### Tradable Permits and Auctions
![[tradeablepermits.png]]
- Total cost = industry cost = $200
- Triangles under mAC curve, firm quantites
- Ensures emission reduction is done in most efficient way
- Auction proceeds can lower taxes for more vulnerable groups. finance social services
![[permit comparison.png]]
#### [[EU Emissions Trade Scheme (ETS)]]
= allowances to emit CO<sub>2</sub>
CO<sub>2</sub>is a very cheap way of abating emissions
- is carbon price sufficient?
- can displace coal, maybe not gas?
-
High cost of small-scale renewable subsidies
- "helps spur innovation"
#### [[Carbon Border Adjustment Mechanism]]
- levy on products imported produced with high carbon emissions
Interconnection
Static effects
- impose carbon price on (carbon) imports into Europe
- encourages domestic production
- foreign consumers get better price
- tax revenue
Dynamic effects
- incentivize foreign producers to develop clean energy
- addresses displacement of clean domestic energy by dirty foreign energy
Discussion
- good for:
- renewable generators
- governments
- foreign
Should there by a price on carbon emitted from heating?
- how to displace carbon-based heating?
- heat pumps?
- "cold week" problem
www.morgmot.org