The Vattenfall/McKinsey Report "A Cost Curve for Greenhouse Gas Reduction" contains a graph (below) that everybody needs to see. The graph shows how much greenhouse gas abatement potential lies in some popular strategies/technologies, and simultaneously shows the monetary cost of each strategy.
The first thing you notice when you see the graph is that the cost for many abatement strategies is negative. That means these strategies make money, they don't cost money. The second thing that you notice is most of the money-making strategies are in the building industry: better insulation, better HVAC, better lighting, better water heating. Also in the money-making realm are better vehicle fuel efficiency and sugarcane ethanol. Forestry has perhaps the largest single abatement potential but is one of the more expensive methods; the power industry has the largest total abatement potential, but different technologies have different costs. There are some aspects of the graph I am skeptical about. For instance, the extremely high price of biodiesel--in San Francisco right now, biodiesel is cheaper than petro-diesel. (But Jørgen Vos of Sustainability Planning Partners and Natural Logic has done a paper indicating biodiesel makes less sense ecologically than we might think.) Also, nuclear power shows up as cheaper than wind, which is not true according to Rocky Mountain Institute's Winning the Oil Endgame. And finally, sequestration by plankton in oceans and biochar in soils do not even appear on the graph. But still, the graph is a fantastic visualization of most strategies and their costs. It should inform strategic planning in companies and governments.
Planning Effective Emission Trading Schemes
One governmental strategy for CO2 abatement is cap-and-trade systems. Emissions trading schemes in the EU and US currently only count CO2 abatement at the source--energy generation. But anyone who knows about efficiency (such as Amory Lovins, LBL, LLNL, NREL, and many other research labs) will be quick to point out that avoiding one unit of end-user electricity use avoids three units of primary energy use, due to the inefficiencies of generating electricity. Therefore, end-user efficiency should be valued right alongside clean power generation.
A movement has started to get efficiency equal footing in emissions trading schemes. Lend Lease Corporation, Lincolne Scott, and Advanced Environmental (a subdivision of Lincolne Scott) have proposed an Integrated Emissions & Efficiency Trading Scheme (EETS). The 70-page document details both the rationale of the system and how it would work. For instance, they quote the Stern Report and Bill Clinton, saying:
"If upstream emissions from heat and electricity are included, emissions from buildings total 40% of global emissions and up to 80% of total greenhouse gas emissions in our cities and towns. The building sector provides more potential for quick, deep and cost effective greenhouse gas mitigation than any other industry..."
They also quote the McKinsey study, saying "High value carbon credits of AUD $34 per ton of carbon dioxide equivalent (tCO2-e) could realistically achieve a carbon zero position in commercial office buildings at nil cost and, based on the McKinsey cost curves, energy efficiency in buildings represents an estimated cost negative abatement of US$45 billion to the United States economy, and $5.2 billion to the Australian economy."
How would cap-and-trade work for efficiency? It would be similar to emissions trading, but instead of caps on emission from power generation, building owners would calculate the amount of CO2-equivalent emissions their buildings use (adding up all their electricity, oil, gas, and other energy use), and there would be a cap for an allowable amount of CO2 emission per square meter of building. This would not replace normal emission trading. The integrated EETS system would have an efficiency cap-and-trade market in addition to the power generation emission cap-and-trade market, working in parallel.
Detractors have argued against efficiency counting for emissions offsets because of concerns about double-counting. (If a building uses less energy, couldn't the building owner trade abatement credits while the power company also trades abatement credits for not generating the additional power that would have been used?) The EETS avoids this by having the two separate buckets, one for power generation and one for building energy use. Each is its own separate market, and efficiency credits would not count toward a nation's Kyoto Protocol goals.
Another argument against such a scheme is that cap-and-trade schemes are a form of tax and subsidy, and there is no need to subsidize CO2 abatement methods that are already money-makers (and they clearly are, by the McKinsey graph above). Architect and consultant Huston Eubank, formerly of the World Green Building Council and Rocky Mountain Institute, explained that in existing emissions trading schemes, "A project only qualifies... if it can prove that the emissions reduction would not have occurred without the project. In its strictest sense, this means that the project must not have been financially feasible without carbon credits." This causes the unintended consequence of not encouraging financially sustainable strategies for environmental sustainability. True sustainability needs to be commercially viable as well as ecologically helpful: isn't it a much better use of taxpayer money to launch an industry that will become self-sustaining rather than spend money on things which would never be economically feasible by themselves? Obviously the scale of our environmental challenge is large enough that we can't limit ourselves to money-making schemes--we need to pump money into every technology that works--but it would be foolish for us to skip over the low-hanging fruit in favor of more expensive, slower, and less proven strategies. That is effectively what we are doing with the emissions trading schemes that exist now.
The exclusion of money-making strategies for CO2 abatement in the building industry also ignores the perverse incentives of the building industry's economy. This is an industry where the people paying for a building's energy use are not the same people who built the building, where first cost is nearly always at odds with life-cycle cost. A cap-and-trade scheme is perfect for an industry like this, because it introduces a new feedback loop that counteracts (and in the long run overwhelms) the existing perverse incentives. It effectively rationalizes the economy of the industry, internalizing some of the externalities of inefficiency.
Steps To Implementation
How likely is an EETS to be implemented? Eubank provided me with documents from the UNEP's Sustainable Buildings & Construction Initiative, which said, "At the moment, a number of projects regarding energy efficiency in buildings - such as those that introduce solar power, more efficient lighting devices, HVAC systems, and cooking devices, such as stoves in rural areas that require less biomass in their operation - are eligible for the flexible instruments of the Kyoto Protocol, particularly under the CDM. These projects are, however, still rather few in number and limited to active solutions, such as PV cells, or other technological options. Passive solutions, such as the design of better oriented and ventilated buildings, are not yet applicable under the instruments of the Kyoto Protocol." What's required for passive systems to count are universally agreed-upon benchmarks and measurement standards, so that legitimate quantitative values can be established for energy savings. Luckily, data and calculation methods for this have been built and refined for over a decade in the US, as part of the LEED rating system, and have been worked on by some of the best labs and consultancies in the industry. The World Green Building Council and other groups can work together to establish similar benchmarks and measurement systems for national and international EETS systems. However, as Eubank pointed out, "Getting UNFCCC approval for a new methodology is a long and arduous process. Thus the importance of supporting this initiative."
Encouragingly, one of the UNEP's documents said that "At a June side event in Bonn, Germany, the UNFCCC [United Nations Framework Convention on Climate Change] secretariats requested UNEP-SBCI's to assist in reviewing how to put the building sector on the agenda at the upcoming Conference of the Parties 14 in Poznan, Poland in December 2008." Public awareness of Lend Lease, Lincolne Scott, and Advanced Environmental's integrated efficiency and emissions trading scheme is still slim, however, and it needs to come to the attention of more policymakers. It would be foolish of us to bypass the low-hanging fruit of 40% of the world's CO2 emissions, which can be abated not only without economic hardship but with economic gain.
"An integrated EETS will... improve the energy efficiency of the vast majority (98%) of building stock: existing buildings which hold the lowest cost abatement opportunities in the world."