March 23, 2009. This is the best introduction to Flexible Global Carbon Pricing (FGCP), a strategic alternative to the Kyoto Protocol. FGCP replaces divisive international caps with a commitment to carbon pricing. Under this commitment countries are free to use cap-and-trade, carbon taxes, or feebates to meet their commitment.

The result is a commitment with a far more predictable cost to countries that can be achieved with caps. This makes it possible to use the low cost of carbon pricing as a selling point for FGCP.

As Table 1 shows, pure carbon pricing—without subsidies—is incredibly cheap. The total cost to the U.S. is 23 ¢ per person per day. That's about the cost of a tea bag. This is for a global carbon price target of $30/ton and a Green Fund which is generous enough to pay India twice what it costs India to implement the $30 carbon prices. This is based on EPA's formula for abatement costs.

November 17, 2009. A new short book explains what to do now that cap-and-trade has hit a dead end at Copenhagen. Read the abstract and download it at SSRN

Also visit the website of the new Global Energy Policy Center. The trouble with Copenhagen is not a disagreement over the need for strong policy, as environmentalists seem to think. The problem is that the world cannot agree on how too cooperate. The roadblocks are costs and fairness. US Policy is not helping.

Also available in Croatian and Farsi.      Find the Missing Chapters >>        

Electricity markets have had their problems: price spikes, market power, overbuilding, under-investment—all caused by attempts to use spot markets with flawed demand to solve the adequate-capacity problem. Electricity "experts" are fond of saying:

1. "Competitive spot markets induce optimal capacity." (economists)

This is meant as a reply to engineers and regulators who say

2. "Electricity markets need help building optimal (adequate) capacity."

But the word "optimal," in result #1, has nothing to do with "optimal" in concern #2. Result #1 is actually true only under the strict assumption that capacity is more than adequate and provides 100% protection from supply shortfalls. Then, result #1 tells us, the spot market will build capacity not for reliability, but to the point where long- and short-run marginal costs are equal—that is economically efficient (optimal). This confusion has lasted 10 years.

When economists say "optimal" they mean economically optimal assuming there is always a market-clearing price. When engineers say "optimal" they mean the optimal level of involuntary load shedding (1-day-in-ten-years), in other words, the optimal frequency of market breakdowns—times when there is no market clearing price. The economic concept has nothing to do with the engineering concept. There is no economic theory stating that a market can optimize the amount of time during which the market will fail to clear. This idea is pure nonsense.

It's time for some "experts" to take a peek at an undergrad econ text.  Markets can help...

China and India have nixed caps. Without these caps, Kyoto fails. What can be done?

Carbonomics explains "wrecking" the economy, "peak oil," caps, carbon taxes, and Kyoto.