Material Markets: Facts, Technologies, Politics III: Doing Politics

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Material Markets Facts, Technologies,
PoliticsIII Doing Politics

• Donald MacKenzie

Thanks for pictures to David Somervell, Energy
Sustainability Manager, Estates Buildings,
University of Edinburgh
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• Some Precepts for Social Studies of Finance
• Facts matter
• Equipment (technological cognitive) matters
• Cognition and calculation are distributed,
  material, and selective
• Actors are made up of agencements (Callon)
• Actors do not have fixed characteristics
• Classification and rule-following are finitist
  processes
• Economics does things
• Innovation isnt linear
• Market design is a political matter
• Scales arent stable

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Bits of a university that academics dont usually
see
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First remove 1950s steam boilers
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- literally cut them out
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High Efficiency, Low NOx LTHW Boilers
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75 cubic metre Thermal Store
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1.6MWe Alternator drops in
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12 cylinder GE Jenbacher 612 Engine

• GE Jenbacher 612 Engine

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Exhaust Gas Heat Exchanger
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600kW Absorption Chiller
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Whole site runs on 2-3 pumps
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European Union Emissions Trading Scheme cap
trade Covers CO2 from large fixed installations
(eg over 20 MW). National allocation plans
caps. Allowances (tonnes CO2) distributed,
mainly for free, to operators. Produce more CO2
than you have allowances buy allowances or be
fined. Produce less CO2 than you have allowances
can sell allowances.
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• From academic economics to carbon market
• Can environmentally effective greenhouse-gas
  emissions markets be constructed? Can knowledge,
  measurement, property, politics be cooled down
  enough? (Larry Lohmann, drawing on Michel Callon)
• Should we try to cool things down? Hostile
  worlds (Viviana Zelizer)? Markets-as-politics

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Cap trade an invention by economists, esp. R.
Coase (1960), J.H. Dales (1968). Restrict
emissions to cap at minimum cost. Tax can do
this, but hard to predict effect of rates on
emissions. First large-scale implementation SO2
emissions from US power plants. Clean Air Act
Amendments (1990) trading began 1995. Achieved
environmental goal big cost savings. Dales
assumed sell permits. Actually almost entirely
given away for free.
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SO2 success (esp. unexpectedly low allowance
prices) informed US push for flexibility
mechanisms in Kyoto (1997) 1. Countries can
trade assigned amounts 2. Clean Development
Mechanism (CDM) 3. Joint Implementation, esp. ex
Soviet bloc CDM project-based not cap trade
projects in countries without caps earn Kyoto
units (North-South compromise)
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• US abandons Kyoto in 2001. European Union (at
  Kyoto, against trading) begins CO2 market in Jan
  2005
• 1. BPs internal carbon market (1998-2001)
• 2. Risk of national schemes fragmenting single
  market (Denmark 2001 UK 2002)
• 3. Free distribution of allowances undercuts
  industry oppositionqv 1990s carbon tax
• 4. In EU, tax requires unanimity environment is
  qualified majority voting
• 5. Effective policy entrepreneurs (Braun)

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EU scheme will link to CDM and Joint
Implementation once International Transaction
Log links to EU Log (April 07?) Other schemes
include California 8 US northeastern states.
9 bills (inc. McCain-Lieberman, co-sponsors
Clinton, Obama) before Congress. UK policy (eg
Stern Review) Construct a global market with a
world price of carbon.
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Callon framings and overflows To negotiate a
contract or perform a commercial transaction
effectively presupposes a framing of the action
without which it would be impossible to reach an
agreement, in the same way that in order to play
a game of chess, two players must agree to submit
to the rules and sit down at a chessboard which
physically circumscribes the world within which
action will take place. Once the overflows
externalities, source agents and target
agents have all been correctly identified and
described, and once measuring instruments for
quantifying and comparing them have been set up,
it becomes possible to reframe the interactions.
(The Laws of the Markets, 1998)
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A carbon market seeks to reframe interactions by
measuring what previously were overflows
(greenhouse-gas emissions) and bringing them into
the market frame. EU mass balance,
piggybacking on existing measurement devices,
procedures and networks (eg gas corrector
meters). CO2 activity data X emission factor X
oxidation factor Mass balance rejected for
SO2 in US because of environmentalist distrust.
Automated chimney-stack measurement.
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A carbon market seeks to reframe interactions by
measuring what previously were overflows
(greenhouse-gas emissions) and bringing them into
the market frame. EU mass balance,
piggybacking on existing measurement devices,
procedures and networks (eg gas corrector
meters). CO2 activity data X emission factor X
oxidation factor Mass balance rejected for
SO2 in US because of environmentalist distrust.
Automated chimney-stack measurement.
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Michel Callon hot and cold. In hot situations,
everything becomes controversial the
identification of overflows, the way effects are
measured. The list of actors non-human
human will fluctuate. Nothing is certain,
neither the knowledge base nor the methods of
measurement. In cold situations, agreement
regarding overflows is swiftly achieved. Actors
are identified, interests are stabilized,
preferences can be expressed, responsibilities
are acknowledged. The possible world states are
already known or easy to identify. Protagonists
already know how to calculate their costs and
benefits and are ready to negotiate (The Laws
of the Markets, 1998)
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Lohmann (Science as Culture 14/3, Sept. 2005)
conditions are not cool enough for the
spadework for commercial relations to be done.
Carbon-market proponents are treating what
Callon calls a hot situation as if it were
cold. The Kyoto Protocols attempt to fulfil
the dream of Coase has wound up uncorking an
unstoppable fount of complexity.
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• Arguments for the too hot interpretation
• Huge knowledge/measurement problems re forests
  and land use and in demonstrating additionality
  (Lohmann, counterfactuals). Under Kyoto
  Protocol, get CDM credits only for reductions in
  emissions that are additional to any that would
  occur in the absence of the certified project
  activity (article 11/5c).
• Only doing the limited things that are cool
  excludes projects likely to lead to innovation
  or structural change (Lohmann). CDM thus favours
  sophisticated-infrastructure countries such as
  China and, especially, HFC23 (trifluoromethane)
  incineration.

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• Examples of possible perverse effects/incentives
• EU Emissions Trading Scheme diverts attention
  from methane (measurement qv BP)
• Aviation getting away with CO2 alone, not total
  radiative forcing (3 to 5 times bigger?)
• Industry in China/India prolonging HCFC22
  production to get HFC23 incineration credits?
  Credits cost gt40 times direct subsidy (Wara)
• Suspicions of human/environmental damage from
  Clean Development Mechanism projects (eg Lohmann)

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Hot politics of allocation. Over-generous
National Allocation Plans in phase one (2005-7)
of EU trading scheme industry lobbying fears of
industry flight national interest.
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Similar hot allocation politics over SO2 in US.
MIT economist Richard Schmalensee laughing at
lignite provision (Clean Air Act Amendments 1990,
405b3) He was forcefully reminded that North
Dakota was a relatively poor state with bleak
prospects and, more important, that Chairman
Burdick was not to be trifled with (Ellerman et
al, Markets for Clean Air, 2000)
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But SO2s ratchet. Huge political pressure
for over-generous allocations neatly circumvented
by ratchet pro-rata reduction of all
allocations so that total allowances equalled
cap. So utilities/politicians could get
relative advantages from lobbying, without
threatening cap.
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and European Commission getting tougher. So
far all phase 2 (2008-12) National Allocation
Plans rejected, except UKs. Cuts in caps range
from 2.5 (Germany) to 57.1 (Latvia). Enough
to create a proper short market (interviewee)?
Swamping by Clean Development Mechanism and Joint
Implementation credits?
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Should we try to cool things down? Gut
instinct opposition to carbon markets has
aspects of what Zelizer calls the hostile
worlds doctrine. Economic relations and
intimacy not intrinsically at odds (Zelizer, The
Purchase of Intimacy, 2005). Same true for
economic relations and environmental stewardship?
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Callon, The Laws of the Markets. Not
pro-market in singular, nor anti-market, nor
third way between pro and anti. Politics in the
design of markets. Carbon market could be
complicated way of appearing to do something
while achieving very little. But could be an
effective environmental tool capitalism quite
good at economising on whats costly (eg labour).
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Markets as politics eg terms on which aviation
joins EU Emissions Trading Scheme and effects
thereof. Many hot issues, from measurement of
total radiative forcing, to travel behaviour, to
law (legal challenge citing 1944 Chicago
Convention anticipated). Social-science
humanities academics professionally like things
hot. Learn to help cool them?
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• Markets as politics
• Carbon market seems to work politically, even
  in US (California).
• Key role of NGOs (eg Environmental Defense), but
  understaffed in UK.
• Big design issues, eg auctioning reduces perverse
  incentives of free distribution
• Green/gold carbon credits (eg UN/Beijing
  exchange qv Zelizer, earmarking money)
• Politics also in the detailed nuts and bolts,
  even of measurement (eg aviation)

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Can carbon market be made into a dial you can
turn (interviewee)? CO2 cap trade, within
single, strong jurisdiction probably yes. Likely
problems political will effect on investment of
high price volatility (need long-maturity carbon
futures and options?). Cap trade
internationally gases other than CO2 new
metrologies international project-based
mechanisms adaptation all far more challenging.
Eg restrict market to CO2 tackle other
gases/issues other ways (Wara)?