Debit accounts for Carbon trading

In any financial accounting system you have credits and debits. The approach so far with regard to Carbon Trading schemes has been to try to curb unrestrained human-caused emissions of carbon dioxide into the atmosphere by placing a financial cost onto those emissions with a cap and trade system.

One aspect of such a system is the idea of carbon offsets, where some people plant trees somewhere in the world (for one example) and the calculated benefit with regard to removing CO2 from the atmosphere is added to the carbon trading ledger. One problem with this approach is that the calculated gains with carbon offsets might not be realised or may only be short lived. A raging bushfire or cyclonic winds could easily destroy a plantation and eventually release more CO2 into the atmosphere. There is nothing new about this idea, there has been some research on it published already (here and here for a couple of examples)

For a new approach where energy systems include storage systems, renewable energy sources and a smart grid to coordinate all the subsystems there is is another possibility. Surplus stored energy could be fed directly into systems that split CO2 into harmless compounds and chemicals. It may be possible to build small systems that can remove some CO2 from the local atmosphere and change it into a harmless form – perhaps soot and oxygen gas – with the addition of energy.

The reason why this approach could be feasible with energy systems that combine a smart grid, renewables and energy storage is the simple fact that if you are going to store energy for later use and if you try to coordinate energy supplies and stores with demand, then you will need to store slightly more energy than what you would need. For a storage based system to be reliable you need redundancy in the system. Redundancy (as it is understood in engineering) is a good thing. In terms of markets, full shelves in a shopping centre are a form of redundancy. If there were empty shelves in shops and queues of people waiting to buy whatever is available as it arrives – as you had in some of the old communist regimes – then you could say the distribution system for goods is optimally efficient. Markets will only work if there are goods and services that are NOT wanted to be kept by their owners or being used at the time the market is operating. Redundancy is intrinsic to market systems.

During the last few decades we have had management fads that have aimed to be optimally efficient and that have tried to remove all redundancy. There is a trade-off between having parts in stock or being able to purchase, manufacture or assemble parts to order. For any market there is also the trade-off between having too little stock to sell to meet demand and too much stock in storage which can be costly. Many of the financial fraud schemes try to sell stock that they do not have – selling with only a ghost of a promise on their shelves. With these management fads over the last few decades, the word redundancy has acquired a weasel word meaning of sacking workers in the hope of improving efficiency. An organisation needs workers who have some slack in their work and spare time to attend to novel situations or exceptions.

That’s an aside, so returning to energy systems, if we build an energy system with storage capacity as an integral part of that system, then there will be some redundancy with regard to stored energy. Without redundancy that energy system will be unreliable and effectively useless. You would need to generate more energy than will be used if you want that energy supply to be reliable. That systemic redundancy, however, could still be put to good use. It could be used to drive systems that remove CO2 from the atmosphere and convert it to harmless chemicals. You might be able to install such systems at large capacity energy storage facilities, possibly even to substation level. If energy is stored at a substation battery and the battery is full, and there are no requests to send locally generated renewable energy further into the smart grid (other batteries may also be full), then that substation should be able to accept the renewable energy being provided to it from local sources and use that energy to remove CO2 from the local atmosphere. There should also be carbon trading debits for the utility for doing such an activity as well. It should be profitable to use that redundant energy to remove CO2 from the local atmosphere.

The volumes of CO2 removed from the atmosphere from redundant energy may be slight for each substation, but by having the infrastructure installed and operating it may also be possible for councils, governments or companies to pay directly for energy to be fed into these CO2 splitting subsystems in substations so that they can gain third party carbon trading system debits. The CO2 removal subsystems of large scale energy storage facilities could be profitably run most of the time. The CO2 removal would be permanent, rather than possibly fictional or temporary as with current carbon offset tree planting schemes. There might need to be regular servicing to remove and dispose of accumulated soot or other harmless solid or liquid chemicals that the CO2 splitting machines would produce, but that is an overhead that could be worked out in the cost structure.

Debits and credits in a double entry book keeping system may sound counter-intuitive (and I might have understood it incorrectly), but a carbon trading scheme is really a triple accounting system with balanced transactions and with a common currency:

Connected subsystems:

• Addition/removal of carbon dioxide from atmosphere
• Generation/consumption of energy
• Debit/credit of financial resources

Balanced transactions with currency debit/credits:

• Debit increase | removal of CO2 from atmosphere
• Addition of CO2 to atmosphere | Credit increase
• Debit increase | Generation of renewable energy
• Consumption of energy | Credit increase

Polluting forms of energy generation such as coal power stations would not receive systemic financial rewards for removing CO2 from the atmosphere (obviously) or for generating renewable energy. And fair enough too. Carbon cap and trading schemes could also look to introducing systemic incentives for removing carbon dioxide from the atmosphere and for taking energy from renewable sources (as in Germany). This is all common sense. As mentioned in a previous post, there may be advantages to adding a weighing to financial incentives that would reflect on an improved quality of service, as for example weighting favourably the energy from a renewable source that is at a constant level of energy output over a long time span (renewable source with energy storage) rather than energy being delivered to the grid in spits and spats and in a manner willy-nilly that fit the gusts of wind past the odd wind turbine.

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12 July 2009

This way of removing carbon dioxide from the atmosphere and converting it into harmless chemicals would be verifiable and fully accountable. If the demand for this service outstrips the ability to deliver surplus energy to CO2 splitting machines, then the funds would best be channelled towards increasing renewable energy generation capacity – by installing new solar power stations or wind farms to feed into the smart grid. The first priority for a smart grid with storage is to deliver a reliable supply of energy to the network. Using surplus energy to split CO2 is a secondary priority, so if individual, companies or governments want to use that proposed infrastructure to remove CO2 from the atmosphere they would have to ensure that there is enough renewable energy generation capacity to do so first.

Once such technology is designed and demonstrated and then widely installed, this way of reducing atmospheric CO2 could be encouraged by governments through taxation concessions or government subsidies. Perhaps during the initial phases there could be companies that aggregate funds from a number of sources and use those funds to build the infrastructure – government funding or large companies typically do that anyway. This kind of infrastructure could perhaps be fast-tracked if global organisations work together to design and test appropriate technology and start a process of establishing international standards for the system  components. Some international organisations that come to mind include INCOSE, IRENA, ISO, IEEE and perhaps a UN organisation for promoting renewable energy. National and supra-national (EU) government organisations would also have similar interests. It would be best if one capable international organisation had the responsibility to develop international standards with people from other interested organisations on the committee board. Obviously the research and development would need substantial funding and coordination.

This technology would not be a quick fix and the CO2 splitting subsystems would probably be working with relatively small amounts of CO2. It is part of an incremental approach that will take time to show results. They would be one part of a strategy that includes installing more renewable sources of energy, relying on widespread energy storage and replacing polluting technology with technology that can work through stored renewable energy. With this kind of technology installed, if the atmospheric levels of CO2 become critically high, there would be a mechanism – and most importantly mature technology and technical expertise – to rapidly lower atmospheric CO2 concentrations if governments are determined to invest large amounts of funds for that purpose; by establishing a large number of CO2 splitting stations where ever that is feasible.

And finally, as anyone with even high school science would know, carbon dioxide sequestration for the large amounts of CO2 that need to be removed from the atmosphere is simply not feasible – it is like trying to defy gravity. Gases tend naturally to be displaced by liquids and solids that are have a higher density, so gases will naturally accumulate in the atmosphere. Sequestration may work for small volumes, but certainly won’t work for the large volumes of carbon dioxide this issue is about.