Dienstag, Februar 09, 2010

Basis For The Coming Green Boom?

This peaked my curiosity.

A family reduced their electricity bill to zero and "reaped" a carbon credit as a result, selling it then on an exchange and pocketing the money.

Sounds wonderful, doesn't it?

Until you do the math.

The family involved spent at least $58 000 to reduce their electricity bill to zero: further, they changed their energy usage so that their footprint was minimized.

The sale? $21.50.

Of which the exchange took 20% as a fee. That's $4.30.

Hence they were able to sell their carbon credit for $17.20.

The exchange is owned by an energy broker (no conflict of interests there, eh?), The joke: the exchange doesn't merely run the transactions, it also verifies the "personal carbon credits" (nooo conflict of interest there, either, move along, move along).

Apparently the credit can be issued monthly, but that's not clear: further, it's measured as a reduction from the previous year's month, hence after 1 year of no usage of the external electricity, the income dries up (since you can't reduce zero any further...).

So, let's calculate the return: for any individual month, assuming the price remains, it's a return of 0.03%; if the return were to be constant for one year, that's a return on investment of ...  0.36%.

For the credit to bring any sort of more realistic return, it would have be an order of magnitude larger: for a 5% return, for instance, before fees, the credit would have to be valued at $240/month. At that rate, the investment pays for itself over a 20-year period, ignoring opportunity costs and maintenance.

We don't know from the story, however, what the family was saving, nor do we know the details of the energy system installed. But choosing to install solar power on the basis of being able to sell their carbon credits would be a terrible way to finance it: if the rate continues at this pace, they'll pay off their investment in ... well, suffice to say that at this rate, their great-great-great-grandchildren will start turning a profit.

The problem here is that solar electricity is a bad investment: in many cases it may make eminent sense to do so over a long period of time. Rather, the problem is that this exchange cannot provide any meaningful impetus for home owners to invest in solar power unless it is required by law: the market here is virtually non-existent, as transaction costs are vastly too high (20%?!) and the return is irrelevant.

This is not the basis for a coming Green boom, or even an uptick in interest in solar power: rather, it shows the fundamental lack of understanding that there is no real market for carbon credits. Period.

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