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Napoleon Bonaparte said: For war, we need three things-money, money, and more money.
Regarding climate protection, we can say the same.
The Stern Review proposes that one percent of global GDP per annum is required to be invested to avoid the worst effects of climate change. In June 2008, Stern increased the estimate for the annual cost of achieving stabilization between 500 and 550 ppm CO2 to 2% of GDP to account for faster than expected climate change. Otherwise, GDP will fall by 20% as a result of climate change. The only question is where to get this 1% of GDP. The annual global GDP is $ 779 865 481 million. One percent of this amount is "only" $ 779 865 481 000. The only question is where to get this money from. The current emissions trading system does not solve this problem. It requires that the CO2 emitter must first pay or get for free for emission allowances. Then invest in reducing CO2 emissions and only then earn on resale CO2 on the free market. It is a very complicated and capital-intensive process in itself.
The CAT idea in this field has a great advantage over the emissions trading system. The first source of financing the decarbonization of the economy will be state subsidies from CAT. The first, but certainly not the only one. The introduction of CAT means that fossil fuels will become uncompetitive. This is an incentive for CO2 emitters to look for alternative sources of financing to decarbonize the economy.
Issuers will be able to take loans from banks. Issuing shares on the stock exchange. It should be assumed that legal regulations regarding CAT will allow the purchase of shares and bonds on the stock exchange for investments that will 100% decarbonize the economy. Of course, you will only be able to invest in the primary market. There is another possibility the CO2 emitter invests subsidies obtained from CAT in shares on the primary market. Then he sells shares on the secondary market and receives a return on capital at an express rate.
Let's consider another example. Both Poland and Hungary are planning to build a nuclear power plant. Hungary is already building it because Vladimir Putin gave them a favorable loan. The construction of a nuclear power plant in Poland is still planned. No location has yet been selected. There is one more problem - money. Relations with Vladimir Putin are rather cold and we are unlikely to get a loan on terms like Hungary. There is also nothing to count on state subsidies because the budget is bursting at the seams. The alternative is to take out a loan abroad, but this means becoming dependent on foreign capital (see the example of Hungary) and increasing the already large budget deficit. A nuclear power plant is unlikely to be built for Polish money because our domestic private capital is only 25 years old and simply too weak to bear such a burden. Now imagine how the situation could change after the introduction of CAT.
PGE is the largest Polish electricity producer. The first source of investment would be subsidies that PGE would receive from the budget for coal burned in their power plant furnaces. PGE could issue shares for the construction of a nuclear power plant. The buyers of these shares could be other Polish entities looking for a way to invest money from CAT, for example, transport companies, small brickyards, chemical plants, LOT airlines, and other emitters. Of course, nothing prevents the shares from being bought on the stock exchange by other investors not necessarily related to the CAT system. In this way, we could build a nuclear power plant for completely Polish money.
An example of what the problem is for our native energy sector to raise capital for decarbonization is the example of wind energy. A significant part of Polish wind farms is not really Polish. In fact, they are owned by foreign capital. So if we can't afford wind farms, we can't afford a nuclear power plant in the current legal and economic realities.
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In a nutshell, carbon dioxide sequestration (CCS) technology involves pumping coal fumes into the ground. Estimating the costs of this technology is very difficult, but its wider application will certainly make coal power permanently uneconomical. Also, the building of CCS installations is very expensive. And there CAT can be helpful. There is nothing to prevent to finance the construction of CCS installations from CAT subsidies. There is a question about what to do where a power station will build CCS installation. Well, such a power plant burns coal, but it does not emit CO2. It will be fair to spend a whole CAT subsidy for dividends for shareholders because there have been achieved the main aim of CAT tax which is reducing CO2 to zero. In this way is there a chance that in the age of decarbonization will survive coal power stations as well as coal mines. We should also remember that coal is not only used for electricity production. It is used also by the chemical industry, steel mills, and cement plants.
The cement industry accounts for 5% of human CO2 emissions. There are three sources of this issue.
1.) Electrical energy is necessary for cement production.
2.) The process of decarbonizing the raw material. CaO3 → CaO + CO2
3.) Burning of fossil fuels necessary to receive a high temperature which is needed in the production process.
To reduce CO2 emissions from cement production, very expensive investments in new technologies are needed. Investments need to be made to improve production processes, improve cement kiln efficiency, and replace wet methods with dry and semi-dry methods. Funds for these investments can be obtained thanks to the subsidies from CAT. However, it must be honestly said that cement production alone is very energy-consuming and emissions cannot be significantly reduced without CCS installations. If we use CCS technology, then the subsidies obtained from the CAT will be able to go directly to the cement plant's account without the need to invest in zero-emission energy sources.
Similarly, we can solve the problem of steel meals which are also large CO2 emitters.
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According to IPCC calculations, agriculture has bigger CO2 reduction possibilities than whole energy and industry. Take, for example, the owner of this farm. The home and farm are heated by fuel oil, they have a gas kitchen and diesel tractor.
To reduce CO2 emissions our farmer should invest in solar panels on the roof, small biogas plant end even in a small windmill. The source of the investment may be subsidies obtained from CAT.
After cleaning his farm the owner can invest money into another industry in the same way as airlines.
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Air transport is the fastest-growing issue of anthropogenic CO2. One Boening 747 can emit as many CO2 as 240 cars during a year. Presently technologies of free-emission planes are at a very early stage of development and are impossible to mass application.
This doesn't mean that airlines are unable to participate in the process of decarbonization of the world economy. Idea CAT assumes that emitters which are unable to reduce emission in their industry will be allowed to invest money from CAT in emission-free sources of energy in another branch of the economy.
Airlines will be buying a fuel taxed by CAT. When the fuel will be used airlines will be allowed to receive from the budget the CAT subsidies. These subsidies can be used for many purposes. For example to build a wind power station
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Mr. Smith is the owner of a gasoline taxi car. In this case collection of the tax take place when a tanker with oil will arrive the car. Then the crude oil will go to the refinery, where it will be processed into gasoline. Before the gasoline reaches the gas station, it will pass through the hands of many brokers. Every one of them will issue an invoice where the CAT will be counted. In the end, Mr. Smith poured gasoline into the tank, and now as the final recipient, he is entitled to a CAT tax refund. As taxable fuel is expensive so Mr. Johnes is thinking of buying a hybrid car. Normally, such a car is more expensive to buy than a car with a classic drive, but the situation will change after entering the CAT introduction. When Mr. Johnes buys a hybrid car he will be entitled to a CAT tax refund each time he refuels. When the total value of returned tax will equal to the value of the batteries and electric engine Mr. Jones will be allowed to use the CAT subvention for other purposes. In this way, everybody will take advantage of it.
1.) Mr. Johnes has a new hybrid car which will be cheaper in exploitation.
2.) The environment gains because of a new car Mr. Johnes emits less CO2.