Thursday, December 16, 2010

The Importance of Calculations

This post is based on the article The Carbon Numbers Game, published in Bloomberg Markets, January 2011.

I found this article very interesting because I never stopped and wondered about the veracity of the way carbon emissions are calculated; I just assumed that they were done correctly by the government. According to the article, countries and companies have based their calculations on the raw materials that go into the factories and power plants; they do not necessarily check the pollution that comes out of the process.

The article mentions that there are two ways to measure carbon emissions: Bottom Up and Bottom Down.

The steps of the Bottom Up calculations are the following ( Taken from the article):
  • Delivery and Storage: Plants weigh and test coal for type, quality, moisture, ash and carbon content.
  • Burning: Officials check whether the coal is fully or partially burned.
  • Final Calculation: Companies use an equation to estimate emissions, auditors check figures
  • To obtain the Nationwide numbers the countries tally company figures, vehicle miles and other national data.
The Steps of the Bottom Down calculation are believed to take into consideration what happens in the air and are the following:

  • Monitoring: People, balloons and airplanes gather air samples. Satellites are proposed.
  • Processing: Researchers send the samples to labs to determine GHG concentrations.
  • Analysis: Analyst feed the results weather patterns and other data into computer models.
  • Conclusion: Computers run the models backwards to trace what is being emitted from where.
Because the bottom-up calculations do not take into account what is happening in the air, the actual emissions could be twice as much as what companies and nations estimate on the ground. Getting the right numbers is extremely important because they underpin the only international treaty that sets mandatory limits for GHG. There is also $141 billion worth of credits that help countries meet their Kyoto goals that are changing hands everyday in global emissions markets. These credits as well as the booming in the business of offsets are all depending/based on the bottom-up calculations.

Real verifications of the total amount of of emissions would be with a measurement device sitting in the atmosphere measuring what it has received. There are billions $ in markets that are literally based on thin air. If  the United States creates a nation wide cap-and-trade, carbon could become one the world most traded commodity. The Carbon credits get their value from the faith we put into them, you don't receive the delivery on a ton of carbon credits. This is why there is a need for a better verifications of the bottom-up calculations.

I thought this article brought up the importance of getting the calculations right, otherwise we may as well do nothing to reduce the emissions. When compared, the two sets of estimates for 23 nations added to 2 billions ton of metrics CO2, the equivalent of what Russia emitted in 2008 (Russia is the 3rd top emitter of CO2). 

But changing the way calculations are made will be expensive and most countries might not be ready to pay for it. 

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