On the importance of counting things

When I used to work on political campaigns, I would drive people crazy by insisting that everything be counted really, really well. I spent a number of years – 4 – running and helping people to run door-to-door canvass programs. We’d often find that if we could just figure out the most important things to count, we would have the necessary and sufficient conditions for the program to be successful – for us to be able to talk to a lot of people, and to have some confidence that those conversations were going well. Two very good and straightforward examples are “knocks” and “contacts”: how many different unique doors did one canvasser knock on in one shift, and how many different people did they talk with. Once you try, you find that it’s no easy task, actually, to reliably count those things in an effective way. If you can do it, you have a great tool for identifying successes and best practices and learning from them, as well as for finding problems. If you can do it, it means that all kinds of things are working properly. If you can’t, it means that you probably can’t do all kinds of other things either.

This is what I thought of when an official at the European Commission Energy and Transport Directorate told me that they had a saying: “If it matters, it’s monitored; if it isn’t monitored, it doesn’t matter.”

We were talking about the early days of the European Union Emissions Trading Scheme. The EU ETS is Europe’s cap and trade system for greenhouse gasses, and it is the first big successful market for trading carbon in the world; it accounts for about 80% of the global market for carbon emissions allowances. In 2003, the European Commission decided to set up a carbon market as the cornerstone mechanism of European efforts to comply with its obligations to reduce carbon emissions under the Kyoto Protocol. The basic idea is that you put a cap on the amount of carbon emissions across the whole market, you allocate emission allowances that, in total, add up to the cap, and then you let polluters trade those allowances. If the market functions properly, it finds the least-cost mitigations, and the market price of an allowance is the marginal abatement cost – the cost of abating the ton of carbon that is the last least expensive under the cap, so to speak. That market price then, in effect, becomes the cost to emit a ton of carbon, where there was none before, creating an incentive for people to stop emitting carbon when they can do so for less than the price, and for technology innovation.

The EU ETS went into operation on January 1, 2005, and the first phase ran through the end of 2007. Many stakeholders in the states, including the GAO, have argued that the first phase was more or less a failure, because the price of an allowance dropped to zero, so there was no effective incentive. Here in Brussels, though, there is unanimous agreement that this misses the point, and pending my return to the states, I’m going to agree. The first phase was always about “learning by doing,” and it was a success, because they learned what to count, and how to count it. The simple existence of the ETS was enough to stimulate a robust system for measuring and tracking emissions, and in the process, for corporate boardrooms to take an internal look at their carbon emissions. In fact, the reason the carbon price dropped to zero seems to be that as soon as everyone started tracking this stuff, they found all sort of pipes and cracks and whatnot that were spilling CO2 for no good or necessary reason, and it was trivial to just shut them off. Significant reductions were available at no cost, so the last least expensive reduction cost nothing.

So now the ETS is in phase 2, which will last until the end of 2012, and they’ve taken the lessons from phase 1 and adjusted the rules for phase 3, which begins in 2013. They’re tightening the caps 1.74% per year (I think – about that much) through 2020, so that, overall, by 2020, they will have a 21% reduction from 1990 levels in sectors that are covered by the EU ETS (mostly the electricity sector, and about half of all emissions in the EU.)

The “learning by doing” phase of the EU ETS didn’t lead to much of a price for carbon, but it sure seems to have gotten the ball rolling. I think it’s a big, big success story, and something we can and should (and will) copy once we do cap and trade in the US. In the Environment Directorate here, everyone is talking about the transatlantic carbon market that is on the horizon.