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Monday 27 July 2020

The Price of Carbon Absolution

Worrying about everything else is wearing down my sanity. Worrying about climate change feels like a welcome, familiar distraction because the solutions are so linear. We can literally money our way out of this one, but it's a lot of money? How much, exactly, is the personal price of carbon absolution?

(Correction: The example stock used here, RNW, has some legacy projects in natural gas, which invalidate some of the calculations below, however those are being phased out and everything in their 5-year horizon is solar, wind, and geothermal.)

Yes, innovations need to happen, and habits need to change, but it's a global problem and you are but one person. So, at an individual level, for most of us, it comes down to throwing money at the problem to make it go away.

What is the price of carbon absolution?

How much carbon is offset (if any), by owning $1 of a clean energy company for 1 year? For example, Transalta Renewables (RNW on the Toronto Stock Exchange) produced 1,173 GWh from renewable sources from 2020-01-01 to 2020-03-31 (source: https://www.transaltarenewables.com/2020/05/12/transalta-renewables-reports-first-quarter-2020-results/ ). Making the wrong, but useful assumption that these three months are representative of the whole year gives us about 4,700 GWh, or 4.7 billion kWh for the year 2020.  

According to the US Energy Information Administration, US electric generation releases about 450 grams of CO2 per kWh (source: https://www.eia.gov/tools/faqs/faq.php?id=74&t=11 ), based on 63% of the US's electricity production coming from fossil fuels.

Again making a wrong, but useful, assumption that the electricity sources being replaced by a renewable source are 63% based of fossil fuels, and that the renewable sources are themselves carbon neutral, we estimate that every 1 kWh produced by a renewable keeps 450 grams of carbon in the ground.

That all means that a company like Transalta Renewables, assuming it's not doing any creative accounting, is offsetting 2,115,000 metric tons of carbon every year.

How much does it cost to attain these offsets? The market capitalization (amount it would theoretically cost to buy the company) has been pretty stable over the last couple years. Up to this point in 2020, it has averaged about $4 billion CDN.

Cost to offset 1 ton / year = $4 billion market cap / 2,115,000 tons offset = $1,891.

The average Canadian (and American, and Australian) emits 16 tons per year, as far as can be tracked. Therefore…

If an average Canadian holds $30,260 of stock in a company like RNW (or NPI, or INE), they will offset their carbon emissions.

It's a lot of money, but it's also not a sacrifice if you can afford it; all of these stocks yield competitive dividends, even during the (first?) year of the plague. Also, the market caps of these companies will likely grow as they acquire or build more renewables, but their production will likely increase proportionally.

Alternatively, one could purchase $160 USD (~$210 CDN) of offsets every year from a place like b-e-f.org, at least while those relatively cheap offsets exist. One could also purchase 16 tons worth of carbon permits on the European Carbon Exchange (ECX), which are currently selling for 25 euros ($40 CDN) per ton each year, at an annual cost of $640 CDN/year. This also assumes that the ECX is doing what it advertises to do, which isn't a perfect assumption.

In other terms, buying the stocks and holding them forever costs the same as 50 years worth of ECX permits, or 150 years of offsets at the cheapest available source. That's not including dividends, or the impact differences from removing all your carbon now vs removing it gradually.

Speaking of assumptions, how robust is this $30,260 estimate to violations of the assumptions used.

What if instead of 4,700 GWh of renewables per year, it's 4,000 – 5,000 GWh?

What if instead of a 63% fossil fuel mix being replaced, it's a 40-80% mix?

What if instead of being carbon free, renewables emit 0-100 grams per kWh because of the production of raw materials like silicon, aluminum, and especially concrete for hydroelectric dams?

What if instead of emitting 16 tons,  you emit 10-20 tons?

At 4,000 GWh replacing a 40% fossil fuel source with a 100 grams / kWh source, that's an offset of 286 g /kWh from the fossil fuels, and 60 g/kWh from the displaced clean sources for a net offset of 246 g/kWh, meaning only 984,000 tons are offset, at a market cap cost of $4,065 per ton per year.

At 5,000 GWh replacing an 80% fossil fuel (571 grams / kWh) source with a 0 grams / kWh source, as much as 2,855,000 tons are offset, at a market cap cost of $1,401 per ton per year.

From best-case-all to worst-case-all, it would take $14,010 to $81,300 of stock holdings not to undo your personal damage to the air, but just to stop doing more.

That's a huge price, and it's a large part of why experts say to 'reduce what you can, and offset the rest', rather than just trying to buy absolution without changing your life. It is, however, a sane number. It's the size of a down payment on a house, and like one it's a responsible step towards a secure personal future.

Finally, use Ecosia instead of Google, and avoid beef and pork, even just to prevent colon cancer.

Blog Update: You are already part of the solution.

We had this discussion before in 2019, here: https://www.stats-et-al.com/2019/10/offsetting-carbon-emissions-of-blog-and.html . That post has a literature search to determine how much CO2 is emitted from hosting a web page. The estimate I landed on was about 1 gram per page view.

Also in 2019, I purchased 3 tons to offsets from the Bonneville Environmental Foundation in order to offset 50 grams per view of the blog's first 60,000 views. It cost $30 to do so, and that was offset in part from the ads that were being delivered to the most lucrative 10% of viewers.

In 2020, Google took away the ability to deliver ads to only some of my readers, so I took away Google's ability to deliver ads to any of my readers.

I also purchased offsets for 50 grams per view for views 60,001 to 100,000, again from b-e-f.org , as shown below.


This will be 100 150 grams per view going forward. The certificates for the 15  additional tons is here:


Here is the David Suzuki Foundation's review of Canadian carbon offset sellers. An ideal Canadian carbon sink is probably coming in the form of a seaweed farm by Cascadia Seaweed. but we don't have time to be picky, so American offsets it is.

Footnote on ads

Removing ads wasn't done out of altruism, it was a self-serving move. It didn't make sense to write all this to build a professional image for myself if it was going to be interrupted every paragraph by SAVE THE PRINCESS, TEST YOUR IQ WITH THIS GAME FOR YOUR MOBILE DEVICE.


Footnotes on company choice

This company doesn't do much besides produce renewable energy; it doesn't manufacture renewable infrastructure, it just buys it and sells the electricity, so it's nearly as close to buying solar/wind/hydro and paying someone to maintain it as you can get in the stock market.

Transalta Renewables (RNW) has the complication of its relationship with Transalta, which produces power through a variety of means, including dirty ones, but RNW itself is pretty clean.

Northland Power (NPI) and Innergex Renewable Energy (INE) have similar business models, but without the parent company complication. I just found the data on RNW to be easier to parse and check.

Conflict of interest statement: I hold a long position in all of these stocks, although not one large enough to be carbon neutral without additional measures.

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