Microsoft Word - SustainabilityReport_BCC.doc

The fundamental problem was that European officials implemented their

system blindly, with little mathematical analysis to guide them. Many argued after

the European debacle that the problem was that the emission permits were given

away for free and that if they had been auctioned off instead, windfall profits

wouldn’t have occurred. But mathematicians have found that some windfall

profits are inevitable, regardless of how the permits are allocated. The best way

of controlling them, current research suggests, is to give producers around 70

percent of their permits for free and require them to buy the remainder at auction.

Producers who choose a particularly clean mix might not need to buy any

additional permits, while those with a dirtier mix would have to buy a lot.

Much more work is needed, however. The key challenges are to set the

appropriate emissions targets and to choose the right method of allocating

emissions credits.

Finding the regulations that will most effectively limit emissions without

significantly raising prices to the consumer remains an open problem, and one

with major consequences to both humanity and the environment.

Some of the mathematical sciences challenges we need to meet in order

to transform our energy systems are:

• Development of new methods of stochastic optimization of complex,
  dynamic systems that arise in storage, R&D portfolio optimization,
  design of grids, choice of generators, and models of users.


• Our models of the economy need to be vastly improved. Current
  models assume that our economy will always be in a state of
  equilibrium and that everyone will behave rationally, but as the 2008
  financial crisis proved, at the most critical moments, these assumptions
  can be dramatically false. We need these models in order to determine
  how much money we should be spending on alternative systems for
  generation, storage, transmission, and distribution of energy, and to
  predict the economic impacts of our energy policy decisions.


• Design of new materials for energy production, storage, transmission