cap and trade


Not With a Bang, But…

This is the way the world ends. Not with a bang but with a whimper. –T.S. Eliot

With the President headed for Mexico for a two-day summit, I was struck last week by the juxtaposition of two headlines that jumped out of a daily environmental news digest.

One headline read: “MEXICO AIMS TO BRING CO2 CUT PLAN TO CLIMATE TALKS.” The other, just above it, referring to similar efforts in this country, read: “CLIMATE BILL MAY FALL BY THE WAYSIDE.”

“With the fight over health care reform absorbing all the bandwidth on Capitol Hill,” Lisa Lerer wrote for Politico, “Democrats fear a major climate change bill may be left on the cutting-room floor this year.”

Granted, Mexico’s contribution to global greenhouse gas emissions is reportedly about 2%, or a tenth of the U.S. contribution, so one might argue that there’s a lesser job to do there. But with less than four months remaining before the next major U.N. climate conference, it raises the grim prospect that while other nations press on, the U.S. could arrive in Copenhagen empty-handed, which is to say without meaningful carbon legislation to show.

At the same time last week, the 16-nation Pacific Islands Forum called for a 50/50 commitment from developed nations; a 50% reduction in greenhouse gas emissions by 2050. Many of those island nations are on the hot seat as rising seas levels could make them among the first to lose substantial real estate before the end of this century.

At his first climate summit for governors last fall, Governor Arnold Schwarzenegger introduced a video from then President-elect Obama, in which he promised that his presidency would “mark a new chapter in America’s leadership on climate change.”

Praising the governors in attendance for their own climate initiatives, the newly elected President declared that “Too often Washington has failed to show the same kind of leadership. That will change when I take office.”

Of course “Washington” includes Congress, which is still dithering over the major carbon emissions bill championed by the new President. It squeaked through the House by nine votes and now looms as a 1,400-page pig that the Senate python will attempt to digest or regurgitate. Either way, what comes out is unlikely to closely resemble what went in.

Meanwhile the whole cap-and-trade concept has been coming under increasing scrutiny and skepticism. Last month, when the non-partisan Public Policy Institute of California polled Californians on the subject, more respondents favored an out-and-out carbon tax than cap-and-trade (56% to 49%). The Western Climate Initiative, a regional cap-and-trade pact that is a keystone of California’s climate strategy, AB 32, remains in limbo while western legislatures wait on Congress.

So when the Governor convenes his second climate summit in L.A. next month, billed optimistically as “The Road to Copenhagen,” he and his fellow “subnational leaders” (Wisconsin, Michigan & Connecticut governors are currently signed up) may find that the ball is still in their court. According to a news release from the Governor’s office, “climate leaders from around the world will come together and collaborate on efforts to further the global fight against climate change.”

They’ll do it with the same question on the table as last year: Can they count on Washington to take up the reins?

Western Cap-and-Trade Plan Taking Heat

Proponents of the Western Climate Initiative’s (WCI) climate action plan encountered some vocal critics on Tuesday as nineteen U.S. Senators and House members from 10 states challenged western governors to rethink the plan’s approach to cutting carbon emissions.

In a letter to the governors, members of the Congressional Western Caucus, including three from California, expressed particular concern about capping carbon during the most severe economic slump in the post-war period.

WCI is a cooperative plan by 11 western U.S. states and Canadian provinces to create a regional cap-and-trade system for greenhouse gases.  Craig Miller reported on the plan in September for KQED’s The California Report.

The critics’ letter takes issue specifically with what it says are the WCI’s plans to rely on “renewable technologies and demand destruction” and to allow “for virtually no new baseload power plants deployed in the West through 2020 that are powered by natural gas, clean-coal-with-carbon-capture, renewable hydropower or nuclear energy”.  They say the region will lose billions of dollars in investments in green technology due to a plan that prevents new fossil-fuel power plants, even those with CO2 capture and sequestration technology.

At issue seems to be the WCI’s plan for the emissions caps, which are slated to be a “flat line” from either 2012 or 2015, depending on the source.  According to the WCI’s recommendations, the line would be set using “the best estimate of expected emissions for sources covered in the cap and trade program” in 2012.  Under this system, there would be very little room for increased emissions from any new power source covered by the program (i.e. electricity generation, combustion at industrial and commercial facilities,  and oil and gas processing).

The letter refers to a recent economic analysis commissioned by the Western Business Roundtable that found that the WCI would be expensive, cause job losses, and would not affect global climate.

California congressmen Dan Lungren, Elton Gallegly and George Radanovich were among the signers.

Obama Steals the Show

news-obama2-140x140.jpgIt was one of those rare occasions when a video gets a standing ovation.

But President-elect Barack Obama’s video greeting to 800-plus attendees at the Governors’ Climate Summit in LA had quite a few of them on their feet.

Obama lauded the conference and promised that once he takes office, “Any Governor who works toward clean energy will have a partner in the White House.” So, he said, would any company working to develop clean energy, projecting that five million new “green jobs” will be created in the process.

While he did not say anything he hasn’t said before, Obama bundled most of his previously articulated thoughts on climate response into his brief video comments. He restated his commitment to a federal cap-and-trade program that would help return U.S.-based greenhouse gas emissions to 1990 levels by 2020, with an 80% reduction by 2050.

Obama again left the door open to an expansion of nuclear power, saying that the nation would “tap” it, “while making sure it’s safe.”

Referring to the ongoing UN climate talks, the President-elect got one of his biggest ovations when he said “You can be sure that the United States will once again engage vigorously in these negotiations, and help lead the world toward a new era of global cooperation on climate change.”

“Delay is no longer an option. Denial is no longer an acceptable response,” he said.

The first panel discussion of the two-day summit involved the problem of tallying and reporting greenhouse gas emissions. Representatives of Mexico and China pledged renewed efforts on that front.

Watch the video greeting below.

Punting the Issue

oil-refinery-300.jpgWhen California creates a cap and trade system to deal with greenhouse gas emissions, as it is planning to do, there’s going to be the question of what to do with the revenue. Actually, first there’s the question of if there will be any revenue, as Mary Nichols, Chair of the California Air Resources Board (CARB), told a roomful of Silicon Valley venture capitalists and green tech leaders this week at the offices of fuel cell innovator Bloom Energy.

California’s cap and trade planning is tied to the Western Climate Initiative, but the consortium is leaving the decisions about how to dispense credits up to each state.

Nichols said that those who would be buyers in the potential cap and trade system are “very resistant” to the idea of an auction. Not exactly surpising.

But many clean energy innovators see the revenue from a cap and trade auction as the perfect opportunity to help new green technologies survive the tenuous period between venture capital funding and commericial viability. Funds from a cap and trade auction could help mitigate the risk private companies take on to develop the innovations that will be needed for a greener future.

Nichols admitted that how much of the credits to auction and where the money should go is the most controversial issue around AB 32. She cited the “cap and dividend” option, a scenario in which all the revenue would go “right back to the public, like in Alaska,” as a politically popular option. She also mentioned using the funds to reduce corporate taxes.

Bloom Energy CEO KR Srindhar likened the “cap and dividend” option to “giving people a fish” (I can only assume as a reference to the old adage about how teaching someone how to fish is better than giving him a fish).

“In the early stages, if we [California] want to be a leader in this field, we need to be seeding it to create jobs. When we do, then, month after month, they’ll be getting that dividend,” Srindhar told Nichols, asserting that money invested in green tech would pay off in the form of job creation and a better economy.

Nichols reponded by saying that she was “thinking about punting the issue for awhile.”

As we have blogged before, CARB is tasked with implementing AB 32, which requires that the state reduce its greenhouse gas emissions to 1990 levels by 2020.

According to rumors, Nichols may be influencing more than just California’s climate policy soon. Unnamed sources in recent reports have cited her as a potential Obama pick for EPA head in the new administration.

Proposed Plan for Reducing Emissions in CA

California is one step closer to implementing the Global Warming Solutions Act of 2006, or AB 32, the law that requires the state to reduce greenhouse gas emissions to 1990 levels by 2020. Today, the California Air Resources Board (CARB) released its proposed scoping plan for how to achieve this goal.  CARB president Mary Nichols said more than 40,000 comments were submitted in response to the draft plan released in June, which we wrote about last month.  Today’s plan will go before the Board for approval in December.

One of the biggest changes to the scoping plan is that the target for reducing Regional Transportation-Related Greenhouse Gas emissions by 2020 was more than doubled from two to five million metric tons. CARB anticipates meeting this goal with a combination of improvements to alternative transportation infrastructure (such as public transit and biking lanes), building sustainable developments, and reducing vehicle trips through incentives and education strategies.

Another change is the addition of a goal for local governments, which was not articulated in the previous version of the plan.  CARB is recommending local governments reduce greenhouse gas emissions by 15 percent below today’s levels by 2020.

A big component of the scoping plan is a cap and trade program that covers 85 percent of the state’s emissions.  The plan is being developed in conjuction with the Western Climate Initiative, which includes seven states and four Canadians provinces that have agreed to work together to cap emissions and create a regional carbon market.  In September, we wrote about the carbon trading market set up by ten eastern states, the Regional Greenhouse Gas Initiative (RGGI). 

Questions still remain about how California’s carbon credits will be divided up and whether they will be handed out, auctioned off, or, more likely, a combination of the two.  WCI has left this decision up the individual states with a recommendation of a minimum auction for 10 percent at the outset of the program increasing to at least 25 percent by 2020, and perhaps higher in the future. Nichols said today that California is considering auctioning 20 percent.  Of course, for many environmentalists, the closer to a 100 percent auction, the better. 

For more information and analysis on the plan, listen to our own Craig Miller, Senior Editor of Climate Watch, on KQED Radio talking with host Sarah Varney. Listen to Miller’s report on AB 32 that aired on the October 16 edition of the The California Report.

Three Bucks a Ton

You load 16 tons and whaddayou get? The late Tennessee Ernie Ford’s answer to that was “Another day older and deeper in debt.” But in the emerging carbon market, we now have a real answer: about $48.

At least that’s how much you’d use up in carbon credits if you participated in the nation’s first “cap-and-trade” auction for carbon emissions, which set the price for a ton of carbon in that particular market at $3.07. That auction last week was for RGGI, the Regional Greenhouse Gas Initiative, casually known as “Reggie.” It’s the carbon trading market set up by a group of ten northeastern states and it may give us a preview for when trading begins by the Western Climate Initiative, a consortium of eleven western states and Canadian provinces, including California. As I reported last week, the WCI just made public its general gameplan for carbon trading to begin in 2012. The first RGGI auction raised $40 million, which the states can now spend on developing low-carbon sources of energy (let’s hope “Reggie” fares better in the long run than “Fannie” and “Freddie.”)

Actually, 16 tons isn’t even enough to get you noticed in these carbon markets. Burning a gallon of gas in your car typically releases less than 20 pounds of CO2. Only facilities that pump out 25,000 tons or more per year will have to comply with WCI, which has yet to decide what portion of its credits to give away or auction off.

On Friday, we expect staffers at the California Air Resources Board to release the last version of their “scoping plan,” before it goes to the board for approval. It’s the master plan for implementing the state’s comprehensive law to combat the effects of climate change. Part of it hinges on California’s participation in the WCI, so the successful first auction of credits by RGGI bodes well.