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COLUMN-US Climate Plan May Boost Cap And Trade: Wynn
Source: Reuters – Wed, 26 Jun 2013 05:11 PM Author: Reuters (The author is a Reuters market analyst. The views expressed are his own.) By Gerard Wynn LONDON, June 26 (Reuters) – President Barack Obama’s climate plan, unveiled this week, may boost regional schemes to cut greenhouse gas emissions, known as cap and trade, four years after the United States failed to pass legislation for a nationwide programme. Unlike Europe, the United States has no national cap and trade scheme to combat carbon emissions. The U.S. Congress considered but ultimately failed to bring in a national scheme in a climate bill which stalled in the Senate in 2009. After this failure, there is no hope of a repeated attempt any time soon. But Obama’s new climate plan could enhance the regional cap and trade markets and cement their future. Such schemes allocate a fixed quota of carbon emissions permits to industry and these can be traded between the participants. The present U.S. schemes are the Regional Greenhouse Gas Initiative (RGGI) of nine northeast states, which caps power sector carbon emissions, and California’s economy-wide programme. Obama, facing Republican opposition, is by-passing Congress and turning instead to the Environmental Protection Agency (EPA) to bring in carbon curbs on existing power plants. He has directed the agency to finalise such emissions standards by June 2015 under the existing Clean Air Act (CAA). If the agency can fend off litigation, a new EPA proposal could link and boost existing regional cap and trade schemes and possibly even expand these to neighbouring states. But such a by-passing of Congress will face legal challenges, on the basis that the Clean Air Act was not originally intended to combat climate change. There is little precedent, for example, to implement emissions trading through the Act. DETAIL It is too early to judge the cost or ambition of Obama’s climate plan, given its low level of detail. “What follows is a blueprint for steady, responsible national and international action to slow the effects of climate change so we leave a cleaner, more stable environment for future generations,” Obama’s “Climate Action Plan” stated. The plan did include goals to cut cumulative carbon emissions from running appliances and government buildings and a target for federal agencies to source their energy from renewable sources. But its most interesting aspect is the plan to curb carbon dioxide emissions from existing power plants, where it is clear that emissions markets will be one model for implementation. Obama entitled the new carbon emissions standards, “Flexible Carbon Pollution Standards for Power Plants”, in a memo directing the EPA administrator. “You shall ensure, to the greatest extent possible, that you develop approaches that allow the use of market-based instruments, performance standards, and other regulatory flexibilities; (and) ensure that the standards enable continued reliance on a range of energy sources and technologies,” he said in the memo. In international climate policy, “flexible” and “market-based” are jargon for emissions trading. NO CONSENSUS The Clean Air Act has few precedents for enacting emissions trading. One is the sulphur dioxide (SO2) allowance trading system, intended to address the threat of acid rain. That market was introduced through amendments to the Act in 1990, which passed both the House of Representatives (401-21) and the Senate (89-11) by wide margins. No such political consensus exists now, ruling out new amendments to accommodate carbon. Instead Obama is using direct action through existing clauses in the Act, in sections 111( and 111(d). These make no direct mention of carbon or emissions trading. Section 111(d) sets guidelines for state regulation of existing sources of pollutants, such as power plants, where in the past EPA has issued model plans for adoption by the states. EPA has made one ill-fated attempt to interpret section 111(d) as allowing an emissions trading program, according to the Washington-based think-tank “Resources for the Future”. (“Greenhouse gas regulation under the Clean Air Act”, April 2010) That unsuccessful regulation in 2005 would have established a trading program for mercury emissions from power plants. “Although the D.C. Circuit rejected EPA’s mercury rule, it did so on other grounds – the court gave no indication that emissions trading under the New Source Performance Standards program was itself problematic (though it is of course possible that the court simply did not reach the issue),” the report said. CAP AND TRADE Despite such legal hurdles, emissions trading and other market approaches may offer the most flexibility for states to interpret an emissions standard, and so minimise costs. The U.S. environmental group the Natural Resources Defense Council gave an example of how it could work at the end of last year. (“Closing the Power Plant Carbon Pollution Loophole”, December 2012) EPA would set state-specific performance standards for power plants, based on the energy mix in each state. “NRDC’s proposal is designed to give power plant owners freedom to choose how they would achieve the required emission reductions, giving credit for increases in energy efficiency and electricity generation using renewable sources and allowing emission-rate averaging among fossil fuelfired power plants,” it said. The plan sounds much like Obama’s memo to the EPA. States could meet the emissions standards either through their own crediting schemes, which give utilities flexibility in how they reached a target across a number of power plants, or they could tap into existing cap and trade schemes. If EPA introduced an average limit on carbon emissions in the power sector, utilities already operating within a regional cap and trade scheme could meet such limits by buying carbon allowances. The effect would be to push up carbon prices and probably trading volumes and liquidity in such regional cap and trade schemes by increasing demand. (Reporting by Gerard Wynn. Editing by Jane Merriman) Continue reading
Carbon’s Unburnable Truth
21/03/13 The coal industry has made a feeble attempt to pop the concept of the carbon bubble and its investment consequences. The Australian Coal Association commissioned Alan Oxley to examine The Climate Institute and Carbon Tracker’s recent research into Australia’s Unburnable Carbon. Oxley attacked the carbon bubble concept in the AFR yesterday. If you accept the science of climate change, the carbon bubble concept is based on a simple unburnable truth. There is a limited budget for the heat trapping greenhouse gases we can put in the atmosphere to avoid global warming goals. Our research, and that of the International Energy Agency amongst others, examines the budget in terms of the goal that Australia, China and the US amongst over 190 other countries have agreed upon, of avoiding global warming of two degrees. This research is not the realm of radicals or “extremists” as the Minerals Council of Australia would have it. Two years ago the now CEO of Anglo American Mark Cutifani said “… the global carbon budget makes simple logical sense.” Investors like Warren Buffett and Jeremy Grantham have embraced the concept and begun applying it. Just last week investors representing $22.5 trillion held an historic summit in Hong Kong focused on their role in avoiding the economic costs of dangerous climate change and launched a new global low carbon investment register. Central to Oxley’s arguments is that national governments are unable or incapable of organising to avoid two degree warming and that investors should stick to their knitting and avoid public interest goals not supported by policy. In Oxley’s report he makes the old short-termist argument that the job of business is to maximise profits within current policy. This ignores the very real interest that investors such as superannuation and insurance funds should have, and are beginning to take, in the consequence of their investments. These funds are both legally obliged to manage funds for long term outcomes and invest in a range of asset classes that will take, and arguably are already taking, climate hits. They are awaking to the fact that their old ways of investing actually add to the risks they are now attempting to manage. Limiting average global warming to two degrees above pre-industrial levels is an extremely challenging task especially as there is already almost one degree warming with 1.4 degrees locked in by lag effects. There are however a number of social, political and technological scenarios where effective action to avoid two degrees warming will be taken. We don’t pretend to predict the exact course, but the International Monetary Fund and the World Bank – hardly a bunch of left-wing greenie extremists – are warning of the economic consequences if we don’t. Global leaders at the G8 concluded its meeting two days ago with a communique restating their commitment to this goal noting “climate change is one of the foremost challenges for our future economic growth and wellbeing.” The history of financial bubbles, such as the dot.com and sub-prime mortgage bubbles, is based on the assumption of never ending demand. History has shown those assumptions to be high risk indeed. All bubbles are theories until they crash. This bubble rests on very solid foundations of basic carbon physics and budgets. Contrary to Oxley’s claim yesterday, nowhere does the IEA say there is “little risk” of stranded assets for the coal industry. The IEA report does say that, for its two degree scenario, “more than two thirds of current proven fossil-fuel reserves are not commercialised unless carbon capture and storage is widely deployed.” The prospects of that are not good at the moment – the prospects of a bubble are therefore real, exposing as bizarre the report’s claims that a mining company’s reserves of fossil fuels are disconnected to its valuation by the market. It should be noted that The Climate Institute can hardly by labelled as ignoring the importance of carbon capture and storage. We have repeatedly called on industry and government to speed up the technology’s deployment, and have been public on why Australia and the world should pursue it. The ACA on the other hand appears in retreat, turning its billion dollar Coal21 fund, previously focused on low emissions technology into a vast slush fund now also able to “promote the use of coal.” Finally, our analysis challenges current valuation methods but does not, as Oxley’s report falsely asserts, call for full divestment. Our call is for far greater consideration and disclosure of carbon and climate risks from investors, as well as greater investment in low carbon solutions. In that we are joining and being joined by a swelling rank of NGOs investors and regulators. Denying the concept of the carbon budget is like denying climate science. That is carbon’s unburnable truth. This article was originally published in The Australian Financial Review (online). Republished with permission of the author. John Connor is CEO of The Climate Institute. Read more: http://www.businesss…h#ixzz2WrSQmCwt Continue reading
Chinese Carbon Pollution: Buy Or Sell?
Chinese carbon pollution: Buy or sell? PHILIPPE LOPEZ/AFP/Getty Images The Chinese city of Shenzhen is seen in the distance beyond a landfill. http://www.marketpla…1/player/popout by Rob Schmitz Marketplace Morning Report for Tuesday, June 18, 2013 Today, China launches a new pilot carbon market in the southern city of Shenzhen. Carbon cap and trade schemes have had a hard time getting off the ground in other countries. Can China make it succeed? China is requiring 635 companies to purchase carbon permits for trade in the new market. Durwood Zaelke, president of the Institute for Governance and Sustainable Development, hopes it will succeed though it hasn’t worked well in other countries. “There’s been cheating, there’s been bogus credits created and sold in different European markets,” Zaelke says. Anyone who’s operated in China knows that cheating and bogus-anything is synonymous with doing business there. So, Zaelke has a question for China: “Is China able to learn how to do compliance?” he asks. “Because if you don’t have strict compliance when you’re doing a trading system, it will not work.” If China is able to make its first carbon market thrive, Beijing has promised to launch a national carbon market in 2015. About the author Rob Schmitz is Marketplace’s China correspondent in Shanghai. Continue reading
