Fast Times at Cap&Trade High

Governor Chris Christie

You may not know this, but “Cap and Trade” isn’t just a buzz-phrase for something many environmentalists would like to see the U.S. adopt for regulation of greenhouse gases–it’s been a reality for 10 northeastern states since 2009. With the announcement of New Jersey Governor Chris Christie’s plan to withdraw from the Regional Greenhouse Gas Initiative (RGGI) this year, the hot-button issue of Cap and Trade has again come to the surface of environmental news sphere.  Cap and Trade, the market-based mechanism that many call for to help steer our energy production from fossil fuels to renewables, has been employed under a cooperative agreement called RGGI (“reggie”).  RGGI is a joint venture by the New England states along with New York, New Jersey, Delaware, and Maryland, to limit emissions from electricity plants and collect revenues for member states through auctions and sales of CO2 emission allowances.   These revenues are intended to be re-invested by the states for things like efficiency improvements, renewable energy installations, and consumer financing, although NY, NJ, and NH have used a portion of their proceeds toward their state debts. Overall, about 80 percent of the $860 million collected so far have been strategically invested since the first auctions were held in ’08.

Here in Massachusetts, about 80% of our $123 million windfall has been put toward utility-run efficiency improvement programs, while around 20% have gone to state-run initiatives including the multi-faceted Green Communities program, which was featured here on Warm Home Cool Planet back in February.  Other states have created “Green Jobs” programs, as in New York.  According to RGGI’s own assessment report released this February, investments in efficiency and renewables have created appreciable direct and indirect economic benefits, along with expected reductions in greenhouse gas emissions.  As a minor caveat, there have not been, to my knowledge, any independent studies yet evaluating RGGI’s effect on either the economy or emissions.

So, in light of what seems like progress for RGGI member states, Christie’s decision to end his state’s participation by the year’s end has received plenty of criticism.  Governor Dan Malloy of Connecticut was among those disappointed, stating “Governor Christie’s decision…reflects the kind of policymaking that must change if we are to move forward as a nation.”  Christie’s explanation for the decision does, on the face of it, take a pro-environmental stance, as he claims New Jersey will be able to achieve emission reductions progress and job creation through its own forthcoming policies, including preventing new coal-fired plants from being built.  The decision to withdraw isn’t quite final, however, as environmentalists plan to mount a legal challenge.  Whatever ends up happening with New Jersey’s RGGI saga, don’t expect regional Cap and Trade arrangements to go by the wayside, as Politico’s Darren Sammuelsohn explains.  And if the EPA sets nation-wide emissions caps for electricity plants, RGGI just might serve as a template for other regions to form their own carbon markets.

“The Story of Cap and Trade”

One possible step toward Climate Change mitigation, cap and trade is a prominent topic of discussion among government officials and environmentally-concerned citizens alike. This very short film (by the creators of “Story of Stuff”) offers a comprehensive look into the cap & trade system, and carefully questions its legitimacy. This is an informative piece on a very comfortable level that will boost your understanding of what the true philosophies behind, benefits of, and concerns with cap and trade systems are. I recommend taking a couple of minutes to check it out, and then sharing with your friends.

Or watch here.

Regional carbon market developments

The Regional Greenhouse Gas Initiative (RGGI) is the first mandatory, market-based effort in the United States to reduce greenhouse gas emissions. Ten Northeastern and Mid-Atlantic states haved capped and will reduce CO2 emissions from the [electric] power sector 10% by 2018.

States sell nearly all emission allowances through auctions and invest proceeds in consumer benefits: energy efficiency, renewable energy, and other clean energy technologies. RGGI will spur innovation in the clean energy economy and create green jobs in each state.

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No Meaningful Agreement in Copenhagan. No Surprise.

Let’s see if we can grasp the so-called agreement reached in Copenhagan.

  1. Many of the Developed Countries (the North) have promised to reduce their greenhouse gas emissions as much as they (comfortably) can in the future. These are not binding commitments; just promises to make a best effort. And, they are all over the place in terms of the cuts they represent compared to past and present CO2 emission levels. A number of Developing Countries (the South, including China) have now promised to mitigate greenhouse gas emissions. Again, nothing binding and wildly inconsistent targets and timetables. And, even if you add up all the promises, you won’t come close to getting the world on track to stabilizing greenhouse gas emissions at a (350–450 ppm) level by 2050 sufficient to forestall the worst effects of climate change over the rest of the century and beyond.
  2. The North has promised to come up with $30 billion over the next three years to help the South “fight” climate change. It’s not clear, though, how this money will be used or where it will come from. Presumably, some of it will be used to reduce CO2 emissions (although it is not clear what the best way to do that is or how such efforts should be prioritized). Some of it will have to be used to help countries adapt to sea level rise, increased storm intensity, periods of drought, adverse effects on biodiversity, and other disasters. (Which forms of adaptation should be pursued, are not clear.) Also, it is not obvious how this money will be administered or who will get it (presumably a disproportionate share should go to the poorest countries in Africa). The North says it will try to raise $100 billion by 2020, but, again, it is not clear where the money will come from, how it will be administered, or who will get it. Finally, these are just informal promises, not binding commitments.
  3. There was almost a new forest agreement, but at the end it got dropped. In Kyoto, the question of how to define and protect “sinks” (i.e., forests and oceans that absorb CO2) was not addressed. In Copenhagan, the leaders agreed that halting deforestation is “crucial.” Funds to pay countries, like Brazil, to conserve their forests are now supposed to be forthcoming. Note that rich nations like this idea because they want to count the funds they donate for this purpose toward “carbon credits” (thereby reducing the CO2 reductions they have to make in their own countries). It is not yet clear, though, how this system of carbon credits and forest preservation would work.
  4. As with all global treaty negotiations, there was a lot of uneasiness when the topic of monitoring and enforcement came up. No country can really force another to do what it doesn’t want to do—even if it has signed a treaty. Countries are sovereign. Most global agreements require countries to report regularly. But, in this case, if the reports don’t seem accurate, all the Climate Change Secretariat can do is ask for more information or clarification. It can’t double-check the data that countries submit or take independent measurements of its own. The South agreed for the first time, however, to report domestic CO2 emissions on a regular basis. There was some language discussed regarding “provisions for international consultation and analysis.” That’s as close as we’ll get to verification. Some observers had hoped that a new global panel of experts might have access to all monitoring equipment, data and technical specialists in each country so that suspect reports could be verified, but that didn’t happen.
  5. The so-called “Statement on Temperature” agreed to in Copenhagen says that the nations agreed that any global increase in future temperature should be kept to under two degrees Celsius. Since the new agreements specifies no targets, timetables, enforcement mechanisms, provisions for technology sharing between the North and the South, or ways of enhancing capacity building, it’s hard to take such a statement seriously. Saying it should be done, but not saying how, is tantamount to saying nothing.
  6. None of the promises made in Copenhagen are binding. Maybe, in the next year or two, a formal Protocol will be drafted that explains how implementation of these various commitments is supposed to happen. Until then, though, we’ll be operating under the Rio Climate Change Convention and the Kyoto Protocol.

What happens when the Kyoto agreement runs out in 2012? It appears that we will have no binding targets in place to bring global greenhouse gas emissions to a level (450 ppm? by 2050) needed to forestall dangerous temperature increases. We certainly won’t have the level of cooperation between North and South required to tackle the climate change problem over the long haul. Many countries in the South resent the way they were (once again) left out of the last minute wheeling and dealing in Copenhagen. And, tossing money at them, no matter how many billions, without ever agreeing in principal that the North is responsible for the climate change mess we are currently in, just puts off the day we can achieve the global collaboration required to address the problem effectively. Small island nations face total destruction. The numbers of international refugees that will have to move from low-lying coastal areas devasted by meterological events is sure to increase markedly. Unfortunately, nothing will be done to jump-start Southern efforts to achieve more sustainable patterns of development. In short, after Copenhagen, the climate change problem will continue to get worse at an even faster clip.

What should have been done and what can still be done to turn this situation around? First, we need to alter the system of global treaty drafting. Each region of the world should bring together governmental and non-governmental interests on a specific multi-year timetable to produce a draft global treaty that takes account of its needs and sort out its responsibilities for achieving proportionate greenhouse gas mitigation efforts sufficient to reach the required 450 ppm goal by 2050. Two or three countries in each region should immediately mobilize such efforts. Using a common template—developed by the Climate Change Secretariat which still has a 160±country mandate—each regional caucus should spell out ten year incremental reduction targets sufficient to meet the 450 ppm goal by 2050, explicit strategies that countries can use to meet these targets if they have to, the cost implications of meeting such targets (netting out the costs of not meeting them as well), ways reasonable data reporting and verification responsibilities might be met, institutional capacity building requirements, financial forecasts likely to have an impact on implementation, and possible financial or in-kind contributions each country needs or could provide). This needs to be done in eight to ten regions of the world. Each regional “caucus” should draft its suggested version of a new global agreement to meet greenhouse gas reduction requirements responsibly and designate five members from its caucus to participate in a global treaty-making council with responsibility for reconciling the differences among the proposed regional drafts. The Global Congress would have to be mediated by an international panel of skilled facilitators acceptable to all the regions. A Congress of 40–50 regional representatives would need a year or more to prepare a meaningful treaty the takes account the differences among all the regional drafts. The final version of the treaty would then be sent to each national legislative body to ratify (not at another Copenhagan-style type fracus). When a minimum of 2/3 of the countries in each region ratifies it, and a minimum of 2/3 of the regions ratify it, it would come into force. If 2/3 of the countries in 2/3 of the regions ratified the treaty, those 130 countries would be in a position to take action (under a range of trade and other treaty regimes) to pressure any and all hold out countries to ratify the new Climate Change treaty. If a county won’t sign the new treaty, they ought not be eligible to participate in international trade regimes. If they don’t sign, they ought not be eligible for assistance from any multinational banks. Since all the same countries are part of all these regimes, the climate change treaty signers would have sufficient numbers (and through the process I am describing) sufficient legitimacy, to make this happen.

Let’s get to work.

Cap and _____________?

clean_skies

From the New York Times Green Inc. blog an article on the options being debated for either totally replacing the current carbon cap and trade system or tweaking our current set-up. On one side of the argument, many are saying that giving carbon emission credits to big business amounts amounts to rewarding polluters. (Given the fact some companies have been selling off carbon credits they got for free, it’s not hard to see that point.)

Some environmental groups favor a ‘carbon tax’ which would be applied to all non-renewable carbon-based energy sources. The revenue generated from levying this tax would be used to fund renewable energy development and offset current tax burdens.

There is no doubt a carbon tax would have an immediate effect on the behavior of the business community (and consumers who would end up paying the tax in the form of increased prices for all products and services using CO2 emitting fuels in their manufacture or provision.)

A carbon tax, while it is working in places like the UK, has always had a difficult time getting support in the US Congress due to the unknown impact it would have on our economy in the short term. The Obama Administration has put it back on the table, however. In the end it might be used to negotiate lower cap limits and perhaps charge for the carbon credits the government is currently handing out for free. Read the comments section on the NY Times article for other perspectives on this issue.

BusinessWeek Rains on Germany’s Green Energy Parade

german_windmill

Businessweek has discovered the dirty little secret behind he success of Germany’s renewable energy industry.

Germany’s renewable energy companies are a tremendous success story. Roughly 15 percent of the country’s electricity comes from solar, wind or biomass facilities, almost 250,000 jobs have been created and the net worth of the business is €35 billion per year.

But there’s a catch: The climate hasn’t in fact profited from these developments. As astonishing as it may sound, the new wind turbines and solar cells haven’t prohibited the emission of even a single gram of CO2.

Even more surprising, the European Union’s own climate change policies, touted as the most progressive in the world, are to blame. The EU-wide emissions trading system determines the total amount of CO2 that can be emitted by power companies and industries. And this amount doesn’t change – no matter how many wind turbines are erected.

This is a story that we all need to read and understand. The bottom line is did we really save anything? Did we really reduce carbon? Carbon cap-and-trade frameworks will have to be modified as green energy alternatives come online. The citizens of Germany must continue to demand both the development of alternative energies and the immediate reduction of CO2 emissions levels. Otherwise, renewable energy producers are simply making things easier for their carbon producing counterparts, who find the price of CO2 emissions certifications dropping to almost nothing.

What remains unsaid here is that EU’s carbon neutral system, while it won’t save the planet, is still ahead of the US who over the last decade has outsourced much our carbon emissions to China. Whose environmental problems are a whole other story.

What this article reveals is that while the technology to solve our problems is developing, our governments has to step up to the plate and constantly spur further progress through new standards.

Carbon Tax or Cap and Trade?

The NYT Green Inc Blog examines arguments for different strategies for reducing carbon—the carbon tax, cap-and-trade systems, and simple regulatory reform. Recent fluctuations in the price of carbon credits in the European markets call into question the ability of cap-and-trade systems to work efficiently during an economic downturn.

Do we really want to create another set of poorly understood financial instruments? A revenue-neutral carbon tax can create low-carbon incentives while revenue can be used to reduce payroll taxes. “Tax what we burn, not what we earn.” – James Handley

Other analysts argue that the decline in price is simply the result of the system working; companies meeting their carbon reduction goals simply don’t need to buy the credits, driving down their market price.

Whatever your ideological stance, most experts agree that the roll-out of emissions-cutting technologies will be slowed by the drop in carbon credit prices.