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November 14, 2008

Carbon conference: The other election

Before signing off for the conference, I figured I would highlight one other bit of news that cropped up yesterday. It involves a major national election and a peaceful power change that could shift a government’s policy on global warming emissions. And no, it has nothing to do with Barack Obama.

While the world’s eyes were on a sharp turn to the left in the United States, New Zealand held its own elections on Saturday - and moved sharply to the right. Apparently one of parties – ACT – that stands to gain is sceptical about global warming and has promised to pull out of the Kyoto Protocol. And all of this comes at a time when New Zealand is implementing a potentially groundbreaking cap-and-trade program designed to regulate all greenhouse gas emissions, including the difficult stuff like agriculture and development that is cutting down native forests.

I’m getting most of my information from Tim Denne, a private consultant who spoke at the conference and has been working for the New Zealand government as it develops and implements the regulations. Denne said the impacts in terms of climate policy are still unclear, but he remains optimistic. “I don’t think they will change the fundamental design, rather they will just throw around a few additional allowances,” Denne said.

“Allowances” in a cap-and-trade system are in essence permits to pollute, with one allowance equalling a tonne of carbon dioxide. If you don’t have an allowance, you can’t pollute. So by limiting the overall number of allowances, the government can limit overall greenhouse gas emissions. In other words, Denne believes the incoming government might be forced to compromise on just how onerous the regulatory system will be.

So there you go. We’ll see what happens.

Posted by Jeff Tollefson on November 14, 2008
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November 13, 2008

Carbon conference: A self-fulfilling prophecy?

Mary Nichols, chairwoman of the powerful California Air Resources Board, just finished discussing her states efforts to curb global warming pollution in the transportation sector. California passed its own limits on greenhouse gas emissions from vehicles in 2004, but the US Environmental Protection Agency under George W. Bush has declined to issue a waiver allowing the state to proceed. It’s a long story, but suffice it to say that Nichols predicted a speedy resolution once Barack Obama takes office.

“We are operating under the assumption that we will get our waiver some time next year,” she says.

Given the sheer size of the California market and the fact that some 16 states have signed on to the California proposal, it is entirely possible that the rest of the country would follow. In fact, the Supreme Court has already ruled that EPA has the authority to do just that. EPA essentially punted on the issue earlier this year, but the next administration might be more inclined to follow up on that authority as well.

As it happens, Nichols is rumoured to be on Obama’s shortlist to head the EPA, where she previously worked under President Bill Clinton. Speaking to reporters after the session, she was certainly open to the idea. Nichols said the first thing she would do if appointed EPA administrator would be to meet with the president and the rest of the agency heads to coordinate a comprehensive federal energy and climate strategy. But has she discussed the idea with the Obama transition team? No comment.

Who knows? She might one day find herself in the unique position of fulfilling her own prediction – by granting California the waiver herself.

Posted by Jeff Tollefson on November 13, 2008
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Carbon conference: MIT, Pew on climate regulations

The conference kicked off this morning with a keynote address from New York Times Columnist and green-energy guru Tom Friedman, and then moved on to a plenary panel on the United Nations effort to reach an international climate agreement in Copenhagen in 2010. In short, inspiration followed by a sharp dose of reality. Although nobody is giving up, there’s a growing feeling here in the United States that it could be quite difficult to sign off on anything significant next year.

The morning sessions are over, and I’m now in a press conference where the Massachusetts Institute of Technology and the Pew Center on Global Climate Change are releasing a series of reports covering the nitty-gritty details of cap-and-trade systems. All sponsored by the Doris Duke Charitable Foundation, the reports are intended to update the technical foundation on global warming policy for the incoming administration and Congress.

Most of this material is long and detailed, but I’ll quickly highlight one of MIT’s most basic findings: Despite constant criticism by many policymakers in the US, the European trading scheme is working. “It does reduce emissions,” says Denny Ellerman, a professor with MIT’s Sloan School of Management. “That is becoming clear.”

And if it’s not reducing emissions enough, Ellerman adds, that is because the goals are too tame, as opposed to some fundamental problem with the framework itself. Not entirely new, but it comes from a respected source on the matter and bears repeating.

Now it’s time to drop in on a couple of sessions on the afternoon sessions covering carbon offsets (which allow companies to meet their emissions caps by reducing emissions somewhere else) and international trade issues.

Posted by Jeff Tollefson on November 13, 2008
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November 12, 2008

Carbon conference: Getting down to business - and politics

Despite the optimism, it doesn’t take long wondering through meeting rooms here to realize that restructuring the global economy won’t be easy. I’m in a room with a few hundred other people listening to a panel of business representatives, analysts and investment bankers talk in mind-numbing detail about the intricacies of cap-and-trade systems. Terms like “additionality,” “fungibility” and “compliance eligibility risk” are bandied about with impunity.

The piece of “cap-and-trade” that most people care about and understand is the “cap,” which limits the sheer volume of greenhouse gases pumped into the atmosphere. That’s easy. Getting the “trade” piece right is difficult, and that’s what conferences like this one are all about. The goal is to set up a viable market for carbon dioxide and other greenhouse gases, which then enables one company that can cheaply reduce its emissions to sell pollution credits to another that cannot. As such, the market will help companies determine the cheapest methods of reducing emissions, and direct private money accordingly.

Sounds easy enough, but countless questions need to be answered if money is actually going to change hands. How do you verify that a carbon credit is actually linked to a tonne of carbon? How do you link various markets that are operating or under development around the world? And what about “offsets” - how many credits can be purchased abroad if the cheapest way to reduce emissions is by, say, curbing tropical deforestation?

US Senator Jeff Bingaman of New Mexico, a leading Democrat on energy and climate issues, riled the conference early on by saying offsets are “fraught with opportunity for game-playing, which will be exploited by lots of creative people.” Loaded words for a conference that is built around the notion that carbon markets can solve the climate problem, but these are the questions that politicians must deal with up-front.

Bingaman said Democrats are ready to push for a new round of energy legislation next year, which could a long-sought federal mandate for renewable electricity generation. Such a schedule likely pushes climate legislation into 2010, which naturally begs the question about whether an international climate agreement can be struck next year, as scheduled. More than one frustrated questioner raised the issue.

“I don’t know that what we are able to do domestically is going to be driven by any kind of international expectation of what we should do,” Bingaman replied.

Indeed. Barack Obama might well bring a new multilateral spirit to the United Nations climate negotiations in Copenhagen next year, but the rest of the world would be wise to remember that it is the US Senate that ratifies international treaties.

Posted by Jeff Tollefson on November 12, 2008
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Carbon conference: Kicking things off on an optimistic note

I arrived at the Carbon Market Insights conference in Washington this morning to find the same sense of wonder that has pervaded the entire country for the past week. Sponsored by Point Carbon and the Pew Center on Global Climate Change, this conference caters to the believers, all of whom have been anxiously awaiting some kind of action on global warming from the United States. With the election of Barack Obama as the next president, the expectation is that the time has come.

And now for a much-anticipated word from President-Elect Obama, delivered by Jason Grumet, one of his environmental advisors, before a standing-room only hall filled with upward of 800 people: "I came here today absolutely firm in the commitment to tell you nothing at all."

Well. I guess it was to be expected, given the ongoing clamp-down on any information from the Obama camp. And it must be said that Grumet delivered his statement with a smile that drew not only laughter but applause, which speaks plenty about just how much good will and political capital the new president has in the bank as he enters office.

Grumet told everybody to keep up the good work and recommended they rest up during the holidays. "It's going to be a very, very busy 2009, and we are going to need all of you at the top of your games." He then made a prompt exit, kindly answering no questions from a gaggle of reporters at his heels and leaving everybody else to deal with the details, which are daunting indeed. But more on that later.

Posted by Jeff Tollefson on November 12, 2008
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