Recently in Go-Media. The U.S position on Climate Change is overshadowing all other discussions in the lead up to Copenhagen, even at a conference I recently attended in Melbourne Australia - the 5^th Australia-New Zealand Climate Change & Business Conference, August 24-26^th. The Australian position requires global consensus for a greenhouse gas emissions target by 25% with a successful Post 2012 Agreement in place, but only 5% if that is not concluded. It all depends on what the U.S does in Copenhagen according to their minister Penny Wong

The European Union is the only group that will continue with strong commitments independent of the U.S position with a 20% reduction of greenhouse gases on 1990 levels by 2020 and 30% if a global agreement is concluded.

Katy Cecys of the Pew Centre on Climate Change,  stated that, the American Clean Energy and Security Act sets a target to reduce GHG emissions to 17% below 2005 levels by 2020, and 83% below by 2050. Offsets (project-based reductions) are limited to 2,000 million metric tons equivalent per year, or 30% of U.S. emissions reductions, split evenly between domestic and international offsets.

Ms Cecys said, “President Obama has the right to expand the international offsets flowing into the U.S. to 1.5 billion tons of offsets”. This means that due to the U.S position international offsets will continue under the Post 2012 agreement - it may not be called CDM in the new agreement.

In fact expanded offset provisions are anticipated as the U.S has also included provisions for an additional 5% set aside to import REDD credits (Reducing Emissions from Deforestation and Forest Degradation). There is also 1% set aside for adaptation and 1% set aside for Technology transfer.

Ms Cecys, raised two other issues, which will help the U.S Senate pass the Bill - the first is finding a strong advocate like Waxman in the House to drive the Bill through the Senate - the proposed champions are Senator Barbara Boxer or Senator John Kerry with a moderate republican yet to be nominated. The second point is that if the Senate fails to pass the legislation the U.S EPA can legislate as greenhouse gases have now been nominated as noxious substances, such that some fear the U.S EPA may rule even more strongly than the Senate. So there is a view the Senate will pass the Bill either before or after Copenhagen.

The Pew Centre assessment is that a fully ratified Post 2012 agreement is unlikely, rather an interim agreement with a post 2012 architecture in place including a range of developed world targets and indications of advanced developing levels of support, which will be developed in follow up meetings similar to the Marrakesh accords that followed the Kyoto Protocol.

Developing nations should take responsibility

The U.S and EU has stated all economies should take on commitments as China is set to be the largest greenhouse gas producer in the future.

The developing world response

Alex Wyatt from Climate Bridge, articulated the fundamental approach of the developing world. China and India believe that historical emissions are the way to allocate the burden of responsibility, as they did not create the problem. ” It is a human rights issue - they have the right to lift their people out of poverty,” said Wyatt. He indicated that the developed nations are asking countries to take on responsibilities for greenhouse gas reduction, in nations where 40% of the population live on less than $1.25 per day and 50% on less than $2 per day.

China is not doing nothing, it is quite proactive and recognises the problem of growing greenhouse emissions. It has adopted renewable energy targets of 20% by 2020 and of the $586 billion stimulus package to be spent in the next 2 years, $260 billion is going to the Clean Tech sector according to Wyatt.

A compromise position is one whereby, ‘emerging’ developing countries would ‘graduate’ in terms of their greenhouse gas reduction responsibility.  Some least developed countries (LDCs) like Bangladesh concur.  LDCs like Africa should not be treated on the same basis as the emerging nations of Brazil, Russia, India and China (BRIC nations). They should be assessed in the post-2012 period on the basis of their level of economic development; capacity to act; contribution to global GHG emissions per capita; GDP per capita; current OECD membership and mitigation potential.

Advanced developing countries measures could include national emission caps; intensity targets; energy efficiency commitments; and sectoral intensity targets. India, Saudi Arabia, and China are firmly against reclassification, rejecting the idea of differentiation based on contemporary levels of development, rather seeing differentiation based on historic responsibility.

National caps are unlikely, but the compromise could be that sector caps will be applied to the BRIC nations. If this occurred the Clean Development Mechanism (CDM) would remain outside the capped sectors in the BRIC nations but remain intact in the least developed countries like Africa, Bangladesh and the Pacific. ACES provisions allow for the purchase of international offsets (CDM) from developing countries in order for the U.S to reach its targets at the least cost of abatement.

A new program called REDD (Reducing Emissions from Deforestation and Forest Degradation) will assist the advanced developing countries move into the Post 2012 Agreement as well as adaptation measures, technology transfer, and finance. A REDD mechanism means developed countries pay developing countries to reduce deforestation, as de-forestation in the tropics represents about 50% of forest-related greenhouse gas emissions.  Brazil and Indonesia will be major beneficiaries of REDD credits. Brazil has also developed a large-scale hydro and bio-fuels industry such that sector caps are not taboo. It is moving towards the developed world position as a result.

The need for continued improvement in the offset market

The Conference also dealt with an evaluation of the Clean Development Mechanism (CDM) and a number of speakers like Michael Wiener of Perennia and Martijn Wilder of Baker and McKenzie  in Sydney recommended changes to the management of the CDM and advice for creating new mechanisms like NAMAs and REDD going forward under Copenhagen.

Martijn indicated that there had been a lot of criticism of the CDM but reminded everyone that it is the only instrument that drives private sector development and is the global carbon currency. The CDM rulebook has established the global benchmark for offset projects and has become the de-facto standard for all offset projects in the compliance and voluntary markets. The criticism is that the system is too complex with rules from the United Nations CDM Executive Board and in some cases additional host country rules as in China. Michael Wiener noted the lack of sustainability outcomes also. Complaints about the length of time the process takes from project origination to registration through validation and verification, including host country approvals were made by Mina Guli of Peony Capital, who finances CDM projects in China. “Two hundred days for a completeness check is too long - and that is just one part of the chain of getting a project through and a certified emsission reduction (CER) sold into the market’ she said. Additionally, in the first phase China dominated the CDM market with industrial gas projects such as HFC 23 and N20. On the plus side there are 1700 carbon project entrepreneurs in India.

The criticism of CDM by Wiener and Wilder can be summarised as too few countries participated; not a broad enough range of project types were represented; a backlog of projects to be assessed in the CDM pipe-line; a lack of auditors and consistency of decision-making; lack of sustainability outcomes and Post 2012 uncertainty.

Michael Wiener stated that all these criticisms are process issues that need to be solved as the Post 2012 agreement will be relying heavily on the international revised CDM and REDD offset market to reach global greenhouse gas reduction targets. As a founder of Carbonflow Corp, I think technology can assist these markets evolve and adapt, become more reliable faster and efficient, more transparent and user-friendly.

Recently published in Go Media

The United States’ resistance to ratify the Kyoto Protocol and the introduction of state and regional regulations rather than national carbon market have limited US activity in the global carbon market. However, the development of a voluntary carbon market in the US has occurred to compensate for the lack of a national, regulated carbon market. The US has been driving the global voluntary carbon market supplying the majority of voluntary carbon credits and providing the largest source of demand (Ecosystem market place, May 2009). Though the US voluntary carbon market has grown substantially to reach a transaction level of nearly 84 million tons in 2008, it accounted for only 3% of the transaction volume of EU Emissions Trading Scheme (EU ETS). In addition to the voluntary carbon market, a development of voluntary market for renewable energy as well as energy saving projects, indirectly supporting carbon emissions reduction, has taken place in the United States. While small on a global scale, these voluntary efforts have had a positive effect on carbon reduction and policy change in the United States.

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The carbon market in the United States has developed slowly due to government opposition to regulating greenhouse gas (GHG) emissions and resistance to endorse the Kyoto Protocol. As a result, the US emitted 17 percent more CO2 emissions in 2008 compared to 1990, according to the German Renewable Energy Industry Institute (IWR). In contrast, a carbon market has flourished in Europe leading to Germany reducing its CO2 emissions by 17 percent and the United Kingdom achieving a 6 percent reduction over the same time period. However, the lack of federal regulations for reducing greenhouse gas (GHG) emissions in the US has stimulated the development state-based and regional carbon markets as well as voluntary carbon markets.

Many US states have introduced indirect GHG emissions regulations, including renewable portfolio standards (RPS), financial incentives for the installation of renewable energy, energy efficiency standards, building energy codes, and other government mechanisms to accelerate the development of renewable energy and the reduction of energy consumption. However, only one regional effort has started executing a cap-and-trade program while one state and two other regional initiatives have introduced policies to develop a cap-and-trade program in the future.

California was the first state in the US to introduce direct regulations for GHG emissions reductions. In 2002, the Pavley Bill required the California Air Resource Board (CARB) to limit the amount of GHG, especially CO2, emitted in auto exhaust. While CARB did introduce the regulations called Assembly Bill (AB 1493) in 2004, the opposition by the automotive industry and the US Environmental Protection Agency (EPA) resulted in legal proceedings which prevented the implementation of the California legislation. Florida is the second state that introduced GHG regulations. In June 2008, the state enacted the Florida Climate Protection Act, which authorizes the Department of Environmental Protection to develop an electric-utility cap-and-trade program. Pending legislative approval of the final plan, the cap-and-trade program may begin operation as soon as January 1, 2010. (PEW, July 2009)

The first direct regional mandatory and market-based carbon cap and trade policy in the US, the Regional Greenhouse Gas Initiative (RGGI), was introduced in December 2005 by the governors of seven Northeastern and Mid-Atlantic states: Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York and Vermont. Since then, three other states - Massachusetts, Rhode Island and Maryland - have joined the initiative which mandates capping the regional power sector’s CO2 emissions from 2009 through 2014 at the annual level of 188 million tons of CO2 and reducing it by 2.5% per year (total 10%) during the 2015-2018 period. The RGGI apportions CO2 allowances among signatory states based on historical emissions and allows signatory states to allocate 75% of their allowances as they choose and attribute the rest to consumer benefit programs. The signatory states are not likely to allocate the allowances to electric generators for free, but instead sell them in a regional auction recognizing that generators are likely to pass the cost of allowances onto consumers, whether the allowances are received for free or purchased. The allowance auctions, where electric power generators buy, sell and trade CO2 emissions allowances, are scheduled to take place on a quarterly basis, with the next auction scheduled for September 9, 2009. More than 110 million allowances have been auctioned raising a total of $366.5 million since the first RGGI auction in September of 2008. During the fourth auction in June 2009 the clearing price of CO2 allowances amounted to $3.32 per allowance for the 2009 - 2011 control period and $2.06 per CO2 ton of allowances for the 2012 - 2014 control period. These prices are much lower in comparison to the August 2009 EU Emission allowances spot prices of around EUR 14.4 or US$20.6 per CO2 ton (European Energy Exchange, 2009).

In February 2007, another regional initiative, the Western Climate Initiative (WCI), was introduced to design a market-based approach for reducing GHG emissions involving California, Arizona, New Mexico, Oregon and Washington. Since 2007, Montana and Utah, together with the Canadian provinces of British Columbia, Manitoba, Ontario and Quebec, have joined the initiative. The cornerstone of the WCI strategy is a regional cap-and-trade program to be fully implemented in 2015 covering almost 90 percent of the GHG emissions in WCI states and provinces. WCI partners intend to develop implementation details for the WCI regional cap-and-trade program throughout 2009 and 2010, start reporting greenhouse gas emissions in 2011 for emissions that occur in 2010, and introduce the first phase of the cap-and-trade program on January 1, 2012, with a three-year compliance period. The second phase of the program will begin in 2015, when the program will be expanded to include transportation fuels and residential, commercial and industrial fuels, in addition to electricity fuels covered in the first phase.

On November 15, 2007, Illinois, Iowa, Kansas, Michigan, Minnesota, Wisconsin, and Canadian Province of Manitoba established the Midwestern Regional Greenhouse Gas Reduction Accord, the third regional initiative addressing carbon emissions reductions in the USA and Canada. Under this agreement, they agreed to establish regional GHG reduction targets consistent with the 60 to 80 percent recommended by the Intergovernmental Panel on Climate Change, and develop a multi-sector cap-and-trade system to support meeting the targets. The Governors of Indiana, Ohio, South Dakota and Ontario joined the agreement as observers to participate in the development of the cap and trade system. In June, 2009 the advisory group finalized their recommendations and these are yet to be endorsed by individual state and providential leaders.

Currently the US Senate is reviewing the 2009 American Clean Energy and Security Act (ACES) which was passed by the US House of Representatives on June 26, 2009. If the Senate passes the ACES, also called the Waxman-Markey bill, what would happen to the state- and regional-based incentives?

The ACES proposes a cap and trade system with a ceiling on CO2 emissions at the 2005 level of 7,602 million metric tons, a reduction of 3% by 2012, 20% by 2020; 42% by 2030, and 83% by 2050. The national cap-and-trade system would oversee and regulate carbon allowances and offsets and penalize entities such electric utilities and other energy-heavy industries deriving at least 30 percent of their annual heat input from coal, petroleum coke, or any combination of these fuels (ACES, section 116, page104). The ACES also includes a national combined renewable electricity/energy efficiency standard (RES). Under the RES, large electricity suppliers would be required to invest in renewable energy and energy efficiency submitting federal renewable electricity and electricity savings credits to meet the RES goal for each compliance year (ACES, section 610, page 16).

The ACES takes a significant step forward towards the implementation of a new and stronger system for the development of a low-carbon economy by accelerating the installation of renewable energy, energy efficiency and low carbon technologies. It is likely that the majority of the state and regional carbon market programs will follow the national policies and programs, even though their requirements might be more environmentally rigorous. However, the state and regional programs offer a trial and innovation opportunity for federal policies and programs.

The next blog will discuss how a voluntary carbon market has developed in the US alongside the state and regional carbon markets for the reduction of GHG emissions.

Copy from my Column from Sustainable Industries July 2009

The American Clean Energy and Security Act, known as the Waxman-Markey bill, is “a rare opportunity to rise above parochial concerns to enact a bill with a profound national impact,”according to President Barack Obama. Republican critics are attacking Democrats as pro-business and anti-consumer and small business, which is ironic as the GOP is the “The Party of ExxonMobil (NYSE: XOM) and Peabody coal. “Using this tactic, the GOP wants to hold the line against the climate change bill, even though Duke Energy (NYSE: DUK), Johnson & Johnson (NYSE:NJN) and Shell Corp., along with other businesses and environmental organizations, are backing the bill. “I find it extremely amusing that suddenly the Democrats are being attacked for being too friendly to business creation,” Senator Barbara Boxer (D-Calif.), chairwoman of the Senate Environment and Public Works Committee, has said. The GOP argues that the Waxman-Markey bill would create higher energy costs for small business and consumers.

The real issue is the bill does not go far enough. It needs to create an “energy-efficiency and renewable energy set aside”-or green building carbon offset program-which rises above the regulatory approaches to energy efficiency. The Waxman-Markey bill provides for an economy-wide cap-and-trade program. The cap reduces greenhouse gas (GHG) emissions to 17% below 2005 levels by 2020, and 83% below by 2050. Offsets (project-based reductions) are limited to 2,000 million metric tons CO2 equivalent per year, or 30% of U.S. emission reductions, split evenly between domestic and international offsets. Domestic offsets do not include offsets from green buildings.

However, federal regulators are closely watching California, which is holding public hearings about AB32 implementation [see "California gives legs to AB32, Sustainable Industries, December 2007]. Members of the San Francisco Carbon Collaborative, including Carbonflow, have made significant progress with the regulators on getting an “energy efficiency set aside” into the discussion for possible inclusion in AB 32. This is an important first step, as California is known as a global leader in energy related legislation.

Simultaneously, at the recent CarbonExpo in Barcelona, many expressed interest in a Global International Protocol on Energy Efficiency and Renewable Energy set asides. Under the Waxman-Markey bill, energy efficiency would be achieved through a renewable electricity standard, a low-carbon fuel standard, and energy efficiency programs and standards for buildings, lighting, appliances, as well as vehicles and stationery sources and fuels.

These are all good initiatives. But according to Anne-Marie Warris, author of the Voluntary Carbon Standard, “the problem is that it relies on energy efficiency measures to be applied as the natural turnover of building stock takes place,which is estimated to take anything from 500 to a 1,000 years….which is time we simply do not have to prevent climate change,” Warris says.

Indirect sources of emissions

The Waxman-Markey bill relies on capping direct sources of emissions such as power plants and other smokestack industries. The bill’s definition of domestic offsets includes agriculture,landfill, waste-to-energy projects and biomass. But, it does not include green building offsets. The conventional wisdom is that cap-and trade should be restricted to direct industrial sources, because there are fewer of them and they are already heavily regulated. The bill follows the reliance on reductions from direct sources and forecloses on the possibility to achieve reductions from indirect sources, such as buildings that consume electricity despite their cost effectiveness.

“As a result, a valuable incentive for voluntary GHG reductions is lost, the low-hanging fruit of increasing energy efficiency in buildings goes unpicked, and industrial sources are required to shoulder a greater share of required GHG reductions, all of which increase the societal cost for addressing climate change and makes it less politically feasible to accomplish,” says Donald Simon, an attorney for Wendel, Rosen, Black and Dean.

Huge potential with existing buildings

Existing regulation leading to emissions reductions through “green” construction techniques usually comes in the form of building codes that reach only new construction and substantial renovations. Yet the majority of GHG in the built environment come from existing buildings. Current government incentives “are helpful but inadequate because they do not achieve sufficient market penetration and rely on limited government funding that can disappear in lean budget years,” Simon says. Domestic green building offsets would allow regulated industries to choose between reducing their own emissions or purchasing offsets from others who are able to reduce theirs at lower cost.

This would reduce the overall cost of climate change regulation for consumers because the market would exploit the lowest cost GHG reductions. Green building carbon credits would provide a large funding source that partially finances energy efficiency improvements. Poorer communities would benefit, as credits would fund energy efficient and renewable energy upgrades to existing building stock at a more accelerated rate than building codes currently create.

Making energy upgrades affordable

Moderate House Democrats and Republicans say that under a cap-and-trade program, ordinary people would incur higher energy costs over time because most have not upgraded their homes and small  businesses with energy-efficient technologies.

However, by allowing green building offsets into the federal cap-and-trade system, subsidies to poorer communities for increased energy costs would not be necessary. Their buildings would be retrofitted by the private sector using the dollars from green building offsets. Ultimately, these people would consume up to 50 percent less energy, with no net energy cost increase. Green building offsets would allow construction companies, project developers, engineers and architects to initiate energy efficiency and renewable energy building projects. And, revenue from the sale of the credits would fund projects and create new “green” jobs. Without this small inclusion to the Waxman-Markey bill, the Democrats may miss a chance to pass sweeping climate change legislation in 2009.

Over the past 10 years, US political leaders have played only a minor role in the global carbon offset market, changing their views about climate change and global warming with each new administration. Once a forerunner of the Climate Change Conference held in Kyoto, Japan in 1997, the United States failed to stay on the track, allowing the European countries to drive the development of a carbon offset market.

In the 1990s, the Clinton administration was involved in the crafting of the Kyoto Protocol, proposing the Joint Implementation Scheme to encourage international partnerships to enable low-cost reduction in greenhouse gas (GHG) emissions. Though the Clinton administration supported the Kyoto Protocol, it was not submitted for ratification after the Republican-led Senate made a statement that it would not ratify any treaty which did not include binding targets for developing nations expecting to be responsible for the majority of emissions in the future.

During the U.S. presidential campaign in 2000, George W. Bush promised to set mandatory targets for the reduction of CO2 emissions but expressed his reservation about participation in the Kyoto Protocol.(Dietrich, 2005) Later as president, he did not introduce domestic CO2 reduction targets. The U.S. also pulled out of the Kyoto Protocol discussions, with the Bush administration stating that the Protocol did not impose compliance on the countries responsible for the majority of CO2 emissions globally, and therefore, participation in such treaty could only cause serious harm to the US economy. The Bush administration also emphasized the importance of further scientific research about global warming, and proposed the use of alternative energy sources and “market-based incentives” such as a voluntary approach and energy-efficiency programs to reduce GHG emissions.(Dietrich, 2005)

The Kyoto Protocol required ratification by 50 nations in order for it to be recognized as a major international agreement according to United Nations. After Russia ratified the agreement in 2004, the Kyoto Protocol entered into force in 2005 without any reliance on US support. The Bush administration stayed isolated from the global debate on climate change throughout its eight-year term, continuing to favor an “aspirational” approach instead of mandatory CO2 caps to combat climate change. (Bohan, 2007).

President Barack Obama has been very outspoken about the importance of US involvement in climate change issues and the development of national regulations to reduce GHG emissions, lower energy consumption and accelerate the adoption of alternative energy technologies. However, Obama was not always supportive of the Kyoto Protocol. In 1998, as an Illinois senator, he voted for the bill condemning the Kyoto treaty and disapproving GHG emissions regulations in the state of Illinois to protect the coal industry, as Dilanian (2008) conveys in his article “Obama shifts stance on environmental issues”. The article states that Obama continued expressing his favoritism towards the coal industry during his election to the U.S. Senate in 2004 proclaiming that “there’s always going to be a role for coal” in Illinois. Dilanian (2008) points out that during Obama’s campaign for president, he addressed his opposition towards the bill by saying that the Kyoto treaty did not have “meaningful and achievable emissions targets,” and that he “did not believe that state agencies in Illinois should unilaterally take steps to implement a global policy on their own …”

However, in the U.S. Senate Barack Obama showed his favor towards environmental friendly policies by opposing then-President Bush’s air-pollution proposal for relaxing federal air pollution control restrictions. Although Obama continued sponsoring bills that provided coal subsidies, he shifted towards broader public interest the closer he moved towards the presidential elections.

In October 2007, Senator Barack Obama presented a plan to decrease the US dependence on foreign oil and fight global warming with a national “cap and trade” system across the economy to reduce greenhouse gas emissions including an auction system requiring power companies and other energy-intensive industries to pay for their pollution. He continued to encourage mandatory policies throughout his presidential campaign.

Thanks to growing global awareness of climate change issues and Obama’s emphasis on low carbon economy, the United States now is actively pursuing implementation of enforced reductions for GHG emissions and stronger energy efficiency legislation. As a result, the U.S. House of Representatives recently passed the Waxman-Markey bill (also known as American Clean Energy and Security Act - ACES) as a first step towards a regulated carbon market. The new legislation proposes national energy efficiency targets for residential and commercial buildings as well as a cap-and-trade mechanism mandating a reduction of 2005 emissions levels by 20% by 2020. The cap-and-trade system is set up to regulate carbon allowances and offsets for electric utilities and other energy-intensive industries. The Obama administration has repeatedly promised to pass federal legislation that would limit CO2 emissions in the United States, and continues to pressure the Senate to follow the House’s lead - emphasizing that the Waxman-Markey bill would create jobs, lower the cost of renewable energy and reduce oil dependency. In his speech at the first meeting of the Strategic Economic Dialogue between the United States and China on July 27, President Obama stressed the importance of the cooperation of world’s two largest emitters of greenhouse gases on climate issues.

The Kyoto Protocol expires in 2012. This December 2009, the UN and international government officials will meet in Copenhagen (UNFCCC COP15) to discuss the final details of a new climate agreement. The Obama administration plans to be actively involved in the negotiations of a new treaty trying to regain leadership in the international climate debate.  It remains to be seen whether Obama will act upon his words to become national and international leader in the fight against climate change.

The past resistance of the US government to establish national carbon reduction targets and to participate in the Kyoto Protocol has significantly slowed down the development of a carbon market in the United States. The next posting will describe how the carbon market has developed in the US in light of the resistance of the US government.

I have been away and attended a conference Carbon Expo, the Global Carbon Market, Fair and Conference, May 27th-29th 2009 in Barcelona, the most important conference in the Carbon Calendar and under new market initiatives in the Voluntary and Regulatory market there is now a “Cities & Carbon Finance Stream Workshop”. This shows the force of Cities gearing up to participate in the Post 2012 Climate Change Agreement.  This is unusual as Nation States participate in International Treaties not city states. Climate Change is impacting on global governance issues as all levels of government are involved in Climate Change emissions, reductions, impacts and mitigation. Even a few years ago the role of Cities and local government at international meetings was questioned. Mayor’s of the world are responding spontaneously such that City states are now involved with the lead up meetings like Carbon Expo to Copenhagen for the Post 2012 Agreement. For example in the U.S, I have recently heard that Governor Schwarzenegger of California state may well be present along with Global Presidents and Prime Ministers in Copenhagen.    Eventually organizations on behalf of cities will have to be represented at these Global meetings, as the numbers and levels of government simply become unwieldy.

According to the Carbon Expo program, there is “increased awareness and growing commitment of city decision makers to city climate strategies and implementation of GHG mitigation in policies and measures in both developed and developing country cities. However, currently there is limited access to information, knowledge on technologies and innovative financial solutions are some of the barriers preventing local leaders, entrepreneurs and business groups from seizing an overabundance of low carbon win-win options in urban centers. Hence the Cities stream aimed to facilitate and promote dialogue, knowledge sharing, networking and business communication within relevant stakeholder groups to be a part of an essential measure to foster a transition to low-carbon city development. The streams covered:
- Beyond Carbon Trading - Policies & Measures at the local level for financing low carbon development in cities
- Carbon finance in cities post-2012- Scaling up GHG reductions and enhance urban development co-benefits
- CDM/JI in Cities - What has worked and what has not
- Creating Urban Carbon Assets: From Concepts to action
- Leveraging Greater Energy Efficiency in Buildings with Carbon Finance - How can we make it happen?
- The Role of Carbon Finance in the transport sector in urban areas

U.S Cities are moving fast to catch up with European initiatives and are closer to taking over - they are well  organized and spear-heading major initiatives around GHG reduction at the city level. The San Francisco Carbon Collaborative is part of a broader groundswell of spontaneous activity by the World’s Mayors.The City of San Francisco Urban EcoMap, an Internet-based tool that enables cities around the world to provide smarter climate change information for their citizens. Urban EcoMap provides information on carbon emissions from transportation, energy and waste among neighborhoods, organized by ZIP/ Post codes.

On PBS March 23rd 2009, it was announced that the U.S Conference of Mayor’s established 4 years ago by Seattle Mayor Greg Nickels reached the 900-mayor milestone. The 900 mayors represent 80 million Americans, and they illustrate the increasingly prominent role that cities and towns are playing in combating climate change.

According to Seattle Mayor, Greg Nickels, “cities cover less than one percent of the earth’s surface, but hold half its population and produce about 80 percent of greenhouse gasses. And cities will have to deal with the effects of climate change, from sea level rise in coastal cities to heat waves, strong storms and other extreme weather”.

Seattle has  aims to reduce its carbon emissions by 30 percent below 1990 levels by 2024 and 80 percent below 1990 levels by 2050. The plan includes transportation goals — such as building a light rail system, improving bicycling infrastructure and using more “clean vehicles” in the city’s fleet — and improvements in building energy efficiency.

Mayor Michael R. Bloomberg and Council Speaker Christine C. Quinn on April 26th 2009 announced the world’s most comprehensive package of legislation to reduce greenhouse gas emissions from existing government, commercial, and residential buildings. According to the PlaNYC inventory of greenhouse gas emissions, almost 80 percent of New York City’s carbon footprint comes from buildings’ energy use.

A six-point plan, when enacted as part of PlanNYC, will dramatically reduce the City’s energy usage and save consumers money, while simultaneously creating thousands of well-paying jobs and significantly reducing New York City’s carbon footprint. The six-point plan consists of four pieces of new legislation and two PlaNYC programs that will achieve carbon reductions, train workers for the estimated 19,000 construction jobs that will be created, and help finance energy-saving improvements using $16 million available from the American Recovery and Reinvestment Act. The plan will also result in cleaner air, since emissions from boilers, furnaces, and local power plants will also be reduced.

“Today we’re introducing the greener, greater buildings plan, a far-reaching package of new local laws that will dramatically improve New York’s energy efficiency and reduce energy costs by some three-quarters of a billion dollars a year,” said Mayor Bloomberg. “This will significantly improve our economic competitiveness, put thousands of New Yorkers to work in green jobs, and do more to shrink our own direct impact on global warming than any other actions imaginable.”

According to the PlaNYC inventory of greenhouse gas emissions, almost 80 percent of New York City’s carbon footprint comes from buildings’ energy use. Once implemented, the legislation announced today will reduce citywide emissions by 5 percent….

The reductions will be achieved through the six point green buildings plan unveiled today:
* Legislation that creates a New York City Energy Code that existing buildings will have to meet whenever they make renovations;
* Legislation that requires buildings of 50,000 square feet or more to conduct an energy audit once every ten years and make any improvements that pay for themselves within five years;
* Legislation that requires commercial buildings of 50,000 square feet or more to upgrade their lighting to more energy-efficient systems that pay for themselves through energy savings;
* Legislation that requires buildings of 50,000 square feet or more to make an annual benchmark analysis of energy consumption so building owners can better understand what steps they can take to increase efficiency;
* A jobs program that will work with the real estate and construction industries to train the workforce that will fill the estimated 19,000 construction jobs the legislation will create; and
* An innovative financing program that uses Federal stimulus money to provide loans for property owners to pay the upfront costs for the efficiency upgrades that eventually pay for themselves.

This announcement by Steven. T.Dennis, seems to indicate that, “Waxman has agreed to give utilities free initial allocations on nearly all of their greenhouse gas emissions. Boucher had sought to give utilities the credits to avoid rate hikes for consumers”. They have still not addressed the issue in the long-term of how to not incur rate-hikes for consumers, see my previous blog. The other change from the Draft bill seems to be a reduced interim target to 17% down from 20% reduction in greenhouse gas emissions out to 2020. It is a good start though and hopefully the Bill will be passed today.

Democrats on the House Energy and Commerce Committee have reached a deal on the most contentious aspects of cap-and-trade legislation for carbon emissions and plan to unveil the bill on Thursday, Chairman Henry Waxman (D-Calif.) said Tuesday night.

“We have resolved a good number of the issues,” Waxman said after a meeting with committee Democrats, adding that the bill remains on track to clear his panel next week. Opening statements are planned for Thursday with a marathon markup beginning on Monday.

“I am optimistic. I believe we will have the votes to pass the bill [next week],” Waxman said.

Waxman had to compromise with Rep. Rick Boucher (D-Va.) on one of his key goals -the overall level of carbon reductions by 2020. Waxman had wanted a 20 percent cut; Boucher has worried such a steep cut would outpace the development of new technologies like carbon capture from coal-fired power plants. They settled on a 17 percent cut instead.

Waxman also agreed to give utilities free initial allocations on nearly all of their emissions. Boucher had sought to give utilities the credits to avoid rate hikes for consumers.

The Energy Committee chairman added that details have not yet been worked out on all of the allocations, including those for refineries, but said he expected that they would be reached quickly.

A smiling Boucher also acknowledged that some details still need to be completed. “It’s still a work in progress,” he said.

Members also reached a deal on renewable electricity requirements. Energy and Environment Subcommittee Chairman Ed Markey (D-Mass.) said the legislation would require that 15 percent of electricity be renewable by 2020, although up to 8 percent could come from efficiency measures.

The agreement also includes additional help for automakers on top of the “cash for clunkers” provision announced last week at the request of Rep. John Dingell (D-Mich.).

The Waxman and Markey Climate Change bill has to be finalized by 25^th of May on Memorial day 2009. The House is considering climate change legislation authored by a key subcommittee chairman, Rep. Ed Markey (D-MA). President Obama has said this is, “a rare opportunity to rise above parochial concerns to enact a bill with a profound national impact”.

The Waxman-Markey Discussion Draft provides for an economy wide cap & trade program: The cap reduces greenhouse gas emissions to 20 percent below 2005 levels by 2020, and 83 percent below 2005 levels by 2050. Offsets, (project based reductions) are limited to 2,000 million metric tons CO2 equivalent (MtCO2e) per year or 30% per cent of U.S emission reduction, split evenly between domestic and international offsets. Domestic offsets does not include Green Buildings offsets. There are provision for emissions reductions from reduced deforestation through allowance set-asides.

Waxman does not yet have support from House Republicans or moderate Democrats like Rep. John Dingell (D-MI) who are opposing the bill. Opposition concerns whether to give away or auction the permits to manufacturers, utilities, and other industrial sectors in a U.S Cap and Trade Emissions Trading scheme. The U.S is coming up against the same opposition from industry and parochial interests that the Europeans came up against, when they decided to give away the majority of permits in the early years of the European Emissions Trading scheme (EU-ETS). The U.S was originally highly critical of the Europeans for going down this path.   Al Gore has gone on the front foot calling for unity from the democrats on Climate Change against the resistance of some democrats wanting to protect local industry. Similar to the results of the EU-ETS, we found with the Carbonflow carbon game emission reductions were achieved even with giving away the permits in the first period. So, whatever the House decides on auctioning versus giving away permits that should not block the Draft bill’s passage through the house.

Some believe that Speaker Pelosi will make the House vote on a version of the Markey bill with 254 House Democrats, but important House Democrats like Mr. Dingell may make a similar case as House Republicans, that the bill should be opposed because of the higher energy costs for consumers.

The approach taken by the Waxman-Markey bill does not alleviate the problem whereby household consumers will pay higher energy costs because the regulatory approach to energy efficiency and renewable energy is insufficient. Under the bill energy efficiency and renewable energy is proposed to be achieved through regulation by establishing a renewable electricity standard, a low carbon fuel standard, and energy efficiency programs and standards for buildings, lighting, appliances and additionally further standards for vehicles, stationery sources and fuels.

According to  Donald Simon, an attorney for Wendel, Rosen, Black and Dean, BOMA International, The Real Estate Roundtable, U.S. Green Building Council and the California Business Properties Association, regulation does not achieve the result intended as, “Building codes typically affect only new construction, because existing buildings are “grandfathered” and new code requirements apply only to substantial renovations, which is  hugely problematic. Existing buildings account for the vast majority of real estate sector GHG emissions. Government incentives are helpful but inadequate and unreliable because they do not achieve sufficient market penetration and rely on limited government funding that can disappear in lean budget years”.

Simon goes on to say that, “in the world of Climate Change regulation, there are two major classifications of GHG emission sources - direct and indirect. Direct sources release GHGs directly into the air, like power plants and other smoke stack industries. Indirect sources are activities that consume what the direct sources produce, like buildings that consume electricity produced by power plants. The conventional wisdom among regulators globally is that market-based programs, like cap and trade, should be restricted to direct industrial sources, because there are fewer of them and they are already heavily regulated. This generally forecloses the possibility for green building projects to generate carbon credits, despite their cost-effectiveness. As a result, a valuable incentive for voluntary GHG reductions is lost, the low-hanging fruit of increasing energy efficiency in buildings goes unpicked, and industrial (direct) sources are required to shoulder a greater share of required GHG reductions, all of which increase the societal cost for addressing Climate Change and make it less politically feasible to accomplish”.

Not only do, Cap and Trade Green Building carbon credits provide a much larger funding source that could partially finance energy efficiency improvements if buildings are allowed to participate, they also actually benefit poorer communities by upgrading the existing building stock with energy efficient and renewable energy technologies at a much more accelerated rate as the private sector is incentivised from the price of carbon to go out and do projects on a large scale, providing whole districts and building owners with clean technologies funded by the credits. Regulatory approaches just take too long to retrofit the existing building stock and leave people stranded with high energy bills.

House moderate Democrats and Republicans correctly say ordinary people will incur higher costs of energy over-time because most people will not have had their homes and small businesses upgraded with clean technologies and they know the subsidies to poorer communities for energy costs will be short-lived and once removed all Americans will be left with higher energy costs. A householder or small business faced with a doubling of energy costs from USD 100 - USD 200 a quarter would probably just pay as there is not enough incentive to go out and retrofit the house nor do they have the trades expertise to do it.

The better outcome is that Green Building Carbon Credits are allowed and business, construction companies, project developers, engineers, architects do energy efficiency and renewable energy building projects using the funds from the credits and create the Green jobs President Obama is talking about.

In short proposed subsidies to less well off Americans waste money that should be going into making all American homes energy efficient and creating green jobs.

Policy-makers can encourage voluntary reductions by structuring carbon markets in a way that allows parties to convert their GHG reductions into carbon credits that they can sell to regulated sources to offset their emissions. Under the current plan the U.S would be in the anomolous situation of accepting international carbon offsets from energy efficiency and renewable energy but not accepting it domestically. This makes no sense. Domestio Green building offsets would allow regulated industries an alternative way to comply with regulatory obligations by letting them choose between reducing their own emissions or purchasing Green Building offsets from others who were able to reduce theirs at lower cost. This reduces the overall cost of Climate Change regulation by letting the free market exploit lowest cost GHG reductions.

Green Building carbon credits would be more transparent as they would have to be independently validated and verified, and open to public scrutiny, whereas money going to government agencies for programs may well end up being used on things other than greenhouse gas reductions projects. Even the double-counting issue can be managed as companies like Carbonflow, multi-party software designers for the carbon industry can easily retire end use building credits back to the Cap.

I believe however, if the house was not to get too hung up over auctioning or giving away permits in the first phases and secondly, to introduce Green Building Carbon Credits, it could solve all the problems that beset the Draft Waxman-Markey bill before the House on Memorial Day.

Some thoughts on domestic energy efficiency initiatives.

There has been considerable furore in the Australian papers recently as a case is being made that the  Government claims that domestic energy efficiency will not reduce Australia’s emissions - this is simply wrong. The claim is that any domestic energy efficiency outcome will immediately result in a corresponding increase in industrial or other emissions somewhere else, but still within the overall emissions cap. There is also the economic problem that domestic abatement is low in volume and high in cost, so the potential impact of an abatement sale is slight at best.

The solution to this problem in the NSW scheme is to credit the lifetime emission abatement for the project on the day that it is commissioned. This results in administrative efficiency, but means that the credits are non-fungible with any other scheme where abatement has to have occurred before any credits are issued for that abatement. I do not see this as an acceptable solution if one end result of the process is a freely functioning and liquid credit market.

There is a second (and there are possibly more) options. We have already presented that, in order to avoid double counting, an energy efficiency credit results in the cancellation of an emission permit, thus ensuring that the cap is unchanged. This, however, is the same result as is intended  in the Australian ETS - action to increase domestic energy efficiency does not reduce emissions below the planned cap. However, consider what would happen if each domestic energy efficiency credit was also rewarded with an additional one or more emission permits which were immediately bought back by the State and canceled. A domestic project would be approved and result in a verified abatement of (say) 10 tCO2-e. The project owner would receive:

1.       Abatement credit certificates to the value of 10 tCO2-e, balanced by cancellation of 10 emission permits.

2.       10 (or 20, or 30 …) emission permits which would be immediately purchased back by the State at the going rate and immediately cancelled.

The net effect is that the project owner receives 10 abatement credits to trade, cash to the value of the 10 (or more) emission permits cancelled and the ongoing benefit of reduced energy costs. From the perspective of the State, this is revenue foregone rather than new expenditure, as the cost for the energy efficiency permit cancellation program would be recovered from the normal auction process for abatement permits. The integrity of the scheme would be protected as the only tradeable credits would in fact be offset by a real reduction of that amount.

Of course, there would be some concern that this type of leveraged program would increase costs to industry by reducing the supply of permits too quickly. I would suggest that:

1.       The supply of domestic energy efficiency credits is unlikely to be excessive, as these projects are notoriously difficult to get going, in any case.

2.       The number of credits available for conversion using this process could be set as part of the program design, and managed using the project approval process.

3.       Different levels of leverage could be used to improve the uptake of different types of energy efficiency program - more leverage for more difficult implementations with a lower actual outcome, such as changes at the household level.

The San Francisco Carbon Collaborative was coordinate by David Pascal, Clean Technology and Green Business advocate for the City of San Francisco. The meeting was hosted by law firm Morrison and Forester on the 18th and 19th of February 2009. David Pascal thanked everyone who participated for “their enthusiasm and willingness to explore the possibility of anchoring the US environmental markets here in San Francisco”.

David has said that the City of San Francisco has a number of advantages including, “our legacy as a financial and IT centre, our position as an environmental leader, and our economic linkages with China and the rest of the Pacific Rim”. This is a case of think global and act local. San Francisco can host the carbon market players throughout the whole chain of carbon credit creation to trade credits within California, the United States and the rest of the world. Others are thinking along these lines too like Bill Joy, partner at KP who is advocating that the skills of Silicon Valley be put at the disposal of Carbon Valley. Bill Joy was Chief Scientist of Sun Microsystems.

Over 60 companies attended the afternoon and following morning including global carbon credit auditor - DNV, global carbon brokers - CantorCO2e, Evolution Markets, global carbon project developers - EcoSecurities, First Climate, California green building companies - Studley, California Green attorneys - Morrison and Foerster, Binghams, Gordon and Rees, U.S and California policy makers and registries - Center for Resource Solutions, UC Berkeley, CARB, Climate Registry, software providers - APX, Carbonflow, U.S. Carbon and Clean Tech investors Clean Pacific, Jane Capital, Vantage Point and Tech companies like Fluid Trade, Media - San Francisco Business Times, Climatebiz and Sustainable Industries. Additionally, local businessman Barry Hoffner of HFS is interested to set up a San Francisco Carbon Exchange.

This was the first meeting of the Carbon Collaborative with future meetings planned in March. David noted that, “The impact of the policy position of the U.S government and the California response to that took up much discussion” Furthermore he said that San Francisco must also develop a Consensus Opinion on AB32 the California Emissions Trading Scheme.

The most important discussion agenda item is the San Francisco City policy position and how it fits into the national U.S Cap and Trade, AB32 and finally to be truly global the international revised Kyoto Protocol to be undertaken in Copenhagen December 2009. The policy position will make or break the notion of San Francisco as an anchor for the carbon markets. This is the nexus between policy and innovation - it is just this juncture, which either leads to green business activity or not.  If for example a carbon tax was to be put forward it would not lead to the same outcome. A tax on carbon polluting industries does not lead to much change in behaviour - it is inelastic. Double your cost of electricity or petrol prices for your car - and you still do not go out and buy photovoltaic cells for your house or a new Toyota Prius, do you? You just pay the tax! Also a carbon tax is not in line with global positions on ways to combat Climate Change. See this blog on the Carbonflow Carbon Game, which showed that as long as you auction the carbon permits,(not grandfather them, meaning give away the permits, the criticism of the European Emissions Trading scheme),  Emissions Trading will lead to a move away from coal fired power stations.  Interestingly, the Bay Area emitters like PG & E did not attend. David indicated that, based on discussions with those parties prior to our meetings, they expressed interest, but appear to be taking a “wait and see” approach to our initial moves. Once a clearer picture of our coordinated activities begins to emerge, San Francisco city will re-approach them with more specific opportunities for engagement.

Also for future meetings, there was mention of reaching out to key SF-based organizations that represent carbon interests in China and India which were also not present. It appears, these organizations may be looking to the US to solidify their standards and practices before they would participate in any new, SF-based market initiative. The U.S position on the post Kyoto framework will have a great impact on Indian and Chinese policy. Will they accept a cap on their emissions or a sliding cap perhaps - a bit less than the industrialized world?

The City of San Francisco has secured a place to meet regularly and continue formulating policy responses and projects that the city can undertake.

• Policy and markets - 3/19 @ 8:30am
• Communications - 3/18 @ 8:30am
• On-going collaboration - 3/26 @ 5pm
• Capacity building - 3/25 @ 5pm
• Energy Efficiency - 3 / 30 @ 2pm

The working group on Energy Efficiency and Agricultural Offsets in the U.S Cap and Trade has been included at my request in order to maximize green business activity, create more green jobs, greater transparency and auditability. According to a study, Defining, Estimating and Forecasting the Renewable and Energy Efficiency Industries in the U.S and Colorado by The American Solar Energy Society, Boulder, Colorado, and published on Climatebiz it found that with appropriate federal and state government policies, Renewable Energy (RE) and Energy Efficiency (EE) could by 2030 generate over 37 million jobs per year in the U.S. The study goes onto report that the stronger the policy settings the stronger the job creation potential from RE and EE”. The inclusion of Rnewable Energy (RE) and Energy Efficiency (EE) in the U.S Cap and Trade will unleash the private sector to create the green businesses of the future around transport, energy efficiency and agriculture.

The consequence of good policy will be all the myriad of activities people want to see including a diverse range of companies prospering in a Carbon Valley hub of entrepreneurs, investors, policy people, educationalist and technology companies, which would support a  Carbon Valley Carbon Exchange.

To assist this process a web portal communication center or clearing house will be established by the City of San Francisco with education material focusing on carbon capacity building and communications. The Web portal clearing house would include the following content: Early Carbon Action / Showcase projects / Best practices / ANSI standards /Carbon policy / FAQ’s / Sharing of baseline data  / Summit - case studies (national and international), conferences / Website - city sponsored, blog, education, events, SF version of Open Carbon World / Cluster Building - incubators, think tanks, networking events/ Calendar of local events, local emission reduction projects / Use BC3 as network platform / Capital introductions.