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 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.

Carbonflow Policy Paper 1. Supporting the Principles of Cap and Trade, Harmonization / Global Linkages, Early Action / Offsets, Inclusion of Energy Efficiency and Land Use Credits, Enact and Learn. Carbonflow, Inc. is actively working on the development of rigorous and transparent systems for the reduction of costs and increase in abatement potentials under the global Kyoto based cap and trade and flexible mechanisms.  We and the signers of this paper advocate for harmonization of US legislation, state, regional, and federal, with global carbon abatement mechanisms, as part of the solution to ensure high levels of actual, permanent, and verifiable abatement at a manageable and fairly distributed cost to the economy.

The emerging U.S position on legislation for global climate change in a comprehensive U.S. Cap and Trade system has been summarized to generally include the following agreement and discussions.[1] While we recognize these measures are subject to change and are in a fluid dialogue, it is useful to recognise the major points of debate:

1.    Address carbon emission reductions by cap and trade, with a baseline year of 1990 in line with the international community.

2.    Adopt a domestic Cap and Trade Climate Change bill that includes a ‘60-80′% reduction in greenhouse gas emissions by 2050 on 1990 levels, and argue for similar deep cuts internationally under the Kyoto Mark II (to apply 2012-2017).¹

3.    Adopt interim targets in line with the European Commission new action targets for Kyoto Mark II adopted in December 2008, for a 20-40% reduction in GHG emissions by 2020.[2]

4.    Include more ‘aggressive auction schedules’ than those in the process followed during the first phase of the European Union Emissions Trading Scheme (EU-ETS).

5.    Ensure transparency, rigor, and mitigation of trade effects around the verification of CDM or other offset projects and criteria for “additionality” and/or limit their use, geography, and scope.[3]

6.    Ensure cap and trade interacts with the domestic roll-out of national and local programmatic initiatives and performance-based rules.

7.    Target offset use, domestic or international, around key carbon wedges of significant size and of criticality to significant local industries and constituencies.[4]

President Barack Obama has indicated he will pursue deep cuts in domestic greenhouse gas (GHG) emissions and that he is prepared to argue for the same deep cuts in international emissions. The cleantech industry and the carbon market industry fully supports this intention. We expect that the international community will welcome U.S participation in the next round of talks on the Kyoto Mark II program to reduce global GHG emissions in Copenhagen, Denmark in December 2009.

We believe we can summarize the major objectives and constraints of most parties, albeit in varying degrees, as follows:

Objectives:

1.    Meet the global IPCC goals for abatement in the long term

2.    Catalyze fast action in the short term

3.    Harness industry and private sector activity

4.    Provide economic stimulus support and support local job growth

5.    Quickly establish a clear, consistent, stable regulatory regime

6.    Fit within broader environmental mandates

7.    Minimize collateral damage to global and local economies and trade

8.    Provide transparency and environmental rigor throughout the process

We have established a list of Principles for inclusion in US policies which we consider would support meeting these objectives:

Principle 1 Cap and Trade - The primary rationale for market mechanisms (and cap and trade in particular) is that this is the fastest way to squeeze carbon out of the economy to achieve long term abatement targets at the least cost. It is a carrot AND stick approach. It provides a middle ground between strict command and control and carbon tax.  True command and control is difficult to implement in a multi-lateral global framework without significant economic collateral damage, and a carbon tax does not address the critical trade issues surrounding carbon nor ensure that abatement levels will actually be reached. Cap and trade has the capacity to harness vast amounts of investment and of committed people to address climate change in a very short time frame, without new direct taxes. Government can use auctioning of some or all emission permits as a means of generating revenue to pay for the system costs and invest in low carbon initiatives.

As described below, cap and trade has long been recognized as providing the most flexible mechanism to enact the command and control objective of ensuring abatement occurs, while simultaneously ensuring the correct pricing of carbon externalities at the least cost.  While some economists have argued that theoretically a carbon tax would yield less economic loss to the economy, a more sober look shows that it would only be true in a single country model. Given the size and inherently global nature of carbon, the currency and trade impacts of pricing carbon through a tax or command and control would in practice mean a carbon tax would have to be completely integrated with global trade arrangements through the WTO in order to manage leakage issues It would likely cause a much higher degree of economic loss than cap and trade even then, once the mispricing of capital investment and rent seeking impacts of differing effective carbon tax rates in different industries and jurisdictions was taken into account.

It should be understood that auctioning a larger proportion of emission permits relative to those freely allocated does not necessarily mean a higher permit price or higher abatement levels. The actual abatement and prices are determined by abatement targets/allowances, the volume or auctioned permits, industry’s inventory reduction potential, and development potential of low carbon offset projects. Auctioning simply defines the general level of revenue collection to the government administering the cap.  It should also be noted that we recognize that to the extent cap and trade is enacted with a high level of auction, cap and trade effectively functions as an indirect carbon tax, in the long run paid by consumers, on a variable rate and variable tax basis which automatically minimises the penalty on the most carbon friendly businesses in an industry.

Principle 2 Harmonization / Global Linkages - A significant risk in establishing cap and trade, or any type of large scale abatement mechanism, on a regional basis is that it a) can result in different and higher prices of carbon locally than in our trading partners and b) does not include large portions of global GDP and emissions, without which achieving global abatement goals is simply not possible.  Harmonization of and linkages between individual schemes mitigates these effects to a large degree.

In fact, since the impact of increasing levels of atmospheric CO₂ affects all global citizens, it is highly dangerous from an economic point of view to regulate carbon unilaterally either nationally or regionally, without harmonization with other regulations. One targeted effect of cap and trade schemes is to create a new cost in the industrial supply chain, pricing in the carbon externality.  However, in a competitive global supply chain environment, higher local carbon prices without linkages to other schemes can have the effect of pushing production and jobs to lower carbon price regions, effectively pushing carbon offshore with no net reduction.  Worse, unlinked markets without globally fungible offsets have the potential to push GDP activity to more carbon intensive regions (an example being pushing manufacturing production from California to China), leading to the worst case scenario of expensive domestic abatement, limited global abatement, and at the same time costing domestic production and jobs.  Linkages effectively enable companies to purchase carbon costs from offshore jurisdictions, still paying the price of carbon, but having the option to keep jobs and production home.

A consistent and transparent market price for carbon can be achieved most cost effectively through a combination of policy harmonization targeting similar abatement levels across jurisdictions, and where abatement levels are lower, allowing linkages between those jurisdictions and schemes, based on globally fungible offsets.

Harmonization might be achieved through a range of options, including setting, either directly or indirectly, overall caps at levels similar to those of our key trading partners, or creating sectoral carbon intensity based targets that set relative levels for the most affected industries, or a combination. The challenge of achieving either policy outcome should not be underestimated, and will put pressure on global verification capabilities.

Linkages between schemes can be achieved by allowing a broader range of offsets (such as those from CDM or JI) or credits from other schemes to be used to achieve compliance with the emission cap. This can enable the price of carbon to achieve parity across geographies (including those not currently under an emission cap). During the early years of a scheme’s operation carbon prices can be both high and volatile, and linkages with mature schemes based on the free trading of carbon can provide an effective price and supply safety valve. This is an issue US companies are already facing from geographic and sectoral variances between caps under AB-32, WCI and RGGI.

At heart, the science tells us that carbon is a global problem, and that from the environment’s perspective it does not matter where in the world emission or abatement occur, just whether or not they do.  We need our policies, whether they be local, state, regional, national, or multi-national, to reflect this fact.

Principle 3 Early Action / Offsets - In addition to a significant role in the elimination of greenhouse gases, offset projects and credits support the equalization of carbon prices, enhance employment security for high carbon cost geographies, provide a financing avenue for carbon abatement activities which may be critical given the current economic climate, and provide a path for early action by industry. They encourage employment in the nascent cleantech sector, encouragement which has been sorely lacking due to the uncertainties surrounding operational details of the proposed schemes. This would in turn obviate industries’ demand for a safety valve price, as offset credits can provide an additional source of permits in early commitment periods. Finally, offset projects provide a means by which developing nations can engage with schemes in the US. By financing the export of and investment in cleantech manufacturing and services (as with the CDM), the US can engage with its developing country trade partners, and provide an avenue to advance sectoral based carbon intensity targets and commitments in a phased approach, so bringing developing economies closer to full participation in cap and trade schemes.

Offset credits, rigorously validated and verified, provide the best mechanism for rapid and low cost linkages between markets to equalize carbon price and protect domestic production and jobs.

Early action and offset projects also provides an avenue to increase global verification capacity to adequate levels prior to later commitment periods, reducing overhead costs and providing additional cleantech employment. The regulation of carbon and Measurement & Verification is a cross border problem, and so must include a vastly greater number of regulation points to manage leakage than would be the case for a purely local environmental protection regime. International trade in goods faces similar issues, and in that case 3^rd party verification has proven to be the least cost and most reliable path.

For these reasons it is essential that upcoming legislation includes the recognition of early action emission reductions and of their bankability for future compliance periods, and addresses a path for harmonization of standards for 3^rd party verification.

Principle 4 Inclusion of Energy Efficiency and Land Use Credits in the U.S. Cap and Trade - The sectors making the largest contributions to global carbon emissions are driven by energy intensity (and thus carbon emissions) per unit of economic activity or the increase or decrease in the carbon sinks from land use, land use change and forestry. It is generally accepted that if energy intensity per unit of economic activity and the size of the major carbon sinks are moving against us, it may well be virtually impossible to meet abatement targets, no matter how stringent the caps on emitting sectors.

One major avenue for supporting reduced emission intensity in the energy driven sectors is to include demand-side energy efficiency projects with their resulting emission reduction credits in cap and trade schemes. The effect of double counting can be eliminated by adjusting the size of the cap, effectively by exchange of project based emission reduction credits for emission permits on a one to one basis. Energy efficiency projects have the added benefits of providing significant early action reductions, as well as anchoring a large part of the potential for growth in cleantech jobs.  If programmatic and performance based rules are harmonized with the credit markets to address additionality issues, we may well be able to utilize the carbon credit markets to provide the financing necessary for changes in energy efficiency and land use activities, which are notoriously difficult and expensive behaviours to change.

Agriculture and land use constitute some of the largest sources of emissions, while at the same time providing huge opportunities for reductions. Current farming practices -driven by various government policies, subsidies and the industrialization of agriculture in the 20^th century - are major contributors to global warming.[5] The EPA’s latest inventory of U.S. Greenhouse Gas Emissions and Sinks[6] estimates that agriculture accounts for over 500 million tons of CO₂-e per year, while land-use, land-use change and forestry capture over 880 million tons in carbon sinks.

Incentives provided by cap-and-trade should reward and accelerate the transformation towards lower-emissions farming and a more sustainable food chain. Soil management and soil carbon sequestration deserve particular attention due to the major impact they will have in adding large amounts of reductions to the current sink pool. Thus, it is essential to encourage and support the creation of rigorous protocols and verification methodologies which will jump-start these changes to farming practice. It is also essential that agriculture, land use and soil sequestration be included in upcoming legislation as legitimate sources of offsets, and that the regulations which impair sustainable agriculture be revised.

That being said, energy efficiency, agriculture, and land use abatement has proven to be one of the most difficult and costly on a per unit basis to reliably manage measurement & verification from a carbon perspective, and that issue must be addressed.  The reality is that these sectors, given the relative inelasticity of demand in energy and food, and the stickiness in land pricing, have always been relatively difficult for policymakers as they attempt to drive consumer and business uptake in a cost effective manner.  Including them in carbon offset and management systems represents the potential for a real breakthrough in driving activity, and so despite the complexities, we believe they must be included.

Principle 5 Enact and Learn - The final principle is that we must enact and learn.  The change must be long term, measured, and deliberate.  While we are all concerned with meeting long term goals and catalyzing fast action, that must be balanced with the need for change and abatement to be global, not just local or regional, and that the real constraint is that as a nation and a globe we only have so much GDP to spend on environmental action.

It is an oft forgotten fact in the discussion of the Kyoto experience that 1) the abatement levels reached have been primarily what we expected (albeit not as exceptionally high as many would like), 2) the price collapses in carbon are a prima facie case that industry met its commitments at lower costs than some had feared, 3) CDM has had a positive impact on job protection, and a moderating impact on carbon abatement costs in the developed world, and that 4) seemingly small design differences in the system and can have outsized impacts on economic activity, and so phasing of system design to allow policymakers to learn is of more importance than had previously been understood.

Given the ubiquitous nature of carbon - it touches all people, and the sheer magnitude of the problem - based on IPCC targets we are looking at policy prescriptions imposing costs as a percentage of GDP on a scale not seen globally since the Second World War, and so it is critical that the policy design allows each industry, policymakers and regulators time and the flexibility to adjust as we learn. Compared to our ideal rapid abatement scenarios, we would advocate bias in system designs towards 1) faster starting and less aggressive targets with higher prices on lower volumes in the early years as policymakers, industry, and regulators learn how much the industry can actually do, with 2) broader and more multi-lateral inclusion in the early days when volumes are low coupled with tighter verification requirements as volumes rise, with 3) rapidly escalating caps, more aggressive abatement targets and lower prices on higher abatement volumes in later years.  This likely means a framework and principles approach to legislation, leaving regulators with greater rather than lesser flexibility, and is far superior to a prescriptive approach where the economic and trade impacts of early design flaws last for a significant period of time.

Again, we believe we can summarize the major objectives and constraints of most parties, albeit in varying degrees, as follows:

Objectives:

1.    Meet the global IPCC goals for abatement in the long term

2.    Catalyze fast action

3.    Harness industry and private sector activity

4.    Provide economic stimulus support and support local job growth

5.    Quickly establish a clear, consistent, stable regulatory regime

6.    Fit within broader environmental mandates

7.    Minimize collateral damage to global and local economies and trade

8.    Provide transparency and rigor throughout the process

With these objectives and principles, it is now time for action.

________________________

Neal Dikeman

________________________

Karla Bell

For more information contact: Neal Dikeman, CEO/Co-Founder: dikeman@carbonflow.com

Cell:1-415-336-2814 and Karla Bell CoFounder/Marketing Director  karla.bell@carbonflow.com,

Cell: 1-415-307-5342, 660 3^rd Street, San Francisco, CA 94107

---

[1] Richard Rosenzweig, Robert Youngman and Eric Nelson of Natsource writing in Point Carbon in an article titled “The Progress So Far”, December, 2008

[2] Brian Kenety, Third World Network, ” Europe sets new targets”

[3] The clean development mechanism (CDM) is one of the Kyoto protocol’s project-based flexible mechanisms that allows for carbon credits to be generated from emissions reduction projects in developing countries.

[4] Landfill methane use, Animal waste & wastewater methane use, Coal-mine methane; Agricultural and rangeland and sequestration and management projects; Land-use and forestry projects; Reduction of sulphur hexafluoride from electricity transmission equipment and other activities, were the activities targeted in the Lieberman-Warner proposal.

[5] Michael Pollan, “The Food Issue - An Open Letter to the Next Farmer in Chief, NY Times, Oct 12, 2008

[6] http://www.epa.gov/climatechange/emissions/usinventoryreport.html

President Obama has made the claim that going “Low Carbon” is no longer a seminar subject for caring greens and that the “Green Race is on”. “It is a real live competition to beat the oil regimes and make profits”.

The U.S is positioning itself to be a world leader on Climate Change. Every energy investor and green entrepreneur knows that America is now the place to do business.The Guardian in England on Friday 7 November 2008, announced that, “BP has dropped all plans to build wind farms and other renewable schemes in Britain and is instead concentrating the bulk of its $8bn (£5bn) renewables spending program on the US, where government incentives for clean energy projects can provide a convenient tax shelter for oil and gas revenues”.

The Europeans now look tardy, so do the Australians and everybody else. Europe is being out-manoeuvred and outpaced by the U.S. The Kyoto Protocol had a greenhouse gas reduction target of 5% below 1990 levels. Barack Obama is proposing to cap U.S. emissions at 80% below 1990 levels. Astonishing!

In the Alternative Energy Weekly, 9th of February an annual survey of U.S. investors at the Vail Energy conference, where 68% of those surveyed think there will be a national Renewable Portfolio Standard (RPS) in 2009,  while 55% expect CO2 legislation to be passed in 2010 and 39% think it will be implemented by 2013.

According to Carbon Finance, “The International Energy Agency estimates $45 trillion will have to be invested in clean energy alone over several decades.”  The Wall Street Journal and the Australian owned by Rupert Murdock, believe the U.S is preparing the country for a new green world order.  “Twenty three U.S. states have their own cap-and-trade schemes for capping carbon emissions, making a move to a national scheme very politically possible, although requiring harmonization, which is a practical issue, a legal and soft-ware issue.

Before the U.S. Cap and Trade is legislated, the stimulus package also includes provisions for renewable energy (RE) and energy efficiency (EE). President Obama in his campaign for the stimulus package to include clean energy investments, said that “America will not be held hostage to dwindling resources, hostile regimes and a warming planet,” he said, on his sixth day in office. The US would no longer “bankroll dictators” but would create its own energy from the Sun, Wind and Soil.

The stimulus package is still to be finalized this February 13th on the quantum for Renewable Energy and Energy Efficiency. Renewable Energy World have noted the differences between the House-passed bill and the Senate version in debate involving the different funding levels for various technologies and programs. The bills are still in discussion. The two bills for Energy, Efficiency and Transmission are $53 billion for the Senate, $ 48.9 billion for the House.

Metrics from Renewable Energy World - Senate version (House version in parentheses)

- $14.4 billion for energy efficiency and renewable energy programs ($18.5 billion in House version, which includes $6.2 billion to expand existing weatherization activities and $7.9 billion for energy-related grants to states)

- $10 billion to cover the subsidy costs of federal loan guarantees for renewable energy systems and electric transmission projects ($8 billion in House version)

- $6.5 billion for federal power marketing administrations to build new transmission systems (same in House version)

- $4.6 billion for R&D on carbon capture and sequestration ($2.4 billion in House version)

- $4.5 billion to modernize the nation’s electricity grid with smart grid technology (same in House version)

- $7.8 billion for environmental remediation and various other activities ($6.4 in House version)

- Tax breaks for large-scale renewable projects ($ 11 billion Senate and House)

Additionally, two executive orders have been passed to require stricter energy efficiency standards on vehicles and to allow states like California to take the lead on higher standards for Climate Action than the Federal government, which is good for Governor Arnold Schwarzenegger. The public discourse is becoming vigorous.

Michael Moore and Ralph Nader want to buy out Detroit and redevelop the whole car industry to produce electric and hybrid cars. They are calling for executives to be replaced by those that know how to produce energy efficient and alternative fuel vehicles. Sounds like a good idea. Texas has a proposed $ 5,000 dollar subsidy for citizens who buy electric hybrid cars.

In San Francisco, from February 23-25, 2009, more than 800 of the world’s clean technology sector leaders—representing over $3 trillion in capital—together with entrepreneurs, scientists and policy-makers, will convene in San Francisco for Cleantech Forum XXI. They promote themselves as “the largest annual assembly of global leaders of the clean technology sector, driving job and wealth creation, addressing climate change and resource scarcity and stimulating global economic growth during uncertain economic times”.

San Francisco is preparing itself for the next big thing and many silicon valley entrepreneurs are behind the next wave “Carbon Valley”.  Many clean-tech investors are dot-com billionaires such as Paul Allen, of Microsoft, and Vinod Khosla, of Sun. They know how quickly new businesses can grow.

Groups are forming to accumulate intellectual property and technologies in the alternative fuels area.  Look at the biochar and bio-diesel industries. Mainstream companies are investing heavily in the future, which is what has to happen.  See www.bestenergies.com

Americans have made it clear this is about business. American Democrats in the political spectrum are closer to European conservatives. Recently that message has got through and Conservative Leader David Cameron in Britain is proposing an ambitious strategy for making Britain a low-carbon economy. It has put the Conservative Party way ahead of the field.

Ironically, Barack Obama will be the most forthright proponent of deep cuts in Greenhouse Gas emissions in Copenhagen for the meeting of the Conference of the Parties December this year.

California’s Green Building Regulations, take effect on  July 1, 2009. The Green Building Regulations require a 15% reduction in overall energy use, which is equivalent to achieving the LEED® silver rating for new construction, below gold and platinum standards. The Green Building Regulations only set a floor, not a ceiling, and do not prevent municipalities, such as cities and counties, from enacting more stringent standards than the state or in my opinion would not prevent allowing more aggressive offsets to be undertaken within a U.S. Cap and Trade system. This would give financial incentives in the form of carbon credits for larger reductions than the baseline Green Building Regulations as the cost increases with greater reductions, the first reductions are often the easy things to do like changing light bulbs.

Aris Evia, LEED® AP and David Heckadon, LEED® AP of Gordon and Rees based in San Francisco are very active in the Advocacy for Green Buildings

The State of California Building Standards Commission (”Commission”) adopted the California Green Building Standards Code (”Green Building Regulations“) to apply to all new construction statewide. Prior to California’s adoption of its Green Building Regulations, the standard for green and sustainable buildings in California and across the nation was and is still set by the U.S. Green Building Council (”USGBC”) through its Leadership in Energy & Environmental Design (”LEED®”) levels of building certification. According to the USGBC, buildings nationwide account for 70% of electricity consumption, 39% of energy usage, 12% of potable water consumption, 40% of raw materials usage, 30% of waste output and produce 39% of associated greenhouse gases (”GHGs”) like chlorofluorocarbons (”CFCs”), hydrochlorofluorocarbons (”HCFCs”), and carbon dioxide (”CO2″).

The LEED® standards for rating new construction, existing buildings and commercial interiors are, from highest to lowest: platinum, gold, silver and certified. The LEED® rating system is based on the achievement of a certain number of credits, or points, towards LEED® certification: the higher the points, the more prestigious the rating. California’s Green Building Regulations are the approximate equivalent of achieving LEED® silver rating for new construction. The LEED® ratings will still remain the most applicable standard for nationwide market transformation in construction of both office buildings and homes, because they encourage and accelerate global adoption of sustainable green building and development practices through the creation and implementation of universally understood and accepted tools and performance criteria. However, California’s Green Building Regulations are just another example of California leading the charge on green and sustainable construction.

California’s Green Building Regulations are an important piece of the state’s ambitious goal to reduce the state’s CFCs, HCFCs, CO2 and other GHG emissions by 30% by 2020 as required by Assembly Bill (”AB”) 32, Chapter 488, Statutes of 2006, authored by then Assembly Speaker Fabian Nuñez (D - Los Angeles). Last October 2007, Governor Arnold Schwarzenegger vetoed AB 1058, authored by Assembly Members John Laird (D - Santa Cruz / Monterey) and Ted Lieu (D - El Segundo), which would have established green building construction best practices and made them an official statutory part of the California Public Resources Code.

The Governor’s veto message to the Legislature stated that he supports green construction standards and shares the goals of AB 1058, but believes that building standards should not be in the state’s statutes, but instead set by the Commission, presumably because the Governor desires a more phased approach to green building regulation and to inject more public participation into the lawmaking process.

California’s Green Building Regulations, which are 60 pages long, do not take effect until July 1, 2009. These standards will remain voluntary until the Commission completes its work on mandatory regulations which it hopes to have in place by late 2010 and early 2011. The highlights of the Green Building Regulations are set forth in the following goals:

• 15% reduction in overall energy use for all new construction by employing such strategies as solar energy, Energy Star-certified appliances, highly-reflective roofs, and elevators and escalators that move only when passengers are present;
• 20% reduction in water use for all new construction through low-flow toilets, waterless urinals and dual plumbing for potable and graywater;
• 50% reduction in water use for landscaping by utilizing such approaches as native plants, drip irrigation systems, and bioswales; and
• Use of environmentally sensitive materials like eco-friendly flooring, carpeting, paint, coatings, thermal insulation, acoustical wall and ceiling panels, and other recycled building materials.

The Green Building Regulations also identify various site improvements, i.e., parking for hybrid vehicles and improved and comprehensive storm water plans. Importantly, the Green Building Regulations do not specify how to make the reductions, but instead, suggest a variety of green and sustainable construction practices. In practice, a LEED® Accredited Professional (”AP”) may be in the best position to advise construction companies as to green and sustainable construction practices, because a LEED® AP has demonstrated a thorough understanding of green building practices and principles and is a building professional with the knowledge and skills to successfully steward the LEED® certification process.

The Green Building Regulations only set a floor, not a ceiling, and do not prevent municipalities, such as cities and counties, from enacting more stringent standards than the state. For example, San Francisco’s recent Green Building Ordinance is the approximate equivalent of achieving LEED® gold certification. Also, in April 2008, the City of Los Angeles became the largest U.S. city to enact mandatory green building standards for private development. The City of Los Angeles’ mandatory green building standards program applies generally to new development and remodels of non-residential development over 50,000 square feet, or 50 residential units, and requires compliance with the criteria for a LEED® Certified rating.

The most common argument against green and sustainable building practices are the upfront costs of implementing such measures and using such materials. However, supporters of green building respond that although a building may cost more to build on the front end, the sustainable building will perform better, i.e., consume less energy, be more water-use efficient, etc., thus leading to a greater return on investment (”ROI”) and a higher net operating income (”NOI”) associated with the building.

Another major issue with green building initiatives is that they inject yet another layer of risk into construction projects, and raise new issues for developers, builders, and design professionals. Perhaps the most obvious and immediate issue is whether California’s Green Building Regulations will elevate the standard of care for an architect or an engineer. A corollary of this issue is whether developers, builders and design professionals will expose themselves to more risk when they promise to deliver high-performance green buildings. From a contractual point of view, developers, builders and design professionals are now faced with the issue of whether to include and incorporate language into their contracts to require them to design and construct a sustainable building. Indeed, although green and sustainable building practices are an easy rallying point and have made important strides in recent times, the green building movement has raised the stakes and created new and still developing issues that the construction and real estate industries must now face.

The Australian ETS and U.S. Cap and Trade should include soil carbon and energy efficiency offsets

In Australia, Malcolm Turnbull announced the Opposition Government’s Green Carbon Initiative on Saturday 24^th of January at the young Liberals Convention in Canberra.The Turnbull plan for combating climate change is basically a two pronged approach to reducing greenhouse gas emissions (GHG). Firstly it involves “a comprehensive bio-carbon strategy investing in the health of our landscape, restoring soil carbon by reversing over-grazing and excessive tillage, embedding CO2 in bio-char (charcoal fertilizer), tree planting, and re-vegetation” and the second prong is to “dramatically increase energy efficiency, especially in buildings”. This plan has the support of globally renowned Scientist Tim Flannery on the use of soil carbon as a major way to draw down existing carbon from the atmosphere.

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One key difference according to Point Carbon in the “Progress So Far”, article is that the U.S proposed Cap and Trade compared to the EU-ETS (European Union Emissions Trading Scheme), will include, “more aggressive auction schedules than in the 1^st phase of the EU-ETS”.  ”The EU-ETS allowed an over-allocation of free allowances that took place in phase one giving ‘windfall profits’ to companies. The U.S. will advocate aggressive auctioning at the beginning of a US program in order to avoid what occurred in Europe”. Social justice advocates and environmental groups have complained about this aspect of the EU-ETS in California.

The other approach that may be different is the clean development mechanism (CDM) one of the Kyoto protocol’s project-based flexible mechanisms that allows carbon credits to be generated from emissions reductions projects in developing countries. The U.S. has indicated that it will pursue transparency and rigor around criteria for “additionality” for CDM offset projects.

Neal Dikeman, CEO of Carbonflow based in San Francisco supports this view of greater industry transparency in the carbon offset market. Our objective is “to provide validation, verification and on-going monitoring automation software for project developers, validators, verifiers throughout the entire chain of the multi-party process for the creation of carbon credits in CDM and any market that uses carbon offsets” and, “this also applies to domestic national Emissions Trading Schemes that use offsets, such as energy efficiency and agricultural offsets”. he concluded.

The Point Carbon article further recommends that “industry will need to aggressively communicate the benefits of markets in achieving climate policy objectives in order to ensure that legislation authorizes the use of offsets to the greatest extent practicable”.

The EU-ETS, Phase 1 did not include domestic offsets such as energy efficiency and transport. U.S. Green groups and social justice campaigners criticized the EU-ETS on the basis that big companies only benefited from Emissions Trading and not the community, local and regional city governments, missing out on opportunities to do renewable energy projects, green building projects, public transport, alternative fuels and other small-scale projects to reduce GHG emissions, which ironically could be done in developing countries under CDM.

Due to the criticism of the EU-ETS, which did not allow offsets, resulting in a lack of participation by the general community, the earlier proposed U.S. bills did offer detailed offset provisions and will act as the starting point for the final U.S. Cap and Trade scheme. The Lieberman-Warner and Bingaman­Specter bills included detailed offset provisions.

For example The Bingaman-Specter includes domestic offsets including 5% of offsets from agricultural sequestration. The limit for total domestic offsets was nominated at 15% with a further 15% of offsets coming internationally, a campaign commitment that still seems to be holding. (GHGBlog)

The argument for domestic offsets is that it reduces the cost of abatement of compliance with Climate Change legislation. Recent economic modelling cited in the “Progress so Far” by the EPA of the Lieberman-Warner bill concluded that access to offsets can result in significant economic savings. If limits on the use of domestic and international offsets in the Lieberman-Warner proposal were removed, allowance prices would fall by 71 per cent, from $51/t to $15/t in 2020, compared to the bill as written*. This translates into GDP savings of $333 billion in 2020.

The types of offset projects that could be included are:

Landfill methane use;

animal waste & wastewater methane use;

coal-mine methane use;

agricultural and rangeland sequestration and management projects;

land-use and forestry projects;

reduction of sulphur hexafloride from electric transmissions and distribution transformers; and

other activities, approved by either the President or the US Environmental Protection Agency (EPA) administrator, respectively.

The other activities should include energy efficiency if we are to achieve these ambitious targets. Energy efficiency has to be in the mix as 40% of global emissions come from electricity generation. It is well known that renewable energy can’t be deployed faster enough to the existing grid.

Mr Dikeman, has indicated that any U.S. scheme that includes domestic offsets such as energy efficiency can be included provided the transparency and the auditability is there, which he believes the software can provide. (Declaring my interest, I am a co-founder with Neal of Carbonflow). Carbonflow has solved the double-counting issue, which to date has precluded energy efficiency from being included.

In terms of domestic harmonization to my mind there are already many initiatives in the U.S which will have to be either seriously streamlined in line with the federal policy or dropped altogether.

The two programs of significance include the Regional Greenhouse Gas Initiative in the North East comprised of 11 U.S. states and the Western Climate initiative. These initiatives basically follow the electricity grid on the east and west coast and reach across border into Canada and South to Mexico. There are other many other state programs, city ordinances, building codes on energy efficiency, renewable energy and so forth, too many to be documented in detail. Suffice to say the U.S. has been doing many things whilst not officially part of the global consensus on Climate Change.  These regional programs have much lower caps than the national proposal and the sectors are narrow in the case of RGGI, much broader in the case of the WCI.

To add to this the Voluntary carbon markets have been very active in the U.S. more than any other developed nation. Prior to the U.S. election as late as October 20^th 2008, California was leading the way using voluntary programs as the mainstay of U.S participation in global carbon trading.  “The Voluntary Carbon Standard Association (VCSA) approved the California Climate Action Registry as the first independent greenhouse gas (GHG) offset program.

Linda Adams, Secretary, California Environmental Protection Agency and Chair of the California Climate Action Registry said that, “Recognition by VCS provides the foundation for the establishment of common global standards for voluntary GHG emission reduction projects and their offsets. This is significant in unifying international carbon markets and providing a platform that global investors can participate in with confidence, un-precedent-opening a new gateway for trading between the U.S. and international voluntary offset markets.

Not with-standing the U.S Cap and Trade legislation, which is now advocating targets greater than any country in the world, the question is will the U.S. lead the international negotiations in Copenhagen. I certainly hope so and maybe they will be able to advocate stronger targets and changes, which based on the review of the success of the EU to date could come along with U.S. ratification of Kyoto Mark 11.

The potential for consensus building around this Bill is historic with a coalition of agricultural / industrial states, green groups, energy efficiency advocates and social justice groups supporting a passage of the U.S cap-and-trade scheme.

Carbonflow eRecord software to improve productivity of Kyoto Markets

Neal Dikeman, CEO of Carbonflow, a U.S company, which I am a co-founder of based in San Francisco is launching  version 1 of the eRecord software at the United Nations Climate Change Conference of the Parties (COP) 14 in Poznań, Poland held from the 1^st to the 12^th of December.

“The patent pending eRecord software will reduce costs, increase speed and transparency of the Kyoto Market mechanisms, particularly the Clean Development Mechanism (CDM) under the Kyoto Protocol”, said Mr. Dikeman, whose resume includes start up experience as cofounder of superconductor device manufacturer Zenergy Power plc (ZEN.L) and as Director of Business Development for the parent company of Yellowpages.com.

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The U.S. is emerging as a major player in the global efforts to combat Climate Change. Today the Canadians asked to join the U.S. Emissions Trading scheme, which does not even exist just yet, although planned for 2009.

“Canada’s Prime Minister Stephen Harper on Thursday called for a North America-wide plan to curb CO2 emissions linked to warming” Such is the clout of the U.S. even though Canada is a Kyoto nation and the U.S. is not yet. Canada wants to be linked into whatever program the U.S. wants to adopt in 2009.

“We want to work with the Americans on regulatory systems relating to greenhouse gas emissions in order that we can work toward the same goals,” said Harper.

“We want to work with the next US administration and we hope that there will be a continental approach in the future,” Mr Harper told reporters.

Canada has a plan to cut emissions by 20% based on 2006 levels, by 2020.

The Canadian baseline, set at 2006 underlines my view that there is a need for legislative harmonization of Emissions Trading schemes, within the US, North America and indeed within the Kyoto Protocol, which has a 1990 baseline. Harmonization would assist in making carbon a global fungible commodity.

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