WRI Publications Feed: U.S. Federal Climate Policy

Testimony Before the Senate Committee on Environment and Public Works: Getting to Yes on Climate Change

Maggie Barron — Thu, 29 Oct 2009 11:44:48 -0400

TESTIMONY OF JONATHAN LASH
PRESIDENT, WORLD RESOURCES INSTITUTE

HEARING BEFORE THE UNITED STATES SENATE COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
“LEGISLATIVE HEARING ON S. 1733, CLEAN ENERGY JOBS AND AMERICAN POWER ACT”

Good afternoon and thank you for inviting me to testify today regarding the pending legislation, action of other countries to address climate change, and the implications of their action for the United States.

I am Jonathan Lash, president of the World Resources Institute. WRI is a non-profit, non-partisan environmental think tank that goes beyond research to provide practical solutions to the world’s most urgent environment and development challenges. We work in partnership with scientists, businesses, governments, and non-governmental organizations in more than seventy countries to provide information, tools and analysis to address problems like climate change, and the degradation of ecosystems and their capacity to provide for human well-being.

I have a single message to deliver today: The time is ripe for Congress to enact climate legislation to reduce emissions, establish energy security, and create new jobs in clean energy. Other nations are moving; the outcome depends on us.

We need global action to solve this global problem. Those who have worried that the United States might act alone need worry no more. The worry should be that without us, the rising global effort will falter. The worry should be that if we hesitate, we will miss the opportunity to lead the coming clean energy revolution.

With other nations acting, U.S. action now can make the critical difference.

Other countries across the globe are moving to take action to confront global warming. This has transformed the debate over this issue. The time is ripe for the United States to act and it is in our own interest to act promptly. In a nutshell, there are three reasons for this:

Action by other countries increases opportunities for the United States if we are prepared to seize these opportunities.
Steps by other countries help ensure that the United States will not be disadvantaged by taking action itself.
Action by the United States is essential to cement an agreement under which all countries commit to continue and increase the steps they are taking.

In order to take action, we need a better understanding of what we are facing. We need to understand the opportunities. We need to put aside old myths. We need to focus on the real problems and recognize the solutions to those problems. And we need to get busy so we do not miss this opportunity.

A changed landscape

As illustrated by Figure 1, almost 80 percent of global emissions are produced by fifteen countries (counting the European Union as a single country). A majority of these are developing countries, which, until recently, said they would not take action on emissions without clear action by wealthy countries. At the same time, all countries have recognized that the poorest would need assistance in deploying clean energy and preserving forests and also in adapting to minimize the damage from changes in the climate that are no longer avoidable. What has changed is that in the last couple of years, and even in the last few months, without waiting for rich nations to act, countries such as China, India, Brazil, Mexico, and South Africa are stepping forward with significant proposals and actions.

As explained below, China provides an important example among developing nations, but China is not alone. Mexico has pledged to halve its greenhouse gas emissions by 2050, employing a “cap-and-trade” policy like the one under consideration in the U.S. Congress. South Africa has presented a detailed plan to peak its national emissions by 2020. India has defined eight national missions in efficiency, renewable energy, and sustainable agriculture and ecosystems and is developing strategies in these areas. Recently, the Indian government announced it will offer new legislative proposals to tighten fuel efficiency standards and pursue other clean energy targets, and there have been indications of increased willingness to subject its actions to review. Deforestation accounts for about two thirds of Brazil’s greenhouse gas emissions. Brazil has said it would reduce its deforestation rate 70 percent from recent levels by 2017.

Among developed countries, a new government recently came to power in Japan, transforming that country from a laggard to a leader with an ambitious proposal to reduce emissions 25 percent below 1990 levels by 2020 if other major countries take ambitious action. The European Union position is that it will reduce its emissions by 20 percent regardless and by 30 percent if other developed countries take sufficient action. And Australia, heavily dependent on coal for consumption and exports, has said that it will cut its emissions by 25 percent below year 2000 levels if others take on similar actions.

The ball is now in our court, and it is in our interest to act. In December, the nations of the world will meet in Copenhagen, Denmark to try to reach agreement on plans to confront climate change. In order to reap the benefits of an agreement, we need to bring something credible to the table. That something is what this committee and this Congress write into legislation.

Let me explain what is at stake by focusing on China. China is a country taking action and looking at China helps us understand the problems, solutions, and opportunities before us.

The case of China

Some people have worried that action by the United States on climate change could put us at a competitive disadvantage if countries like China do not also take action and produce at lower cost. In fact, China is taking action, which can help assure that there is a level playing field. As I will explain, they are doing this because it is in their own interest, which should give us confidence they will continue. Instead of more delay, we should get an agreement that helps further to ensure that Chinese action on climate will continue and increase. But there is more. Not only should we lock in a commitment; we should work with China to reap the benefits of the new economic future emerging in the worldwide shift to clean energy.

Here are the facts. In 2005, realizing its growth in energy consumption was unsustainable for energy and climate security reasons, China launched a plan to reduce energy intensity 20 percent from 2005 levels by 2010. This may be the largest greenhouse gas mitigation program of any country. China also plans an increase in renewable energy to 10 percent by 2010. In 2007, China was second in the world in funds invested in renewable energy.

China, like the United States, is a major user of coal. However, China is closing inefficient coal plants, deploying state-of-the-art or better technology, and exploring carbon capture and storage (CCS) technology. These efforts can help improve coal technology and bring down the costs. U.S. – China collaboration on development of CCS and other coal technologies is already underway and opens vast opportunities.

At the Major Economies Forum in July, China and India for the first time agreed at the international level to a declaration to take action to meaningfully reduce emissions below business as usual, peaking as soon as possible. Also, they recognized the scientific view that temperatures should not exceed 2 degrees Celsius above pre-industrial levels.

In the first-ever speech by a Chinese President to the UN General Assembly in September, 2009, President Hu Jintao said China will reduce its carbon intensity by “a notable margin” by 2020.

Why are they doing this? “All politics is local.”

China’s aggressive action to improve energy efficiency and reduce emissions is not an act of global charity. China’s leadership realizes they cannot maintain growth and reduce poverty without conservation of resources. Pollution is choking off growth and producing social unrest. Adverse impacts from climate change are projected to undermine agricultural productivity and cause flooding in south China and along the coasts.

Qi Ye, deputy director of the China Sustainable Energy Program in Beijing says you have to “address the global issue in terms of local need” because people act on what they care about. Similar sentiments can be heard in other developing countries. In describing India’s new initiatives on clean energy, the Indian environmental minister said recently, “I want to be aggressive, because, frankly, we are a country that is climate dependent” because of rising seas and monsoons. “We may not have caused the problem, but we have to be part of the solution.”

How do we know they’re doing what they say? “Trust but verify.”

Self interest in taking action to confront climate change affords us some confidence that countries like China will follow through. Still, challenges remain. Reliable data are not always available and standards of enforcement, governance and transparency are variable. This is one of the reasons it is in our own interest to establish an international climate agreement. A key element in the negotiations is creation of a system for measuring, reporting, and verifying actions to give confidence that promises are being kept and action taken.

Just as President Reagan suggested to Soviet leader Gorbachev in signing the nuclear arms reduction treaty and quoting the Russian proverb “trust but verify,” trust is fine, but real confidence depends on verification.

Verification of China’s action to reduce emissions will be feasible. China participates in peer review and verification already under international agreements like the WTO and the Montreal Protocol to address ozone. The U.S. Environmental Protection Agency has worked with China in successful efforts to improve its control of sulfur dioxide emissions. China has already begun collecting and verifying energy data. Moreover, the United States could invest in satellite tracking as an additional way to help check up on whether China is meeting its commitments.

China and the United States – solving problems, seizing opportunities.

Some people have worried that China would steal American jobs by competing using dirty production processes. The reality is China is pulling ahead of us by being innovative and clean. If doubts remain, a global climate agreement can allay them by ensuring action by all that will help level the playing field. As a fallback, the House-passed climate bill protects energy-intensive U.S. industry by providing free allowances to comply with cap-and-trade, in the form of output-based rebates. When the rebates phase out a decade from now, the president is authorized to impose border duties if action by China and other countries has not done enough to level the playing field.

In September 2009, The Wall Street Journal said that a group of Western firms published a report anticipating a $500 billion to $1 trillion market annually in China for clean technology. In August and September, America’s third largest coal fired electric utility, Duke Energy Corp., announced agreements to explore clean energy and carbon capture projects with Chinese companies. In July, the U.S. and Chinese governments signed an MOU for joint research collaboration.

The opportunities are there in the vast Chinese and global markets and in collaboration with the Chinese and others in the private and public sectors. But to take advantage of the opportunities, the United States will have to get its act together to promote clean energy. We risk falling behind if we don’t move forward. Climate legislation is key because, by putting a price on carbon, it shifts investment into clean energy. The pending legislation also contains important new financial support for clean energy development, clean technology exports, and carbon capture and storage technology. Additionally, it creates economic opportunities in international carbon trading.

Getting it in writing – U.S. legislation and a global agreement.

Now what we need is a global agreement, confirming and strengthening the new trajectory of China, India and others. To realize the benefits of a global agreement, the United States needs to take action – better yet, take action and take the lead – to make the global agreement possible.

Both warming and the emissions that cause it are global. The economy, trade, and competition are global. A global agreement provides a basis on which countries can act with some confidence that others will do so as well. It can address issues of verification, competitiveness, and fairness, and it can create new opportunities for collaboration on clean energy.

In order to get that global agreement, Congress needs to take action on climate legislation so our negotiators can go to the negotiating table with what the United States will do – what emissions reductions we will achieve and what assistance we will provide to help less developed countries shift to clean energy and adapt to climate change.

U.S. negotiators have made clear that they will not commit the United States to greenhouse gas reductions and other critical points without a clear expression of political will by Congress. At the same time, other countries have expressed understandable reluctance to complete an agreement without a commitment from the United States. Thus, until Congress acts on U.S. legislation, the world cannot reach final agreement.

Only if all nations come forward with what they propose to do is agreement possible. The question is no longer whether others will act. They are acting. The question is whether we will act. The point is no longer that global warming cannot be addressed without those other countries. The point is that it cannot be addressed without this country and that we cannot gain the benefits of leadership unless we enact climate legislation.

Then we can not only avert the threat of dangerous global warming; we can reap the benefits of new jobs, economic growth, and energy security in the age of clean energy.

The United States has led the world through great economic and social changes and has thrived by doing so. This is an occasion and an issue on which the world again needs that leadership.

Additional Resources

Comparative Analysis of National Climate Change Strategies in Developing Countries (PDF, 4 pages, 631 Kb). This matrix helps policymakers compare the National Climate Change plans of five developing countries: India, Brazil, China, Mexico and South Africa.

Emission Reductions Under Cap & Trade Proposals In The 111th Congress

John Larsen — Wed, 28 Oct 2009 20:35:23 -0400

This assessment is an update to a previous analysis WRI released on June 25, 2009 and includes an assessment comparing the Manager’s Amendment to S.1733 the Clean Energy Jobs and American Power Act (CEJAPA) sponsored by Senators Kerry and Boxer and H.R. 2454 the American Clean Energy and Security Act of 2009 (ACESA) passed by the House of Representatives on June 26, 2009. To account for the effects of different components of these proposals, reduction estimates are divided into three scenarios that are then applied to both proposals considered in this analysis:

Total emission reductions achieved solely by the proposed emissions caps.
Total emission reductions achieved by proposed caps and all other complementary requirements, including emission performance standards for uncapped sources, allowances set aside for cost-containment and required components of supplemental reduction programs for reduced deforestation through 2025.
A range of potential additional reductions that could be achieved through domestic supplemental reductions in all years, international supplemental reductions beyond 2025 and the 1.25 offset requirement for international offsets.

Key Findings

The emissions caps in the CEJAPA and ACESA achieve reductions of 17 and 14 percent respectively relative to 2005 levels in 2020. By 2050, both the CEJAPA and ACESA achieve reductions of 72 percent relative to 2005 levels.
Estimates of total US emissions in 2012 under the emissions caps in both the CEJAPA and ACESA are approximately 300 million tonnes higher than recent short-term projections of U.S. emissions for 2010 published by the Energy Information Administration.
While the CEJAPA and ACESA contain similar complementary measures in addition to emissions caps, they are sometimes applied in different ways and in turn result in somewhat different relative emission reductions. Specifically:
- When all complementary requirements are considered in addition to the caps, GHG emissions would be reduced 29 and 28 percent relative to 2005 levels by 2020 and 73 and 75 percent relative to 2005 levels by 2050 for the CEJAPA and ACESA respectively.
- When additional potential emission reductions are considered, the CEJAPA and ACESA could achieve up to 34 and 33 percent relative to 2005 levels by 2020 and up to 78 and 81 percent relative to 2005 levels by 2050 respectively. The actual amount of reductions will depend on the quantity and quality of international offsets used for compliance and the effectiveness of supplemental reduction programs that do not explicitly contain GHG reduction requirements.

“Emission Reductions Under Cap-and-Trade Proposals in the 111th Congress, 2005-2050” graphically presents total GHG reductions achieved by S.1733 and H.R.2454 relative to U.S. historic and projected emissions under the three reduction scenarios.

“Estimates of Total GHG Emissions and Emission Reductions Achieved by Cap-and-Trade Proposals in the 111th Congress, 2005-2050” presents a table of total GHG reductions that could be achieved by these proposals for selected years.

Table 1. Estimates of Total GHG Emissions and Emission Reductions Achieved by Cap-and-Trade Proposals in the 111th Congress (MMtCO₂e)
Absolute Emissions (Million Metric Tons CO₂)	2010	2012	2020	2030	2040	2050
Business as usual emissions		7,185	7,390	7,765	8,102	8,379
Short-term projected emissions	6,685
H.R. 2454 Emissions caps only		6,987	6,109	4,558	3,269	1,963
H.R. 2454 Caps plus all complementary requirements		6,940	5,134	4,294	3,043	1,779
H.R. 2454 Potential range of additional reductions		6,940	4,759	3,816	2,624	1,383
S.1733 Emissions caps only		6,987	5,925	4,558	3,269	1,963
S.1733 Caps plus all complementary requirements		6,894	5,059	4,451	3,200	1,932
S.1733 Potential range of additional reductions		6,809	4,697	4,027	2,833	1,595
Percent change from 2005 emissions	2010	2012	2020	2030	2040	2050
Business as usual emissions		1	4	9	14	18
Short-term projected emissions	-6
H.R. 2454 Emissions caps only		-2	-14	-36	-54	-72
H.R. 2454 Caps plus all complementary requirements		-2	-28	-40	-57	-75
H.R. 2454 Potential range of additional reductions		-2	-33	-46	-63	-81
S.1733 Emissions caps only		-2	-17	-36	-54	-72
S.1733 Caps plus all complementary requirements		-3	-29	-37	-55	-73
S.1733 Potential range of additional reductions		-4	-34	-43	-60	-78
Percent change from 1990 emissions	2010	2012	2020	2030	2040	2050
Business as usual emissions		18	21	27	33	37
Short-term projected emissions	10
H.R. 2454 Emissions caps only		15	0	-25	-46	-68
H.R. 2454 Caps plus all complementary requirements		14	-16	-30	-50	-71
H.R. 2454 Potential range of additional reductions		14	-22	-37	-57	-77
S.1733 Emissions caps only		15	-3	-25	-46	-68
S.1733 Caps plus all complementary requirements		13	-17	-27	-48	-68
S.1733 Potential range of additional reductions		12	-23	-34	-54	-74
Bills analyzed include H.R.2454 as passed by the House of Representatives on June 26, 2009 and the Chairman’s Mark of S.1733 as released on October 23, 2009. “Business as usual emission” projections are from EPA’s reference case for its analysis of the Waxman Markey Discussion Draft. “Short-term projected emissions” represent EIA’s most recent estimates of emissions for 2008-2010.

Bottom Line Series of Climate Policy Briefs

Stephanie Hanson — Mon, 19 Oct 2009 12:15:29 -0400

The Bottom Line series is made possible by the following organizations:

Bottom Line on Cost Containment

Maggie Barron — Mon, 19 Oct 2009 11:45:30 -0400

What factors determine the cost of a cap-and-trade program?

Many aspects of cap-and-trade design impact the cost of compliance. For example, decisions regarding the allocation and auction of allowances, implementation of complementary greenhouse gas (GHG) reducing measures such as renewable energy standards and improved vehicle efficiency standards, and government support for technology research and development will have significant impacts on cost.

What is cost containment?

Cap-and-trade programs for GHGs often incorporate additional mechanisms to reduce overall economic costs or provide additional price certainty for affected companies without requiring future legislative intervention. Recent efforts have focused on developing cost containment provisions that do not compromise the environmental goals of the cap-and-trade program. These provisions typically modify rules related to compliance period length, offsets, borrowing, and auctions. However, they could also involve policies to mitigate demand for allowances, such as additional investments in energy efficiency and low carbon technologies.

How do compliance periods affect compliance costs?

A longer compliance period may help reduce costs by mitigating the impacts of fluctuations in business cycles, weather events, and fuel prices. Companies are typically not required to hold allowances (certificates representing the right to emit GHGs) equal to their running total of emissions during the entire compliance period. Instead, regulated companies are required to hold allowances equal to their emissions when a compliance period comes to a close. Compliance is monitored by the regulatory agency through a process commonly referred to as “true-up.” In the United States, a two or three-year compliance period has become the norm for greenhouse gases cap-and-trade design. In the Northeastern Regional Greenhouse Gas Initiative (RGGI), sustained high prices will cause the compliance period to extend from three to four years.

What role do carbon offsets play in managing compliance costs?

Cap-and-trade programs for greenhouse gases (GHGs) typically allow regulated companies to reduce their GHG emissions by purchasing offsets, which are emissions reductions in non-regulated sectors. Reductions through offsets can sometimes be less expensive to achieve than reductions within the firm, thereby reducing the costs of compliance. However, at times it can be challenging to ensure the quality of offsets. Cap-and-trade programs that allow the use of offsets tend have limitations on the number of offsets allowed for compliance to ensure that some GHG reductions occur from within capped sectors.

What role does borrowing play, and how does it differ from banking?

Banking and borrowing provide flexibility for regulated companies, allowing them to make additional reductions early or postpone reductions in response to market factors.

Banking: Virtually all cap-and-trade programs and proposals provide for the banking of allowances. Banking allows firms to hold “spare” allowances and use them in a later compliance period. This can give companies the ability to execute long-term compliance strategies that result in greater emissions reductions early in the emissions reduction schedule. Because firms undertaking aggressive reductions in the short-term would see their long-term compliance obligations relieved, banking may help to relieve overall program costs and temper price fluctuations.

Borrowing: Borrowing allows companies to exceed early emission reduction caps in exchange for greater emission reductions in the future. This can reduce allowance prices in the near term, but increase allowance prices in the future. Borrowing is somewhat more controversial than banking because the provision is subject to the government’s enforcement of future targets. If companies suspect they can lobby for weaker future targets, they may borrow heavily and count on relief from sympathetic legislators later. Borrowing also creates risk of default if the borrowing entity goes out of business. This would compromise the environmental goals of the program. Due to these concerns, borrowing has been viewed cautiously, and has been excluded from United States SO2 and NOx trading programs, as well as the European Union Emissions Trading Scheme (EU ETS) and RGGI. The leading bills in Congress allow borrowing with interest, but impose limits on how many allowances may be borrowed in any compliance period.

What if allowance prices are too low and what is a price floor?

If carbon prices are too low, it can stall investment in essential low-carbon technologies. In past market-based regulatory programs, a variety of factors have caused lower than expected prices. For example, in RGGI, the unexpected switching of relative natural gas and residual oil prices caused emissions to fall below the cap, leading to very low allowance prices. To ensure a sufficient price signal, the quantity of offsets may be reduced, or borrowing mechanisms may be constrained. Alternatively, allowance supply can be constrained either by reducing the cap, or by implementing a “price floor” in allowance auctions. Price floors are typically used in an auction to prevent against collusion. However, the price floor can be raised and unsold allowances removed from the market by retiring them, or they may be set aside for later release if allowance prices rise too high.

What are price triggers and how do they work?

Price triggers are mechanisms to address costs when prices reach unexpectedly high or low levels. These triggers may lead to automatic changes in offset limits, borrowing provisions, changes in compliance periods, or auction price floors. They can also trigger implementation of a price cap or an allowance auction reserve.

A price cap (also commonly referred to as a safety valve) establishes an allowance price ceiling to ensure that the mandatory cost of carbon mitigation does not rise above a given level. While a price cap is a transparent way to provide companies regulatory certainty, the mechanism can compromise the emissions cap established for the program. For this reason, it is highly controversial and has not been included in any of the three regional U.S. trading programs or the EU ETS.

An allowance auction reserve would make additional allowances available through an auction that begins at a specifi ed price. The allowance reserve can maintain the integrity of the emissions cap by using allowances set aside from previous control periods. For example, the Midwestern Accord calls for 2 percent of allowances to be set aside each year in a cost containment pool for auction if allowance prices spike. The reserve can also build up over time if allowances go unsold at auction. A price collar pre-defi nes a desired range of trading prices for allowances, and creates price triggers to modify program parameters if prices move too high or too low. This approach has been incorporated into the Midwestern Accord and has been discussed in the context of a national cap-and-trade program.

How do price triggers impact market volatility and investment certainty?

Allowance prices, like other traded commodities, can vary within a compliance period, month to month, day to day, and hour to hour. While some of this volatility can be smoothed by the mechanisms discussed in this document (e.g., banking, borrowing, and multi-year compliance periods), some volatility should be expected. As price triggers are employed, it is important to ensure that volatility will not be exacerbated by a response to high or low prices that are temporary. Instead, price triggers should seek to correct long-term market trends. RGGI, for example, incorporates price triggers based on a 12-month rolling average price, after allowing for a 14-month market settling period at the start of each new compliance period. It is also important to note that changes in market rules (and subsequent impacts on allowance prices) can present long-term planning and investment challenges.

What other policy tools may be available to manage uncertainty in allowance prices?

As an alternative to including automatic mechanisms within cap-and-trade design, an oversight body or review board could evaluate when prices have exceeded a level acceptable to the market. Under various versions of this proposal, the oversight body could loosen or tighten restrictions on offsets or allowances. Because market oversight may add another variable to investment decisions, it is essential that the board have a clear, transparent and effective governance structure.

Additional Resources

Keeping the Lights on in the State Laboratory

Maggie Barron — Tue, 13 Oct 2009 09:21:50 -0400

In the United States, state governments have been leaders in addressing climate change through a wide range of energy, environmental, land use and transportation policies. As the United States Congress moves closer to enacting federal cap-and-trade legislation for greenhouse gases, lawmakers should carefully consider how to preserve robust state action. If states are to continue to innovate and achieve reductions in emissions from capped entities after a federal cap-and-trade program is implemented, such state action will need to be accounted for within the federal program. In practical terms, this will require retiring federal greenhouse gas emission allowances, rendering them ineligible for trading or future use, to reflect state-achieved reductions. If allowances are not retired to reflect these emission reductions, then state actions would merely free up allowances for sale in another state, resulting in no net environmental benefit from state actions. This dynamic is sometimes referred to as emissions “leakage.”

Full Text (PDF, 12 pages, 163 Kb)

See also WRI’s Fact sheet on Enabling States to Achieve Carbon Emission Reductions (PDF, 2 pages, 115 Kb)

Options for Addressing Early Action Greenhouse Gas Reductions and Offsets in U.S. Federal Cap-and-Trade Policy

admin — Mon, 24 Aug 2009 14:40:26 -0400

FutureGen And The Department of Energy's Advanced Coal Programs

Wed, 11 Mar 2009 00:00:00 -0400

TESTIMONY OF SARAH M. FORBES
SENIOR ASSOCIATE, WORLD RESOURCES INSTITUTE

HEARING BEFORE THE U.S. HOUSE OF REPRESENTATIVES SCEINCE AND TECHNOLOGY SUBCOMMITTEE ON ENERGY AND THE ENVIRONMENT: “FUTUREGEN AND THE DEPARTMENT OF ENERGY’S ADVANCED COAL PROGRAMS”

Good morning and thank you for inviting me to testify today. I am Sarah Forbes and I lead the CO2 Capture and Storage (CCS) work at the World Resources Institute. The World Resources Institute is a non-profit, non-partisan environmental think tank that goes beyond research to provide practical solutions to the world’s most urgent environment and development challenges. We work in partnership with scientists, businesses, governments, and non-governmental organizations in more than seventy countries to provide information, tools and analysis to address problems like climate change, and the degradation of ecosystems and their capacity to provide for human well-being.

The World Resources Institute (WRI) has taken a lead in exploring the challenges, opportunities and state of technical knowledge in the field of carbon capture and storage. We convened a two year stakeholder process which resulted in the Guidelines for Carbon Dioxide Capture, Transport, and Storage published in November 2008 which can serve as a benchmark for decision-makers to use in evaluating potential projects. In developing the Guidelines, WRI brought together a diverse group of more than 80 technical experts including government officials, NGOs, academics and businesses.

Coal use is responsible for over 40 percent of global carbon dioxide emissions. Without significant, deliberate action to reduce these emissions we cannot address climate change. Carbon capture and storage is one of a number of critical technologies coal-burning nations will need to consider and deploy in the coming decades. International collaboration will be essential to moving CCS technology to scale – reducing costs and securing a global response to the climate challenge. In the next five years, we must move from demonstration to deployment.

In this testimony, I will provide an update on some of the key international collaborations on CCS already underway, and offer some ideas for future direction. I would like to make three key points, each of which I will expand on below.

First, I will describe the urgent need for a global network of CCS demonstrations that includes joint technology development along with collaboration on resolving investment, regulatory, legal and social barriers to CCS deployment.

Second, I will talk specifically about collaboration on CCS with one country—China. I will describe the efforts many countries and businesses are taking to ensure that at least one of the global CCS demonstrations is in China.

Third, I will describe a few of the major international CCS collaborations that are underway and offer suggestions for how these efforts may best complement each other as the technology is demonstrated worldwide.

I will conclude by providing some concrete suggestions for near-term actions that can be taken to enhance collaborations with China and facilitate global deployment of CCS technology.

Develop a Global Network of CCS Demonstrations

In technology development there is a period known as the “valley of death” where a technology has been proven in the laboratory and at a small scale but has yet to move from a research effort to commercialization. CCS technology has progressed quickly from an idea to a key part in proposed climate change mitigation plans. This progression is partly thanks to the early successes seen in the pilot capture demonstrations and research and commercial projects where CO2 has been injected at rates up to a million tons per year. Moving the technology forward into commercialization will require integrated capture and storage demonstration at power-plant scale. A key finding of the Guidelines for Carbon Dioxide Capture, Transport, and Storage was that even though additional research is needed in some areas, there is adequate technical understanding to safely conduct large-scale demonstrations. In fact, many of the remaining questions about CCS technology can only be answered by additional experience with the technology or policy interventions.

Most experts agree that we need between 15 and 20 demonstrations of differing capture and storage configurations globally. Last July, the G8 set a goal of 20 demonstrations announced by 2010. The U.S Climate Action Partnership (US-CAP), of which WRI is a member, further recommends building at least five projects of CCS enabled coal fueled facilities in the United States by 2015.

Achieving these goals in the right time frame is critical to deal with the looming climate challenge but at the same time will require significant investment. There is a need for establishing a clear and robust international financing mechanism to fund these projects globally. It will also require substantial (but not insurmountable) progress on addressing lingering regulatory, investment, legal, and social issues. The global development of environmental regulatory frameworks for CCS, is testament to our readiness to demonstrate the technology. In 2008, regulatory frameworks for CCS were released at the state and federal level in the U.S., and Australia and a Directive for CCS, which included environmental regulations, was passed at the European Union level. Global progression towards a common understanding of how to safely implement the technology seems within reach.

This effort of building a global network of CCS demonstrations will require a significant investment and commitment of resources, along with coordination and support from senior government representatives. However, through strong international collaboration each country need not demonstrate the full suite of capture and storage options. For example, when the UK first announced their plans to move forward with a post-combustion CCS demonstration, it was described as being complimentary to the U.S. FutureGen project which was at that time planning to demonstrate at-scale capture with an Integrated Gasification Combined Cycle (IGCC) plant. The collective group of global demonstrations should include the full suite of different capture configurations and test storage in a variety of geologic settings.

To address this need, Congress can commit funding for public-private partnership demonstration projects in the U.S. and formally participate in international demonstration efforts. CCS demonstrations will require billions in research funding with estimates at about $1-1.5 billion per project. Funding allocated in the American Recovery and Reinvestment Act of 2009 is important, but still falls short of what will be needed to commercialize CCS technology. A robust funding mechanism and clear plan for collaboration among demonstration projects is critical. One example of such a plan was recently approved by the European Union with funding for demonstrations coming from the proceeds the European Trading Scheme (ETS) and coordination among projects required. The global CCS demonstration network should include collaborative work on not only technology development, but also information-sharing on legal, social and regulatory issues.

Enhance Capacity for CCS Demonstration in China

According to the Energy Information Administration, China’s coal-related carbon dioxide emissions may grow to 51 percent of the world’s total by 2030. With 20 percent of the world’s population, China has 14 percent of the world’s coal reserves, but less than one percent of the world’s oil and gas reserves. While China is actively developing its non-carbon power sources─hydropower, nuclear, and newer alternative energies─rapid growth will still not be enough to replace coal as a core part of its expanding electricity infrastructure. Deployment of CCS in China may be the only way to globally make the needed reductions in carbon dioxide emissions.

China is conducting research and quickly moving towards developing and demonstrating CCS technologies. In fact, the Chinese government was among the foreign governments who had pledged to commit funding for the original FutureGen project. Chinese companies and government institutions are undertaking a CCS research themselves and with a number of international partners. For example:

The Chinese power industry has several projects focusing on coal gasification. The largest, GreenGen, sponsored by China’s five largest power companies, will build a 200 MW integrated gasification combined cycle power plant in the city of Tianjin. Phases two and three of this project plan for CCS in nearby depleted oil fields, with injection planned before 2020. U.S. Peabody Energy is the one international equity partner in this effort.
China has two major efforts with European collaborators, the UK-China Near Zero Emissions Coal Project (NZEC) and the COoperation Action within CCS CHina-EU (COACH) Project. Both have done a great deal of preparatory and conceptual work on CCS.
China’s Huaneng group built a small carbon capture demonstration plant at Gaobeidian in Beijing with assistance from Australia’s Commonwealth Scientific and Industrial Research Organization (CSIRO.) Discussions about a second phase are in process.
Both PetroChina, China’s largest oil company, and Shenhua, its largest coal company, have pilot CCS programs.

There is also a realization in China that robust policies and regulations will be needed to ensure that CCS projects are done responsibly. Tsinghua University has partnered with WRI to draft a set of Guidelines for Safe and Effective CCS in China. The effort is modeled after the stakeholder process led by WRI in the U.S. where a diverse set of stakeholders together developed a comprehensive set of guidelines for CCS projects. Development of a Guidelines document that is available in Chinese for potential project operators, financers, insurers, and legal experts to as a tool in understanding how to conduct CCS projects responsibly will facilitate demonstration of the technology in China. To enable this effort, Tsinghua University and WRI have assembled a steering committee that includes leading CCS experts from China and the United States. The Chinese members of the steering committee recently traveled to the United States and toured some of the leading CCS research institutions (including the injection well being drilled in Illinois). This effort is being funded with support from the U.S. Department of State under the Asia Pacific Partnership.

It would be to the benefit of both the U.S. and China if there were more direct collaboration on CCS demonstrations. Not only would working together solve technical problems faster, but given the rate at which Chinese companies are moving, the learning would hardly be one way. Jointly-funded and operated demonstrations, that include Government funding combined with private-sector investment is an essential next step. This will require a serious funding commitment as well as programs that facilitate information sharing on regulatory and policy issues and support for U.S. businesses working internationally.

Examples of programs that would help build increased capacity for CCS in China or other emerging economies include research exchange programs to bring students and faculty from China to see projects operating in the U.S. and study with leading researchers. An effective near-term approach would be to establish a research exchange program for visits to ongoing demonstrations in the U.S. including the Department of Energy’s Regional Sequestration Partnership Phase III projects. Exchange programs for environmental regulators and policy experts may also prove useful in resolving the legal, regulatory, and social challenges of deploying CCS technology. The Department of State in collaboration with the Department of Energy has implemented successful exchange programs in the past which could be replicated with a focus on CCS technology and policy. 3. Key International CCS Collaborations Underway

There are several high-level international CCS efforts underway, along with numerous individual projects like the WRI-Tsinghua University effort I just described. Each of these efforts can play an important role in the development of the technology. Key to successful integration of these efforts will be clarifying the niche each effort is designed to fill, eliminating redundancies, and designing a path for collaboration.

I would like to highlight three key CCS-specific initiatives already underway:

The Carbon Sequestration Leadership Forum (CSLF) is a Ministerial-level effort initiated by the U.S. Department of Energy. It has been in place since 2003 and has been influential in collaborations among governments.
Australia has recently initiated a Global CCS Institute, for which the Prime Minister has allocated $100M per year for the next 10 years. This institute is designed to focus specifically on collaboration surrounding demonstration projects.
The International Energy Agency (IEA) coordinates international research through the IEA GHG Program. IEA Secretariat is also developing an international roadmap for CCS at the request of the G-8. This roadmap is designed to answer the question of whether and how we can achieve the goal of 20 CCS demonstrations announced globally by 2010 and will provide recommendations for better coordination among international collaborations.

As the technology progresses from R&D towards demonstration, these international efforts can provide an avenue for information-sharing at various levels: the CSLF at the ministerial-level, the IEA among government energy departments, and the Global Institute among those running demonstration projects. It is time to evaluate the existing programs in the context of an emerging suite of global demonstration projects and to form formal partnerships with others perusing demonstrations (UK, EU, China, Canada, Australia). Congress might consider commissioning a formal report on international CCS efforts and use the results of it along with the IEA’s International CCS Roadmap (expected publication date October 2009) to clarify and formalize the role of the various international CCS organizations that have emerged. Additionally, although the U.S. Department of Energy’s Regional Partnership Program has been acknowledged as the “world’s most ambitious program” the work is largely unknown in the international community, in part because it is difficult for researchers to receive approval to travel internationally on their government grants. A scholarship program for U.S. researchers working on government-funded projects to attend international CCS meetings and present the results of their research may be useful in better communicating the results of leading U.S. research in this area. Such a merit-based program could be managed through the Department of Energy. Formal arrangements to partner with other countries on demonstrations must be established soon.

Conclusions

Unless we act now to aggressively begin to implement a global CCS demonstration program, we will lock in untold additional quantities of CO2 emissions from non-CCS, coal-fired power plants around the world. Globally, CCS R&D has progressed to the point of demonstration-readiness and there is a race underway to see who will build the world’s first large-scale integrated demonstration of capture, transport, and storage along with power production. The global nature of climate change and the urgent need to act now to avoid locking in a high emissions trajectory for the future necessitates increased and coordinated international collaborations. We need to specifically partner with emerging economies on demonstrating CCS technology, through joint public-private partnerships. In these international collaborations we must seek ways to build capacity and support efforts to develop global policies and environmental regulations that protect human health and ecosystems. This will include coordination and collaboration on demonstrations that begins in the planning stages along with projects that build capacity on regulatory and policy issues (like the WRI-Tsinghua APP project).

In my testimony, I have mentioned five specific actions to consider that will help facilitate international collaboration on CCS, which are summarized here:

Commit funding for demonstration projects in the U.S. and in China that are geared towards joint technology development; such projects should be public-private partnerships. The global network of demonstrations should include the full suite of capture technology approaches and test storage in a variety of geologic settings.
Develop a framework and funding for research exchange programs to bring researchers from other countries to see projects operating in the U.S. and study with leading researchers. The Department of State in collaboration with the Department of Energy has implemented successful exchange programs in the past which could be replicated with a focus on CCS technology and policy.
Increase bi-lateral efforts to facilitate capacity building and information sharing on regulatory and policy issues.
Establish formal partnerships with other countries developing CCS demonstration projects (UK, EU, China, and Australia) to facilitate information-sharing and avoid duplication among demonstration efforts. Also, commission a formal report on international CCS efforts and use the results of it and the IEA CCS Roadmap to clarify and formalize the role of the various international CCS organizations that have emerged.
Develop a scholarship program for U.S. researchers working on government-funded projects to attend international CCS meetings and present the results of their research. Such a merit-based program could be managed through the Department of Energy.

Green and Mean: Can the U.S. Economy Be Both Climate Friendly and Competitive?

Tim Herzog — Tue, 10 Mar 2009 16:21:31 -0400

TESTIMONY OF MR. ROB BRADLEY DIRECTOR, INTERNATIONAL CLIMATE POLICY INITIATIVE WORLD RESOURCES INSTITUTE

HEARING BEFORE THE COMMISSION ON SECURITY AND COOPERATION IN EUROPE: “GREEN AND MEAN: CAN THE U.S. ECONOMY BE BOTH CLIMATE FRIENDLY AND COMPETITIVE?”

Thank you for the opportunity to contribute to the deliberations of this Commission. My name is Rob Bradley, and I am Director of the International Climate Policy Initiative at the World Resources Institute. The World Resources Institute is a non-profit, non-partisan environmental think tank that goes beyond research to provide practical solutions to the world’s most urgent environment and development challenges. We work in partnership with scientists, businesses, governments, and non-governmental organizations in more than fifty countries to provide information, tools and analysis to address problems like climate change, the degradation of ecosystems and their capacity to provide for human well-being.

I am very pleased to be here to speak to what I consider the most pressing environmental issues faced by the world – and to what I consider a major opportunity for the United States to assume a role of international leadership. In this testimony, I would like to make three points, each of which I will expand on below:

First, that the time is very ripe for the U.S. to reengage internationally on the issue of climate change and take up a leadership role. Further, that the engagement between the U.S. and major developing countries will be a critical factor for success.

Second, that the world has changed dramatically from the days of the Kyoto Protocol. Major developing countries are ready to take significant action on limiting emissions and the Bali Action Plan provides a solid foundation for a new international climate agreement that meets key U.S. interests.

Third, that the role of the green economy and of economic opportunities will play an important role in shaping international engagement.

There is no time to lose

Let me begin by commenting on the urgency of the challenge. The science is compelling. Engaging major developing countries is critical to success. Finally, conditions are right for a major re-engagement by the US.

The science is compelling

The Earth is warming, primarily due to human activities. The cheap, plentiful fossil fuels that have enabled huge increases in human productivity and great improvements in human well being over the past 200 years together with significant deforestation have been the most important causes of global warming. The buildup of carbon dioxide and other greenhouse gases (GHGs) is accelerating, and unless we act very soon to control emissions during our children’s lifetimes warming will rise to very dangerous levels.

In February 2007, the Intergovernmental Panel on Climate Change (IPCC - the official science process sanctioned by the world’s governments and participated in by the United States) released its latest report on climate change science. The report states that it is “unequivocal” that Earth’s climate is warming, and confirms that the current atmospheric concentration of carbon dioxide and methane, two important greenhouse gases (GHGs), “exceeds by far the natural range over the last 650,000 years.” Further, the IPCC concludes that it is now “very likely” (greater than 90% probability) that greenhouse gas emissions from human activities have caused “most of the observed increase in globally averaged temperatures since the mid-20th century.”

In the two years since this alarming conclusion, further compelling evidence of the impacts of warming have been seen. Indeed, the impacts of warming have become increasingly evident to non-scientific observers. Sea ice in the Arctic is shrinking, and Greenland’s massive ice sheet is melting – far faster than predicted. Glaciers are rapidly shrinking from the Rockies to the Alps. WRI annually reviews the latest in climate science. This review confirms that our climate system is changing. Jonathan Lash, WRI’s president, provided several examples in his January 15, 2009 written testimony before the U.S. House of Representatives Committee on Energy and Commerce Committee. These include:

According to the National Snow and Ice Data Center (NSIDC), levels of Arctic sea ice from June through September 2007 were at a record low of 4.13 million km2. In 2008, while there was some modest recovery, the world still saw the second lowest recorded ice extent since record-keeping began in 1979. Still more worrisome, the extensive losses during the past two summers have led scientists to speculate that the Arctic Ocean may be ice-free in the summertime much sooner than anticipated. Furthermore, in October 2008, scientists reported that the thickness of winter sea ice plummeted after the 2007 minimum, showing that the ice pack is not only shrinking but is decreasing in overall volume.

The British Columbia Ministry of Forests and Range, in their 2007 report on the mountain pine beetle outbreak, shows that in 2007, the impacted area had increased to 13 million hectares (from 4.2 million hectares in 2003). Mountain pine beetles prefer mature lodgepole pines and while they typically die off with cold snaps, warmer temperatures in the region have allowed them to persist. They cut off the nutrient and water supply of the trees by burrowing in trees’ bark. The Ministry finds that 40% of merchantable pine volume – 12% of total merchantable volume on the timber harvesting land base in British Columbia – has been impacted from 1999 to 2006. They project that if the pine beetle outbreak continues at the same pace, it will kill off 78% of the pine volume – 23% of total merchantable volume on the province’s timber harvesting land base – by 2015.

These and countless other observations make it clear that much of what we thought we knew a few years ago about the pace of climate change has been superseded. All of the trends are proceeding more quickly than we anticipated. Rising temperatures and the consequent impacts are all taking place faster than the models predicted. While of course we cannot yet know with complete certainty what will occur 20 (much less 50) years from now, according to our best current work, everything is trending to the high end. And the consequences we are observing today are the product of a mere 0.8 degrees centigrade of warming. Even very aggressive action will only barely forestall two degrees centigrade of warming. The science is telling us we have to act with extraordinary urgency – and that our action must be more than the modest marginal efforts made to date – it must fundamentally change the course of our energy infrastructure, it must address land use and forestry, and it must build a regime that can have global effect, not merely address U.S. emissions.

The importance of developing countries

The importance of such a global effort is illustrated by Figure 1. China is of particular importance in terms of emissions, having superseded the United States as the world’s largest emitter (though it remains at barely a quarter of US emissions per person). Almost 80% of current global emissions are produced by fifteen countries (counting the European Union as a single country). Of these, nine are developing economies and two (Russia and Ukraine) are postcommunist countries still wrestling with economic transition. Without a viable means of engaging these countries in the effort to cut emissions we cannot avoid catastrophic climate change.

The UNFCCC action on climate change to date

The need for global action has been recognized for at least two decades, and was the basis for the 1992 United Nations Framework Convention on Climate Change (UNFCCC), to which the U.S. is a Party. The UNFCCC commits all countries to the fight against climate change on the basis of “common but differentiated responsibilities.” This puts the responsibility on the richest and most polluting countries to lead, and to provide support to the less capable, but for all to participate.

While the UNFCCC commands wide support as an articulation of the climate challenge and a global response, it did not set specific goals for individual countries to deliver emission cuts. For that reason the Kyoto Protocol was agreed in 1997, including binding emissions targets for industrialized and post-communist countries.

The Kyoto Protocol has had a significant impact, in particular in moving the European Union to adopt climate policies, including a cap-and-trade system. It has generated an international market for carbon offsets, and has given a major signal to business in many countries that a world of constrained emissions is coming.

However, Congress raised several concerns with the Kyoto Protocol structure, and the treaty was not ratified by the United States. The concerns included:

Concerns about economic impacts. At the time targets were set, few countries had a clear understanding of what meeting those targets would mean in economic terms. Congress feared that Kyoto would cause undue damage to the U.S. economy.
Lack of developing country commitments. Congress similarly insisted that major developing countries such as China and India should have commitments to limit emissions.

These objections were most famously expressed in the Byrd-Hagel resolution of 1997. Although this Resolution was adopted before the Kyoto Protocol was agreed, there has been a wide perception that the Protocol did not meet Byrd-Hagel’s provisions. The Protocol was never submitted to the Senate for ratification. In fact, diplomatic leadership by the Clinton Administration may have overreached Congressional support for legislative action domestically.

A new opportunity

The Kyoto Protocol sets targets until 2012. The United Nations, including the U.S., have agreed to a timetable (the so-called “Bali Action Plan”) for negotiating the post-2012 climate arrangements, with the deadline of a meeting to be held in Copenhagen, Denmark, in December 2009. This Fifteenth Conference of the Parties to the UNFCCC (COP15) aims to bring together the countries within and outside the Kyoto Protocol in a more inclusive agreement, although it is not yet clear exactly what form that agreement will take.

What is clear, however, is that the negotiating mandate provided by the Bali Action Plan provides for a radically different agreement from the Kyoto Protocol. In particular, it provides for mitigation actions from both developed and developing countries. This is a major departure from earlier models of climate action internationally, and it reflects real changes in the world outside the negotiations. In the next section I will discuss those changes and what they mean for an international climate agreement.

The transformation in developing country action

For many years, developing countries have been clear in their view that they expect a lead from rich countries before they take action on emissions. There are sound reasons for this stance. They are far poorer than developed countries; they have played a far smaller role in creating the climate problem; and their emissions per person remain in the main much lower than those of developed countries (see Figure 3). 1.4 billion people in the development world live on less than $1.25 a day. Some 2.5 billion people rely on fuelwood, charcoal and animal dung to cook. This is over 80 percent of the population of Sub-Saharan Africa and over half of the populations of India and China.

However, in the last 2-3 years there has been a flood of developing country plans for addressing climate change. Most major developing countries have now brought forward climate plans. I want to highlight some interesting examples:

Brazil announced it would reduce its deforestation rate over 50 percent from recent levels by 2017, avoiding an estimated 4.8 billion tons of CO2 emissions. Deforestation accounts for about two thirds of Brazilian GHG emissions.

China set a target of reducing national energy intensity (energy use per unit GDP) by 20% in the five years to 2010. It has already reduced in each of the past three years: by 1.6% in 2006, 3.7% in 2007, and 4.3% in 2008. Thus China looks likely to be approximately on target to meet its goal. Together, the industrial and building efficiency programs supporting this goal are expected to yield 550 million metric tons CO2 in GHG savings. Addition savings are expected from measures in the transport sector. China also has ambitious non-fossil plans, including wind, hydro, nuclear and biomass, all of which are expected to save 640 million metric tons CO2 by 2010.

Mexico pledged to halve its greenhouse gas emissions by 2050, employing a “cap-and-trade” policy like the one recently considered by the U.S. Congress.

South Africa has presented a detailed plan to peak its national emissions by 2020.

Motivations

Why are developing countries taking these actions? As in the United States, there are a number of drivers that interact.

First, they are increasingly aware of the risks that climate change presents to their development. China’s National Climate Change Programme goes into considerable detail on the risks to its coasts, fresh water supply, agricultural output and other critical concerns. There can be little doubt that even in the midst of pressing development concerns climate change is viewed as an important challenge. However, it is important to recognize the limits of this thinking. Although, to differing degrees, these countries are taking action, they all still look to the United States to lead, given its wealth and historical emissions.

Second, climate concerns align in many instances with broader worries about energy. With the greater energy intensity of their economies, high energy prices have been even more onerous of developing economies than on the U.S. energy security, costs, and pollution are top-level political concerns. Just as here, policy makers are looking for ways to intelligently tackle all these issues.

Third, many countries see opportunity in the new energy technology landscape that is emerging. Countries such as China and India do not see their future in old technologies and businesses. They are keen to position themselves as leaders in the clean energy revolution. Indian wind energy companies, Chinese solar manufacturers, and Brazilian biofuels companies are all among the world’s leaders.

It is important to keep these motivations in mind. Any international agreement depends on the signatories choosing to carry out the provisions of the agreement. An alignment of national and international interests provides at least some prospect of genuine participation, and the Bali Action Plan provides a new way to take advantage of this growing alignment. There is a broad interest in seeing the climate agreement succeed, suggesting that countries will take their international commitments seriously.

However, significant questions do remain. Many of these countries have a very mixed record of implementing the goals in their national plans. Reliable data are hard to obtain even on such broad indicators as energy use or economic growth. There are important initiatives in all these countries to implement GHG monitoring, but today very large uncertainties remain in a lot of the emissions data. Furthermore, standards of enforcement, governance and transparency are very variable. It will certainly not be enough for countries to take each others’ plans at face value.

How the Bali Action Plan includes developing country action

This is where the international negotiations are important. Creating robust reporting and verification structures can help build trust among countries that bold commitments are really being turned into action. The opportunity provided by the Bali Action Plan (BAP) structure is to align international commitments with national development goals and to create reporting programs that also align with the countries’ own abilities to collect and disseminate information. The BAP calls for

“enhanced national/international action on mitigation of climate change, including consideration of:

(i) “Measurable, reportable and verifiable nationally appropriate mitigation commitments or actions, including quantified emission limitation and reduction objectives, by all developed country Parties, while ensuring the comparability of efforts among them, taking into account differences in their national circumstances; (ii) “Nationally appropriate mitigation actions by developing country Parties in the context of sustainable development, supported and enabled by technology, financing and capacity-building, in a measurable, reportable and verifiable manner.”

The phrase “measurable, reportable, and verifiable” (MRV) was critical to the agreement of the BAP, and how MRV is reflected in the post-2012 agreement will have significant implications for the effectiveness of that agreement for stakeholders in both developing as well as developed countries.

OCSE members – a particular challenge

The former communist members of the OCSE have received considerably less attention in the formation of international climate policy than major emerging economies such as China and India. Some have joined the European Union, and are part of the coordinated approach that the E.U. is taking to climate policy. Others, most notably Russia, have taken their own negotiating stances.

Engaging Russia in particular has been a challenging undertaking in the international negotiations. The Kyoto Protocol set a target for Russia that allocated far more emission rights than it was expected to need, and allowing the sale of these rights to industrialized countries through international emission trading. This amounted therefore to a financial inducement to Russia to join the Protocol, with the idea that once inside it would accept more binding emission limits in future. In practice, neither the finance nor the willingness to take more binding targets has emerged. At a time of tensions over Georgia, gas supplies and other issues, European countries have little appetite for financial transfers to Russia under the Protocol. And Russian policy makers have shown no interest in more substantive action on cutting emissions.

Unlike countries such as China and India, Russia has both a cold climate and a vast fossil fuel export industry. It is not clear that climate change is widely seen as an important challenge for Russia. Accordingly, Russia will be a tough negotiating partner in shaping a future climate agreement.

This is a particularly stark example of a general point: that the economic as well as the environmental case for climate action will need to be made.

The case for a positive trade agenda

To date, debates about climate and trade have tended to focus on potential conflicts, particularly on policy responses to leakage concerns. However, there are significant opportunities to harness complementarities between the climate and trade. A successful approach to the climate challenge will mean deploying new technologies at a global scale at an unprecedented rate, and it is unlikely that this can be achieved without harnessing global trade and capital flows.

However, harnessing this positive link will demand solutions that work for all countries. Future deals to limit greenhouse gas emissions, through the UNFCCC negotiations, and to open markets, under the Doha Round, will depend upon complex reciprocal bargains, the outcomes of which will have to be widely perceived as both fair and effective. This raises important questions. Could the removal of trade barriers affecting the flow of environmental goods and services significantly reduce the economic cost of emissions abatement, not just in the United States, but world-wide? Could prospects of growing “green collar” jobs resulting from climate, energy and fiscal policy ease the acceptance of stricter targets? What broader benefits accrue by more rapid uptake and dissemination of clean energy technology? Finally, where do these benefits from mitigation activity occur? Given that these will often be on different actors than those paying the cost of mitigation, how should distributional effects be handled? Carefully considered responses to these questions will maximize the potential synergies between the climate and trade arenas.

Stimulus – Demonstrating leadership through green growth

The U.S. response to the recent financial crisis exemplifies America’s opportunity to demonstrate economic growth through environmental investment. In the U.S.,both Congressional leaders and President Obama have directed government spending in a way that not only generates near term economic activity and employment but also addresses long-term policy goals. Energy and environmental objectives like reducing carbon-dioxide emissions and dependence on foreign oil are chief among these, lending considerable traction to the notion of a “green” stimulus package . As a result, more than 10 percent (over $100 billion) of the total cost of the “American Recovery and Reinvestment Act” passed in February was directed towards climatefriendly and environmental objectives.

While environmental objectives were a significant driver for these investments, their final passage was the result of widespread recognition of their unique economic benefits. Well-tailored green components of a recovery effort can create jobs and stimulate the economy while achieving significant energy cost savings for businesses, consumers, and the government. Recovery policies similar to those passed in the U.S. will reduce demand for fossil fuels. The resulting drop in cost and consumption of energy has the potential to save Americans an average of $450 million per year for every $1 billion invested. In addition, by returning money to households through lower energy bills, green components of a recovery package combine the employment benefits of tax cuts with the construction and manufacturing jobs created through infrastructure investment. On average, green recovery programs create 30,000 jobs for every $1 billion in government spending (Figure 4).

Internationally, more and more policymakers are hoping to direct government spending in a way that not only generates short-term economic growth and employment, but also addresses long-term policy goals that have been sidelined by the current crisis. Energy and environmental objectives are chief among these and the notion of “green” stimulus has gained considerable traction in capitals around the world. South Korea has shown considerable leadership by dedicating over 80 percent of their stimulus spending measures to energy conservation, low-carbon transit and green jobs initiatives. Although final spending levels are still uncertain, China has also indicated a desire to direct hundreds of billions of dollars of its $586 billion stimulus effort towards projects that would reduce GHG emissions. As more and more nations attempt to incorporate energy and environmental objectives into their responses to the financial crisis, there may also emerge an opportunity for global cooperation to maximize the environmental and economic impact of spending.

At the G-20 meeting last November, the world’s leading economies agreed to combat global recession with coordinated fiscal stimulus. Growing attention to the economic potential of environmental investments has lead to widespread calls for the G20’s April meeting to endorse a global “Green New Deal.” Given the scale of the challenges ahead—a green recovery provides an opportunity for the U.S. to demonstrate the economic case for immediate action to address climate change.

Relating stimulus action to international finance

Although both developed and developing countries are called on to take mitigation action under the Bali Action Plan, the Plan promises developing countries support for their actions. Furthermore, that support also needs to be “measurable, reportable and verifiable.”

Financial support is the most obviously measurable of these, and contributions from the U.S. and other developed countries will be essential to a successful deal. Perhaps the most important priority in this regard is adaptation. With climate impacts already being felt, and with the poorest countries and communities likely to be hit hardest, there is a real need for such support. But support will also be needed in developing countries to mitigate emissions, and to implement the measuring, reporting and verification systems needed to enshrine these actions in an agreement.

In this context the international economic crisis is a major challenge to the negotiations. Appetite in developed country capitals for providing international finance is drying up. On the other hand, it is hard to see how a climate deal can be reached without significant resources on the table. Creative thinking will be needed to leverage the sources of finance that still work in a recession, and stimulus spending is perhaps the most important of these.

There is a wide range of assessments about the scale of resources required for mitigation and adaptation globally. Within the context of the UNFCCC negotiations, there are high expectations on the part of the developing countries for support and finance for mitigation and adaptation from Annex I countries. This expectation is based on the principle of “common but differentiated responsibilities” from the 1992 Framework Convention. Non-Annex I countries feel that Annex I parties should be responsible for a greater portion of the solution to climate change, given that their historical contribution to the problem outweighs the contribution by Non-Annex I countries. Responsibility for the solution would take the form of financial support for developing country mitigation and adaptation.

Figure 5 shows the needs and expectations for global mitigation, based on the UNFCCC’s 2007 assessment of the level of funding required for global mitigation, and on the G77 and China’s proposal on finance submitted to the UNFCCC, which calls for Annex I countries to commit to funding equal to 0.5-1% of their GDP to cover mitigation and adaptation. The figure compares some of the existing and proposed sources of mitigation funding, including existing clean technology funds, the UNFCCC’s Clean Development Mechanism (CDM), Official Development Assistance (ODA), and global investment figures, against these expectations and needs. Clearly, the existing financial flows for climate change mitigation are inadequate relative to the scale of the challenge. However, ODA and foreign direct investment (FDI) are both adequate in terms of scale, which indicates that the necessary finance for mitigation is available but must be steered toward climate-friendly investments.

The figure also shows an indication of possible U.S. contribution to developing country mitigation, based on provisions in recent legislative proposals. The figure includes the 2030 values for allowances allocated to international mitigation and adaptation efforts from the 2008 Boxer-Lieberman-Warner Climate Security Act (S.3036) and from Representative Markey’s 2008 bill, Investing in Climate Action and Protection Act (H.R.6186). These bills reserved a portion of allowances to fund international forestry, international technology deployment, and international adaptation. This illustrates the size of the gap between the needs and expectations of the developing world for finance from Annex I countries versus what the U.S. has offered to date.

However, it is not clear at this stage what level of finance will be needed in the near term to ensure a successful climate deal.

Although finance is likely to be important, some countries, notably China, put as much or more emphasis on technology cooperation. In many cases this is not a question of funding, but of combined efforts in R&D (with a sharing of the resulting intellectual property) or joint support of demonstration projects. These efforts need not all be pursued within a multilateral agreement, but their presence will help create a more constructive deal.

While stimulus policies are aimed first and foremost at domestic economic activity, as noted earlier there are significant areas of common ground. Given the importance of finance in securing a deal, and the difficulty of finding resources in the present climate, the U.S. should actively explore options for coordinating technology development and deployment actions with developing countries through stimulus actions.

Conclusions

The U.S. is seeking a new leadership role on climate change, both through adopting national climate policy and by engaging internationally. These two aims are linked: domestic policy will give the U.S. credibility abroad, and participation by other major emitters will help the U.S. undertake ambitious action itself.

The moment is ripe for international engagement. Other major emitters, including all the largest developing economies, have presented national climate change plans, targets or policies. Some have gone much further than others in implementing these, but all have made a major leap from the era of Kyoto.

The international agreement to be negotiated under the Bali Action Plan offers scope to include actions by developing and developed countries that are measurable, reportable and verifiable. This, combined with the national plans being brought forward by developing countries, should answer Congress’ major criticism of Kyoto.

In response to the economic crisis both developed and developing countries are bringing forward significant stimulus spending, and in many cases this has a major climate and energy dimension. All these countries hope to create new industries and jobs in clean energy. By engaging internationally on a positive trade agenda the U.S. can help ensure the participation of major developing countries in climate action while creating jobs for American workers, as well as in other countries.

Harnessing Nature's Power: Deploying and Financing On-Site Renewable Energy

Tim Herzog — Tue, 03 Mar 2009 18:57:46 -0500

In recent years, many U.S. corporations have deployed renewable energy systems at their headquarters, industrial facilities, and retail stores. These include large corporations—such as Google, Johnson & Johnson, Macy’s, Staples, and Wal-Mart—and smaller firms, such as dairy farms, hotels, restaurants, wineries, and a ski resort.

Many companies, however, have yet to take advantage of the incentives available for investing in on-site renewable energy and the opportunities such investment brings. The purpose of this report is to provide a detailed introduction for such businesses on deployment and financing options for renewable energy systems, as well as on the risks and benefits involved. In so doing, our aim is to promote the scaling up of renewable energies as part of a transition by the United States to a low-carbon, high-energy-efficiency economy.

Key messages from the report are summarized in the following pages.

Deploying Renewable Energy: The Benefits

Certain renewable energy technologies—such as large-scale wind power, solar thermal water heating, and geothermal heat pumps—are already economically competitive with traditional sources of energy, such as fossil fuels. Even when the cost of power produced by renewables is more than average utility rates, many companies can still save money by using renewables to institute “peak shaving.” In peak shaving, companies produce renewable energy during periods of peak power use, when utilities often charge higher rates. In addition, government incentives can significantly reduce the actual cost of renewable systems. These incentives include federal, state, and local tax credits; tax deductions; accelerated depreciation; loans; production incentives; rebates; and grants. Specific benefits for companies deploying renewable energy on-site can include:

Reducing energy costs or creating a hedge against possible future energy price increases.
Improving energy reliability at a company’s location (depending on system configuration).
Helping companies to be environmentally responsible and enhance their reputation through a reduction in greenhouse gas (GHG) emissions or a visible commitment to renewable energy.

At a Glance: Deployment and Financing Options

When considering on-site renewable energy deployment, it is important to measure the quality of a specific site’s renewable energy resource (such as wind or sun). If a site is acceptable, there are numerous options for deploying and financing a renewable energy system (compared below). In many of these options, a company will own the generation assets deployed at its site, but a company can still benefit even if it does not own the assets.

One fairly standard option is the Direct Ownership of Power (Use of Power). In this scenario, a company purchases or leases a renewable energy asset for on-site deployment and uses the power itself and, in many cases, sells some excess power to the grid.

A far less common option is Direct Ownership of Power (No Power Use). In this scenario, a company does not use most of the power generated by the system installed at its site, but rather uses the system primarily to sell power to the grid. This scenario is not yet common due to a number of factors, including disincentives created by government regulation (such as limitations on the size of systems that qualify for a billing practice called “net metering”). This deployment model could grow, however, if governments adopt “feed-in tariffs,” which establish a guaranteed minimum electricity tariff.

Companies seeking to limit their initial capital commitment, or earn a return on a previously underutilized asset (such as a rooftop), can consider Third-Party Ownership of Power. In this scenario, a third party deploys renewable energy assets at a company (the site host) and:

sells the power to the site host under a long-term power purchase agreement (Use of Power), or
leases the space and sells the power to the grid (No Power Use).

Identifying and Deploying a Renewable Energy Option

To assist companies in making informed decisions, we have defined objectives and risks commonly associated with on-site renewable energy deployment and developed a schematic of the basic stages involved in deployment. In order to choose the best deployment and financing option, a company must define its objectives and understand risk trade-offs. Objectives might include:

Reducing Energy Costs: Either reducing energy costs or creating a hedge against possible future price increases.
Improving Energy Reliability: Although most renewable technologies cannot provide sole back-up power for mission critical needs, an on-site deployment can improve energy reliability if it includes energy storage (such as a battery).
Enhancing Brand/Reputation: Through a visible commitment to renewable energy and/or a reduction in greenhouse gas emissions.
Using Tax Appetite: If a company has sufficient taxable income, it can benefit by taking advantage of tax-based incentives for deploying renewable energy.

Risks associated with deploying on-site renewable energy can include:

Dispatch Risk: Power is not generated by an on-site deployment for any reason.
Operational Risk: The system does not perform as anticipated. This risk is typically assumed by the entity responsible for operating and maintaining the system.
Technology Risk: Technological improvement creates an opportunity cost for someone that has already invested in the older technology.
Transfer Risk: Renewable energy assets may have to be redeployed when a company moves or changes business locations.
Credit Metrics: A renewable energy investment may affect the financial ratios that analysts use to assess a company.

Successfully defining objectives and understanding risks can help a company make the best decisions about deploying renewable energy systems. The basic stages in considering an on-site renewable energy deployment are shown schematically in Figure 1 on page 3 of the Full Report (PDF, 51 pages, 5.0 Mb).

How Realistic Are Expectations for the Role of Greenhouse Gas Offsets in U.S. Climate Policy?

admin — Sun, 01 Mar 2009 00:00:00 -0500