WRI Publications

The Bottom Line Series: Carbon Taxes

Payson Schwin — Thu, 03 Jul 2008 14:45:02 -0400

What is a carbon tax?

A carbon tax is a fee imposed on fossil fuels, and other primary products (e.g., refrigerants), based on the amount of greenhouse gases (GHG) they emit. A carbon tax places a fee on coal, for example, based on the amount of carbon dioxide (CO2) that is released when coal is burned. The tax creates a cost for emitting GHGs into the atmosphere (for example, $25/metric ton of CO2-equivalent) and in doing so provides a financial incentive for reducing GHG emissions. A carbon tax policy may also include tax credits for activities that remove GHGs from the atmosphere.

How is a carbon tax different from a cap-and-trade program?

A carbon tax and a cap-and-trade program are similar in that both policy approaches are market-based and create a carbon price that provides the financial incentive to reduce GHG emissions. The fundamental difference between the two approaches is how they establish this price and reduce emissions. A carbon tax imposes a direct fee (the carbon price) on fuels based on the amount of GHGs they emit, but does not set a limit on GHG emissions. A cap-and-trade program establishes a limit, or “cap,” on GHG emissions, but the price for emission allowances (the carbon price) is determined by the supply and demand for allowances in the emissions trading market.

Who has to pay a carbon tax?

Point of regulation for a carbon tax policy can vary, but a tax would likely be imposed on the sale of fuel from “upstream” producers, such as coal mines or natural gas and oil wells. Depending on the ability of the initial consumers (e.g., electric utilities, oil and gas refineries, and fuel transporters) to pass along costs to their own customers, the carbon tax raises prices that “downstream” consumers (i.e., businesses and households) ultimately pay for carbon-intensive goods and services.

How does a carbon tax impact other businesses and individuals?

Companies and individuals pay higher prices for GHG-intensive energy (and other goods and services) as the costs of a carbon tax are passed down to consumers. The extent to which these higher energy prices impact the overall income of companies and individuals depends on how the tax revenues are used. The overall impact on a company also depends on how much fossil fuel-based energy it uses, how higher energy prices affect their business, and a company’s ability to either minimize or avoid increasing costs (e.g., by using fuel more efficiently or using cleaner fuels) and/or pass along costs to its customers.

For example, a carbon tax policy might lessen overall economic impacts on consumers by including provisions to make the carbon tax “revenue neutral.” This involves returning the carbon tax revenues to businesses and individuals through rebates or changes in the tax code (e.g., reducing corporate or capital gains taxes). A carbon tax policy might also direct revenues to fund programs that provide longer-term benefits to consumers and businesses, such as research and development programs or transportation infrastructure.

How high does a carbon tax have to be to effectively reduce GHG emissions?

It is difficult to determine the exact impact a carbon tax is expected to have on GHG emissions. Achieving the necessary GHG emission reductions depends on whether a carbon tax raises prices to a point that significantly curbs consumer demand for fuels and products that emit GHGs and spurs development and deployment of low-GHG technologies. Market responses to higher prices, however, can vary for different goods and services. For example, a carbon tax may increase gasoline prices to a point where consumers choose to use less gasoline and/or switch to less GHG-intense fuels, but the consumer response (and therefore the associated GHG emissions) may be different for other goods and services (e.g., electricity). Overall GHG emission reductions with a carbon tax will also depend on the extent to which tax revenues are used to fund research or programs that achieve additional emission reductions.

How does a carbon tax impact lower-income consumers?

The overall impact of a carbon tax on lower-income consumers depends on how the tax revenues are handled. A basic carbon tax, like most consumption taxes, is regressive lower-income consumers pay a relatively higher percentage of their total income for goods and services affected by the tax. Some carbon tax programs seek to address this by “recycling” tax revenues to fund rebates or programs (e.g., Earned Income Tax Credits or energy efficiency upgrades), or allow reductions in other regressive taxes, such as state sales taxes or federal payroll taxes.

How does a carbon tax affect international competitiveness of U.S. industries?

Impacts to an industry largely depend on the level of the tax, how tax revenues are recycled, how much energy the industry uses, and the industry’s competitive position in domestic and international markets. The overall affect on competitiveness will therefore differ by sector, and by firm, as the tax could adversely affect some individual industries and have limited impacts on other sectors. Some argue a tax would disadvantage domestic manufacturers by creating a significant cost penalty for doing business in the United States, but others argue a carbon tax encourages new innovations and efficiencies that benefit long-term competitiveness.

Have other countries implemented a carbon tax?

Beginning in the 1990s, Sweden, Finland, the Netherlands, and Norway implemented carbon taxes as part of efforts to reduce GHG emissions. Similar policies, focused on taxing energy use, are in place or under discussion in other European countries and Japan. Most recently, the Canadian Province of British Columbia established a tax on fossil fuels that starts at C$10 (approximately US$9.80) per metric ton of CO2-equivalent and increasing to C$30 (US$29.35) per metric ton by 2012. The tax is “revenue neutral” as revenues generated will be returned to consumers through tax credits, rebates, and lower corporate and personal income taxes.

For additional information on international experience with carbon taxes, see the Organization for Economic Co-operation and Development’s resources on Energy Prices and Taxes at www.oecd.org or search “Energy/carbon taxes” at www.epa.gov for a summary by the U.S. Environmental Protection Agency.

What are the political prospects for a carbon tax in the United States?

Proposals for a carbon tax, as with other proposals for new taxes, have been politically sensitive in the United States. However, there are limited examples of carbon tax policy approved at municipal levels, including a recent measure to impose a fee of $0.044 per metric ton of CO2 emitted by businesses in the San Francisco Bay Area. In terms of national policy, there have been various proposals over the past two decades to create a national carbon tax (or a similar tax program). The Clinton Administration was unsuccessful in its efforts to implement a “BTU tax” in 1993, which was not a carbon tax, but an energy tax based on the heat content of fuels (as measured in British thermal units or BTUs). More recently, in 2007, two carbon tax bills were proposed in the House of Representatives. None of these proposals have gained sufficient political support and legislative debate to date has focused primarily on cap-and-trade policy.

Additional References

Acknowledgments

WRI would like to thank our many internal and external reviewers for providing feedback on drafts of various issues in The Bottom Line series. WRI also wishes to thank the following foundations that support our climate and business engagement activities and help make this series possible:

Emily Hall Tremaine Foundation
Richard and Rita Goldman Fund
Robertson Foundation
UK Global Opportunities Fund
WestWind Foundation

The Bottom Line Series: Cap-and-Trade

Payson Schwin — Thu, 03 Jul 2008 14:28:34 -0400

What is a cap-and-trade program?

A cap-and-trade program sets a maximum limit, or a “cap,” on
greenhouse gas (GHG) emissions from those facilities and sectors
covered by the regulation. An emitter covered by the cap
has two primary obligations:

The emitter must measure, monitor, and report emissions.
At the end of each compliance period, the emitter must have enough allowances to cover its reported emissions (an allowance is a permit that allows the holder to emit a specified amount of greenhouse gas emissions).

The cap limits the total amount of allowances available. This scarcity creates a market price for the allowances based on supply and demand. Regulated emitters may buy and sell allowances, so companies that can cheaply or easily reduce emissions can sell allowances to other companies for which such reductions are more expensive or difficult. This flexibility lowers overall compliance costs by allowing companies to pursue the most cost-effective emission reduction options.

Who is regulated under a cap-and-trade program?

Cap-and-trade programs can have differing scopes of coverage. Some existing programs cover one sector, such as the electric power sector. Other programs and policy proposals cover multiple sectors. Different policy proposals also specify different points of regulation, focusing on “upstream” emission sources, “downstream” emission sources, or some combination of the two. A cap-and-trade program focused on upstream sources regulates energy producers, suppliers, and transporters, such as oil and gas companies, coal mining operations, petroleum refineries, and fuel shippers/importers. A cap-and trade program focused on downstream sources regulates emissions at the point of combustion or use (i.e., at the “smokestack” level). Because of the vast number of downstream sources and the associated administrative cost and complexity, regulated downstream sources are often limited to large-scale emitters, such as fossil fuel-fired power plants and energy-intensive industrial sources.

How does a cap-and-trade program impact companies that are not directly regulated?

Regardless of the point of regulation, a cap-and-trade program is designed to impact a wide range of businesses by creating a market driver for GHG reductions. A carbon price created by a cap on emission allowances results in higher costs for fossil fuel energy use and other GHG-emitting activities, which encourages greater use of cleaner energy or processes. The impact on a company depends on their energy demand, sensitivity to high energy prices, and ability to either minimize or avoid increasing costs (e.g., by using fuel more efficiently or using cleaner fuels) and/or pass along costs to consumers. These energy costs will likely also be reflected in increased prices for energy-intensive products and services, such as electricity and transportation. In general, a carbon price will result in competitive advantages for companies that minimize or avoid exposure to higher fossil fuel energy costs and take advantage of new markets for energy-efficient or low-GHG products and services.

How are allowances and revenues distributed in a cap-and-trade program?

Allowances can be distributed directly to regulated facilities or sectors and/or non regulated parties (see Allocation definition in Issue #1 on Climate Policy Terminology). Depending on the policy design, some or all allowances may be distributed through an auction, which generates revenue for the government. This revenue stream can be used for a variety of purposes. For example, some policy proposals use revenues to fund research and development programs or minimize economic impacts on consumers through direct rebates or energy efficiency programs.

How do current legislative proposals compare to one another?

There have been several proposals to establish a cap-and-trade program for U.S. GHG emissions. A brief summary and analysis of GHG reduction targets in federal legislative proposals can be found here: http://www.wri.org/publication/usclimatetargets

Who would administer a national cap-and-trade program for U.S. GHG emissions?

Under most federal legislative proposals, the U.S. Environmental Protection Agency would be in charge of administering a cap-and-trade program for GHGs. It should be noted, however, that policy proposals can vary in terms of the regulatory authority granted to various federal agencies and the flexibility provided for program implementation.

How is a cap-and-trade program different from a carbon tax?

A cap-and-trade program and a carbon tax are similar in that both policy approaches are market-based and create a carbon price that provides a financial incentive to reduce GHG emissions. The fundamental difference between the two approaches is how they establish this price and reduce emissions. A cap-and-trade program establishes a limit, or “cap,” on GHG emissions, but the price for emission allowances (the carbon price) is determined by supply and demand for allowances in an emissions trading market. A carbon tax, conversely, imposes a direct fee (the carbon price) on fuels based on the amount of GHGs they emit, but does not set a limit on GHG emissions.

What are some examples of existing cap-and-trade programs?

There are several examples of cap-and-trade programs that seek to reduce harmful air emissions. The Clean Air Act Amendments of 1990 established a national cap-and-trade program for sulfur dioxide (SO2) emissions in the United States to reduce acid rain. In the Northeast United States, a regional cap-and-trade program was implemented to reduce nitrogen oxide (NOx) emissions. That program was later succeeded by a larger federal cap-and-trade program covering most of the eastern United States.

Cap-and-trade programs that cover GHG emissions include the European Union Emissions Trading Scheme (EU-ETS) which regulates carbon dioxide (CO2) emissions from 11,500 energy-intensive installations in 25 countries. In the United States, 10 states are participating in the Northeast Regional Greenhouse Gas Initiative (RGGI) to reduce CO2 emissions from the electric power sector. There are also other GHG cap-and-trade programs emerging at the state and regional level, including seven states (and three Canadian provinces) participating in the Western Climate Initiative, and six states (and one Canadian province) participating in the Midwest Regional GHG Reduction Accord. Future issues in WRI’s Bottom Line on Climate Policy series will review the lessons learned from other cap-and-trade programs.

What are the critical design issues for cap-and-trade programs?

Cap-and-trade programs consist of several different policy design choices that determine how the overall program operates. For example, the initial level of the emissions cap, and how it is adjusted over time, will influence the price of allowances. Similarly, the allocation of allowances, point of regulation, cost containment mechanisms, and provisions for offsets can all influence how a cap-and-trade program will function. Subsequent issues in WRI’s Bottom Line on Climate Policy series will review these and other design features.

Additional References

Acknowledgments

Emily Hall Tremaine Foundation
Richard and Rita Goldman Fund
Robertson Foundation
UK Global Opportunities Fund
WestWind Foundation

Paying for Environmental Performance: Potential Cost Savings Using a Reverse Auction in Program Signup

Tim Herzog — Thu, 03 Jul 2008 13:06:41 -0400

A reverse auction in the Conestoga watershed in Pennsylvania demonstrated that auctions are a more cost-effective way to allocate conservation funding than the traditional funding allocation process used in the U.S. Department of Agriculture’s Environmental Quality Incentives Program (EQIP). On average, the reverse auction resulted in a seven-fold increase in the reduction of phosphorus runoff per dollar spent compared to EQIP during the same period and in the same watershed.

In a reverse auction, multiple sellers compete to provide services (environmental outcomes) to a single buyer. In the context of conservation programs, sellers are typically land managers such as farmers or ranchers; the buyer is typically a governmental entity. The Conestoga Reverse Auction differed from traditional funding allocation strategies in three ways:

It quantitatively estimated the expected reduction in phosphorus runoff from proposed changes in management practices.
It allowed farmers and ranchers to compete for funding through unrestricted bidding.
It prioritized program payments based on how cost-effectively reductions in phosphorus runoff could be achieved. Cost-effectiveness was measured as the expected reduction in phosphorus runoff per program dollar spent.

Policy Implications

Government could improve the cost-effectiveness of their conservation funding by implementing reverse auctions or incorporating the principles of reverse auctions into their conservation program design. Specifically, policy-makers could improve the allocation of conservation funding in three ways:

Increase the use of quantitative measurements of performance (e.g., measuring the reduction in nutrient runoff for water quality improvement) to rank funding applicants.
Use measures of cost-effectiveness to rank funding applicants.
Allow competitive bidding between funding applicants.

Trees in the Greenhouse: Why Climate Change is Transforming the Forest Products Business

Payson Schwin — Wed, 25 Jun 2008 12:19:28 -0400

The world is entering an era when natural resource constraints, environmental policies, and shifting consumer values will create unprecedented demands on the private sector. Recent spikes in the prices of energy and food commodities illustrate the dynamic forces that are changing the world. In this new business context, the concept of “creative destruction”—a process by which innovation builds long-term value even as it destroys the value of the status quo—may extend beyond individual companies and apply to whole industries.

One example is the forest products business. What was once a simple business of turning trees into lumber and paper is now uniquely positioned—or exposed—to political and economic forces that are reshaping regulatory and market landscapes. Can this industry take a new position as a sustainable producer of fiber, energy, and materials to meet the world’s growing needs? And can the industry be a supplier of ecosystem services—the valuable benefits provided by nature—such as carbon storage?

The forest products industry has a unique opportunity to provide sustainable solutions to climate change, but clear, long-term climate policies are necessary to realize this opportunity. Nonetheless, the industry is fragmented and, in many cases, divided over what represents appropriate climate policies.

This report provides insights into the complex array of issues related to climate change. It will help companies, investors, and the sector as a whole to develop a more proactive and informed position on climate change policies and what constitutes an effective business response.

With the right regulatory frameworks in place, both internationally and nationally, the forest products industry could be a major solutions provider to climate change while seizing some of the greatest market opportunities of the 21st century.

A Comparison of Legislative Climate Change Targets in the 110th Congress

Wed, 18 Jun 2008 12:00:00 -0400

Comparison of Legislative Climate Change Targets in the 110th Congress

The World Resources Institute’s analysis of emissions targets and cumulative emissions budgets attempts to objectively, fairly and accurately compare GHG reductions from explicit carbon caps and complementary policies contained in climate proposals submitted in the 110th Congress. Emissions from capped sectors are calculated based on the text of the respective legislation. For sectors that are not covered by the legislation, emissions are estimated to continue uncontrolled in line with projections published by EPA. This analysis uses a single set of carefully selected data and methods to provide a consistent comparison across all climate proposals in the 110th Congress. This analysis is not a projection of actual future emissions under the various proposals nor is it an analysis of economic impacts resulting from the enactment of these policies.

“Comparison of Legislative Climate Change Targets in the 110th Congress” (Figure 1) compares targets for legislative proposals of mandatory cap and trade programs for greenhouse gas emissions. Specifically, each line reflects the mandatory caps plus the growth in uncovered emissions as well as a range of additional possible reductions that could occur through complementary policies. Appendix 1 contains a table that includes the underlying data and estimates of emission reductions for selected years. This chart is a revision of a similar analysis by World Resources Institute released during the 109th Congress and subsequently updated through June 4, 2008.

This update includes the following:

A preliminary analysis of HR.6186, the Investing in Climate Action and Protection Act sponsored by Representative Markey. In addition to estimates of GHG reductions under the proposed cap and trade program and auction revenue funding for GHG reductions in uncapped sectors, this analysis incorporates GHG reduction estimates from additional regulations on certain uncapped sources.
A table presenting historical emissions data and estimates of capped plus uncovered emissions and emissions reductions under each legislative proposal for selected future years.
Estimates of emissions coverage under S.2191 and S.3036 have been revised upwards by less than 1 percent, reflecting an attempt to harmonize WRI’s emissions coverage methodology with those employed previously by EPA.

Chart 1: Legislative Climate Change Targets in the 110th Congress

Click the chart for a high-resolution version

Chart 2: Cumulative Emissions Budgets under Legislative Climate Change Targets in the 110th Congress

Click the chart for a high-resolution version

“Comparison of Cumulative Emissions Budgets under Legislative Climate Change Targets in the 110th Congress” (Figure 2) offers a different perspective on the same data. This figure depicts the cumulative greenhouse gas emissions budgets for the proposals over two time periods. While the speed with which emissions reductions are implemented is an important determinant of the efficacy of climate change legislation, cumulative emissions reductions are also an essential indicator of the overall environmental stringency of a policy proposal. Time periods of 2010-2030 and 2010-2050 were chosen to evaluate how ambitious the proposals are in both the short and long term. In addition, for the Boxer-Lieberman-Warner, Bingaman-Specter and Markey proposals, optimistic and conservative scenarios are presented to account for changes in U.S. emissions that may result from conditional targets and complementary policies included in these bills. These estimates do not include changes to the targets or annual emissions levels that may result from the use of cost-containment provisions included in some proposals.

Coastal Capital: Economic Valuation of Coral Reefs in Tobago and St. Lucia

Payson Schwin — Fri, 13 Jun 2008 13:49:06 -0400

Coral reefs provide many benefits, sometimes called ecosystem goods and services, which are of high value and critical importance to local and national economies in the Caribbean.

These values are frequently overlooked or underappreciated in coastal investment, development and policy decisions, resulting in short-sighted decisions that do not maximize the long-term economic potential of coastal areas.

This project focuses on development of a valuation methodology that will be broadly applicable in countries across the Caribbean, supporting wise, long-term coastal policy and management.

This report provides a comprehensive summary of the valuation methodology as well as valuation results from implementation in two pilot sites in the Eastern Caribbean (St. Lucia and Tobago). Shorter, island-specific summaries of results, along with an Excel-based Valuation Tool for implementing the methodology are available from www.wri.org/project/valuation-caribbean-reefs.

Estimating the economic benefits of coral reefs to local economies is neither easy nor straightforward, due to the range of approaches available and frequent limitations of underlying data. Many valuation methods exist, and results are rarely comparable.

A priority for this project has been the development of a simple, broadly applicable methodology to value coral reef goods and services, based predominantly on commonly available data. Use of a consistent approach should lead to more comparable estimates of value for different places and time periods. An easily replicable methodology can also be applied while varying key assumptions in order to assess the impacts of different development and management options.

This methodology does not assess Total Economic Value (TEV), but rather focuses on three key goods and services: coral reef-associated tourism, fisheries, and shoreline protection services. These goods and services were chosen because of their importance to local economies and because data are available to support estimation of these values.

The method was developed based on literature review, feedback from local partners and examination of coral reef use and data availability in two pilot locations (St. Lucia and Tobago).

The results from the economic valuation of coral reefs in St. Lucia and Tobago—sites with very different coastal management and data richness situations—are presented in this paper. Even assessing only a subset of goods and services demonstrates that the benefits provided by coral reefs are economically significant, particularly with respect to island GDP. These estimates should be viewed as lower bound (partial) estimates of the economic contribution of coral reefs to the economy of these two islands.

The economic impact of coral reef-associated tourism and recreation and fisheries is evaluated using a financial analysis method—tracking the financial flows generated by these two industries, and their wider impact on the economy. Shoreline protection services are evaluated using a modified avoided damages approach, where the value of a reduction in wave-induced erosion and property damage due to coral reefs is estimated.

The methodology, as well as the Valuation Tool, uses a tiered approach, allowing results to be calculated at different levels of detail depending upon the data available.

Protected Areas and Property Rights: Democratizing Eminent Domain in East Africa

Peter Veit — Wed, 11 Jun 2008 19:35:38 -0400

Protected areas are a traditional means for pursuing wildlife management and have become increasingly central to conservation strategies in Kenya, Uganda and Tanzania. In East Africa, the future of biodiversity rests largely on the security and sustainability of the protected estate. Government degazettement (the transfer of land out of the protected estate into other public uses or into the private domain) and private challenges to the public exercise of eminent domain are growing threats to protected areas in East Africa.

Considerable attention has focused on whether or not to degazette protected areas. Less attention has focused on the procedures by which land is acquired and protected areas are established. When governments acquire private property in a compulsory manner, transfer land from the private to the public domain, and place public land into protected areas they must balance the public good of park conservation with the public good of secure property rights. This report argues that protected areas will be secure when codified procedures for acquiring land and establishing parks are implemented and enforced. Further, the public will accept these designations as legitimate when they have been established through democratic (i.e., transparent, inclusive, accountable) processes.

Correcting the World's Greatest Market Failure: Climate Change and the Multilateral Development Banks

Smita Nakhooda — Tue, 10 Jun 2008 11:47:00 -0400

Correcting the World’s Greatest Market Failure: Climate Change at the Multilateral Development Banks is a new analysis by the World Resources Institute that examines the challenges of mainstreaming climate change at the Multilateral Development Banks (MDBs).

In the lead up to the 2005 G8 Gleneagles Summit, WRI analysis (PDF, 111 Kb) found that climate change had been considered in less than 20 percent of the World Bank’s lending for the energy sector. Three years later, Correcting the World’s Greatest Market Failure: Climate Change at the Multilateral Development Banks, reviews the Country Strategies and project documentation for the energy sector portfolios of the World Bank Group, the Asia Development Bank, and the Inter-American Development Bank.

Operationally, opportunities to mitigate emissions and reduce climate risk are still not systematically incorporated into MDB strategies and project development. More than 60 percent of financing in the energy sector across these institutions does not consider climate change at all. The MDBs need to support transformative changes in key sectors to steer investment towards low carbon, environmentally sustainable development choices; this will be difficult to achieve when they remain invested in many “business as usual” projects and policies. To help correct the “world’s greatest market failure,” MDBs must do more to internalize the environmental and social costs of climate change into their decision-making including:

Measure and manage the GHG emissions associated with investments in all relevant sectors.
Work with developing country clients to identify low carbon approaches to development.
Revise guidelines for country and sector strategies to explicitly integrate climate change considerations, particularly vulnerability to climate variability and change.
Maintain high environmental and social standards to manage climate risk.
Invest in the capacity of governments to practice good governance in order to respond to the realities of climate change.
Significantly increase support for low carbon technologies, particularly in rapidly growing emerging economies.
Build capacity and create new incentives for MDB staff to consider climate change in their interventions.

Voice and Choice: Opening the Door To Environmental Democracy

Tim Herzog — Thu, 05 Jun 2008 00:32:55 -0400

This publication represents the culmination of several years of research, experimentation, and reform by governments, civil society organizations, and industry in implementing access to information, public participation, and access to justice in decisions that affect the environment. Voice and Choice is an interim report of the Access Initiative, and captures the results of the network’s first efforts to assess the adoption and implementation of environmental access rights. As an interim report, its main purpose is to begin to answer the questions, “Where are we?” and “Where do we go from here?”

Chapter 1 Opening Access provides a theoretical and historical background for access rights and the relationship these rights seek to establish between governments and people in the context of environmental decision-making. Reformers at the convergence of agendas in environment, governance, and human rights have already made significant inroads in measuring, analyzing, and promoting more open and transparent governance around natural resources. The chapter also presents The Access Initiative (TAI) method for assessing government provision of access rights and shows a number of general results of these assessments.

Chapter 2 Strengthening the Argument for Access provides access proponents within and outside of government a broad palette of arguments to use in order to spur reform in decision-making processes. The chapter outlines three key arguments for access rights, under the assumption that access proponents and governments will find some arguments more compelling than others given their unique circumstances. First, the chapter argues that access rights are human rights grounded in international law. Second, the chapter briefly touches upon the larger arguments other researchers have made about the positive relationship between good governance and growth at the national level. Third, the chapter looks at evidence about how public participation, access to information, and access to justice affect the quality of decisions on the small scale.

Chapter 3 Access Hurdles presents and draws lessons from original research completed by the TAI network. Aggregated data from this research shows that while access to information law and public participation law have grown, implementation is still lacking. In order to deal with this, the chapter identifies hurdles to further implementation of access rights and presents case studies where access proponents have encountered, and in some cases, overcome these hurdles. We group the sections of this chapter under four headings:

Managing Vested Interests and the Politics of Access. Data from TAI country assessments and case studies suggests that vested interests play a signifi cant role in controlling the fl ow of information and participation. We attempt to address this challenge by proposing strategies for overcoming these interests through coalition-building and highlight the importance of messaging to engage the public.
Identifying the Gaps in Information Systems. Not all systems for releasing environmental information suffer from the same gaps. We look at the elements of a complete environmental information system including collection, analysis, and dissemination. A series of case studies and fi ndings highlight the importance of ensuring the availability, publicity, and usability of information.
Fostering a Culture of Openness. This section describes how opening participation to the public affects the ‘environmental quality’ of a decision. While not offering a defi nitive answer on the subject, lessons on how to reconcile the need for expert deliberation with the demand for public input.
Investing in Access Capacity. Support for government offi cials and for civil society organizations to supply and demand access is essential for environmental democracy. This section examines the extent and the sustainability of efforts to create this cycle of engagement.

Chapter 4: Recommendations culls lessons from the previous chapters. The fi rst part of the chapters presents next steps for governments in implementing access rights while the second section presents ideas for access proponents to use to promote these reforms more generally.

U.S. Contributions to a World Bank Administered Clean Technology Fund

Tim Herzog — Thu, 05 Jun 2008 00:00:00 -0400

Summary

The proposed Congressional appropriation of $400 million per year over five years to support the deployment of clean energy technologies in developing countries could demonstrate much awaited United States leadership in responding to the global crisis of climate change. If these resources are invested wisely, the benefits will reach under-served communities in developing countries in desperate need of more reliable energy and cleaner air. Successful investments would also demonstrate to United States policymakers, energy producers and investors, the feasibility of reducing energy sector emissions by adopting changes in our own technology mix. If combined with United States policies that cap and reduce domestic emissions, that support a global deal to combat climate change, and that help build the resilience of communities vulnerable to climate change, a significant investment in clean energy would represent an important contribution to avoiding the worst impacts of global warming.

$2 billion over five years would dedicate an unprecedented amount of United States funding to clean technology in developing countries. It must, however, be emphasized that this will represent a small contribution towards the trillions of dollars necessary to meet global energy demand. Congress must therefore ensure that these resources and the institutions entrusted with managing them are committed to leveraging the greatest impact possible on investment choices in the energy sector worldwide.

Climate change and clean energy are not new issues for the World Bank, and its record in helping developing countries integrate climate change into economic development is mixed. The Bank has played an important role in pioneering new approaches to financing clean energy including through the use of carbon markets. Nevertheless, a recent study carried out by WRI reveals that the Bank has systematically overlooked opportunities to support the deployment of clean energy technologies, to mitigate emissions and to reduce climate risks. As late as 2007, more than 50% of Bank energy sector financing did not include climate change considerations at all. We therefore believe that any US investment in the CTF to support transitions to sustainable energy in developing countries should leverage a transformation of the Bank itself, in accordance with the following guidelines:

1) A Clean Technology Fund should leverage transformative technologies and support progressive policies

Congress should act to ensure that any public resources invested in the CTF support the deployment of technologies and policies that promote a profound shift away from carbon-intensive fuel sources. The CTF should be guided by principles that support this shift without pre-determining choices that should rest with developing country stakeholders and respond to local needs. The CTF should therefore, as the World Bank has suggested, promote transformational change while remaining technology neutral. Its investments should prioritize “zero carbon” outcomes in the power sector, improvements in energy efficiency in existing power generation infrastructure, and it should favor investments that are shown to contribute to poverty alleviation. These principles would guide the CTF away from support for investments in technologies, such as supercritical coal plants, that are only marginally less GHG intensive and that are already more cost effective than conventional coal. These principles should guide the CTF towards renewable energy sources, and investments in public transportation and energy efficiency that benefit poor consumers by lowering costs and increasing access and security of supply. The CTF will, however, need to address the likely continued reliance of many developing countries on coal. For new coal-fired generation facilities, carbon capture and sequestration may be able to play an important role in reducing emissions, if the many risks and uncertainties associated with these technologies can be reduced. CTF resources should also be available to build research and development capacity within developing countries to develop new technologies that are appropriate to local needs. Finally, developing countries should also be able to seek financial and technical support for improvements in policy and regulatory frameworks that will promote investment in clean technologies.

2) Transformation should begin with the World Bank’s core energy portfolio

Any Congressional appropriation to the CTF should promote the transformation of the core energy portfolios of the Multilateral Development Banks, including the World Bank, the Inter-American Development Bank, the African Development Bank, and the Asian Development Bank. The CTF envisions a role for the World Bank as Trustee, and for all the major MDBs as implementing agencies. Through MDB negotiated Country Assistance Strategies and internal bank procedures, MDB management and staff will have a direct influence on the programming of CTF resources. This should be seen as an opportunity for the Banks to demonstrate a commitment to integrating climate change considerations into all aspects of their core operations. The Banks should rigorously measure and manage the GHG emissions associated with its investments in all relevant sectors. The Banks should consistently work with developing country clients to identify low carbon approaches to development. Congress should use this opportunity to benchmark and monitor a higher standard of portfolio performance for all the Multilateral Development Banks that will have access to CTF resources.

3) The CTF should operate in accordance with widely accepted principles reflected in the United Nations Framework Convention on Climate Change and other sustainable development instruments

It is essential that Congress plays a leadership role in a global response to climate change. Providing financial support for clean technology in developing countries will be a key part of that response. If these resources are to leverage change equal to the challenge of global warming they must be managed with credibility and legitimacy that catalyzes domestic policy reform, and inward private and public investment in developing countries. Ensuring that the CTF follows internationally agreed principles, reflected in the UNFCCC and other international instruments will be key to its legitimacy. These principles respect the right of each country to determine its own development path consistent with the Convention’s objective to stabilize greenhouse gas emissions at safe levels. Donor governments should be prepared to demonstrate how support for the CTF is new and additional to development assistance targeted at poverty alleviation and other developing country priorities. The source of the technology should not be “tied” to the nationality of the donor. The administration of the Fund should be guided by principles of transparency, inclusiveness and accountability, through the proactive disclosure of information upon which decisions are based, a balanced representation of developed and developing countries, and meaningful opportunities for civil society input and oversight. Its governance structures should be run by policymakers selected on the basis of their independence and expertise as well as their capacity to represent diverse interests. Overall, support from the US and other donors in the design and implementation of a CTF should be based on a partnership that incentivizes developing countries to take meaningful actions to reduce their emissions while promoting their own sustainable development priorities.

Background

Increased support for the deployment of clean technologies is needed

Worldwide, more than 60% of global greenhouse gas (GHG) emissions come from the energy sector, where most countries continue to depend on polluting fuels and inefficient technologies. In most developing countries the need to sustain economic growth and alleviate poverty is increasing demand for energy. The rising costs of conventional fossil fuels such as oil, and growing concerns about energy security, together with growing awareness of the realities of climate change are sparking new interest in alternative options for meeting energy needs in all countries. There are significant opportunities to improve the efficiency of systems, and to increase the deployment of clean and renewable energy technologies. The realities of climate change demand fundamental transformations in how all countries produce and use energy. Making funds available to support the deployment of clean technologies to meet and reduce demand for energy can be an important contribution to this goal.

The proposed US contribution to a CTF would be administered by the World Bank as one of a portfolio of “Climate Investment Funds” that will “provide concessional finance for policy reforms and investments that achieve development goals through a transition to a low carbon development path and a climate resilient economy.”2 More than 10 countries are expected to contribute to this significant multilateral effort, including the United Kingdom ($1.58 billion over 3 years) and Japan (which is expected to commit at least $995 milllion). While the proposed CTF would make an unprecedented amount of dedicated financing for clean technology available, these funds will not be adequate to meet the full costs of deploying clean technologies at the necessary scale. The International Energy Agency predicts that developing countries will need more than $15 trillion of investment in their energy sectors by 2030. The proposed US contribution of $2billion over the next 5 years is a relatively small sum of money by comparison, and will need to be used strategically to catalyze truly transformative changes to help developing countries transition to a sustainable energy future.

The Clean Technology Fund should leverage transformative technologies and support progressive policies

In designing the Clean Technology Fund, the World Bank intends to support large scale emission reductions, and catalyze momentous changes in how energy is used and produced. The Bank has proposed that the funds should be technology neutral so that the most appropriate technologies for local needs can be deployed at a large scale. A shortfall of investment in clean technologies is not the only barrier to transforming the energy sector. In most countries, policies and regulations tend to emphasize short term cost and supply considerations, rather than the long term benefits of cost savings, enhanced energy security and environmental performance offered by clean technologies. A combination of regulatory and market failure has led to energy prices that do not reflect the true costs of fossil fuels to public health, to the local environment and to the climate system. Decision-making in the energy sector tends to be both exclusive and non-transparent, dominated by interests with a stake in “business as usual” practices. Policy innovations that promote full cost analysis of technology options and more transparent, inclusive and accountable decision-making, are essential to leveling the playing field for renewable energy technologies.

Financial resources are needed to support reforms in policy and regulatory frameworks that promote the supply of and demand for renewable, low carbon and energy efficiency technologies and practices. These might include mechanisms such as demand side management systems such as incentives to encourage efficiency, feed-in tariffs for renewable energy, and renewable energy portfolio standards. In addition to supporting countries that decide to undertake these reforms, Congress should do more in the United States to demonstrate to the rest of the world how better energy policy can ensure clean energy innovation.

If policy reforms are to take hold, they must be developed and implemented through transparent, open and credible processes. Citizens and civil society have an important role to play in ensuring that such measures are well suited to local needs and realities. Support for policy reforms in developing countries should not lead to narrow prescriptions on technology choice, or strategies designed to force unrelated economic reforms. Such approaches are likely to undermine the legitimacy of reforms for domestic audiences in developing countries and could sour international negotiations on new commitments for developing country actions.

The CTF’s emphasis on energy efficiency and on opportunities to support sustainable mobility through improved access to effective public transportation systems, is welcome and needed. Increasing access to efficient and effective public transportation systems, particularly in cities, is an urgent priority in developing countries and can have significant environmental and social benefits. The proposed emphasis on opportunities to improve efficiency more broadly, including in buildings is also an important initiative. However, the Bank’s current proposal on the fund suggests that the CTF could also support the adoption of best available coal technologies, and switching from coal to natural gas, to achieve such reductions.

Best available coal technologies such as supercritical coal are already more cost effective than conventional sub-critical coal in most cases. The operating costs of such plants are significantly lower than subcritical coal because they require less fuel inputs. While natural gas fueled power may be less greenhouse gas intensive than conventional coal fired power, such technologies still produce significant volumes of greenhouse gas, particularly when emissions are calculated on a lifecycle analysis basis, and are already widely deployed on a commercial basis. It would be a poor use of scarce public resources to address climate change, to support investments in marginally less GHG intensive technologies that are already more cost effective than conventional coal, and will still emit large amounts of carbon for decades to come.

Distributed renewable energy technologies, and some energy efficiency programs are likely to have more direct benefits for poverty alleviation. As the Bank proposal on the CTF recognizes, transmission and distribution infrastructure already suffer from chronic under-investment and maintenance. An emphasis on the “distribution” component of distributed energy, will be necessary in order to begin to make smaller scale renewable energy technologies competitive with large centralized grid solutions.

New solutions to the climate impacts of coal are needed. Improving the efficiency of existing coal fired facilities can make a crucial contribution to this end. For new coal facilities, emerging carbon capture and sequestration technologies may be able to play an important role in reducing emissions from established centralized energy systems to power economic growth. This technology has attracted significant interest, particularly in the fast growing economies of Asia which are highly dependent on coal for their energy needs. However, the risks and uncertainties around these technologies remain high.

The CTF should also be used to build in-country capacity to do research and development for new technologies. Many middle-income countries already have very significant technical and scientific capacity, and there is a wide body of experience to suggest that such expertise can help tailor new technologies to be more appropriate to national needs. Given that in many countries energy service infrastructure remains –often for very good reasons—in public hands, building public research and development capacity could perhaps facilitate the deployment and commercialization of such technologies.

The priority of the Clean Technology Fund should be to support “zero carbon” technologies in the power sector such as renewable energy, and improvements in energy efficiency in existing power generation infrastructure. Creative use of the Clean Technology Fund resources could deliver significant results in reducing the costs of promising zero carbon technologies to facilitate their deployment at large scale. Congress should seek clear and ambitious principles to guide the choice of most the most appropriate “clean” technologies for national needs.

Transformation should begin with the World Bank’s core energy portfolio

The World Bank can play an important role in supporting the deployment of clean technologies in rapidly growing developing countries. The Bank has recognized that it can do more to mainstream climate change into its efforts to support economic development. WRI analysis presented in the brief, Correcting the World’s Greatest Market Failure: Climate Change and the Multilateral Development Banks, reveals that operationally, opportunities to support the deployment of clean energy technologies to mitigate emissions and reduce climate risks are still not systematically incorporated into policies and projects supported by the World Bank.

Climate change considerations need to be mainstreamed into decision-making at the World Bank. Overall, attention to climate change and opportunities to support the deployment of clean energy technologies in World Bank Country Assistance Strategies (CAS), the documents used by the Banks to plan support to borrowing countries, remains inconsistent. Of 54 CASs reviewed, only 32 mention opportunities for GHG mitigation in sector level interventions; and 18 identify concrete targets or outputs to this end. As late as 2007, nearly 50 percent of World Bank lending for the sector did not consider climate change issues at all, and over the last three years less than 30 percent of its financing has comprehensively integrated climate change considerations (See figure 1).

The use of the Clean Technology Fund to support renewable energy and energy efficiency in middle income countries such as China, India, Brazil and Indonesia can help the MDBs find new relevance in these countries. The World Bank, and other MDBs such as the Asian Development Bank, Inter-American Development Bank, who would be entrusted with programming the Clean Technology Fund remain heavily invested in “business as usual” projects. Commercial private sector capital is now widely available, particularly in middle income countries, for such projects. It is essential that the World Bank consistently help member countries assess the full suite of options for low carbon, climate resilient development. Private financing for renewable energy technologies and energy efficiency programs is much less readily accessible, and urgently needed.

Table 1. Climate Change Considerations in Energy Pipelines of the World Bank, IFC, ADB and IDB World Bank (see PDF)

GHG accounting is a critical tool to help identify opportunities for energy efficiency, and identify cleaner options for meeting energy needs. Although several MDBs have adopted GHG accounting practices for their direct operations as well as their investment portfolios, these efforts have yet to be operationalized. Current practice at the MDBs still does not yet consistently explore less carbon-intensive approaches to economic development. If MDBs can help build the capacity of actors and institutions in developing countries, such as electricity utilities and ministries, to measure and manage GHG emissions, they may have a substantial impact on helping reduce future emission trajectories.

MDBs can help developing countries assess alternative approaches that might help countries reduce carbon emissions while still meeting their development objectives. The decision as to which of these options will best meet needs for environmentally sustainable economic development will necessarily remain with developing countries. Money from the Clean Technology Fund could be made available to help meet the incremental costs of cleaner choices if MDBs conducted such analysis on a systematic basis.

World Bank Country Strategies need to identify how sectoral policies will affect emissions trajectories in client countries and how these strategies will be affected by predicted impacts of climate change. The goal of such integration should be to increase the quality of information and the range of choices available to decision makers, without locking client countries into prescribed policies or technologies.

In order for the Clean Technology Fund to have a transformative impact, climate change considerations and measures to support the deployment of clean technologies must be reflected in all aspects of World Bank interventions in relevant sectors. Representatives of the US government on the Board of Executive Directors of the World Bank Group can play an important role in monitoring progress to this end.

The CTF should operate in accordance with widely accepted principles reflected in the UNFCCC and other sustainable development instruments

It is essential for the US to play a constructive leadership role in a global cooperative effort to respond to climate change, and an important step to this end is to ensure that the administration of the Clean Technology Fund is consistent with the principles of the UNFCCC. Several observers have expressed concerns that activities and programs implemented through the Climate Investment Funds and the Clean Technology Fund in particular may undermine or predetermine the outcomes of global negotiations on technology transfer and financing through the UN Framework Convention on Climate Change (UNFCCC).

The CTF should help pave the way to a global agreement on climate change through the UNFCCC. The negotiations at the recent meetings of the parties to the UNFCCC and Kyoto Protocol in Bali at the end of 2007 kicked off a critical two year process, which will have to result in a more detailed vision of concrete actions that will result in a meaningful response to climate change. The road map that all countries including the US agreed upon in the Bali Action Plan has created an important strategic opportunity to help exploit synergies between the demands of development and poverty alleviation, and opportunities to mitigate climate change.

US support for the Clean Technology Fund should be additional to continued and increased support for poverty eradication and economic development across the world. The US can do much more to support the pervasive challenges of poverty that afflict millions of people around the world. While funds made available to support the deployment of clean technologies in developing countries must complement foreign assistance for poverty and development, and not detract from these programs. Indeed, a new challenge for the US going forward will be to ensure that initiatives supported by foreign assistance are consistent with the goals and objectives of the UNFCCC.

The US should make sure that funding is made available on a grant basis to support the incremental costs of using clean technologies instead of fossil fueled or inefficient technologies. Given that developed countries are responsible for the majority of the greenhouse gas emissions that have accumulated in the atmosphere to date, the UNFCCC recognizes that developed countries should support developing countries to respond to the challenges of climate change. By making these grant funds available the US can help developing countries make more sustainable choices, without unduly penalizing them for a problem they did not cause.

Balanced representation of developed and developing country governments in administration of the CTF is crucial. The World Bank in consultation with a range of stakeholders has proposed an equitable governance structure for the CTF that includes equal representation of donor and developing country governments on the Trust Fund Committee. This is important to ensure that developing country perspectives are adequately represented in decision-making on how to use the funds. It will be essential to maintain the highest standards of transparency and inclusiveness in the design of programs and projects that are supported by the clean technology funds. The successful deployment of clean energy technologies to catalyze low carbon development requires wide ranging public debate. Current proposals on governance of the fund propose an annual partnership forum on the Climate Investment Funds that would include civil society, but this provision seems inadequate to ensure a robust level of citizen input. A more formal role for representatives of civil society in the governance of the fund – perhaps as an independent technical expert –would be valuable.

The Fund must operate on the basis of maximum disclosure. Adequate information on the choices that the various governing committees of the Clean Technology Fund are making and on their decision-making processes must be easily accessible in the public domain with adequate time for interested parties (particularly stakeholders in developing countries implementing clean technology programs) to be informed and engaged. A very narrow range of legitimate exceptions (such as for truly business confidential information - proprietary information, trade secrets, etc.) should apply. Early disclosure of documentation on proposed “low country” programs to be supported by the fund, and of project proposals before they are approved by the Trust Fund Committee are essential. Timely public monitoring of the implementation and impacts of projects and programs funded by the CTF are also needed.

These provisions for transparency and inclusiveness take on even greater importance in light of the links between programs implemented with the Clean Technology Fund and international negotiations through the UNFCCC. Making such information easily available can play an important role in ensuring that stakeholders in the UNFCCC negotiations are fully informed of developments, and so that these programs implemented with the fund do not predetermine the outcomes of negotiations on a post 2012 climate regime through established international processes.

If administration of the Clean Technology Fund is consistent with the principles of the UNFCCC, programs implemented have the potential to demonstrate to developing countries that they can in fact take meaningful low carbon actions to promote their own sustainable development priorities, with real support from developed countries such as the US.

WRI Publications

The Bottom Line Series: Carbon Taxes

Additional References

Acknowledgments

The Bottom Line Series: Cap-and-Trade

Additional References

Acknowledgments

Paying for Environmental Performance: Potential Cost Savings Using a Reverse Auction in Program Signup

Policy Implications

Trees in the Greenhouse: Why Climate Change is Transforming the Forest Products Business

A Comparison of Legislative Climate Change Targets in the 110th Congress

Comparison of Legislative Climate Change Targets in the 110th Congress

Chart 1: Legislative Climate Change Targets in the 110th Congress

Chart 2: Cumulative Emissions Budgets under Legislative Climate Change Targets in the 110th Congress

Related Links

Coastal Capital: Economic Valuation of Coral Reefs in Tobago and St. Lucia

Protected Areas and Property Rights: Democratizing Eminent Domain in East Africa

Correcting the World's Greatest Market Failure: Climate Change and the Multilateral Development Banks

Voice and Choice: Opening the Door To Environmental Democracy

U.S. Contributions to a World Bank Administered Clean Technology Fund

Summary

Background