WRI Stories Feed: U.S. Federal Climate Policy

The Truth About Cap-and-Trade in Europe

Jill Duggan — Thu, 19 Nov 2009 09:29:30 -0500

Has cap-and-trade in Europe worked? WRI’s Senior Fellow Jill Duggan, who helped implement the EU trading scheme, sorts the myths from reality.

Europe began its cap-and-trade system in 2005, with a three year learning period (phase 1). In recent U.S. Senate climate hearings, cap-and-trade critics pointed to the challenges of that first phase as a sign that cap-and-trade was a failure. But as more results are identified and understood, Europe’s first phase is looking more and more like a success. Today Europe has a stable cap-and-trade system, improved by the lessons learned when it was first implemented, and industry in Europe have certainty that carbon pricing is here to stay.

Price Stability

Price volatility for carbon is often cited as a problem in the EU Emissions Trading System (ETS). In fact, for the second trading period, the price has been relatively stable. The chart below shows the comparative stability of European Union Allowances (EUAs) – the emissions reduction ‘currency’ (in blue) – when compared to the price volatility of other commodities such as coal, oil, and gas.

Comparing the price volatility of European Union Allowances to the volatility of oil, coal, and gas
Source: United Kingdom Department of Energy and Climate Change (DECC)

Overallocation or Emissions Reductions?

Another charge leveled at the EU ETS is that officials had allocated too many allowances for polluters in the first phase, with no real abatement (greenhouse gas emissions reductions) taking place. It is true that in May 2006, the results from the first year showed that there were fewer emissions than allowances. But was this overallocation or was it, perhaps, that European states, venturing into uncharted territory, had underestimated how cheap and easy it would be for companies to reduce their emissions? The earlier UK emissions trading system, for example, exceeded its five year target in the first year. Companies, once they started to implement greenhouse gas reduction measures, were quite effective at cutting back on emissions, and needed fewer allowances than predicted.

Real Action by Companies

Critics claim that the trading system has not changed behavior. However, a look at the numbers from the Community Independent Transaction Log (CITL), which tracks allowances from the EU ETS member states, shows that in 2005, when the price of carbon was high, emissions went down. As the carbon price fell in 2006, emissions went up. In 2007, the price was so close to zero that there was hardly any carbon constraint in Europe, and there were actually 11.6 million more tonnes of CO2 emitted than allowances allocated for that year. These numbers suggest that the carbon price did in fact influence behavior – it encouraged cuts when the price was higher in the earlier years providing for extra allowances, while a lower price led to an increase in emissions.

The figures fit with early analysis undertaken by economists Ellerman and Buchner, Barry Anderson and others that found significant abatement in the EU ETS in its first years of operation, meaning that companies took real action to reduce their emissions. More research is necessary to confirm these figures, and Ellerman and others will be publishing more analysis next year. But there are strong indications that the carbon price in the first phase was very effective in driving a reduction in greenhouse gases.

The EU Carbon Market Today

So is the carbon market working today? In 2006, only 15% of the companies covered by the ETS were taking the future cost of carbon into account. Point Carbon and others found that a year later, about 65% of companies in the trading system were making their future investment decisions based on having a carbon price – and that is precisely the response needed.

Europe has stuck with cap-and-trade because of its cost-effectiveness and its ability to deliver an environmental outcome.

What are the big lessons we can draw from the early EU experience? First, a market needs scarcity in order to create demand and a carbon price. Second, achieving the right level of scarcity right away is difficult, because governments and companies are nervous and tend to overestimate how difficult and expensive it will be to cut back on emissions. Reducing emissions in practice is much easier, at least in the early years, than we had expected, and that is good news, but it makes it harder to get real demand in the market at the beginning. These early challenges do not mean that cap-and-trade is fundamentally flawed, as some have suggested. Europe has stuck with cap-and-trade because of its cost-effectiveness and its ability to deliver an environmental outcome. Companies do not need to know what the carbon price will be in 2020 (just as they do not know the price for oil or coal will in 2020). They do need to know that there will be a carbon price in 2020, and in Europe at least, they know that the ETS is here to stay.

Critics should step back and look at the overall picture of the EU ETS rather than make judgments on its various elements. In future pieces we will explore issues raised about the EU ETS, and show how many of the criticisms have thus far been misplaced and how Europe has addressed some of the early lessons.

Fact Sheet: Stacking Payments for Ecosystem Services

Nicholas Bianco — Thu, 12 Nov 2009 09:29:42 -0500

Payments for ecosystem services are becoming an increasingly important part of the U.S. business and regulatory landscape. As programs that provide payments for ecosystem services grow, policy makers will need to determine how these various payments should interact with each other.

Download PDF (PDF, 4 pages, 160 Kb)
(includes footnotes & references)
More WRI Climate Factsheets
More resources on Ecosystem Services

Introduction

Payments for ecosystem services are becoming an increasingly important part of the U.S. business and regulatory landscape. Used properly, these payments can efficiently mitigate greenhouse gases, filter pollution from runoff, protect wildlife habitat, and prevent soil erosion. Recognizing this, the American Clean Energy Security Act establishes a cap-and-trade program that allows firms to “offset” their greenhouse gas emissions through practices that reduce or sequester greenhouse gas emissions elsewhere. Some state governments are also expanding water quality trading programs that allow facilities that discharge water pollutants to avoid expensive facility upgrades by, for example, paying farmers to improve land management practices. There are also long-standing federal programs that pay farmers and forest landowners for providing a range of ecosystem services, such as protection of wildlife habitat and prevention of erosion.

As programs that provide payments for ecosystem services grow, policy makers will need to determine how these various payments should interact with each other. This interaction presents an opportunity to expand the suite of services for which an ecosystem is managed. However, it also creates the risk that multiple payments will be made for the same ecosystem services, possibly reducing the efficiency of payments or diminishing the environmental benefits they were intended to provide. This factsheet offers an initial review of these risks and opportunities. It is part of a larger effort by WRI to develop a comprehensive framework for stacking payments for ecosystem services.

For complete text, Download the PDF (PDF, 4 pages, 160 Kb)

Reviewing and Verifying International Climate Action

Paul Joffe — Wed, 11 Nov 2009 10:37:53 -0500

Climate change is a global issue that requires action from all countries. As the U.S. Congress develops a domestic climate and energy package, the United States seeks assurance that other countries will also act and a means to track the progress of commitments by verifying that actions have been implemented.

Climate change is a global issue that requires action from all countries. As the U.S. Congress develops a domestic climate and energy package, the United States is seeking assurance that other countries will act and that there is a means to track the progress of commitments by verifying that actions have been implemented.

This is an important issue in the international climate change negotiations which will convene in Copenhagen, Denmark in December 2009. One of the reasons the United States stands to benefit from an international agreement on climate change is that it can provide the needed system of verification to assure effort by all nations and a level playing field. Other countries are acting or pledging action on clean energy. Examples include:

Mexico has pledged to halve its greenhouse gas emissions by 2050.
China’s climate change program includes reducing energy intensity per unit of GDP by 20 percent between 2006 and the end of 2010 and increasing non-fossil fuel-based and renewable energy to 15 percent of the energy mix by 2020.
Brazil has said it will reduce its deforestation rate 70 percent from recent levels by 2017.
Indonesia announced in September that it would craft a policy to cut emissions by 26 percent by 2020 from “business as usual” levels. As countries come forward with national commitments, the international community will need common procedures and processes to verify actions.

A structure of international verification is not a new concept. China and other countries participate in review under the Montreal Protocol on ozone depletion, the nuclear nonproliferation treaty, the International Monetary Fund and the World Trade Organization. Also, the U.S. Environmental Protection Agency is working in China and other countries to build capacity on monitoring and verification. These systems demonstrate that an international system of accountability is feasible and can provide a workable structure for verification of action on ambitious international goals. Copenhagen offers an opportunity to put forward a new climate policy verification approach.

Review and Verification in the International Climate Framework

The United States is party to the United Nations Framework Convention on Climate Change (UNFCCC), which requires that countries report on their efforts to reduce greenhouse gases and support emissions reduction (mitigation) in other countries. This reporting is done through national inventories and national communications. National inventories report quantitative information on countries’ greenhouse gas emissions and their removal, while national communications report on a wider range of activities related to climate change, including policies, adaptation efforts, and research.

The concept of verifying what countries are doing to mitigate greenhouse gases has become know in UNFCCC language as the pledging of actions and commitments in a way that is “measurable, reportable and verifiable” (MRV). This term was coined in the Bali Action Plan, the roadmap for the current climate negotiations agreed upon by the United States and other nations at the UN climate meeting in 2007. The plan calls for mitigation (emissions reduction) commitments and actions by both developed and developing countries, as well as support for the actions of developing countries in the form of technology transfer, financing and capacity building. According to the plan, these commitments, actions, and support would all be “measurable, reportable and verifiable.”

How International Review Helps the United States

Clear rules for how countries will measure, report and verify their actions will be useful in the U.S. climate and energy debate. U.S. stakeholders have wanted reassurance that other countries, including developing countries such as China, are acting. A strong international reporting and verification system can improve confidence regarding other countries’ actions. U.S. legal compliance with future domestic climate policy must also be transparent and communicated internationally.

Building on Review and Verification in the UNFCCC

The UNFCCC’s structure of national inventories and national communications forms a basis for a system of transparent measurement, reporting and verification. However, a new agreement will need to strengthen this framework, to ensure robust reporting from all countries, of commitments, actions and support. To help achieve such an outcome, developed countries such as the United States can provide financial and technical support to build the capacity for measuring, reporting and verifying actions in developing countries. There are several proposals being discussed under the UNFCCC climate negotiations on ways in which the current framework can be improved. Also, an international verification system needs to be harmonized across countries, and the methods used must be comparable in all nations.

An international climate agreement that has a robust global system of measuring, reporting, and verifying can provide assurances for the United States that other countries are implementing their commitments. This type of international assurance can complement and support U.S. domestic action.

Ensuring Greenhouse Gas Offset Quality in the Clean Energy Jobs and American Power Act

Alexia Kelly — Thu, 05 Nov 2009 09:37:13 -0500

S.1733, the Clean Energy Jobs and American Power Act (CEJAPA) also known as the Kerry Boxer bill , provides a number of important provisions that will ensure that offsets used in the U.S. cap-and-trade program represent real, additional, measurable and verified greenhouse gas (GHG) emission reductions.

This summary is based on the version of CEJAPA released on 10/30/2009 and not subsequent iterations. Inquiries can be directed to Alexia Kelly.

For more information, visit the U.S. Federal Climate Policy home page.

Offsets are used in lieu of reductions from sectors subject to mandatory emission reduction requirements; thus, offset quality is central to the environmental integrity and credibility of the cap-and-trade program. WRI’s review of the environmental quality criteria in CEJAPA affirms that its provisions will safeguard the environmental intent of the legislation. The CEJAPA lays a strong foundation that should be preserved in any future policy for an offset program that will deliver high quality offset credits. Critical program attributes are described below.

The Clean Energy Jobs and American Power Act:

Does not include a list of “per se” eligible offset project types. Per se eligibility lists require the offset program administrator to develop offset crediting methodologies for specified project types, regardless of their demonstrated ability to permanently reduce, avoid or sequester GHG emissions. In order to ensure offset quality, a full scientific review of any potential offset project type is of paramount importance in ensuring that offset projects are able to deliver real emissions reductions. CEJAPA ensures that offset project eligibility determinations are developed through a science-based, publicly-accessible rulemaking process conducted through the appropriate federal agencies with input from scientists and technical experts. (Sec. 733)
Establishes clear, consistent, and rigorous definitions of key offset quality criteria. This includes robust provisions to address additionality, leakage, impermanence, and measurement and quantification uncertainty through science-based, standardized, and transparent methodologies. These provisions will help provide assurance that offsets used in the program represent emissions reduction projects and activities that would not have occurred in the absence of the offset market and are measured against consistent criteria and quality definitions. (Sec. 734)
Includes strong provisions to ensure offset credits sourced from sequestration projects deliver permanent reductions. The bill provides stringent provisions that include buffer accounts, discounting, clear assignment of liability, and insurance mechanisms to ensure proper emissions accounting. These provisions ensure that the emissions reduction targets of the program are met in the event of a sequestration project’s emissions reduction reversal. (Sec. 734)
Places liability for intentional reversals with offset project developers and shares responsibility for unintentional reversals. Release of carbon dioxide stored in forests and soils can occur for a wide range of reasons. Reversals are typically classified as intentional (e.g. premature harvest of forests, tilling of fields) and unintentional (e.g. disease outbreak, pest infestation, forest fire). Clear liability for reversals is an integral part of ensuring the environmental effectiveness of the cap and trade program. Assigning complete responsibility for intentional reversals, and partial responsibility for unintentional reversals, provides a strong incentive for offset project developers and implementers to reduce the likelihood that reversals will occur and to take preventative action to avoid unintentional reversals. (Sec. 734)
Allows for program transparency, adaptation and flexibility over time. The bill allows for both the addition and removal of eligible offset project types over time, and includes a public petition process as a key component of this process. The bill also calls for regular (every 5 years) review and evaluation of the offset program. These are crucial elements of ensuring emissions reduction or sequestration projects receiving offset credit continue to meet high offset quality standards and that the program is able to adapt to changes in scientific understanding over time. (Sec. 733 and 739)
Establishes an Offsets Integrity and Advisory Board and Office of Offsets Integrity. The bill establishes an Offsets Integrity Advisory Board tasked with providing scientific and technical guidance to the offset program administrator as regulations are promulgated. It also establishes a new office of offsets integrity within the Department of Justice to ensure that the offset provisions are enforced and appropriate legal frameworks are in place to administer this unique program. (Sec. 731 and 743)
Establishes one verification program for the entire offset system. A robust verification program is a vital element of a credible offset program. Verification entities and protocols certify that emissions reduction projects meet the requirements of the regulatory offset program and establish the quantity of offset credits to be issued from a particular project. Developing multiple verification programs for U.S. compliance offsets could lead to inconsistencies in the U.S. offset market and compromise the quality of the offset credits issued. (Sec. 736)

Countdown to Copenhagen: U.S. Climate Policymaking Process-A Guide for the Perplexed

Ruth Greenspan Bell — Tue, 03 Nov 2009 18:03:47 -0500

In deciphering U.S. climate policy, it is important to understand the limitations of the president’s powers and the distinct processes that all legislation follows in the two chambers of the United States Congress.

The world is looking to the United States for leadership on countering climate change. President Obama’s identification of climate change as an issue his administration would address has raised international expectations of quick and expansive U.S. action. However, in deciphering U.S. climate policy, it is important to understand the limitations of the president’s powers and the distinct processes that all legislation follows in the two chambers of the United States Congress: the House of Representatives and the Senate.

Foreign observers and negotiators, especially those from parliamentary systems, may not grasp the unique features of the American system in moving policy forward. This brief seeks to further their understanding of the United States in order to promote effective climate negotiations both in the ongoing UN process and in other multilateral and bilateral forums.

Limitations of Presidential Power

The 435 voting members of the House of Representatives are elected by specific “districts” within the 50 U.S. states and serve a two-year term. Districts primarily reflect population distribution and size; thus, a sparsely populated state might have only one Representative, while more populous states such as California have more than fifty. On the other hand, each state, regardless of population size, has two senators for a term of six years. This can award disproportionate power to small and sometimes rural populations. Each House and Senate election is intensely local.

The approach to party discipline between the executive (White House) and legislative (Congress) branches of U.S. government differs from parliamentary models. The president can cajole, offer incentives (such as helping fundraise or campaign for a member of Congress), and appeal to the sensibilities of Democratic Party elected officials; but ultimately they are free to vote based on how they assess the interests of their own constituencies and electoral prospects. Even new Democratic Party members of both houses who may have won their seats through association with Barack Obama will not automatically vote for all of his policies.

How Congress Makes a Law

Senate Committees with a Role in Climate Legislation

Foreign Affairs
Chair: John Kerry
Environment & Public Works
Chair: Barbara Boxer
Finance
Chair: Max Baucus
Agriculture
Chair: Blanche Lincoln
Energy and Natural Resources
Chair: Jeff Bingaman

Typically, bills are written and considered separately in each house of Congress, which often makes the process of legislating time-consuming. The two houses may not even communicate during this process, although the Speaker of the House and the Senate majority leader, especially if from the same party, might confer. The initial bill writing responsibility lies with the membership of House and Senate committees that have jurisdiction over the subject matter. For complex subject areas, including climate policy, more than one committee has jurisdiction. Thus, while the Senate’s Environment and Public Works Committee has jurisdiction over environmental issues, other committees which oversee energy, finance and agriculture may also draft versions of parts of the bill relevant to their specialty. (see sidebar).

The Senate is free to construct its own unique climate bill, and is doing so, even though the House has already passed the American Clean Energy and Security Act (ACES, also known as the Waxman-Markey bill.) It also sets its schedule to reflect its own legislative priorities, with current Senate priorities including health care and financial regulatory reform.

Lobbying by special interests on public issues can also have an impact on the legislative process, with money playing a major role. Representatives and senators independently raise funds for their re-election campaigns. Contributions can provide access to members, if only to make an interested party’s case on specific policy issues. In 2009, millions of dollars have been spent on advertising and campaigning by industry, business, labor, and environmental lobbies in supporting or opposing climate legislation.

Voting Challenges

Party discipline on voting in each house may differ. House leadership responsibilities include passing legislation and preserving the party’s majority. These goals may not always be aligned. Thus, if the Speaker of the House of Representatives finds the necessary votes to pass controversial legislation, she might “release” certain Democrats who might be willing to vote “yes” but would strongly prefer to vote “no” to preserve their electability. This reportedly took place during passage of the ACES.

The Senate faces a different challenge in passing climate legislation. Although only a simple majority of 51 votes (or 50 if the Vice President can break a tie vote) is technically needed to pass legislation, in practice 60 votes must be found. This is because the minority party can pursue a tactic called filibustering in which endless debate keeps a bill from a final vote. Sixty votes are needed to end the filibuster in a process called cloture. This gives the Senate minority enormous power and poses a constant threat to majority party Senate leadership.

Once legislation has passed both houses of Congress, a separate process reconciles differences between House and Senate bills. The leadership in each house will appoint representatives to a joint Conference Committee to produce a final integrated bill. This is usually not a cut-and-paste job but a delicate task to balance and reconcile competing interests. The reconciled committee draft receives a final up or down vote in each house.

Who’s Who and What They Do

The main federal executive branch departments and agencies dealing with climate change issues include:

U.S. Environmental Protection Agency (EPA)
Administrator Lisa Jackson; Gina McCarthy is assistant administrator for the Office of Air and Radiation, tasked with climate regulatory development.

U.S. Department of Energy (DOE)
Secretary of Energy Steven Chu is tasked with advancing the national, economic, and energy security of the United States, and promoting scientific and technological innovation in support of that mission.

U.S. Department of State
Secretary of State Hillary Rodham Clinton; Todd Stern heads the climate negotiations; Jonathan Pershing is his deputy.

White House
The Office of Management and Budget (OMB) approves all rulemakings and Executive Orders, headed by Peter Orszag.

The Energy and Climate “Czar” is new position created by President Obama and occupied by Carol Browner who served as EPA administrator under President Clinton.

The Council on Environmental Quality (CEQ) coordinates federal environmental efforts and liaises with agencies and other White House offices in developing environmental policies and initiatives.

Windows of opportunity to pass legislation The opportunity to work on bills is time limited. The current climate change bills — the ACES and the Clean Energy Jobs and American Power Act, also known as Kerry-Boxer—pertain only to the 111th Congress (January 6, 2009 to January 3, 2011). Because House members must seek re-election every two years, and a third of senators are up for re-election in the same time period, each of these two-year periods becomes a separate, numerically identified “session of Congress.” Failure to reach agreement on a bill within this two-year period kicks the process into the next session of Congress, where it must start again from the beginning. Once a bill has passed both houses of Congress it goes to the president for signature. The president has only two choices — sign or veto. Congress can override a veto, but only with a two-thirds majority vote in each house; or it could write a new bill that might be more acceptable to the president.

What happens after Congress passes a law and the President signs it?

After presidential signature the process of executive branch implementation begins, including rulemaking by the federal agencies involved. Typically, even detailed legislation (the American Clean Energy and Security Act is 1,428 pages long) requires further specifics to be filled in by executive branch agency rulemaking. If ACES was enacted into law, well over 50 rulemakings would be conducted by the U.S. Environmental Protection Agency the U.S. Department of Agriculture, and other federal departments and agencies. How long a rulemaking takes depends on the complexity of the subject matter and the speed with which the agency addresses it. Some environmental rulemakings have taken decades; others have moved more quickly. The EPA has signaled that it considers action to reduce greenhouse gas emissions a priority.

What can the president do about climate change without help from Congress?

Within the executive branch (which contains all the departments and agencies, which are similar to ministries in most European governments), the president has a fair amount of latitude. He can issue executive orders that require the federal government to follow certain rules. (For example, President Obama recently required that the federal government reduce its own greenhouse gas emissions.) If sufficient legal authority is contained in existing statutes, the president can direct any part of the executive branch to initiate rulemaking, a form of administrative law-making. For example, the U.S. Clean Air Act’s existing statutory authority is the basis for several EPA rulemakings to monitor and control greenhouse gases.

WRI Summary of the Clean Energy Jobs and American Power Act (Kerry-Boxer)

John Larsen — Fri, 30 Oct 2009 18:16:42 -0400

This summary provides a concise overview of the Chairman’s Mark of the Clean Energy Jobs and American Power Act (CEJAPA), released by Senator Boxer on October 23, 2009.

Download the Complete Summary (PDF, 21 pages, 637 Kb)
(includes footnotes and references)

Note: This summary was originally posted on October 6th. It was revised to reflect changes in the Chairman’s markup. You can download the original summary here (PDF, 11 pages, 132 Kb).

The CEJAPA consists of two divisions:

Division A: Authorizes new greenhouse gas (GHG) emissions standards, creates new programs for energy, research and development (R&D), adaptation, transition assistance and other purposes
Division B: Authorizes the establishment of GHG emission caps and directs the investment of allowance value to various programs including those established or revised in Division A.

This summary roughly follows the structure of the bill; it deviates from this structure where we believe grouping related components together facilitates understanding of the bill. The legislation contains some placeholders that are likely to be clarified in subsequent stages of the legislative process. For more information on specific components of the CEJAPA, please refer to the actual legislative language as referenced by section and page number in this document.

Download the Complete Summary (PDF, 21 pages, 637 Kb)
(includes footnotes and references)

Emission Reductions Under Congress' Cap & Trade Proposals

John Larsen — Fri, 30 Oct 2009 10:55:22 -0400

New analysis compares emissions reductions in the current Kerry-Boxer and Waxman-Markey bills.

WRI has released a new assessment of greenhouse gas (GHG) emissions reductions that could be achieved under the proposals currently under consideration in the 111th Congress. 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.

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:

The complete analysis, including a full description of the methods and assumptions, is available here: Emissions Reductions Under Cap and Trade Proposals in the 111th Congress.

WRI President Jonathan Lash Tesitifies Before Senate on U.S. Action to Address Climate Change

Jessica Forres — Thu, 29 Oct 2009 12:46:04 -0400

Jonathan Lash, president of the World Resources Institute (WRI), is testifying today before the Senate’s Environment and Public Works Committee regarding action of other countries to address climate change and the implications of their action for the United States.

Some important messages from his testimony:

Jonathan Lash“We need global action to solve this global problem. Those who have worried that the U.S. 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.”

“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.”

“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.”

“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.”

“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.”

“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.”

“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.”

“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 to make the global agreement possible.”

“In order to get that global agreement, Congress needs to pass 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.”

“Only if all parties 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.”

Lash’s full testimony can be found on WRI’s Web site.

Carbon Dioxide Capture & Storage and S. 1733, The Clean Energy Jobs & American Power Act of 2009

Sarah Forbes — Wed, 28 Oct 2009 09:50:02 -0400

The Clean Energy Jobs and American Power Act of 2009 (CEJAPA) provides a number of provisions that facilitate the demonstration and deployment of carbon dioxide capture and storage (CCS) technologies. This document provides a brief overview of the most important of these. Coal use is responsible for over 40 percent of global carbon dioxide emissions¹, and significant, deliberate action will be required to reduce these emissions. The CEJAPA lays a foundation for moving CCS technology to scale by reducing costs and providing funding for demonstrations.

Note: This summary was originally posted on October 22nd. It was revised to reflect changes in the Chairman’s markup.

The provisions for CCS in the CEJAPA include the following:

Develops a comprehensive national strategy for deployment. The bill requires Federal agencies, with EPA leadership, to develop a comprehensive strategy for commercial deployment and deliver a report to Congress within one year. The report will identify barriers and regulatory challenges and will recommend regulation, legislation, and other actions to facilitate CCS deployment (Sec. 121).
Establishes regulations for geologic storage. Amends the Clean Air Act and Safe Drinking Water Act to establish regulations for geologic storage. Requires EPA to finalize the rules for carbon dioxide geologic sequestration wells, including financial responsibility requirements, within one year. The bill also requires EPA to identify a coordinated process for certifying and permitting geologic storage sites within two years. Standards must include rules on financial responsibility of injected CO2, monitoring, record keeping, public participation and certification rules, among other things. Rules must minimize redundancy between CAA and SDWA authority (Sec. 122 and Sec. 813).
Requires emissions reporting for geologic storage sites. Geologic storage sites are regulated sources under the cap and trade program. Mandatory emissions reporting is required beginning in 2011 (Sec. 700 and Sec. 722).
Requires a formal report and evaluation of regulatory framework every three years. The bill requires EPA to formally report data on geologic storage sites, evaluate the performance of the geologic storage sites, and reassess the regulatory framework for geologic storage sites to Congress once every three years (Sec. 813).
Establishes a task force to design legal frameworks. The bill establishes a task force to provide recommendations to Congress within eighteen months that include a study of the ability of existing laws and insurance mechanisms to manage risks associated with CCS, the implications and considerations for different models for liability assumption, and subsurface property rights. The bill also requires EPA to study the means and circumstances under which existing environmental statute would apply to CCS and to present a formal report to congress within one year (Sec. 123).
Promotes R&D and early deployment of CCS. The bill establishes a Carbon Storage Research Corporation to be run by the Electric Power Research Institute (as proposed in HR 1869, introduced by Rep. Boucher). The Corporation would use funds collected through a feed-in tariff to issue grants and financial assistance for commercial-scale CCS demonstrations. Funding is capped at $1.1B per year for no more than 10 years. The bill also includes provisions for governance, government oversight, information sharing and intellectual property for both the Corporation and projects it would undertake. Commercial-scale projects undertaken by private, public, academic and non-profit organizations are eligible for funding, with an emphasis on supporting a diversity of technologies and fuels. Funding will go towards at least 5 commercial-scale integrated CCS projects, with 50% of funds to utilities that have already committed resources towards such projects (Sec.125).
Provides bonus allowances for stored carbon dioxide. The bill provides bonus allowances to the first 72 GW of facilities that implement capture and secure geologic storage or convert the carbon dioxide into a stable form. To qualify a project should reduce the facility’s annual carbon dioxide emissions by at least a 50 percent Payment is available for electric generating units fired by coal or petroleum coke at least 50 percent of the time and with a nameplate capacity of 200MW or greater (or retrofit equivalent of 200MW), and to industrial sources that emit more than 50,000 tonnes of carbon dioxide per year and do not produce liquid transportation fuel. Funds will be divided into tranches with the payment on sliding scales with higher payments for greater percentage capture, with a lower bonus provided for projects that combine geologic storage with enhanced oil recovery. Conditions for eligibility and advanced distribution of emissions allowances for these projects are specified. This program provides a mechanism for offsetting the technical risk assumed by early-adopters and a financial incentive to capture and store greater percentages of carbon dioxide than is required under the performance standards. Specifics of the bonus allowance payments are outlined below (Sec. 780):

Phase I (first 20 GW of treated CCS generating capacity, divided into two tranches):

First tranche (first 10 GW of treated generating capacity):
- Units achieving capture and storage of 90% or more of the carbon dioxide that would have otherwise been emitted would receive $96 bonus allowance value for each ton of CO2 captured and sequestered.
- Bonus allowance payment for lower percentage capture will be determined by the EPA administrator, with a minimum payment of $50 per ton of CO2 captured and sequestered for a 50 percent reduction in carbon dioxide. The payment should vary in direct proportion with increasing rates of capture receiving proportionally larger payments.
- An extra $10 per tonne bonus allowance is given for early-adopters, or those that begin operating at a 50% capture and storage rate before 2017.
- Industrial source projects are excluded under the first tranche.
Second tranche (10-20 GW of treated generating capacity):
- Units achieving capture and storage of 90% or more of the carbon dioxide that would have otherwise been emitted would receive $85 bonus allowance value for each ton of CO2 captured and sequestered.
- Bonus allowance payment for lower percentage capture will be determined by the EPA administrator, with a minimum payment of $50 per ton of CO2 captured and sequestered for a 50 percent reduction in carbon dioxide. The payment should vary in direct proportion with increasing rates of capture receiving proportionally larger payments.
Phase II (20-72 GW):
- Allowances are distributed through an annual reverse auction (unless otherwise decided by the EPA) with bids based on the desired level of incentive for 10 years of geologic storage.
- At least two of these reverse auctions will be held, and a separate auction may be held for up to five separate project categories. These categories may be defined based on coal type, capture technology, type of geologic formation and new/retrofit application.
- The EPA Administrator may prescribe a schedule for providing bonus allowances if it is determined that a reverse auction would not result in efficient and cost-effective deployment. The established bonus allowance values should cover not more than the reasonable incremental capital and operating costs for CCS.
- Phase II will be divided into tranches of not more than 10 GW.
Sets performance standards for new coal-fired power plants. The bill amends the Clean Air Act to require new coal-fired power plants to meet performance standards. The EPA Administrator must review the standards and may tighten them depending on the performance of commercially-available technology (Sec. 812).
- Standards apply to all plants permitted after January 1, 2009 where 30% or more of their fuel is coal and/or petroleum coke.
- Plants permitted from 2009-2020 must achieve a 50 percent reduction in annual emissions by 2025 or earlier (if a threshold of 10 GW of commercial deployment is met).
- Plants permitted from 2020 onward must achieve a 65 percent reduction in annual CO2 emissions from the unit.
- The onset date may be extended to 2022, if the Secretary of Energy and Administrator find insufficient commercial deployment in 2017 and Congress approves this finding.
- The standards are reviewed by the Administrator before 2020 and at 5 year intervals afterwards. The maximum carbon dioxide emissions rate for new plants may be reduced (via rulemaking) to reflect the degree of reduction achievable.
Establishes allowance allocations for the bonus allowance program. 1.7 percent of allowances are allocated to CCS, beginning in 2014 (Sec. 771):
- 1.75% of allowances from 2014-2017
- 4.75% of allowances in 2018 and 2019
- 5% of allowances from 2020-2050

International Energy Outlook 2008, Figure 76 ↩

China, the United States, and the Climate Change Challenge

Deborah Seligsohn — Wed, 21 Oct 2009 12:41:11 -0400

As December’s climate change talks approach, a new WRI report discusses the successes and challenges to effective regulation in China.

As the two largest current global emitters of greenhouse gases (GHGs), it is imperative that the United States and China work together to support effective domestic energy and climate change programs and an effective international climate regime. As China’s domestic energy policy has transformed over the last several years to incorporate climate-friendly goals – increased energy efficiency and a greater contribution of non-fossil fuels to its energy mix – this opportunity is already becoming a reality, especially as the United States advances comprehensive climate policy.

The new WRI report, China, the United States, and the Climate Change Challenge discusses the successes and challenges to effective regulation in China, outlining the major advances made in implementing effective energy efficiency programs in the past several years. These include targeted programs for both large and small enterprises, specific goals for government officials, and the development of energy statistics infrastructure. It also addresses U.S. competitiveness concerns in relation to the introduction of U.S. cap-and-trade policies, and specific opportunities for enhanced climate change cooperation between the two countries.

Comparison of Chinese and U.S. Energy Statistics

China’s Energy and Climate Policy

China’s energy and climate change policy is based on its own assessment of national interest as outlined both in its 2007 National Climate Change Program and 2008 Climate Change White Paper. China’s climate policy meshes with concerns about energy security, pollution abatement and the cost of energy itself, as well as the impacts of climate change and China’s international reputation.

Section 1 outlines China’s National Climate Change Program, the key components of which are:

Reducing energy intensity per unit GDP by 20 percent between 2006 and the end of 2010,
Increasing non-fossil fuel-based and renewable energy to 15 percent of the energy mix by 2020, and
Increasing total forest cover in China to 20 percent by the end of 2010.

China’s approach is diverse and includes targets and quotas, industrial and equipment standards, energy taxes and financial incentives and penalties. While China has gained some experience with carbon markets through the Clean Development Mechanism (an offset mechanism under the Kyoto Protocol), given China’s institutional strength, as demonstrated by other policies, the country will likely use a variety of tools to continue to implement its climate change policy.

China’s National Climate Change Program

China’s National Climate Change Action Program, published in June 2007, provides for three major mitigation efforts that, in combination, reduce greenhouse gas emissions:

Reducing the energy intensity of GDP by 20 percent over the five years 2006 through the end of 2010.
Increasing alternative energy in the fuel mix to 15 percent by 2020.
Increasing forest cover to 20 percent of China’s land mass by the end of 2010.

The national program is more than a mitigation program. It also contains support for climate science and for preparedness and adaptation. China’s scientists have been active in the global effort to understand climate change and are increasingly involved in developing technical approaches to both mitigation and adaptation.

Although these policies may not provide the environmental certainty of a cap-and-trade system, they can drive emissions reductions and may be more suited to the current development of China’s financial markets and enforcement infrastructure.

U.S.-China Competitiveness Concerns and Cooperation Opportunities

This brief addresses the concern in the United States about potential transfer of carbon-intensive jobs to China. While a carbon cost will not be a major factor in most sectors in the United States, some sectors could be affected. However, this concern can be addressed through adjustments to the United States’ domestic allowance system under cap-and-trade legislation, by coordinated action under an international agreement, or by trade measures. Trade measures are unlikely to be an attractive option as they increase costs for downstream users, threaten export markets and potentially damage international negotiations.

Comprehensive U.S. climate legislation could spur further improvements in China’s climate change programs and policies. Creating incentives in the United States for clean technologies will help drive down the prices of these technologies, making them much easier for China and other major emitters to adopt. The United States can also collaborate with China in areas ranging from research and development to enforcement infrastructure to help China move its own policies forward. Finally, U.S. legislation can encourage China to do more as it positions itself as a global leader.

This brief outlines a number of bilateral and multilateral venues for enhanced cooperation. In the bilateral sphere, the new U.S.-China Memorandum of Understanding to Enhance Cooperation on Climate Change, Energy and the Environment, signed at the first meeting of the revamped Strategic and Economic Dialogue (S&ED) in Washington, D.C. in July 2009, provides a coherent framework for this cooperation. The new MOU incorporates the Ten Year Energy and Environment Framework developed under the previous U.S. presidential administration, provides a framework for cooperative projects and creates a new coordinating committee for both countries’ energy and environment agencies. The challenge will be to follow through on coordination and delineate clear goals and timetables. Many of the structures set up under the previous U.S. administration, not just bilaterally, but also multi-laterally, such as the Asia Pacific Partnership (APP) for Clean Development and Climate and the Major Economies Forum (MEF) have real potential to bring together key players, but they need more sharply defined goals and missions, and the United States will need to clarify funding. All of these programs can support domestic policies in each country as well as both countries’ efforts to reach a global agreement at Copenhagen in December.

To continue reading, download the full report.