Article by Kyle W. Danish, Shelley N. Fidler, Andrea Hudson Campbell and Kevin M. Gallagher

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Commentary

With the unfolding financial crisis on Wall Street, it seems likely that federal climate change legislation might not top the agenda of Congress in 2009. This means that there could be increasing attention to the state and regional climate programs. These last two weeks saw major developments in those programs . . . The Regional Greenhouse Gas Initiative had its first auction of allowances. Allowance prices are starting on the low side, reflecting the relatively modest ambition of the emissions cap and low prices for natural gas . . . In addition, the Western Climate Initiative released its design principles. One of the showstopper headlines is its provision establishing a 49% limit on of the use of offsets. However, the limit is less generous than it sounds because it is expressed in terms of the reductions needed to achieve a cap. If you express the limit instead in terms of the overall cap, it is the equivalent of 1% of the cap in 2013 and a little over 7% of the cap by 2020 . . . California's agencies that oversee electric power provided recommendations to the California Air Resources Board on how to set up a cap-and-trade program for the state's power sector. They recommended allocating 80% of the allowances directly to the power entities in the first year; however, they also recommended that this phase out very rapidly, resulting in a 100% auction in four years. It is not clear to what extent this allocation approach will cushion these entities and their ratepayers from the immediate price impact of a cap.

Congress

  • Senate Environment and Public Works Hearing Focuses on Potential EPA Regulation of GHGs. The Senate Environment and Public Works Committee heard testimony related to the potential for the Environmental Protection Agency (EPA) to regulate GHGs using authority under existing statutes. Witnesses included Robert Meyers, EPA's Principal Deputy Assistant Administrator for the Office of Air and Radiation; Jason Burnett, former EPA Associate Deputy Administrator; and Sierra Club attorney David Bookbinder. The hearing follows the publication this summer of an Advance Notice of Proposed Rulemaking (ANPR) by EPA that reviewed possible avenues for GHG regulation by the Agency. However, given the lengthy timeline established in the ANPR, EPA is unlikely to take further on the issue of GHG regulation before the end of the Bush Administration.
  • Chairman Boxer Asserts that GHG Regulation Can Help Economy. In the face of the nation's current economic crisis, some opponents and supporters of federal climate change legislation have called for the postponement of GHG emissions restrictions. Responding to the calls to delay the push for climate legislation, Senator Barbara Boxer (D-CA), Chairman of the Senate Environment and Public Works Committee, stated that, rather being an economic drag, climate legislation could have a positive effect on the lagging national economy. Referencing a recent report out of California, Sen. Boxer said that research shows that the state's planned GHG regulations will have a positive net impact on the state's economy.
  • Climate, Energy Efficiency Directives Incorporated into Federal Spending Agreement. A Continuing Resolution (CR) agreement negotiated between the White House and the Congress contains directives related to climate change and energy efficiency. The CR, which will provide funding for the federal government through March of next year, included directives calling for an evaluation by the Department of Defense and other federal agencies of the impacts of climate change on national security; an assessment of options for reducing the carbon footprint of coal-derived alternative fuels; increased efforts at promoting energy efficiency; and the tracking of GHG emissions resulting from agency actions. The Congress has passed both houses of Congress and heads to the President, who is expected to sign the legislation.
  • House Ways and Means Committee Explores Policy Options to Prevent Climate Change. Continuing a series of hearings on climate change, the House Ways and Means Committee held a hearing Sept. 18 to discuss policy options for reducing GHG emissions. The hearing explored the design options for a program to reduce domestic GHG emissions, focusing in particular on the revenue-raising components of GHG reduction policies and the economic costs to the United States of failing to implement a market-based program to reduce U.S. GHG emissions. The hearing also explored international aspects of climate change through a review of proposals for promoting a comprehensive global effort to address climate change while ensuring a level regulatory playing field for U.S. manufacturers. Hearing panelists included New York City Mayor Michael Bloomberg; Peter Orszag, Director, Congressional Budget Office; Carol Browner, former EPA Administrator and Principal, The Albright Group; and Dallas Burtraw, Senior Fellow, Resources for the Future.
  • House and Senate Pass Versions of Renewable Energy Tax Incentive Extensions, Ultimate Fate Remains In Doubt. Both the House (H.R. 7060) and the Senate (H.R. 6049) have passed legislation that would extend renewable energy tax credits that are set to expire at the end of this year. However, major differences between the two versions and the President's threat to veto the House version, mean that the fate of the renewable energy tax incentive extensions (extenders) remains in doubt. The primary conflict between the bills is funding for the extenders, with the House's $15 billion extenders paid for completely through offsetting revenue-raising provisions while the $17 billion Senate version of the extenders provides only partially-offsetting increases in tax revenue. Given the current focus on an economic bailout package, it appears unlikely that the Congress will resolve the issue before it adjourns.
  • House Energy Bill Drops Carbon Storage Fund - Favors Tax Incentives Measure. Energy legislation passed by the House, H.R. 6899, includes 10 years of tax incentives worth more than $1 billion for power companies that have coal gasification or for coal-fired electricity plants that capture and sequester a large percentage of their carbon dioxide emissions. The tax incentives replace an alternative proposal supported by the coal industry and labor groups that would have established a $1 billion fund to help develop and deploy carbon storage projects. The proposal would have created the fund through a wires charge. In the Senate, Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Chuck Grassley (R-IA) introduced legislation this week that would create carbon capture and sequestration tax credits for the electric utility industry. Their bill would provide $2.5 billion in tax incentives, with $2 billion going toward coal-fired electricity projects and $500 million for other coal gasification facilities. The House bill is unlikely to be voted on by the Senate before the Congress adjourns.
  • EPW Committee Approves Greenhouse Gas Tracking Bill. The Senate Environment and Public Works Committee approved a measure that would create a national registry of greenhouse gas emissions. The legislation (S. 1387) would expand upon the requirements inserted into the fiscal year 2008 omnibus appropriations bill, which required the EPA to create a system for "mandatory reporting of greenhouse gas emissions above appropriate thresholds in all sectors of the economy in the United States." Senator Amy Klobuchar (D-MN), who introduced the bill, asserted that her legislation will add needed requirements to the reporting of greenhouse gas emissions for all facilities through data collection, reporting, verification, and EPA enforcement. Similar legislation was introduced by Rep. Tammy Baldwin (H.R. 6877) although no dispositive action is currently expected during this session of Congress.
  • House Special Committee Examines the Economy and Potential for Green Collar Jobs. The House Select Committee on Energy Independence and Global Warming, led by Committee Chair Ed Markey (D-MA), met to evaluate the impact that "green" industries could have on the slowing economy. Among the panelists for the discussion was Robert Pollin, author of a recent report that suggests that federal investment in the clean technology industry could create up to four times as many new jobs as an equivalent investment in the oil industry. Mr. Pollin, co-director of the Political Economy Research Institute at the University of Massachusetts-Amherst, also recommended that the government invest $100 billion in short-term green collar job creation. Panelists also discussed options for retrofitting homes and buildings to increase energy efficiency, as well as making a smooth transition toward plug-in hybrid production, which they said would increase the competitiveness of the U.S. auto industry, create new jobs, and reduce greenhouse gas emissions.

Administration

  • DOE Announces $8 Billion "Clean Coal" Loan Guarantee Program. The Department of Energy (DOE) announced that it will make available $8 billion in loan guarantees for "clean coal" projects. $6 billion of that amount will go to carbon capture and storage (CCS) projects that reduce GHG emissions from industrial gasification and coal-fired power plants by at least 50 percent. The remaining $2 billion will be allocated to advanced coal gasification projects. Project selection will be based on the amount of CO2 a project can capture and sequester, the project's commercialization potential, the amount of debt expected to be repaid, and other criteria. The $8 billion "clean coal" loan guarantees are part of a total of $38.5 billion in guarantees DOE is authorized to distribute to various energy development projects through 2009.

States and Cities

  • WCI Releases Final Plan for Regional Cap-and-Trade Program. The Western Climate Initiative, a climate initiative composed of western states and Canadian provinces, released a plan that contains final design principles for its regional cap-and-trade program. The plan, which will function as a template for WCI members to implement at the state level, establishes emission thresholds for members and provides design details for emissions allowance banking, offset credits, allowance distribution, reporting requirements, and compliance and enforcement. The first phase of the planned emissions trading program will run from 2011-2014. The emissions trading program features an expanding scope of coverage in which the program will initially regulate only the electric sector and large industrial source of GHGs, but will expand to include transportation fuels and heating fuels when the second phase begins in 2015. The plan allows state members to distribute allowances through both auction and free distribution, recommending a minimum auction of ten percent of allowances during the first compliance period. In addition, the plan's offset provisions would allow members to use offset credits and early emission reductions to meet a certain portion of their compliance obligations – measured as 49 percent of the reductions needed to bring emissions below the initial 2012 "program cap" to the level of the emissions cap in any particular year. This approach to establishing a limit is different than the approach used in other programs. Other programs typically have expressed an offsets limit in terms of the emissions cap itself. Expressed in that way, the WCI offsets limit is the equivalent of approximately one percent of the overall cap in 2013 gradually increasing to approximately 7.35 percent of the overall cap by 2020. The goal of the WCI trading program is to reduce regional GHG emissions to 15 percent below 2005 levels by 2020. WCI members include Arizona, California, Montana, New Mexico, Oregon, Utah, Washington and the Canadian provinces of British Columbia, Manitoba, Quebec, and Ontario.
  • RGGI Holds First Allowance Auction. The Regional Greenhouse Gas Initiative (RGGI), the nation's first mandatory GHG emissions trading program, held its first auction of GHG emissions allowances. Six of the ten RGGI-members states participated in the auction of 12.6 million emission credits. The four non-participating states will join those six states in the second auction that takes place this December. The overall cap for the RGGI program is 188 million emissions allowances, but some observers have suggested that the program's emissions cap is high, which could result in low auction prices and reduce the incentive for regulated entities in participating states to reduce their emissions.
  • South Carolina Advisory Panel Issues Climate Report. An advisory group created by South Carolina Governor Mark Sanford (R) issued a report with 51 recommendations for reducing the state's GHG emissions. The report's recommendations will be a starting point for legislation aimed at meeting the state's voluntary goal of reducing its emissions to 5 percent below 1990 levels by 2020. The recommendations include promoting the expansion of public transportation, revising land-use regulations, providing renewable energy incentives, diversifying the states energy portfolio, and capturing methane gases.
  • CPUC, CEC Issue Recommendations for AB 32 Electricity Sector CO2 Regulation. The California Public Utilities Commission (CPUC) and the California Energy Commission (CEC) issued recommendations to the California Air Resources Board (CARB) for the regulation of CO2 emissions from the electricity sector under a state-wide cap-and-trade program. Under AB 32, CARB is authorized to develop by 2012 a program for reducing state-wide GHG emissions. In their recommendations, the two agencies said that, during the first year of the program, 80 percent of electricity sector allowances should be distributed for free, with the remaining 20 percent sold at auction. Over the next four years, the percentage of freely allocated allowances should be decreased by 20 percent per year, resulting in a 100 percent auction of allowances by 2016. The agencies also recommended that CARB permit unlimited banking of allowances, refrain from implementing a safety valve to limit allowance prices, and allow regulated entities to meet their compliance obligations using a limited (but unspecified) amount of domestic and international offset credits.
  • NY Agency Issues Final RGGI Implementation Rules. The New York State Energy Research and Development Authority (NYSERDA) issued final rules implementing the state's participation in the Regional Greenhouse Gas Initiative (RGGI). The rules establish guidelines for the auction of CO2 emission allowances and create a special account that will use auction revenues to fund energy efficiency, renewable energy, and emissions reduction programs. The new rules, which will become effective once they are published in the New York State Register, will allow New York to participate in the second RGGI allowance auction, which is scheduled to take place on December 17.

Industry

  • Carbon Disclosure Project Finds Large Companies Expect GHG Regulation, Have Emission Reduction Goals. The Carbon Disclosure Project, which represents institutional investors, released the results of its annual corporate survey on the effects of climate change, company emissions, and plans addressing GHG emissions. This year, 314 of the S&P 500 companies responded. Of the responding companies, 228 reported their emissions. Of the Global 500 companies, 383 responded, 375 said they report their emissions, and 308 said they disclose GHG emissions as part of corporate reports. Of the S&P 500, 102 of the responding companies said they have emission reduction targets, while 206 of the Global 500 companies have reduction goals. The Carbon Disclosure Project said that the increased numbers over last year demonstrate that the surveyed companies place a value on their climate change actions and reporting.
  • Advertising Industry to Promote Awareness of U.N. Climate Negotiations. The International Advertising Association (IAA), in partnership with the United Nations (U.N.), launched a campaign this week to increase public awareness of the U.N. efforts to reach a post-Kyoto Protocol agreement on climate change. The IAA will focus its efforts on the time period preceding next year's meeting of the Conference of the Parties to the U.N. Framework Convention on Climate Change – which is scheduled for December 2009 in Copenhagen, Denmark. U.N. Secretary General Ban Ki-moon praised the effort, saying that it would mobilize the private sector and individuals into action.

Studies and Reports

  • 2007 Global CO2 Emissions Surpassed IPCC Worst-Case Scenario. International scientists announced that global CO2 emissions for last year increased by three percent over the previous year. That increase exceeds the worst-case emissions scenario forecast by the Intergovernmental Panel on Climate Change in its Third Assessment Report released in 2006. Although some developing countries reduced their emissions over the last year, global emissions rose due to significant emissions increases in China and India, and a two percent increase in emissions in the United States.
  • GAO Report Finds the U.S. Voluntary Offset Market is Growing, but of Uncertain Quality. The General Accounting Office issued a report titled: "Carbon Offsets: The U.S. Voluntary Market is Growing, but Quality Assurance Poses Challenges for Market Participants." The GAO concluded that "the lack of standardization of offsets and fundamental problems assessing and verifying credibility, leave consumers in the dark and exposed to waste, fraud, and abuse."
  • U.N. Report Concludes that Employment Patterns will Shift due to Climate Change. The report, prepared by the Worldwatch Institute and commissioned by the U.N. Environment Programme, the International Labor Organization, the International Trade Union Confederation, and the International Organization of Employers, found that climate change already is generating new "green jobs," even while jobs are being lost in the agriculture and tourism industries due to rising sea levels and desertification. The authors estimate that the market for environmental products and services will double by 2020, to $2.74 billion, with half of that market in energy efficiency. Changes in the transportation, water supply, sanitation, and waste management sectors also are expected to generate new jobs. The report is available at http://www.ilo.org/global/What_we_do/Publications/Newreleases/lang--en/docName--WCMS_098503/index.htm.
  • U.S. Chamber Report Says 1.2 Million Sources Would Be Covered if EPA Regulates GHGs. According to the report, A Regulatory Burden: The Compliance Dimension of Regulating CO2 as a Pollutant, the U.S. Chamber of Commerce estimates that the number of stationary sources that would be regulated if EPA issues GHG rules under the Clean Air Act (CAA) would increase nearly tenfold. The group said that approximately 150,000 sources are currently regulated under the CAA. If EPA proceeds with CO2 regulations, the U.S. Chamber of Commerce believes that 1 million commercial buildings, 200,000 manufacturing facilities, and 20,000 large farms could be covered due to the CAA's statutory thresholds for regulation of 100 and 250 tons per year. The report is available at: http://www.uschamber.com/assets/env/regulatory_burden0809.pdf.

International

  • U.N.-REDD Plan To Address GHG Emissions From Deforestation. The United Nations has launched a new program aimed at reducing GHG emissions from deforestation and forest degradation (REDD) in tropical nations. The U.N.-REDD Program will promote pilot anti-deforestation programs in developing nations in an effort to develop an international agreement on forestry issues that can be integrated into a post-Kyoto Protocol climate change treaty. The program, which has already been contacted by nine countries interested in receiving assistance, will involve national anti-deforestation strategies, monitoring systems, reporting and verification, and capacity building.
  • U.N. Secretary-General Forms Advisory Group to Gain Support for Post-Kyoto Treaty. United Nations Secretary-General Ban Ki Moon has established an advisory group to help build political momentum toward a successor treaty to the Kyoto Protocol, which expires in 2012. The Secretary-General named Polish President Lech Kaczynski, Danish Prime Minister Anders Fogh Rasmussen, and Indonesian Foreign Minister Hassan Wirajuda as the three members of the informal group. The three members represent the three nations in which the major negotiations for the climate treaty are to take place. Indonesia hosted the 13th Conference of the Parties in Bali in December 2007, while Poznan, Poland will host the 14th Conference of the Parties from December 1-12 of this year. Copenhagen, Denmark is slated to host what is expected to be the final meeting of the negotiations on the successor climate treaty next year.
  • US EPA to Assist Chinese Effort to Reduce Coal Mine Methane Emissions. As part of its Methane to Markets Partnership, EPA has agreed to cooperate with China in reducing methane emissions from Chinese coal mines. The U.S agency will provide over $1 million to analyze the economic and technical feasibility of recovering methane from coal mines in the Anhui, Chongqing, and Henan Provinces. The project aims to capture and use 1.8 million tons of CO2-equivalent methane annually. Twenty-four nations currently participate in the Methane to Markets program, which EPA asserts can reduce CO2-equivalent emissions by 50 million tons annually by 2015.
  • China Pledges to Double Investment in Renewable Energy. China's government announced plans to double the nation's investment in renewable energy technologies. Under the plan, the nation will increase its annual spending on renewable energy products to over $22 billion annually. Attributed to an "environmental awakening" by the government of the world's largest CO2 emitter, the increased investment would make China the largest investor in renewable energy in the world.
  • Spain Announces Plan to Establish Climate Research Center. Spanish Environment Minister Elena Espinoza announced that the nation will establish a climate change research center. The center will focus on analyzing climate change impacts and researching methods for adapting to those impacts. Of primary concern is the threat of desertification, which threatens nearly one-third of the Mediterranean nation's land area. In a related effort to address desertification resulting from climate change, Spain also announced that it will spend $125.5 million to plant 45 million trees.
  • New Zealand Parliament Passes Cap-and-Trade Legislation. The New Zealand Parliament passed legislation that would create a national GHG emissions trading scheme. The cap-and-trade program authorized by the Climate Change Response (Emissions Trading) Amendment Act will eventually cover all sectors of the New Zealand economy and will regulate all six greenhouse gases covered under the Kyoto Protocol. The trading program will initially apply only to the stationary energy sector when it is implemented in 2010, with additional economic sectors added in subsequent years. The cap-and-trade program will distribute emissions allowances through both free allocation and auction and will link to international carbon markets.

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