US Carbon Policy - Kelpie Wilson

This report by Kelpie Wilson brings us up to date on the present state of carbon policy in the US and I am pleased to see that a lot of very positive steps are been taken particularly at the state level. The international and national press really fails to cover the regional initiatives well even when they truly impact in the larger arena. Do you really think that a major success in California will fail to resonate elsewhere?

In fact, the best strategy for generating contentious change is to find a friendly regional player who helps prove the case. The classic example of that strategy in Canada came with the creation of the universal medical insurance system. One province (Saskatchewan) grabbed the nettle and made it work. Within five years the political support was so overwhelming that it was made a national system. It will never be perfect – just ask the critics – but for 45 years, a person struck down by ill health has had immediate access to care.

Arnie in California is very much taking that approach. He represents as many folks as most European countries and knows that there is no point waiting for Washington to lead when you have room to lead yourself and in the process grab the agenda and bend it to your state’s needs.

Whatever we may think of the oncoming carbon economy, postponing involvement will likely mean paying top dollar later. If you snooze, you lose. In any case this report updates real progress.

While we are here and talking about California, I do wish they would rein in the rhetoric on global warming. The place is desert, largely watered by sporadic rainfall and seriously prone to droughts with a clearly finite supply of fresh water requiring diligent management. If you run out of water, it is because the will was not there to manage it properly. This is another place that seriously needs solar powered atmospheric water harvesting though that will fail to provide far inland in the great valley’s rain shadow climate.

Coming Soon - The Carbon Economy

By Kelpie Wilson

t r u t h o u t | Report - Tuesday 04 March 2008

By refusing to sign on to the Kyoto climate treaty, Americans have insulated ourselves from the complexities of the carbon market the European Union has been trading in for the last three years. But that state of ignorance, while not exactly blissful, is about to end.

On February 26 and 27, the international carbon trading financial community descended on San Francisco to present Carbon Forum America, the first American carbon trading conference to include a full trade show featuring 80 companies that manage carbon credit assets and trades, negotiate contracts, validate projects, and perform various other market services.

Why California and why now? California is the US leader on climate policy and now is the time the tea leaves are spelling out a coming certainty for investors. The first serious US climate change measure, the Lieberman-Warner bill, has passed out of a Senate committee. All three front-running presidential candidates have acknowledged a cap-and-trade system for carbon emissions is inevitable. US regional programs like the Western Climate Initiative are picking up steam, and 32 states have now adopted hard emissions targets.

The conference sponsor, the International Emissions Trading Association, is banking on the idea US investors will embrace a worldwide carbon trading market that reached $60 billion in 2007 and could mushroom to $300 billion or more very soon.

But what exactly is a carbon market? At a press briefing, IETA president and CEO Henry Derwent acknowledged the concept was a difficult one to explain. "Carbon is an externality, not a commodity. People say, 'What on earth do I need that for? It's not a pork belly.'"

Derwent said investors should look at carbon trading as a form of derivative like a hedge fund. He defended the idea of traders making a profit from carbon trading. "They should be taking a margin for a service. If they do their job well they will provide the world with energy with a lower risk of climate change."

Environmental critics of a cap-and-trade system worry carbon traders, like other derivatives traders, will get carried away and game the system to produce excessive profits for themselves. But the biggest issue as the US contemplates its first national climate bill is the how to allocate the emissions under the cap.

The European Union Emissions Trading System established under the Kyoto protocol gave away emissions allocations to polluting industries in a grandfathering scheme. This depressed the price of carbon and got the market off to a slow start in 2005.

The Lieberman-Warner bill would repeat this strategy in the US by giving away over half of the pollution allowances - worth billions of dollars - to big industries like coal-burning electric utilities. By contrast, both Clinton and Obama advocate auctioning 100 percent of the allowances.

One hundred percent auctioning is a litmus test for much of the environmental community, which sees the revenues as a crucial source of funds to pay for research and development of renewable energy and to support low-income people who will be hurt by higher prices. In fact, a cap-and-trade system with 100 percent auctioning of allowances is functionally not very different from a carbon tax.

At a Carbon Forum plenary session on potential federal greenhouse gas regulation, representatives of some big corporations weighed in on the auctions debate and other issues.

Ralph Moran, West Coast Climate Change director for British Petroleum, said his company supports some amount of auctioning, but it will dramatically increase the cost of doing business. He warned there was no guarantee government would use the revenues from auctions wisely.

Rich Rosenzwieg, Chief Operations Officer of Natsource, a carbon trading firm, continued the theme of mistrust in government. He said we should start small with auctions because "the public won't support giving government billions of dollars in revenue." He said the revenue stream would end up in a "roach motel" where the money goes in but may not come back out to the taxpayer. Rosenzwieg also stressed the need for flexibility and said we should not expect to "solve the problem in ten years."

Katharine Brass, director of General Electric's Ecomagination program, spoke about a looming gap in US electricity production due to the recent cancellation of many new coal-fired generators. That capacity was needed to meet projected demand, she said, and it will take ten years to bring on new coal plants with carbon capture and storage, even if we could start now. But last month, the Bush administration canceled FutureGen, the only pilot program to develop the untested technology.

California Lt. Gov. John Garamendi closed the conference with a stirring address. In an obvious reference to the Bush administration's refusal to allow California to regulate greenhouse gas emissions under the Clean Air Act, Garamendi detailed all of the ways in which global warming is now impacting and will impact California in the future. While drought and warming are reducing mountain snow pack and drying up the Colorado River, sea level rise will soon push salt water into the Central Delta.

"The end result: the California water system as we know it today - terminated. Doesn't work. We are going to spend billions upon billions of dollars to redesign our water system," Garamendi said.

California is taking action, he said, and state legislation (AB32, The Global Warming Solutions Act) will enable California to establish a carbon cap-and-trade program in the next two or three years. His hope is the California program will drive the coming federal policy: "We are eleven months away from a new regime in Washington and when that happens we want them to follow the California lead and that means we are moving very rapidly forward on a whole set of policy issues."

Garamendi wants California to auction its emissions allowance permits to create a fund to deal with aspects of the problem not covered by markets, like energy research and development and environmental justice.

He also supports bringing in transportation, which accounts for 40 percent of California's greenhouse gas emissions. He said there have been lots of discussions of how to do that, but his view is, "If anyone figures out a way to have a cap-and-trade system that rewards individuals, then we will have a big winner because everyone will want to make an extra buck."

Getting individuals to engage by coming up with the right incentives would be "an awesome system," Garamendi said. "If any of you know of anywhere in the world where such a system is being tried, please let us know here in California."

If Garamendi's enthusiasm is any guide, the new carbon-based economy is coming very soon, at least to California, with the rest of the country following shortly.

Mette Peterson, one of the Carbon Forum organizers, said the conference attendance exceeded expectations with 1,400 participants. She said American businesses were there to learn about the market and get positioned for the future.

It looks like the smart money is gearing up to hedge against climate change.

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Kelpie Wilson is Truthout's environment editor. Trained as a mechanical engineer, she embarked on a career as a forest protection activist, then returned to engineering as a technical writer for the solar power industry. She is the author of "Primal Tears," an eco-thriller about a hybrid human-bonobo girl. Greg Bear, author of "Darwin's Radio," says: "'Primal Tears' is primal storytelling, thoughtful and passionate. Kelpie Wilson wonderfully expands our definitions of human and family. Read Leslie Thatcher's review of Kelpie Wilson's novel "Primal Tears."