The most detailed data yet on emissions of heat-trapping gases show that U.S. power plants are responsible for the bulk of the pollution blamed for global warming. Power plants released 72 percent of the greenhouse gases reported to the Environmental Protection Agency for 2010, according to information released Wednesday that was the first catalog of global warming pollution by facility. The data include more than 6,700 of the largest industrial sources of greenhouse gases, or about 80 percent of total U.S. emissions.

According to an Associated Press analysis of the data, 20 mostly coal-fired power plants in 15 states account for the top-releasing facilities.

Gina McCarthy, the top air official at the EPA, said the database marked “a major milestone” in the agency’s work to address climate change. She said it would help industry, states and the federal government identify ways to reduce greenhouse gases.

The Obama administration plans to regulate emissions of heat-trapping gases under existing law. A proposed regulation to address pollution from new power plants could be released as early as this month. Eventually, the EPA will have to tackle facilities already in operation. The largest emitters will be the first in line.

The largest greenhouse gas polluter in the nation in 2010, according to the EPA’s data, was the Scherer power plant in Juliette, Ga., owned by Southern Company. That coal-fired power plant reported releasing nearly 23 million metric tons of carbon dioxide, the chief greenhouse gas, in 2010.

Two other power plants owned by Southern were the second- and third-largest polluters nationally: the Bowen plant in Cartersville, Ga., and the James H. Miller Jr. power plant in Quinton, Ala. The plants are some of the largest coal-fired power plants in the country.

American Electric Power, another large coal-fired power producer, has three power plants in the top 20. They are in Rockport, Ind., Cheshire, Ohio, and St. Albans, W. Va.

“This is just another way to identify the largest coal-fired power plants in the country,” said AEP spokesman Pat Hemlepp. “We always assumed we would be No. 1 in greenhouse gas emissions or No. 2 behind Southern Co. AEP and Southern are the two largest consumers of coal.”

Both companies are testing technology to capture carbon dioxide from power plants and pump it underground for storage. But to date, no one has proven that is possible for a commercial-sized power plant.

The other states with high-polluting power plants are Texas, Michigan, Missouri, Montana, Pennsylvania, Arizona, Wyoming, North Carolina, Kansas and Kentucky.

Refineries were the second-largest source of greenhouse gas emissions, with 5.7 percent of the reported total. The top states in greenhouse gas emissions from power plants and from refineries were Texas, Pennsylvania, Florida, Ohio, and Indiana.

Congress required industries to report their greenhouse gas emissions as part of a 2008 spending bill. Until now, the agency has estimated greenhouse gas emissions by industry sector.

“The information is sure to make companies, localities and specific plants more conscious of their emissions profile and may lead some to lower emissions themselves,” said Paul Bledsoe, senior advisor at the Bipartisan Policy Center, a Washington think tank that works on energy and environmental issues.

Environmental groups welcomed the release of the information Wednesday.

“EPA has scored a touchdown for the public’s right to know about the nation’s largest industrial climate pollution sources,” said Paul Zalzal, staff attorney at Environmental Defense Fund.

Original Article

Gov. Jerry Brown has found a new pot of money to help him fill a $9-billion hole in his proposed budget: $1 billion from auctioning credits to allow California companies to emit greenhouse gases.

But business groups are already denouncing Brown’s plan as a back-door tax increase that they intend to challenge in court if the proposal is approved as part of the state budget for the fiscal year that begins July 1.

“At a time when the public is concerned about jobs and the economy, the budget proposes a new tax on California businesses for climate change activities,” said Dorothy Rothrock, vice president of the California Manufacturers and Technology Assn. “The anticipated $1 billion is not windfall revenue. The funds will be paid by California employers suffering the worst recession since the Great Depression.”

The so called cap-and-trade system is a critical piece of AB 32, California’s landmark legislation aimed at cutting carbon dioxide emissions to 1990 levels by 2020. Modeled on a European program, it sets a cap on emissions of carbon dioxide, methane and other greenhouse gases for each industrial polluter or electric power plant. Facilities can exceed their cap only if they buy credits of other plants that have extra ones after reducing their own releases into the atmosphere.

The first auction, tentatively set for August, is projected to raise as much as $1 billion, which would be earmarked to “create jobs and deliver public health, economic and environmental benefits” as part of the state’s effort to curb global warming, the governor’s office said.

Brown’s 2012-13 budget summary, released Thursday, dedicated three of its 173 pages to a bare-bones plan to use the auction proceeds to pay for a variety of environmental programs.

But business groups representing steel mills, cement plants, refineries and other heavy industries say such spending is not authorized by AB 32 and is probably unconstitutional.

At issue is whether the money paid by polluters to buy credits is a fee or a tax.

The difference is important because tax increases or changes require the approval of a two-thirds super-majority of members in both the California Senate and Assembly. But a simple majority of lawmakers can set fees on industries. Money collected from the firms can be spent only on activities that are closely related to regulation of a specific business, such as conducting a health inspection at a restaurant.

Reinforcing the principle of a tight linkage between a fee and how it is spent was enshrined in the state Constitution when voters approved Proposition 26, an industry-backed initiative, in 2010.

Such a connection clearly exists, the Brown administration said, noting that it plans to spend the auction proceeds in four broadly defined areas: clean and efficient energy, low-cost transportation, natural resource protection and sustainable infrastructure development.

“These are the types of programs spelled out in broad strokes in AB 32,” said H.D. Palmer, a spokesman for the governor’s Department of Finance.

What’s more, some AB 32 supporters contend, the extra $1 billion in environmental fees — even if they are considered taxes — are not overly onerous since California’s total corporate tax bite is on par with the U.S. average, according to a recent survey by the Council on State Taxation. Total corporate taxes are higher in Alaska, New York, Florida and even Texas, says the report by the business-friendly group.

Exactly how the proposed environmental auction money might be spent won’t be clear until more than a year from now, although some of it could be used to pay for existing environmental programs, freeing up the money for other purposes, Palmer said.

Environmentalists generally support the governor’s plan because it could lead to a net increase in spending on their favorite projects.

“Much as we hate to see it, some backfilling [for existing programs] is going to happen,” said Jim Metropulos, a lobbyist for the Sierra Club, who called the governor’s plan for spending auction receipts “a good thing.”

For now, Brown’s cap-and-trade spending proposal is too vague to draw any conclusions, said Tiffany Roberts, a specialist in environment and natural resource programs at the California Legislative Analyst’s Office.

“Who knows if this can pass legal muster?” she said. “Until we see some kind of proposal, it’s guesswork.”

Original Article

California (STOCA1) Governor Jerry Brown plans to use half of the revenue from the nation’s first state- run cap-and-trade air-pollution program to help ease a $9.2 billion deficit in the most populous U.S. state.

Brown estimates the state will take in about $1 billion in the year beginning July 1 under the landmark legislation, which allows industry to buy and sell carbon credits to reduce greenhouse gases. The 73-year-old Democrat wants to use about $500 million on environmental programs now financed through the general fund, said H.D. Palmer, a Finance Department spokesman.

“There would be an offset to the general fund to the degree that these fees are and can be used for programs currently being funded by the general fund on greenhouse gas emissions,” Palmer said in a telephone interview yesterday.

California will auction tradable allowances that permit industries such as power generators and oil refiners to release carbon into the atmosphere if they can’t meet requirements to lower their pollution to 1990 levels. Brown is seeking to boost general-fund spending by 7 percent to $92.6 billion while asking voters to raise income and sales taxes to ward off further cuts to schools.

Freeing up that money also could help ease strains on the budget if voters reject his tax proposal or revenue falls short of expectations. The state’s Legislative Analyst’s Office said yesterday that Brown’s tax increases, proposed Jan. 5, would raise $2 billion less than the $6.9 billion he projects.

Ceiling on Emissions

California regulators in October approved the design of the cap-and-trade program, so named because it will put a ceiling on carbon emissions and allow companies to trade pollution permits to comply. Known as AB 32, it is the first mandatory regulation of its kind in the U.S.

Emission reductions will be enforced by decreasing the number of allowances over time. Allocations will start at 90 percent of industries’ recent levels and gradually shrink, from a peak of 394.5 million tons in 2015 to 334.2 million in 2020.

Large industrial sources such as power plants and oil refineries must hold a permit for every ton of carbon they release beginning Jan. 1, 2013. Transportation-fuel distributors will follow in 2015.

Once the state knows how much the auctions will generate, Brown will submit a plan on how he wants to spend the money to the Legislature for approval. Democrats control both the Senate and Assembly. In his budget, Brown said he will use the money on clean energy, as well as environmental and natural-resource protection programs, and alternative-energy infrastructure.

‘Some Flexibility’

“We have some flexibility there,” said Stanley Young, spokesman for the California Air Resources Board, which administers the carbon-trading program. “We’ll be consulting with the Department of Finance and the governor’s office on our options.”

The California Manufacturers and Technology Association opposed the law and is part of a group monitoring how cap-and- trade is implemented. Dorothy Rothrock, a lobbyist for the association, said the money shouldn’t be used to balance the general fund.

“AB 32 and cap-and-trade is not intended to be a revenue source for the state of California,” she said. “We are very concerned that the governor’s budget doesn’t respect the limitations that need to apply to monies raised under the cap- and-trade program.”

Futures Down

Futures for California carbon allowances were trading at $13 a ton yesterday, according to CME Group Inc. (CME)’s Green Exchange in New York, down from a high of $23.50 on Sept. 7.

Brown is working to gather enough signatures to put an initiative on the November statewide ballot asking voters to raise income taxes on individuals making at least $250,000 a year to 10.3 percent from 9.3 percent. For those earning $300,000 to $500,000, the rate would climb to 10.8 percent. For single filers with income above $500,000, the tax would rise to 11.3 percent. Californians with income of more than $1 million are now taxed at 10.3 percent.

He also wants to boost the statewide retail-sales tax to 7.75 percent from 7.25 percent. The higher income and sales levies would expire after five years.

If voters reject those taxes, Brown’s budget proposes to cut $4.8 billion from schools, the equivalent of taking three weeks from the academic year.

Original Article

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By Kerry Picket

Although Congress never managed to pass President Barack Obama’s cap and trade plan, the Environmental Protection Agency’s new regulations imposed on coal plants did the job for the president and Democrats on the hill pushing for C & T.

Back during the days of campaign 2008 Barack Obama told the San Francisco Chronicle: (emphasis is mine)

The problem is not technical, and the problem is not sufficient mastery of the legislative intricacies of Washington.

The problem is, can you get the American people to say this is really important and force their representatives to do the right thing? That requires mobilizing a citizenry. That requires them understanding what is at stake, and climate change is a great example.

When I was asked earlier about the issue of coal…under my plan of a cap and trade system, electricity rates would necessarily skyrocket…even regardless of what I say about whether coal is good or bad, because I’m capping greenhouse gasses, coal power plants, natural gas…you name it…whatever the plants were, whatever the industry was, they would have to retro-fit their operations.

That will cost money…they will pass that money on to the consumers. You can already see what the arguments are going to be during the general election.  People will say Obama and Al Gore …these folks…they’re going to destroy the economy.

This is going to cost us 8 trillion dollars or whatever their number is.  If you can’t persuade the American people that, yes,  there is going to be  some increase on electricity rates on the front end, but that over the long term, because of combinations of more efficient energy usage and changing light bulbs and more efficient appliances, but also technology improving how we can produce clean energy that the economy will benefit.

If we can’t make that argument persuasively enough, you can be Lyndon Johnson.  You can be the master of Washington.  You’re not gonna get that done.

The Washington Post and the Milwaukee Journal Sentinel are now reporting that the White House is using the EPA to put forth a strangle hold on coal plants that will jack up energy rates on the consumer and shut down coal plants. According to the Journal Sentinel:(emphasis is mine)

The new rule has been in development for several years but the first phase of compliance hits utilities in 2012. WPS said it won’t have time to install pollution controls by next year at its plants, but will be able to comply by purchasing credits from other utilities that have cut emissions.

The utility also said it plans to operate its coal plants less next year than it otherwise would have, and will buy more power from the Midwest wholesale power market as a result, a move that it said is also a factor in higher costs for customers.

“This is the best option we have to meet power supply needs for 2012 and comply with the new EPA rule at this time,” said Karen Kollmann, WPS director of fuels management in a statement.

On Thursday, Wisconsin Power & Light Co. of Madison said it would face an additional $9 million in costs linked to the air pollution rule. With the change, the utility is now seeking an increase in 2012 of $20 million, or 2%, utility finance manager Martin Seitz said in a filing with state regulators.

Essentially the American people got cap and trade by bureaucratic imposed fiat via the EPA. According to the the Washington Post: (emphasis is mine)

Over the next 18 months, the Environmental Protection Agency will finalize a flurry of new rules to curb pollution from coal-fired power plants. Mercury, smog, ozone, greenhouse gases, water intake, coal ash—it’s all getting regulated. And, not surprisingly, some lawmakers are grumbling.

Industry groups such the Edison Electric Institute, which represents investor-owned utilities, and the American Legislative Exchange Council have dubbed the coming rules “EPA’s Regulatory Train Wreck.” The regulations, they say, will cost utilities up to $129 billion and force them to retire one-fifth of coal capacity. Given that coal provides 45 percent of the country’s power, that means higher electric bills, more blackouts and fewer jobs. The doomsday scenario has alarmed Republicans in the House, who have been scrambling to block the measures. Environmental groups retort that the rules will bring sizeable public health benefits, and that industry groups have been exaggerating the costs of environmental regulations since they were first created.

The New Republic quotes Frank Litz in an April piece. Mr. Litz  wrote a World Resources Institute Report that suggests ways the EPA can cut greenhouse gasses without making it “look like a cap-and-trade approach.”  (emphasis is mine)

But much depends on the choices agency officials make. “If the EPA’s feeling gun-shy over scrutiny from Congress, they may not want to use these rules to their full potential,” says Franz Litz, who wrote the WRI report. To take just one example, the agency could decide that older coal plants only have to make efficiency upgrades to curb pollution—in which case a modest cut in emissions is about the best that could be expected. Or the agency could recommend that coal plants co-fire their boilers with biomass—or even switch to natural gas—in which case the rules would prompt deep reductions. A lot also hinges on how much flexibility the EPA gives states to implement these cuts—if states are allowed to enact some sort of permit-trading program, they could get steeper cuts for less cost. “But,” says Litz, “the agency might not want to set up anything that looks like a cap-and-trade approach,” given that conservatives have turned “cap-and-trade” into a dirty phrase.

Apparently, Obama got his cap and trade plan goals out there, but he did an end run around Congress to do it.

Original Article

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By: Ken Klukowski

Judges cannot make their own cap-and-trade system for carbon emissions, but only because the U.S. Environmental Protection Agency is already doing it, the Supreme Court ruled Monday in a major global-warming case.

Several states, led by New York and Connecticut, pursued a tenuous theory in court, arguing that, since carbon emissions cause global warming, which in turn leads to natural disasters, misery and death, then courts ought to be able to fix it as a public nuisance.

The states sued five of America’s largest power companies in the case American Electric Power v. Connecticut, seeking a court order that they cut their carbon emissions by whatever amount the judge thought appropriate. The lower court dismissed the case, but the U.S. Court of Appeals for the 2nd Circuit sided with the states.

Public nuisance is a tort governed under common law (i.e. judge-made law). But Congress passed the Clean Air Act and charged EPA with administering it.

When President Obama took office, even his Democrat-controlled Congress didn’t pass a cap-and-trade law because they understood a $2 trillion burden would strangle our economy.

In the months since, Obama’s EPA decided to create a cap-and-trade system through regulations, neatly sidestepping the dual impediments of democracy and the separation of powers.

EPA is still making those regulations. So one issue was whether EPA’s rulemaking displaces any federal common-law nuisance claim.

The Supreme Court unanimously held that it does. Writing for the court, Justice Ruth Bader Ginsburg said that since Congress has empowered the EPA to make regulations under the Clean Air Act, this matter is now one for agency experts.

Courts still have a role, but it’s not to design cap and trade. Instead, EPA’s regulations are subject to judicial review after they’re issued to determine whether they’re arbitrary or capricious, just like other regulations. But it’s a role of reviewing policy instead of making policy.

This part of the court’s decision is great news; we don’t have to sit through decades of judges creating different systems in all 94 judicial districts in America.

But the Supreme Court split on whether it even had jurisdiction to hear this case, either because of lack of standing or because this presents a political question.

Before addressing the merits, the court examined whether the states had standing to sue. Article III of the Constitution requires plaintiffs to have standing, meaning that they must have suffered a concrete injury, traceable to the defendant, that a court can redress by granting the requested relief.

In one of the worst administrative law cases in history, Massachusetts v. EPA, the Supreme Court held 5-4 that states do have standing to sue over global warming. This case raised that issue again.

AEP also argued that the district court was correct that this case could not be decided by courts because it falls within the political question doctrine. Several political question factors were present here, such as the lack of judicially manageable standards for a cap-and-trade system.

The justices split 4-4 on jurisdiction. Four justices (the conservatives) argued the states lacked standing. Four justices (Anthony Kennedy and three liberals) argued the court had jurisdiction and that this was not a political question.

With an evenly divided court, the 2nd Circuit’s decision on that issue stands, so jurisdiction exists in this case. Justice Sonia Sotomayor was recused from this case.

With her vote, there would be a majority for court jurisdiction of cap and trade. So this case is an alarming sign of expanding judicial power over the economy.

Although we dodged a bullet this time regarding public nuisance claims, more cases are coming. There will be more global warming cases, and five justices think they’re fit to make these decisions.

Examiner legal contributor Ken Klukowski is a fellow with Liberty University School of Law and co-author of “Resurgent: How Constitutional Conservatism Can Save America.”

Original Article

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The president’s plans for “clean energy standards” amount to carbon controls by other means.

Cap and trade is dead. Long live cap and trade.

The president presented his new, conciliatory face to the nation this week, and his State of the Union was as notable for what it didn’t include as what it did. He uttered not one word about global warming, a comprehensive climate bill, or his regulatory attempts to reduce carbon. Combined with his decision to give the axe to controversial climate czar Carol Browner, political analysts took all this as further proof that Barack Obama was moving to the middle, making nice with Republicans.

Snort. Guffaw. Chortle.

Listen carefully to Mr. Obama’s speech and you realize he spent plenty of it on carbon controls. He just used a different vocabulary. If the president can’t get carbon restrictions via cap and trade, he’ll get them instead with his new proposal for a “clean energy” standard. Clean energy, after all, sounds better to the public ear, and he might just be able to lure, or snooker, some Republicans into going along.

The official end of cap and trade, and Mrs. Browner, wasn’t conciliation—it was necessity. The public now understands that cap and trade is an economy killer, and no small number of Democrats lost their seats in midterms for supporting it. Few in the party want to take it up again, and House Republicans won’t let it pass. Mr. Obama would be crazy to continue calling for it.

Mrs. Browner, for her part, had become a political liability. As czar, she’s had sweeping control over administration policy—all of it unaccountable. This worked under a Democratic Congress, but House Republicans had made clear they intended to call her to testify. This had the makings of an ugly fight over executive privilege and would have forced the White House to defend a lack of transparency. Better to let the lightning rod go.

But Mr. Obama has no intention of letting go of his carbon-free world. He instead went to plan B. Specifically, he called in his speech for the nation to “join” him in a “new goal: by 2035, 80% of America’s electricity will come from clean energy sources.” What the president was in essence calling for—in happier, fuzzier, broader language—is what policy wonks refer to as a “renewable portfolio standard.” This is a government mandate requiring that utilities produce annually a specific amount of their electricity from renewable sources—wind, solar, biofuels.

It’s also cap and trade by another name. Consider: The goal of cap and trade is to impose crushing taxes on fossil fuels—oil, coal, natural gas—thereby forcing utilities to switch to costly renewables. Under Mr. Obama’s new proposal, the government skips the tax part and outright requires the use of costly renewables. The result is the same: dramatically higher energy prices, from carbon-free sources. Now you know why even climate warrior John Kerry was so sanguine about the president’s failure to say “climate change” in his speech. “I’m very sympathetic,” said the Massachusetts senator, who clearly got the strategy memo.

Many Republicans understand the situation. Michigan Rep. Fred Upton, chair of House Energy and Commerce, put out a statement following the speech that insisted “the answer is not to hyper-subsidize preferred industries or to force consumers and job creators to purchase energy they can’t afford.” Reached on the phone, Mr. Upton elaborated, telling me the president’s remarks “smell like cap and trade all over again.” He noted that 28 states already have their own renewable standards and so “why have a federal mandate?”

Then again, some Republicans—the self-styled energy progressives—have let it be known they’d be open to a new government diktat, if only the price is right. South Carolina Sen. Lindsey Graham has noodled with legislation to require an energy standard that includes nuclear energy (like that produced in his home state) along with renewables. Indiana Sen. Dick Lugar has floated what he calls a “diverse” energy standard that would mandate renewables, nuclear and . . . coal with carbon sequestration. (Indiana relies on coal.)

This is why Mr. Obama took care in his speech to refer broadly to a “clean energy” standard and make clear he was open to including in it “nuclear” and “clean coal”—along with renewables. He’ll lure Republicans into negotiations, then cement their support with lavish energy pork for their home-state nuclear, clean-coal, wind, biofuels and solar projects. As a bonus, the plan gives cover to nervous coal state Democrats.

What the White House also knows—as do most sensible people—is that these promises mean little. The president has made grand nuclear gestures, but his regulators continue to sit on projects. Clean coal remains a pipe dream. Here’s to betting that if and when the president’s “clean energy” standard kicks in, the only mandated sources utilities have to choose from are wind, solar and biofuels.

The GOP has spent some long, sometimes uncomfortable, years explaining the perils of cap and trade. Yet they risk getting the same policy, all because they’ve yet to find the moxy to resist the “clean energy” drumbeat.

Original Article

NEW YORK — The nation’s first experiment in carbon emissions cap and trade has come to an end, but its mark on the climate change industry will be felt for some time to come.

The second commitment period for member companies of the Chicago Climate Exchange ended as of Dec. 31, 2010, and there will be no new cycle to ring in the new year. Exchange trading in the allowances the system generated, known as Carbon Financial Instruments (CFIs), to meet emission reduction commitments ends, as well, although CFI generation will continue as a strictly voluntary greenhouse gas emissions offset system.

Meanwhile, CCX’s sister institutions, the European Climate Exchange and the Chicago Climate Futures Exchange, will continue as long as there is corporate and state government interest in fighting climate change, even with the failure of cap and trade in the U.S. Congress, CCX officials insist.

And former member companies say they have no regrets about participating in the admittedly flawed system. They praise the lessons they learned ahead of the slow spread of state-driven cap-and-trade initiatives from the Northeast to California and possibly the West.

“We’re glad to have had the experience,” said Jennifer Orgolini, sustainability director at New Belgium Brewing Co., one of the smallest former members. “I don’t regret joining it.”

Though celebrated by climate activists at its launch in 2003, CCX became plagued by a flood of credits from offset project generators that collapsed the CFI market, sending exchange prices to a nickel per unit. Highlighting this collapse, many in the U.S. carbon trading community openly questioned the legitimacy of the system itself, putting founder Richard Sandor and his team on the defensive at periodic carbon market conferences held in Washington, D.C., and New York.

So when the new parent company IntercontinentalExchange announced the end of mandatory CFI trading by member companies in October, much of the media reacted with quasi obituaries for CCX itself. Coming as it did on the heels of failed climate legislation in Congress, a fiasco at international climate change negotiations in Copenhagen, Denmark, and the collapse in the price for allowances under the Regional Greenhouse Gas Initiative (RGGI), CCX’s closure seemed to confirm the death of the very concept of cap and trade itself.

Calif. keeps hope alive

But California’s recent moves toward mandatory emissions trading is breathing new life into the market. RGGI officials are also in talks to reform their system. And CCX officials say that although they’ve closed their contractually binding trading platform, they aim to leverage their relationship with some of the nation’s largest companies to revitalize the voluntary carbon market, while maintaining their dominant position as the largest host of trading in a variety of environmental commodities.

“The point was to get companies familiar with allowances and trading, and how to do that and how to use offsets and exchange them on a platform. And that has all been accomplished,” said Lisa Zelljadt, an analyst at the carbon market research firm Point Carbon. “So with the advent of mandatory programs like RGGI and now California … the sort of experimental value of CCX as it was is over.”

But new participants are still welcome, says Brookly McLaughlin, a CCX spokeswoman.

“They can participate through … the offsets registry,” she said. “The credits will be offset project driven” and will continue to be called CFIs, McLaughlin added.

The central problem hurting mandatory carbon markets globally has been an abundance of allowances at the start of the programs, usually in the face of weak demand.

Prices at the European Union’s Emission Trading System nearly fell through the floor after political haggling led governments to overallocate allowances to influential industries. E.U. allowance prices have recovered since the first commitment period but still face downward pressure from a weak economy.

Likewise, RGGI allowances are now at their legal price floor after a shale gas boom in Pennsylvania transformed the energy mix in the 10 Northeastern member states.

Transitioning to offsets only

Carbon market experts say the CFI market suffered the same fate, but for different reasons.

Unlike in other systems, CFIs were both allowances and emissions offsets credits. Offset project developers could generate CFIs in the system even as they faced no obligation to purchase the allowances to meet reduction commitments faced by the 450 member companies.

Thus, demand for the allowances was relatively fixed, while supply was seemingly endless. CFIs once traded as high as $7.50 per metric ton of CO2-equivalent emissions, but as of last Friday, the exchange trading price was just 5 cents, the same price they’ve been at for more than a year.

“Quite frankly, the market has pretty much collapsed,” said James Hugh, who handles CCX transactions for the utility PSEG. “There really isn’t all that much to do there.”

CCX officials say the picture is skewed because 95 percent of trades occur in so-called over-the-counter (OTC) transactions that don’t show up in spot trading data. OTC market prices have held better in recent months, averaging $3.41 as late as October last year.

In fact, the obvious preference for OTC trading is what led IntercontinentalExchange to kill the open exchange platform. Member companies were polled prior to the decision, and most reported back that they preferred that no third commitment period be offered and instead favored the new approach, a transition to just offsets, CCX officials say.

Hugh admits that PSEG will likely be left with more CFIs than it needs when the company fulfills its obligations to CCX and finishes its reporting requirements this year. Member companies were mandated to accomplish a cut of at least 6 percent of their baseline emissions reductions during the second commitment period, but were free to exceed that target.

Company says it values CCX experience

Hugh guesses several companies are in the same situation with regard to their CFIs and will simply do what PSEG plans to — bank them in the hopes that a future cap-and-trade system will accept them.

“I would expect that people will probably continue to hold onto them if they have them immediately, because honestly, there’s not much else to do with them at this point,” he said. “To the extent that there’s some program in the future that recognizes them, people will hold them for that.”

Orgolini at New Belgium Brewing, a small craft beer maker based in Fort Collins, Colo., says she likely will have to turn in all the company’s remaining CFIs when it and other companies report in over the next couple months. But she admits that, as one of the smallest CCX members, with a light carbon footprint, her company’s trading activity wasn’t all that extensive.

“Our emissions were on the scale of just a handful of CFIs,” she said. “For several years, we just held onto our credits. We didn’t trade them, and then in later years, as our growth kind of overcame our reductions, we applied those credits.”

But Orgolini insists that her firm is happy to have been a member. The chance to join the nation’s only carbon trading platform back in 2003 was one her environmentally conscious firm couldn’t pass up, she said.

Despite the market collapse and lax enthusiasm for continuing the system as is, CCX’s new Atlanta-based managers at IntercontinentalExchange say they consider the experiment a success. CCX’s creators, who have since moved on to form the advisory service Environmental Financial Products LLC, declined to comment for this report.

CCX says its 450 members achieved reductions of 700 million tons of greenhouse gas emissions over the seven-year life of the cap-and-trade program, 88 percent through direct industrial emission cuts and 12 percent through offsetting. Its final estimated average price for the CFI throughout the term comes to $3.26 per metric ton, about comparable to other voluntary offsets credits sold in the United States.

“It has provided cost-effective and market-based flexibility for reducing greenhouse gas emissions through an exchange platform with price transparency and independently verified reductions,” the company boasted in a release. “CCX facilitated investment in new businesses, technologies and innovative products and helped companies to build the skills and institutions needed to manage climate risks.”

And despite its negligible impact on the larger fight against climate change, all in all, the Chicago Climate Exchange was a worthy endeavor, said Zelljadt.

“Definitely, the businesses that participated in CCX have gained some valuable experience,” she said.

“They dealt with actual emissions units, emissions permits, the things you deal with in an emissions trading system. And that’s very useful.”

Clarification: An earlier version carried a headline stating that CCX was closing; CCX will in fact remain open, though its cap-and-trade system has ended.

Original Article

In a new article for Foreign Affairs, “Globalizing the Energy Revolution: How to Really Win the Clean-Energy Race” (subscript. req’d), Michael Levi and colleagues at the Council on Foreign Relations argue that the world is “woefully underspending on clean-energy innovation” and needs to pursue a new international strategy:

“Clean energy is almost always more expensive than energy from fossil fuels, and often by a big margin… Yet the world is woefully underspending on clean-energy innovation… the IEA estimated that the world would need to spend an average of $51-$100 billion each year to support the research, development, and demonstration of clean-energy technologies. Current public spending is a mere $10 billion annually… The shortfall is staggering.”

What should be done?  First, the developed world needs to ramp up its efforts. “Major scientific advances are still most likely to occur in the developed world, alongside much of the work necessary to commercialize clean-energy technologies and the capital required to support those efforts,” they write.  U.S. strategy should include two basic element: first, incentives to create a larger domestic market to drive both deployment and indirect innovation; and second, direct government support for clean energy innovation through research, development, and demonstration.

However, in order to “globalize the energy revolution,” the authors argue for a better international approach.  First, the world needs to create a more “open innovation system,” primarily through open investment and trade policies, and avoid protectionist measures that discourage innovation (we recently made a similar argument here):

“Technology advances most rapidly when researchers, firms, and governments build on one another’s successes. When clean-energy investment is seen as a zero-sum game aimed primarily at boosting national competitiveness, however, states often erect barriers. They pursue trade and industrial policies that deter foreigners from participating in the clean-energy sectors of their economies, rather than adopting approaches that accelerate cross-border cooperation. This slows down the very innovation that they are trying to promote at home and simultaneously stifles innovation abroad.”

Unfortunately, “green protectionism” is on the rise.  Although countries like Brazil and India have relatively open approaches, the Chinese government supports aggressive protectionism. For example, according to the authors, forced technology transfer from foreign firms has caused an “unprecedented backlash from foreign companies that do business in China… A hostile environment also makes it politically difficult for Washington to support policies that actively accelerate the spread of clean-energy technology to China.” The U.S. should push strongly for free clean energy trade but without sparking backlash in developing countries that reduces domestic support for clean energy. (Two recent NYT articles discussed these issues in the wind industry, “To Conquer Wind Power, China Writes the Rules” and “China’s Push Into Wind Worries U.S. Industry.”)

Second, beyond creating a more open global innovation system, the U.S. government must actively support advanced energy technology development and diffusion abroad.  The authors propose several ideas, including cross-border demonstration and commercialization projects; stronger export promotion through the U.S. Export-Import Bank and the Overseas Private Investment Corporation; greater support for joint R&D programs like the U.S.-China Clean Energy Research Center; and more.  These efforts would involve substantial public investment, however as the authors note, this approach could be much more politically appealing than proposed alternatives through the UNFCCC:

“Many of these initiatives–particularly those that focus on the more commercial end of the innovation spectrum–could cost a considerable amount. But they would have their benefits–not only in terms of cutting global oil consumption and reducing greenhouse gas emissions but also in helping U.S. clean-energy innovators and companies. And when it comes to climate change, they might present a more attractive alternative to the other options, which tend to involve financial support for clean-energy deployment in the developing world with few strings attached. Money that boosts U.S. clean-energy companies while helping the big emerging economies adopt advanced technologies is likely to be much easier to sell politically than funds that are not tethered explicitly to U.S. economic goals.”

The authors conclude by warning that without such a concerted and enlightened international strategy, all parties will lose:

“The alternative is not a world in which the United States dominates the clean-energy field… It is more likely to be one in which the cost of clean energy does not drop as quickly as needed, particularly in the developing world, and in which massive markets for clean-energy technologies do not materialize. In that case, the United States and the world will both lose.”

Overall, these ideas are a welcome contribution to the unfolding debate.  In the aftermath of cap and trade and binding global emissions agreements, it is clear that the United States and the world must pursue a new strategy for clean energy innovation, which is necessary to drive down to price of clean technologies and enable their affordable deployment (see “Energy Innovation 2010: A New Beginning for U.S. Energy Policy“).  This begins with a new U.S. domestic strategy, which must be extended abroad through a new international technology framework.  Concerns about economic competitiveness in the clean energy race provide a strong motivational factor for domestic policies, but we must guard against protectionism that discourages innovation while actively promoting advanced technology abroad.

Original Article