Friday, April 19, 2013

China: CO2 Trading

The following news item , as reported by Reuters, speaks to the trading efficiency that we had discussed recently. Unfortunately, it also makes it clear that the EU plan for Cap and Trade is in shambles.
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The crisis facing the European carbon market will not deter China from plans to establish its own emissions trading platform or its other climate pledges, the senior official responsible for climate change said on Thursday.
Xie Zhenhua, vice-director of the National Development and Reform Commission in charge of climate policies, said efforts to cut greenhouse gas emissions were a "domestic requirement". They were, he said, designed to address longstanding inefficiency and environmental problems, and did not depend on other nations, or on the state of the economy.
"China has pledged these targets to the international community to deal with climate change and they will not change," he said at an event in Beijing. "Even if other countries say they will do nothing, we will keep to our strategy. No matter what happens to our economy, we cannot make any change."
The global financial crisis has saddled Europe's Emissions Trading Scheme (ETS) with a crushing oversupply of carbon credits and record low prices, but the EU parliament this week rejected proposals to bail the market out.
The ETS allows enterprises to meet their carbon reduction targets by purchasing carbon credits from the market, enabling them to keep emitting greenhouse gases. Many credits have been generated by low-carbon projects in China as part of a United Nations scheme known as the Clean Development Mechanism.
China is planning a similar domestic scheme in which carbon-intensive enterprises and industries can meet their own targets by acquiring the emission quotas allocated to other firms.
Xie said China ultimately sought to link its carbon trading platforms with those elsewhere, but was focused now on domestic needs.
"In the future we will establish a link, but in the next few years we first need to establish a carbon market according to Chinese conditions and the conditions of developing countries," he said.
LEARNING FROM EUROPE
He said China would learn from mistakes made in Europe, especially when it comes to prices, with Shanghai set to include a mechanism by which carbon credits can be taken off the market when supplies are too high and prices too low.
Carbon prices on Europe's ETS were trading at an all-time low of 2.46 euros ($3.21) per tonne on Tuesday, down from 18 euros just two years ago. Xie said the problem was that the mandatory emission cuts in Europe had been set too low.
"Why have the prices gone from such a high to such a low? Because of the rate of emissions cuts," he said. "If it was higher, and if there were more pressures, the market would be much more active. It is probably related to the initial design of the exchange and the way emissions targets were allocated."
China is the biggest emitter of greenhouse gases on an aggregate basis, but levels are low in per capita terms.
Xie said China's pilot carbon market scheme was on track, with trading to begin in the southeastern city of Shenzhen in June and later in the business hub of Shanghai before year-end.
But he said China would find it increasingly difficult to meet its 2020 climate change pledges. Problems, he said, would "get harder and harder and the costs will be higher and higher".
China has pledged to reduce 2011 levels of carbon intensity -- the amount of climate-warming carbon dioxide produced per unit of GDP growth -- by 40-45 percent by 2020.
It has also vowed to increase the share of non-fossil fuel energy to 15 percent of its total energy mix by the same period and close vast swathes of inefficient industrial capacity.

Saturday, March 30, 2013

California and Climate Change

IN LOS ANGELES, California’s largest city, the natural world is both far away and close. You spend your days stalled in traffic, cursing your fellow motorists as your car spews out the noxious fumes that, trapped in the Los Angeles basin, blanket the city in smog. When you do get moving, you may find yourself driving through miles of low-rise urban sprawl. Yet, depending on which one of the metropolitan area’s 4,850 square miles (12,600 square kilometres) you are in, you might be half an hour from a clean beach, an hour from a ski run and 90 minutes from empty desert.

Both features of Californian life helped forge the state’s fondness for environmental rule-making. In 1947, four years after a series of smog attacks in Los Angeles, Governor Earl Warren signed America’s first statewide air-protection law. Two decades later a catastrophic oil spill off the Santa Barbara coast helped give birth to the modern environmental movement, leading, among other things, to the California Environmental Quality Act (CEQA), approved by Governor Ronald Reagan in 1970.

Over the decades California’s green rules have inspired other states, and even the federal government, to follow. That urge to blaze trails remains strong. In 2006 Arnold Schwarzenegger, whose passion for climate policy was matched only by his love of Hummers, signed AB32, which required a cut in greenhouse-gas emissions to 1990 levels by 2020. He fought hard for similar federal action. His successor, Jerry Brown, recently urged a meeting of his fellow governors to follow California’s lead.

AB32 has several elements. The most prominent is a cap-and-trade scheme, the world’s second-largest after the EU’s, for substantial emitters of greenhouse gases (mainly large industrial producers). The system, which began on January 1st, will progress through three phases, gradually expanding its reach, lowering the carbon cap and auctioning (not giving away) a growing proportion of emissions permits.

The two auctions so far have gone well. More “non-compliance entities” (financial institutions and the like) are buying allowances, which should lead to a robust secondary market. The California Air Resources Board (CARB), which oversees AB32, has seen off one lawsuit, from the left, which challenged the right of polluters to buy carbon offsets. (A second, from the right, elements of which think all the allowances should be given away, not auctioned, still looms.)

From the beginning CARB has presented its scheme as a model for others. Quebec will join later this year, and there are hopes for other western states. Prospects for federal action look dimmer. A cap-and-trade bill (co-authored by a Californian congressman) died in the Senate in 2009. In February Barack Obama urged Congress to try again. But, as he knows well, a Republican House will not back major new climate laws. For the next two years at least, Mr Obama will have to pursue his aspirations through the Environmental Protection Agency. Still, Mary Nichols, the head of CARB, thinks EPA regulation could make California-style carbon pricing start to look attractive to other states.

Cap-and-trade grabs headlines, but making cars cleaner is perhaps where California’s influence is strongest. In 2002 California passed a law requiring carmakers to slash vehicle emissions. Thirteen states said they would follow suit. Worried about the emerging patchwork of rules, in 2009 manufacturers agreed to higher national fuel-efficiency standards. Using such “bottom-up” tactics to motivate industry, says Daniel Sperling, of the University of California, Davis, has been a deliberate strategy of environmentalists.

If so, they have some work to do on another component of AB32. The low-carbon fuel standard (another Californian first), which says that the “carbon intensity” of transport fuels must fall by 10% by 2020, has the oil industry fuming: Chevron calls it “unworkable”. Yet Oregon and British Columbia have passed similar rules, and Washington state and several north-eastern states may follow.

The final big piece of the jigsaw is renewable energy, which under AB32 must provide one-third of California’s electricity by 2020. On March 13th, announcing plans for two large federal solar projects in the Californian desert, Ken Salazar, the interior secretary, called this “the most robust renewable-energy programme probably in the history of the world” and called for a similar national standard.

California’s high taxes and endless regulations have long earned it a reputation for business-unfriendliness. But today you hear few voices raised against the state’s environmental approach. This may be because residents are particularly concerned about climate change (see chart); since a proposal to suspend AB32 got thumped at the ballot box in 2010, few publicly question the law itself. Another factor is California’s high-tech sector, which leans green.

Such worries as there are focus on implementation or details. Some clean-energy executives, for example, worry that environmental rules change too often and may clash. By far the fiercest debate, however, is over CEQA. For years business groups and some politicians have grumbled that the law makes it far too easy for development projects to be held up by NIMBYs or, worse, business rivals. Horror stories abound; a favourite example of campaigners is the petrol-station owner in San Jose whose expansion plans were stymied when a nearby competitor filed a CEQA lawsuit citing his traffic concerns.

Reformers insist they want to “modernise” CEQA, not ditch it. On March 12th their opponents—unions and NGOs, mainly—rallied in Sacramento, the state capital, to defend the law. The debate is coming to a crunch. Darrell Steinberg, president pro tem of the state Senate, recently issued a proposal for CEQA reform that had the curious feature of apparently upsetting nobody. That will change as the details are filled in; and with the support of Mr Brown, who has described CEQA reform as “the Lord’s work”, campaigners are optimistic they will find satisfaction this year.

CEQA is a law of conservation, designed to protect sensitive habitats from the incursions of modern industrial living. Newer rules, such as AB32, require a different approach: investment, new technologies and development projects. (Some green projects have even fallen victim to CEQA lawsuits.) It is this way of thinking that now thrives in California, and that the state wants to impress upon the world.

(From the Economist.)

Friday, March 15, 2013

Comp-lete Disaster In The Making

Since we will not get a chance to discuss the carbon market in class , the following article should help provide a general view of where we are.

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The world’s only global carbon market is in need of a radical overhaul

WHAT would you say about a market that has helped reduce carbon emissions by a billion tonnes in seven years, attracted $215 billion of green investments to developing countries (more than any private environmental fund) and cut the cost of climate-change mitigation by $3.6 billion? The answer, to judge by a United Nations panel looking into the workings of the Clean Development Mechanism (CDM) is: you’d say it is a shambles.
The CDM was set up under the Kyoto protocol to get developing countries to do their bit to reduce carbon emissions. The mechanism allows projects that reduce greenhouse-gas emissions in poor countries to earn a carbon credit (a “certified emission reduction”, or CER) for each tonne of carbon dioxide avoided. The credits can be sold to firms in rich countries which are obliged under Kyoto to cut their emissions. The idea was to encourage carbon saving where it was cheapest (ie, in developing countries), increasing efficiency.

The trouble is that the supply of credits has far outstripped demand. The one-billionth CER was issued on September 7th. But the largest greenhouse-gas emitters either did not ratify the Kyoto protocol (America) or were not obliged by it to cut emissions (China and India). That has left Europe as the main source of demand for credits, and the CDM has become a sort of annex to Europe’s cap-and-trade scheme, the Emissions Trading System. But the euro crisis has reduced industrial activity (cutting pollution) and European firms were anyway given overly generous carbon quotas under the cap-and-trade scheme. So carbon prices have collapsed, falling from $20 a tonne in August 2008 to below $5 now (see chart).
An oversupply of permits to pollute is an endemic problem. A recent report by Thomson Reuters Point Carbon, an information provider, found that supplies of a different emissions right under the Kyoto protocol, called an “assigned amount unit”, outstripped estimated demand by over a thousand times. (Excess supply is not the only problem the CDM faces, though; the UN panel also calls for a clearer separation between the executive board and the operational secretariat.)
Joan MacNaughton, the vice-chair of the panel, says there is a strong case for having something that links the many regional and national carbon markets that are cropping up, including in Australia, New Zealand, China and, from next year, California. But for the CDM to provide that link, countries will have to reduce their greenhouse-gas emission targets drastically, thus providing a boost to demand. At the moment there is little sign of that happening.