Author: WM

U.S. EPA Defers Deadline to Report Factors Used to Calculate GHG Emissions

 
The U.S. Environmental Protection Agency (EPA) is deferring the deadline for several industries to disclose factors they used to calculate their 2010 greenhouse gas (GHG) emissions. The agency has established two deadlines for industries to report the inputs for calculations they performed to comply with the EPA’s mandatory reporting rule (40 C.F.R. Part 98), while the EPA continues to evaluate industry concerns about revealing potentially confidential business information. For factors the EPA said can be quickly evaluated, industries will be required to report their calculation inputs by March 31, 2013. For factors that will take longer to evaluate, the deadline is March 31, 2015, the agency said in a final rule to be published in the Federal Register on August 25, 2011. The EPA had proposed deferring the input reporting requirements until March 31, 2014 (75 Fed. Reg. 81,350), but now says the additional year is necessary for many of the calculation inputs because “the number of data elements that would require a more in-depth evaluation is much larger than EPA had anticipated at the time of the deferral proposal.” The final rule will require electric transmission systems, stationary sources that burn fuels, underground coal mines, municipal solid waste landfills, industrial wastewater treatment, electric equipment manufacturers, and industrial waste landfills to begin reporting several emissions inputs by March 31, 2013. The various inputs include the total heat input of fuels combusted, methane emissions, the decay rate of materials stored in landfills and the type of coverings used, and volumes of wastewater treated using anaerobic processes.

The second deadline of March 31, 2015 applies to several data elements that must be reported by stationary sources that burn fuels, adipic acid production, aluminum production, ammonia manufacturing, cement production, electronics manufacturers, ferroalloy production, fluorinated gas production, glass production, HCFC-22 production and HFC-23 destruction, hydrogen production, iron and steel production, lead production, lime manufacturing, carbonate uses, nitric acid production, petroleum and natural gas systems, petrochemical production, petroleum refineries, phosphoric acid production, pulp and paper production, silicon carbide production, soda ash manufacturing, titanium dioxide production, zinc production, industrial wastewater treatment, and industrial waste landfills.
Other industries must report inputs by September 30, 2011, which is also the deadline for all industries subject to the mandatory reporting rule to reveal their 2010 emissions.
Industries originally had until March 31 to report their 2010 emissions and calculation factors. But in March, the EPA extended that deadline until September 30th to allow the agency time to review industry concerns that some of the inputs used to calculate their emissions would be considered confidential business information (76 Fed. Reg. 14,812; 53 DEN A-4, 3/18/11). The agency has since determined that GHG emissions and the calculations and test methods used to measure emissions are public information and will not be treated as confidential. They are continuing to examine the factors used in calculations to determine if confidentiality is warranted (102 DEN A-2, 5/26/11). EPA sent another proposed rule to the White House Office of Management and Budget for review on July 13th that would define confidential business information that cannot be disclosed for eight emissions sources, including electronics manufacturing, petroleum and natural gas systems, and carbon sequestration (136 DEN A-9, 7/15/11). (Source: EPA, August, 25, 2011). For more information, see www.epa.gov.
 

China Announces Carbon Trading Pilot Scheme

 
On July 17, 2011, China’s official state news agency, Xinhua, reported that the Chinese government is planning to introduce a carbon trading pilot scheme as part of the country’s measures aimed at reducing emissions from energy-intensive industries. The pilot scheme would be introduced with a view to eventually establishing a national carbon market. While no specifics were given on how and when the schemes would be implemented, Chinese officials have indicated previously that a pilot scheme would be introduced in a handful of major cities (including Guangdong, Hubei, Beijing, Shanghai, Tianjin and Chongqing) by 2013 and then expanded nationally in 2015.

Xinhua quoted Xie Zhenhua, vice-minister of China’s National Development and Reform Commission, as saying the scheme would result in more punitive electricity tariffs being imposed on energy-intensive industries in an attempt to encourage them to enhance their efficiency. The China Daily newspaper also reported comments from Xie suggesting that a new wave of carbon regulations would be introduced with the carbon trading pilot scheme. These regulations would be geared towards accelerating the development of a more standardized approach to energy efficiency and introducing tighter regulations on labeling low-carbon products. Furthermore, Xie said that the Chinese government would introduce further incentives for companies producing energy-efficient products and business models.

This move will not only provide an extra tool for China to achieve its Copenhagen commitment to reduce carbon emissions relative to economic growth by 40-45% below 2005 levels by 2020, but a Chinese carbon market could represent a major boost to the global carbon market.
 

Study finds that cap-and-trade more likely to trigger clean tech adoption than carbon tax

 

A study by Professor Yihsu Chen at the University of California Merced has found that a cap-and-trade system is more likely than a carbon tax system to trigger the adoption of clean energy technologies. The study, which was coauthored by Chung-Li Tseng of the University of New South Wales in Australia and that is published in the Energy Journal Volume 32, Number 3, 2011 (a quarterly journal of the International Association for Energy Economics) also found that the volatile pricing of a cap-and-trade system could lead to earlier adoption of clean technology by firms looking to hedge against carbon cost risks.

The study used economic models based on a framework of real options to determine the optimal timing for a coal-burning firm to introduce clean technologies using the two most commonly considered policies: (1) cap-and-trade, in which carbon emissions are capped and low-emission firms can sell excess permits to high-emission firms; and (2) carbon taxes, which employ a fixed monetary penalty for per-unit carbon emissions.

According to Professor Chen, “…cap-and-trade offers ‘carrots’ while taxes offer ‘sticks’. Cap-and-trade induces firms to explore profit opportunities, while taxes simply impose penalties to turn clean technology into a less costly option.”

For the study, researchers considered the scenario of a small firm that owns a coal-fired power plant and is obliged to supply power to its customers. They compared cap-and-trade and carbon tax models in determining when the firm would choose to add a natural gas power plant – a relatively clean energy resource – in order to meet its energy demands while maximizing its long-term profits. The study found that the cap-and-trade model triggered the adoption of clean energy technology at a lower overall carbon price than a tax policy did. Further, the study found that the volatility of non-fixed permit prices was the key difference that led the firm to add a natural gas plant earlier than it would have under a more predictable tax system. Professor Chen said that: “Based on our study, mechanisms designed to reduce cap-and-trade permit prices or suppress price volatility — which have been implemented in existing cap-and-trade programs like the Regional Greenhouse Gas Initiative — are likely to delay clean technology investments.”
 

Québec releases draft cap-and-trade regulation

 
On July 6, 2011, Québec’s Ministry of Sustainable Development, Environment and Parks announced the publication of a draft regulation to facilitate the implementation of its cap-and-trade system based on the Western Climate Initiative (WCI) guidelines. The regulation is now undergoing public consultation for a period of 60 days.

The regulation to be adopted following consultation will enable Québec to implement its carbon market as early as January 1, 2012. The first year will be transitional in nature, allowing emitters and market participants to familiarize themselves with how the system will work. They will be able to register as system users, take part in pilot project auctions and buy/sell greenhouse gas emission allowances through the market. This phase will also enable partners to make any required fine-tuning in order to make a smooth transition to their obligations under the cap-and-trade system that will come into force on January 1, 2013.

Industrial facilities that emit 25,000 or more tons of carbon dioxide equivalent annually will be subject to the system for capping and reducing their emissions.

The draft regulation is available here.
 

California to delay carbon trading program to 2013, but targets remain the same

On June 29, 2011, chairwoman of California’s Air Resources Board (CARB), Mary Nichols, announced that the state will delay enforcement of California’s cap-and-trade program until 2013. The announcement was made at a hearing on the status of California’s cap-and-trade system, which had been called to explore the implications of a law suit brought by environmental justice groups advocating policies other than cap-and-trade to reduce greenhouse gas emissions. In that law suit, a judge ruled in March that CARB had not sufficiently analyzed alternatives to cap-and-trade as required under the state’s Environmental Quality Act. CARB has appealed the decision and an appeals court ruled recently that officials could continue working on cap-and-trade regulations pending the court’s decision.  Ms. Nichols indicated that the law suit was not a deciding factor in her decision to delay the first carbon trading program in the U.S.

The delay in the cap-and-trade program, which was originally scheduled to come into force on January 1, 2012, was proposed because of the need for “all necessary elements to be in place and fully functional”. In particular, Ms. Nichols cited the need to protect the cap-and-trade system from potential market manipulation. The decision came after Ms. Nichols conferred with the state attorney general’s office as well as experts on California’s ill-fated foray into deregulated electricity sales which led to widespread fraud and rolling blackouts in 2000 and 2001. However, Ms. Nichols said that the postponement would not affect the stringency of the program or the amount of greenhouse gas reductions required to be made by industries.  Under the cap-and-trade program, 600 industrial facilities (including cement manufacturers, power plants and oil refineries) would be required to cap their emissions in 2012, with that limit gradually decreasing over eight years. The one-year delay will enable CARB to test the system and carry out simulation models.

Ms. Nichols said that quarterly auctions of emissions allowances that each regulated emitter must turn in would begin in the second half of 2012, rather than February 2012 as originally planned. Entities emitting more than 25,000 metric tons of carbon dioxide equivalent per year will begin trading credits at the end of 2012 to cover their emission reduction obligations for 2012 and later. Hence, the first three-year compliance period, which originally covered the years 2012 to 2014, will be shortened to two years. CARB has indicated that it will release draft regulations covering allowance distribution and details on offset protocols within the next two weeks. In addition, CARB has said that it is still on track to finish its cap-and-trade regulations by the end of October 2011.

It is likely that BC and Québec, California’s anticipated carbon trading partners, will follow California’s lead and delay their carbon markets until 2013 as well.

 

C40 and World Bank Sign Agreement to Form Climate Change Action Partnership

On  June 1, 2011, the C40 Cities Climate Leadership Group (C40) and the World Bank signed an agreement that will help cities accelerate activities to reduce greenhouse gas emissions and adapt to climate change. The C40 is an organization of large and engaged cities from around the world committed to implementing meaningful and sustainable climate-related actions locally that will help address climate change globally. C40 cities account for 8 percent of the global population, 12 percent of global greenhouse gas emissions and 21 percent of global GDP.  In 2006, the C40 partnered with the Clinton Climate Initiative to tackle climate change in cities.

The agreement was signed by C40 Chair New York City Mayor Michael R. Bloomberg and World Bank Group President Robert B. Zoellick during the C40 Cities Mayors Summit in Sao Paulo, Brazil.  Mayor Michael R. Bloomberg said: “This unique partnership with the World Bank will help solve many of the problems that cities face in obtaining financing for climate-related projects, both from the World Bank and other lenders. It will also make it easier for C40 cities to access the resources of the World Bank.”   World Bank Group President Robert B. Zoellick said: “This agreement will help us work with C40 cities to integrate growth planning with climate change adaptation and mitigation, with special attention to the vulnerabilities of the urban poor.”

The key objective of this new partnership is to enable megacities to expand mitigation and adaptation actions while at the same time, strengthen and protect economies, reduce poverty and protect vulnerable populations. In particular, it will address structural issues that make it difficult for cities to finance climate actions that have been identified by both C40 and the World Bank Group.

Under the agreement, the C40 and the World Bank will establish:

•         A consistent approach to climate action plans and strategies in large cities to enable stronger partnerships between cities on shared climate goals, and to permit potential investors to identify opportunities across cities. The lack of a standard approach or process – such as exists for national government action plans – has made it difficult for investors and grantors to assess city action plans and thus has made them reluctant to fund projects.

 

•    A common approach to measuring and reporting on city greenhouse gas emissions to allow verifiable and consistent monitoring of emissions reductions, identify actions that result in the greatest emission reductions, and facilitate access to carbon finance.  This is necessary because carbon finance requires quantitative assessments of impacts, but currently no single standard for reporting citywide carbon emissions exists; the Carbon Disclosure Project’s Measurement for Management report identified several different protocols in use by C40 cities, with no single protocol used by a majority.

 

In addition, the World Bank will establish a single, dedicated entry point for C40 cities to access World Bank climate change-related capacity building and technical assistance programs, and climate finance initiatives by December 1, 2011.  Furthermore, the C40 will identify and work with national governments who are interested in funding climate change projects and identify private sector partners to provide project financing in C40 cities.  In turn, the World Bank will identify opportunities from among sources of concessional finance, carbon finance, and innovative market and risk management instruments as well as the private sector through the International Finance Corporation. These may be accessed by project developers supporting climate action in cities.

For more information on this partnership and other C40 initiatives, please refer to the C40 web site