carbon emissions – GHG Accounting

Regulatory Additionality

Regulatory additionality is a quality requirement for an emission reduction to be recognized as such.

In order for an emission reduction to be recognized, a project proponent must provide evidence that the project activities and all equipment and substances involved in the achievement of the emission reduction are beyond what is required based on applicable regulatory requirements. Only those emission reductions that are achieved beyond regulatory requirements are considered additional and therefore meet the regulatory additionality requirement test. Reductions that only meet the regulatory required levels are not considered to be real emission reductions.

President Obama Announces Climate Action Plan

On June 25, 2013, President Obama made a long-awaited announcement for his administration’s Climate Action Plan. The plan outlines a range of actions the Obama administration will take using existing authorities to reduce carbon pollution, increase energy efficiency, expand renewable and other low-carbon energy sources, and strengthen resilience to extreme weather and other climate impacts. As part of the plan, the Environmental Protection Agency (EPA) has been directed to set standards by June 2015 to reduce carbon pollution from existing power plants.

President Obama’s Climate Action Plan focuses on the following key areas:

· Regulating Greenhouse Gas Emissions – In lieu of any action by US Congress on setting an economy-wide price on carbon, President Obama is using his powers under the Clean Air Act to curb emissions from power plants, by far the largest unregulated source of US carbon emissions. Companies are seeking regulatory certainty so many of them are prepared to work with the Obama administration on pragmatic approaches to cut GHG emissions and mitigate climate risks. The Supreme Court ruled in 2007 that EPA has authority under the Clean Air Act to regulate greenhouse gases. Carbon pollution standards for new power plants proposed by EPA in March 2012 have not yet been finalized. In his June 25 speech, President Obama announced a Presidential Memorandum directing the EPA “to work expeditiously to complete carbon pollution standards for both new and existing power plants.”

· Energy Efficiency – The Department of Energy has been directed to build on efficiency standards for dishwashers, refrigerators, and other products that were set during President Obama’s first term. President Obama set a goal of cumulatively reducing carbon dioxide emissions by 3 billion metric tons by 2030 through efficiency measures adopted in his first and second terms. The president also committed to build on heavy-duty vehicle fuel efficiency standards set during his first term with new standards past the 2018 model year.

· Renewable Energy – In 2012, renewable energy was responsible for 12.7% of net U.S. electricity generation with hydroelectric generation contributing 7.9% and wind generation 2.9%. As the fastest growing energy source in the US, President Obama reiterated his support to make renewable energy production on federal lands a top priority. In particular, the President announced a series of executive decisions (i) directing the Department of the Interior to permit enough renewable projects on public lands by 2020 to power more than 6 million homes; (ii) to designate the first-ever hydropower project for priority permitting; and (iii) to set a new goal to install 100 megawatts of renewables on federally assisted housing by 2020. The President will also maintain a commitment to deploy renewables on military installations and will make up to $8 billion in loan guarantees available for a wide array of advanced fossil energy and efficiency projects to support investments in innovative technologies.

· Natural Gas – New drilling technologies such as hydraulic fracturing have significantly increased the amount of recoverable natural gas in the US. These advances are expected to keep the price of natural gas near historically low levels, thus altering energy economics and trends, and opening new opportunities to reduce greenhouse gas (GHG) emissions. To better leverage natural gas to reduce GHG emissions, the administration will develop an inter-agency methane strategy to further reduce emissions of this potent GHG.

· Leading by Example – In his first term, President Obama set a goal to reduce federal GHG emissions by 24% by 2020. He also required agencies to enter into at least US $2 billion in performance-based contracts by the end of 2013 to finance energy projects with no upfront costs. In his climate plan, the President established a new goal for the federal government to consume 20% of its electricity from renewable energy sources by 2020 which is more than double its current goal of 7.5%.

· Climate Resilience – The President wants federal agencies to support local investments in climate resilience and convene a task force of state, local, and tribal officials to advise on key actions the federal government can take to help strengthen communities. President Obama also wants to use recovery strategies from Hurricane Sandy to strengthen communities against future extreme weather and other climate impacts and update flood-risk reduction standards for all federally funded projects.

· International Climate Change Leadership – President Obama promised to expand new and existing international initiatives with China, India and other major emitting countries. He also called for an end to US government support for public financing of new coal-fired powers plants overseas, except for the most efficient coal technology available in the world’s poorest countries, or facilities deploying carbon capture and sequestration technologies. A noteworthy initiative introduced by the President was a direction given to his administration to launch negotiations toward global free trade in environmental goods and services, including clean energy technology “to help more countries skip past the dirty phase of development and join a global low-carbon economy”.

Eileen Claussen, President of the Center for Climate and Energy Solutions, commented that President Obama is laying out a credible and comprehensive strategy to strengthen the US response to climate change. In particular, President Obama’s plan recognizes that the costs of climate change are real and rising; to minimize them, the US must both cut its carbon output and strengthen its climate resilience. These policy initiatives are an important first step, but it will require continued leadership to translate the plan’s good intentions into concrete policy.

California Completes Successful Trial Auction for Cap-and-Trade Program

In advance of the November 2012 launch of California’s carbon trading scheme, the state’s Air Resources Board (ARB) completed in August a successful trial of its carbon allowance auction system, where companies pretended to bid for carbon allowances in order to test out the system ahead of its official launch on November 14, 2012. According to ARB officials, the trial auction ran smoothly, with approximately 150 companies submitting bids during the simulation.

Following the roll out of the platform in November, more than 400 companies will be able to buy and sell carbon credits through quarterly auctions. From 2013, a statewide cap on carbon emissions will be imposed. This cap will be gradually lowered year-on-year, thus providing companies with a financial incentive to curb their greenhouse gas emissions.

Under the planned scheme, companies will need to hold carbon allowances to cover their own emissions and they will be required to purchase additional allowances if they exceed their cap. In the first year of the scheme, the ARB plans to give away the vast majority of credits and auction only 10% in order to put a price on carbon. However, the amount of free carbon allowances will be reduced each year so that by 2020, 50% of allowances will be auctioned, providing a clear price signal for firms to invest in low emission technologies.

Court gives California Green Light to Proceed with Cap-and-Trade

On September 28, 2011, a California Supreme Court judge ruled that the state’s Air Resources Board (ARB) can proceed with implementation of the California’s cap-and-trade program. The ruling was issued in the case of California Air Resources Board vs. Association of Irritated Residents, in which anti-poverty environmental justice organizations have argued a market-based approach exposes poor and minority communities to higher levels of pollution.
The implementation of the cap-and-trade program, which is scheduled to begin in California in 2012, has been held up because of a March 2011 court ruling that required the ARB to further consider alternatives to cap-and-trade that might provide more effective ways of reducing greenhouse gas (GHG) emissions. ARB says that it has adequately considered alternatives such as a carbon tax, and is appealing the March 2011 decision in Superior Court. The September 28th ruling allows the ARB to move forward on cap-and-trade before the Superior Court rules.
California’s proposed cap-and-trade program is a major component of AB32, the state’s 2006 landmark climate change legislation. Under the law, California must reduce its GHG emissions to 1990 levels by 2020. In addition, the legislation sets an overall limit on emissions from sources responsible for 85% of California’s GHG emissions. The cap-and-trade program is designed to work in collaboration with other complementary policies that expand energy efficiency programs, reduce vehicle emissions, and encourage innovation.
More information on the status of California’s cap-and-trade program is available on the ARB web site.

Another Study links High GHG Emissions with Negative Impact on Company’s Value

A study by researchers at the University of Wisconsin-Madison, Georgetown University and the University of Notre Dame has found that high levels of greenhouse gas (GHG) emissions can have a negative impact on a company’s value. According to the study – Voluntary Disclosures and the Firm-Value Effects of Carbon Emissions (April 2011) – a company’s value decreases on average by $202,000 for every additional thousand metric tons of emissions it produces.

Researchers used hand-collected carbon emissions data for 2006-2008 that Standard and Poor’s (S&P) 500 companies disclosed voluntarily to the Carbon Disclosure Project to examine two issues: (1) firm-level characteristics associated with the choice to disclose carbon emissions, and (2) relationship between carbon emission levels and firm value. With respect to the first issue, researchers found a higher likelihood of carbon emission disclosures by firms with superior environmental performance, conditional on firms taking environmentally proactive actions. However, researchers found no association between inferior environmental performance and the likelihood of disclosing carbon emissions, conditional on firms taking environmentally damaging actions. Furthermore, researchers found that companies are more likely to voluntarily disclose their carbon emissions as the proportion of industry peer firm disclosers increases. In connection with the second issue, the researchers found a negative association between carbon emission levels and firm value. From its sample of S&P 500 companies, the study found that a company’s value decreases on average by $202,000 for every additional thousand metric tons of GHG emissions it produces.

In the study, researchers also pointed out that according to the 2009 Goldman Sachs’ GS Sustain Report it is expected that the relationship between carbon emissions and global climate change will drive a redistribution of value from firms that do not control their carbon emissions successfully to firms that do.
The study may be accessed online

California & EU Plan to Link Emissions Trading Markets

Europe’s commissioner for climate action, Connie Hedegaard, has confirmed plans to link the EU emissions trading scheme (ETS) with California’s carbon market which is scheduled to start trading on January 1, 2012. On April 5, 2011, Hedegaard met with California’s governor, Jerry Brown, and Mary Nicholls, chair of the California Air Resources Board, in Sacramento to discuss how the parties could cooperate to join together the world’s largest carbon market with what will be the world’s second largest carbon market.

Hedegaard said: “We told Governor Brown that we would very much like to co-operate with them so that no matter how California constructs their scheme, it is linkable to the way we do things in Europe. It doesn’t have to be identical, just compatible.”

According to Point Carbon, the estimated value of transactions on the EU ETS was US $103 billion in 2010 and California’s cap-and-trade program could be worth US $10 billion by 2016.

While the EU ETS has been fraught with problems including over-allocation of allowances and allegedly fraudulent transactions worth US $7 billion, Hedegaard said schemes in other countries should learn from the EU’s example. Hedegaard also suggested that a successful carbon market in California could pave the way to a national US scheme in the future: “If the biggest American state, and 8th largest economy joins the growing crop of emissions trading schemes, it could break the ice in this field in the United States.” (F. Carus, The Guardian, April 7, 2011).

BC and Washington State sign Cross-Border Climate Action Plans

The province of British Columbia (BC) and the state of Washington have signed two climate action plans to strengthen cross-border efforts to reduce carbon emissions while advancing the low-carbon economy.

On February 2, 2011, BC Minister of State for Climate Action John Yap and Washington Department of Ecology Director Ted Sturdevant signed plans on limiting carbon emissions from government operations and promoting awareness of the impacts of sea level rise on coastal areas.

Under the climate action plans, entitled “Joint Action Plan on Carbon Neutral Government” and “Joint Action Plan on Awareness and Outreach for Coastal Impacts of Climate Change”, BC and Washington will:

demonstrate how to make government operations as carbon-neutral as possible, sharing information and drawing on BC’s success in achieving a carbon-neutral public sector.
further strengthen engagement with British Columbians and Washingtonians about how sea level rise threatens critical shore areas and communities.
BC and Washington State have been working together on climate issues since signing a Memorandum of Understanding on Climate Action in 2007. These new action plans build on existing climate-related partnerships between BC and Washington, including:
Pacific Coast Collaborative – representing joint efforts by BC, Washington, Oregon, California, and Alaska on energy, transportation, climate change, and ocean issues.
Washington-British Columbia Memorandum of Understanding on Coastal Climate Change Adaptation – holding joint science workshops, exchanging information on sea-level rise projections and mapping, sharing information on Green Shores programs, and Washington and B.C. “king tide” photo initiatives.
Salish Sea Ecosystem/Puget Sound-Georgia Basin Ecosystem Research Conference – the largest, most comprehensive scientific research and policy conference that focuses on issues impacting the region known as the Salish Sea. BC and Washington take turns hosting the biennial conference.

In addition, BC and Washington state are active participants in the Western Climate Initiative, a cooperative effort to reduce greenhouse gas emissions in seven U.S. states and four Canadian provinces.

The action plans can be viewed online.