emission allowances – Page 2

California to Appeal Superior Court Decision to Halt Carbon Market

On May 20, 2011, San Francisco Superior Court judge Ernest Goldsmith issued a decision requiring the California Air Resources Board (CARB) to halt action on implementing its planned emissions cap-and-trade program until it has explored alternatives to meet California’s emission reduction targets. The decision follows a ruling delivered in March 2011 in which the judge said CARB had violated the California Environmental Quality Act by failing to adequately assess alternative emission reduction mechanisms, such as a carbon tax. The ruling is the result of legal action brought by the Association for Irritated Residents and other environmental justice groups, which argued that the proposed cap-and-trade program could damage air quality in some parts of the state.

The cap-and-trade program is part of AB 32 (Global Warming Solutions Act), California’s landmark climate change law, which is designed to lower California’s greenhouse gas emissions to 1990 levels by 2020. AB 32 also includes increased fuel efficiency standards and a renewable electricity target of 33% by 2020. Under the ruling, CARB must set aside its December 2010 decision approving the trading system for emitters over 25,000 metric tons per year, and must cease all rule-making and implementation activities related to cap-and-trade until it complies with the law. In particular, the judge said that CARB must go back and show why it made the decision to implement cap-and- trade. The trading program is designed to cover 85 percent of the state’s industrial emissions by 2020 and would include emissions from power plants, oil and gas refineries, transportation fuels and other heavy industries.

On May 23^rd, California’s top attorney initiated an appeal of Judge Goldsmith’s decision. Depending on the length of the appeal process, the cap-and-trade program could be delayed, perhaps until 2013. In the meantime, California can continue with its renewable energy targets, low-carbon fuel standard and energy efficiency measures, all of which are unaffected by the judge’s ruling.

Study finds that SO2 Allowance Trading has not led to Environmental Injustice

In a new study entitled “Trading Equity for Efficiency in Environmental Protection? Environmental Justice Effects from the SO2 Allowance Trading Program”, Professor Evan Ringquist at the University of Indiana has found that efficiency gains from sulphur dioxide (S02) allowance trading have not come at the expense of the equitable treatment of minority and low-income groups.

In a study entitled “Trading Equity for Efficiency in Environmental Protection? Environmental Justice Effects from the SO2 Allowance Trading Program”, Professor Evan Ringquist at the University of Indiana has found that efficiency gains from sulphur dioxide (S02) allowance trading have not come at the expense of the equitable treatment of minority and low-income groups.

The study considered the environmental justice impacts of the SO2 allowance trading program, which was established pursuant to amendments to the Clean Air Act in 1990. The program is aimed at reducing SO2 emissions, which cause acid rain and human health problems. In particular, Professor Ringquist considered the potential conflict between the efficiency of market-based tools for pollution control and social equity, and whether the SO2 program inadvertently transferred pollution into minority and poor communities. As part of his research, Professor Ringquist obtained trading records for all facilities participating in the SO2 allowance trading program between January 1995 and March 2009. He then used statistical models to determine whether allowance trading led to concentrated pollution in poor communities. Professor Ringquist concluded that it did not: “There is no inherent tradeoff between efficiency and equity when using market-based instruments for pollution control. Policy makers, however, might make an effort to design and implement future emissions trading programs in a manner that reduces the monitoring costs of tracking emissions trading. By reducing monitoring costs, policy makers may prevent the concentration of emissions in poorly educated communities while preserving the efficiency benefits of these instruments.”

This research could shed some light on the concerns expressed by the Association of Irritated Residents (AIR), which has brought a court challenge against the California Air Resources Board’s decision to use cap-and-trade as the mechanism to reduce California’s greenhouse gas emissions (Association of Irritated Residents, et al. v. California Air Resources Board). AIR believes that companies which buy the right to exceed emission limits will release greater amounts of pollutants in surrounding communities, mostly poor and non-white. As Professor Ringquist suggests, perhaps the most prudent approach would be to design an emissions trading program that makes it easier for the effects of the program to be monitored by local residents.

The study is available online at Link

California Adopts Cap & Trade Program after Landmark Vote

In a landmark 9-1 vote on December 16, 2010, California’s Air Resource Board (ARB) voted to adopt the first large-scale cap-and-trade program in the U.S.

In a landmark 9-1 vote on December 16, 2010, California’s Air Resource Board (ARB) voted to adopt the first large-scale cap-and-trade program in the U.S. This vote represents the culmination of an eventful year for California’s AB 32 legislation, which aims to reduce the state’s greenhouse house gas emissions to 1990 levels by 2020. In California’s general elections held in November 2010, AB 32 survived a ballot measure that would have indefinitely delayed the program. California’s progress towards cap-and-trade comes as federal efforts to establish a nation-wide emissions trading program have stalled in Congress.

Under the proposed California cap-and-trade rules, the state would initially give away allowances to regulated industries. In later years, California would auction allowances. Industries that could show the regulations were putting them at a significant competitive disadvantage to companies in other, less carbon-constrained, jurisdictions could qualify for additional free allowances. The proposed rules would establish a $10 per metric ton auction floor price on carbon. Regulated emitters would be able to purchase carbon offsets, which are expected to trade at a discount to emission allowances, to comply with 8% of their annual emission obligations.

Offsets under the California Program

In addition to the regulations for the cap-and-trade program, ARB adopted four protocols that will be used to generate offsets for compliance, marking the first time forest carbon offsets will be included as a part of a compliance carbon market.

Offsets will come from early action efforts, compliance offsets and a category known as sector-based offsets, which will come from programs managed in developing countries. Early action offsets include those from the 2005-2014 vintages of Climate Action Reserve (CAR) credits from projects in methane digestion, destruction of ozone depleting substances, forestry and urban forestry.

In anticipation of California’s cap-and-trade program, the carbon market has responded with a jump in offset prices. Analysts note that offset prices have doubled from about $4 per ton of to $8 per ton amid higher volumes of trading in recent weeks.

Analysts have also predicted a shortfall in the supply of offsets. CAR projects that the ARB-approved protocol types will be able to generate approximately 30 million tons of credits through 2014, which credits can be used in the California program. However offset demand is projected to exceed 200 million tons through 2020. Now that there is regulatory certainty, the market must now work to fill the gap between offset supply and demand.

New Mexico Approves its Cap-and-Trade Program

In other news, New Mexico narrowly approved its cap-and-trade program in early November 2010 as well as the state’s participation in the regional Western Climate Initiative market. These measures will not go into effect unless other U.S. states or Canadian provinces move ahead with similar systems for capping emissions. The New Mexico program would regulate approximately 63 large industrial sources.

Creating or Buying Credits – Financing Your Next Cool Move!

Offset credits are created through the implementation of projects that result in emission reductions or removals beyond what would have been done under normal business activities (the so-called “business as usual” baseline). One credit represents the reduction or avoidance of emissions of one tonne of carbon dioxide equivalent (CO2e). Once offset credits are created and certified by accredited third parties, they can be sold to buyers in the market (usually regulated entities that need to meet certain compliance obligations). The system described above is often referred to as a “compliance market”. Offset credits can also be sold in the voluntary market to non-regulated entities who are looking to reduce their carbon footprint voluntarily.
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Climate Change mitigation strategies aimed at reducing greenhouse gas (GHG) emissions can take any number of different forms. The most drastic one would be to simply make the emission of GHGs illegal. This is an extreme example, one that would not be a viable option in an economy based on industrial growth. A more viable options that have been implemented by some, and considered by others, to bring about GHG reductions are market mechanisms. Market mechanisms are designed to utilize market forces to change behaviour, thus leading to reductions in emissions.

Driving Behavioural Change

The most important aspect of market mechanisms is to drive behavioural change – whether by individuals, governments, companies or others – in the direction of low carbon or less emissions-intensive technologies and processes. Offset credits are one of the instruments that have been employed in the carbon market to reduce emissions. However, the market mechanisms that have emerged so far vary quite a bit in their mechanics. As a result, the offset credits generated in these markets will vary accordingly.

How does a carbon market work?

In a so called carbon market (this usually encompasses all greenhouse gases); regulated entities can buy or sell allowances or permits for emissions, or credits for reductions in emissions of specified pollutants. Carbon trading can be done at a regional, national or international level. Under a typical carbon trading regime, regulated emitters will be allocated a limited number of emissions. Emission allowances may be created by a regulating entity, through emissions reduction activities or both. These emission allowances can be auctioned or given away for free. Once initially allocated or created, emission allowances are fully fungible commodities, meaning they can be bought, sold, traded or banked for future use. Often, carbon markets will also allow the use of offset credits as a compliance tool. Allowances effectively set a price on GHG emissions while credits set a cost reward for the investment made to reduce or avoid GHG emissions.

Creating Offset Credits

Opportunities in the Carbon Market

You can purchase credits to offset unavoidable GHG emissions to either meet your own carbon neutral targets or to comply with regulatory emission requirements. You have to make sure the credits you buy are appropriate for the purpose you want to use them for. GHG Accounting can help you make the right decision and evaluate this in the most cost-effective way.

You can also create offset credits. Offset credits can help generate revenue that you can put towards your next efficiency investment. Do you have to replace old machinery, installations or boilers? Or are you changing the way you deal with waste products, energy and emissions? Even if you have done so recently, your actions may still qualify as an emissions reduction project and can earn you real cash!

What GHG Accounting Can Do For You

The effective accounting and management of greenhouse gas (GHG) emissions requires unambiguous, verifiable specifications. This will ensure that a tonne of carbon equivalent can be consistently calculated. To that end, an internationally agreed upon standard for measuring, reporting and verifying GHG emissions was introduced in 2006 by the International Organization for Standardization (ISO) and is referred to as ISO 14064. GHG Accounting Services Ltd. provides specialized GHG consulting and accounting services, including (i) emissions reporting and footprint inventory quantification, (ii) emissions reduction project planning, and (iii) quantification, documentation and carbon offset credit registration.

WCI Releases Comprehensive Strategy to Address Climate Change and Stimulate Clean Energy Economy

On July 27, 2010, the partner jurisdictions of the Western Climate Initiative (WCI) released a comprehensive strategy designed to reduce greenhouse gas (GHG) emissions, stimulate development of clean energy technologies, create green jobs, increase energy security and protect public health.

The Design for the WCI Regional Program (the Design Document) is the product of two years of work by seven U.S. states and four Canadian provinces (including Québec, Ontario, Manitoba and BC). The objective of the WCI is to reduce regional GHG emissions to 15% below 2005 levels by 2020. This regional goal will be achieved by:

• creating a market-based system that caps GHG emissions and uses tradable permits to incent the development of renewable and lower-polluting energy sources;

• encouraging GHG emission reductions in industries not covered by the emissions cap, thus reducing energy costs region-wide; and

• advancing policies that expand energy efficiency programs, reduce vehicle emissions, encourage energy innovation in high-emitting industries, and help individuals transition to new jobs in the clean-energy economy.

A recently updated economic analysis by the WCI indicates that this plan can achieve the regional GHG emissions reduction goal and realize a cost savings of approximately US$100 billion by 2020.

Overview of the Design Document

The primary policy recommendations in the Design Document address some of the following key issues:

WCI Cap-and-Trade Program: The central component of the WCI’s comprehensive strategy is a regional cap-and-trade program that will be composed of WCI member jurisdictions’ cap-and-trade programs implemented through state and provincial regulations. The WCI program design encompasses almost 90% of economy-wide emissions in WCI jurisdictions. Each member jurisdiction implementing a cap-and-trade program will issue “emission allowances” to meet its jurisdiction-specific emissions goal. The total number of available allowances serves as the “cap” on emissions. A regional allowance market is created by the member jurisdictions accepting one another’s allowances for compliance. The allowances can be sold between and among covered entities as well as by third parties. This “trading” of emission allowances keeps costs low because it provides flexibility in how and when reductions are made. For example, entities that reduce their emissions below the number of allowances they hold can sell their excess allowances or “bank” them for later use. Selling excess allowances allows entities to recoup some of their emissions reduction costs, while banking allowances will lessen future compliance costs.

The WCI program design also includes important features to ensure that the program achieves regional emissions in a cost-effective way. For instance, emission offsets from sources not covered by the program can be used in limited quantity along with emission allowances to comply with the program. Allowing entities to turn in allowances in three-year periods provides flexibility as to when emissions reductions are made. To address unforeseen circumstances that could lead to increased program costs, WCI member jurisdictions are considering a number of options including an allowance reserve in the event of high-price conditions, increased flexibility regarding compliance periods, and special purpose mechanisms to address specific local conditions.

Not all WCI member jurisdictions will be implementing the cap-and-trade program when it is scheduled to start trading in January 2012, however those expected to move ahead (including Québec, Ontario, BC, New Mexico and California) comprise approximately two-thirds of total emissions in the WCI. According to the WCI, this represents a critical mass and a robust market for achieving significant GHG emissions reductions.

Between now and the planned program start date of January 2012, WCI member jurisdictions will address remaining program design issues and take the steps necessary to make regional trading operational. In addition, they will expand their efforts to develop and implement other core policies and programs to increase energy efficiency and fuel diversification in order to reduce GHG emissions.

Relying on High-Quality Emissions Data from Rigorous Reporting: The WCI understands that accurate, timely and consistent GHG emissions data is essential for effective GHG reductions. As a result, WCI member jurisdictions have developed a reporting program that specifies quantification methods that are rigorous, technically feasible, cost-effective and sufficiently accurate to support the cap-and-trade program. To minimize the reporting burden in the U.S., reporting requirements have been harmonized with U.S. EPA Mandatory Reporting Rule for GHG emissions.

For further information on the EPA’s GHG reporting requirements, please see Link

This way a facility will be able to submit a single report satisfying both WCI and EPA requirements. WCI member jurisdictions in Canada (including Québec, Ontario and BC) have developed their own reporting requirements, which will likely be set up as a one-window GHG emissions reporting interface with Environment Canada. This one-window reporting would meet the requirements of both the federal and provincial governments, thus eliminating the need for duplicate reporting.

Designing for High Quality Offsets: The proposed WCI cap-and-trade system includes offsets to reduce compliance costs by introducing a broader range of emission reduction opportunities. A particular emphasis has been placed on assuring the quality of offsets. The WCI recommend the following for the definition of an offset and criteria to evaluate an offset project:

• Definition: A GHG offset is a reduction or removal of GHG emissions as a result of a project or activity that occurs outside the sectors regulated by the cap-and-trade program. An offset certificate issued by a WCI Partner jurisdiction represents a reduction or removal of one metric ton of CO2e. To be issued an offset certificate by a WCI Partner jurisdiction, each reduction or removal must meet all recommended offset criteria, have clearly identified ownership, follow an accepted protocol, and result from a project located in Canada, the U.S., or Mexico.

• Criteria: Offset projects approved by WCI Partner jurisdictions will meet the criteria described in the Offset System Essential Elements Final Recommendations (June 2010). The criteria recommended by WCI Partner jurisdictions are consistent with the leading offset systems in use worldwide, and will allow the adoption of protocols that produce consistent offsets across the WCI region. The other North American emissions trading systems – RGGI and the Midwestern Greenhouse Gas Reduction Accord – share the goal of ensuring the quality of offsets. The three regional programs released a paper on offset quality (Ensuring Offset Quality: Design and implementation Criteria for a High Quality Offset Program, May 2010) that is consistent with the offset criteria recommended by the WCI Partner jurisdictions.

The Design Document indicates that WCI member jurisdictions will leverage existing protocols to align with the essential criteria and will continue to establish key protocol components for each priority project type. The process of offset project approval through certificate issuance contains important features to ensure offset quality. These processes, which continue to be finalized, will include specific requirements for registration, validation, monitoring, quantification, reporting, verification, certification and issuance of offsets.

Other policy recommendations addressed in the Design Document include:

• setting program emissions limits;

• enhancing compliance flexibility and program adaptability to manage compliance costs;

• maintaining competitiveness and preventing emissions leakage;

• electricity sector;

• designing a fair and transparent auction;

• ensuring a well-functioning market;

• linking programs; and

• coordinating program administration.

To access the complete Design Document, please refer to the WCI Link on this site.