Tag: GHG Accounting

Durban COP 17 – An Agreement to Agree

 

From November 28 to December 11, 2011, delegates from 194 countries met in Durban, South Africa for the 17th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC). With the expiry of the Kyoto Protocol’s initial commitment period looming at the end of 2012, the Durban conference delegates were focused on reaching an agreement to extend or replace the existing UN climate regime.

The negotiators ultimately reached an agreement entitled the Durban Platform for Enhanced Action (the Platform is available online). While the absence of specific details as to what is to be agreed by 2015 introduces considerable uncertainty, for the first time a number of nations which contribute significantly to global GHG emissions have agreed to accept legally binding targets on GHG from 2020. This list includes Brazil, China, India and the US.

Four key actions were agreed upon to build towards a global carbon agreement requiring all major emitters to reduce emissions:

  1. Kyoto Protocol Extension. The Kyoto Protocol has been extended for a second commitment period and 35 developed country parties committed to taking on binding emission-reduction commitments after the Kyoto Protocol expires on December 31, 2012. This second commitment period will run from January 1, 2013 to either December 31, 2017 or December 31, 2020, with the final expiration date to be decided upon next year. The parties who committed to a second round of reduction obligations were primarily from the European Union (EU) and have already committed to internally binding emission reduction targets. Certain other industrialized parties, such as Australia, will not take on targets under a second commitment period until a new international climate agreement has been finalized. Japan and Russia have also declared that they will not submit to a second commitment period under the Kyoto Protocol.
  2. Global Carbon Agreement.  All UNFCCC parties are required to establish, by 2015, “a protocol, another legal instrument or an agreed outcome with legal force” that would come into force in 2020. This agreement will replace the Kyoto Protocol and impose binding emissions reductions on both developed and developing nations (including the US, China and India). The goal remains to limit global warming to 2° Celsius. Nations did ot change the emission reduction commitments they made at the 2009 Copenhagen and 2010 Cancun climate talks. Rules will be developed in 2012.
  3. Green Climate Fund (GCF).  It was agreed that up to US$100 billion per annum by 2020 will be transferred to developing nations for mitigation and adaptation measures. However, it still remains to be seen how the parties will finance the GCF, but it is expected that the GCF will leverage private sector capital to source results-based investments in emission reduction projects.
  4. Work Plan. Starting in the first half of 2012, the Durban Platform Working Group will plan its work on matters such as mitigation, adaptation, finance, technology development and transfer, transparency of action, and support and capacity-building.

Other key outcomes include:

  • Carbon Capture and Storage (CCS). CCS was approved to qualify for the Clean Development Mechanism (CDM) and earn carbon credits (under the Kyoto Protocol). 5 per cent of credits issued will be held in a reserve to ensure carbon dioxide does not leak from approved CCS projects for 20 years.
  • Reduced Emissions from Deforestation and Degradation (REDD). Supportive market-based mechanisms and funding will be discussed through 2012.

As a result of the extension of Kyoto and a second commitment period, emissions offset markets based on the CDM and Joint Implementation (JI) will remain active. Although details have not been finalized, it is likely that the EU will continue to accept certified emission reductions (CERs), which are awarded under the CDM to emission reduction projects in developing countries, and emission reduction units (ERUs), which are awarded under the JI to such projects in certain developed countries. The EU has committed to a third phase of its Emissions Trading System, which contemplates the continued use of international offset credits such as CERs and ERUs.

It is anticipated that carbon markets will continue to play an important role in the new international climate treaty to be established by 2015. According to Christiana Figueres, the Executive Secretary of the UNFCCC, the extension of Kyoto will enable its accounting rules, flexibility mechanisms and markets to remain as models to inform future agreements.

Within a day of the negotiations closing, Canada announced that it will formally withdraw from the Kyoto Protocol before the end of the year, with the intent that it will no longer have an enforceable emissions reduction commitment. Canada will, however, remain a party to the UNFCCC and a participant in international climate negotiations.

The next key date is February 28, 2012 when parties must submit their views on raising what the conference called the “level of ambition” to achieve significant mitigation, so that a work plan can be launched. The next round of UNFCCC negotiations will take place in Qatar from November 26 to December 7, 2012.
 

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.
 

Australia Passes Legislation for Offsets from Farming and Forestry

 
On August 22, 2011, Australia’s parliament endorsed the world’s first national scheme to regulate the creation and trading of carbon credits from farming and forestry, which will complement government’s plans to put a price on carbon emissions from mid-2012.
The new law is a precursor to carbon price legislation that will be put before parliament in late 2011. Known as the Carbon Farming Initiative (CFI), the new law allows farmers and investors to generate tradeable carbon offsets from farmland and forestry projects. Land use, including agriculture, accounts for 23% of Australia’s emissions. Projects backed by the CFI include reforestation, protection of native forests, curbing methane emissions from livestock, better fire management of savannah grasslands as well as capturing methane emissions from some landfills. Excluded projects include those deemed to affect the availability of water, threaten the richness of plant and animal species in an area or might threaten jobs. Managed investment schemes for forestry are also excluded. Under the rules, a project can only earn carbon credits if the investment is additional to those that would occur normally, with the lure of revenue from credit sales making the project financially viable.
Modeling by the Australian Treasury estimates the CFI will generate credits totalling 7 million tonnes of GHG reductions by 2020. ClimateWorks, a non-profit organization focusing on low-carbon growth, has calculated the CFI could reduce emissions by up to 41.5 million tonnes by 2020, mainly through greater investment in carbon tree plantations.

The CFI scheme is expected to start off slowly until the approval of laws parliament passes laws to put a price on carbon emissions from July 2012. Under the scheme, a government panel will vet and approve the rules for each project activity and an agency will administer the scheme’s offset registry. A number of project types have already been approved, see www.climatechange.gov.au/cfi. Successful projects will earn Australian carbon credit units, or ACCUs, that can either be traded domestically or overseas. ACCUs can be compliant under the U.N.’s Kyoto Protocol, depending on the project type. Or projects can sell non-Kyoto Australian units that can be used in the domestic voluntary carbon market to help firms meet carbon neutral goals. Kyoto-compliant units can be converted into credits that can be traded internationally and sold to companies or governments with Kyoto emissions targets. To provide investor certainty, the initial crediting period for native forest protection is 20 years, 15 years for reforestation projects and 7 years for all other eligible offset projects.

Pricing of the ACCUs will depend on the demand for offsets from certain types of projects, and particularly on the price for carbon in Australia. Some analysts expect ACCUs to closely track the national price on carbon emissions from power generators, smelters, refiners and others.
Prime Minister Julia Gillard plans a carbon tax starting at A$23 a tonne on about 500 of Australia’s biggest polluters from July 2012, ahead of emissions trading from mid-2015. Agriculture is not included in the carbon price scheme, but the government wants farmers to be able to benefit from the market for carbon credits. Under the carbon price plan, Australian industries which buy carbon offsets will need to ensure at least 50% of the offsets are domestic credits.

The government estimates that the CFI will help Australia reduce its carbon emissions by 460 million tonnes by 2050. The government has committed to cut total emissions by five percent of year 2000 levels by 2020. While Australia accounts for only about 1.5% of global emissions, it is the highest per capita polluter in the developed world because coal is used to generate most of the country’s electricity.
 

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.
 

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.

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).