Archive for the ‘Cap and Trade’ Category

China, a Big Country With Big Environmental Problems, is Starting to Make Big Plans for Big CO2 Reduction.

Pollution Over East China via Wikimedia Commons

Pollution Over East China
via Wikimedia Commons

We recently wrote about how the concentration of CO2  in the environment has reached a point higher than it has been in millions of years.  A lot of the newer COno doubt came from the Middle Kingdom. China, which is currently responsible for a quarter of all carbon emissions worldwide, has been under intense pressure in recent years to curb its output of global warming gases. It has consistently resisted doing so, citing the imperatives of economic development and the central, seemingly irreplaceable, role that coal plays in driving the country’s growth. Indeed, China consumes nearly as much coal as the rest of the world combined. China’s refusal to rein in its emissions has served as a useful excuse for other nations to drag their heels. Why tighten your own belt when the big guy over there is loosening his?

But rampant pollution and the looming threats posed by global climate change are affecting a notable turn-around in China. Pollution in its capital city has become the stuff of international legend. Gas masks are becoming must-have accessories for business travelers in Beijing. China is now a major, market-disrupting producer of  solar panels and wind turbines much to the dismay of German and U.S. manufacturers.  And now, in a dramatic about-face, the world’s biggest producer of greenhouse gas pollution has agreed to follow some 200 other countries and agreed to impose a cap on its COemissions and cut the amount of  COper dollar of economic output – something the U.S. has so far been unwilling to do.

Britain’s Climate and Energy Change Secretary Ed Davey believes China’s changing attitude towards climate change demonstrated by its willingness to impose a ceiling as soon as 2016 may provide a significant push toward reaching an ambitious global accord on emissions reduction.  “At the end of last year the Chinese leadership changed and started talking about creating an ‘ecological civilization’. This doesn’t mean they have signed up to every bit of the climate change talks, but it means they recognize that their economic model has to take account of pollution and the environment and that damage that it’s doing to people’s health.” Perhaps China and the U.S. will finally stop passing the climate buck back and forth and jointly pave the way for a global deal.

China’s vow to dramatically reduce emissions doesn’t appear to be merely theoretical. In another first, the country has unveiled its first carbon–trading program which will cover 638 companies in the southern city of Shenzhen.

And the country isn’t just getting aggressive about reducing coal and industrial emissions. It’s pressing ahead with far more unconventional methods of reducing its carbon footprint. And what is its latest eccentric proposal?  How about building an entire self-contained city in one of the tallest buildings in the world in just seven months?  The Broad Sustainable Construction Company has announced it will build a pre-fab 220-story, 2,750 high building containing some 4,450 apartments and 100,000 square feet of indoor vertical farms on a greenfield site in just over half a year. The goal, aside from dramatically increasing the speed with which skyscrapers can be built, is to simultaneously increase the energy efficiency and lower the carbon footprint of what will amount to a brand new city of 30 thousand people.  A resident of BSC’s mega tower is expected to use only 1/100th of the land used by a typical Chinese citizen.

China, a big country with big environmental problems, is starting to make big plans for big COreduction.

One Casualty of the Economic Crisis: The European Cap-and-Trade System

Photo by Takver. Some Rights Reserved

Photo by Takver. Some Rights Reserved

The price of European carbon emission certificates has plummeted in the aftermath of the global economic crisis. This week the European Parliament narrowly voted down a bill designed to prop up the price per ton of carbon emissions in an attempt to keep the once-lauded program financially viable.

Cap-and-Trade has always seemed a jury rigged method of dealing with the principal driver of global climate change. A straightforward carbon tax would be a more transparent external cost but the political challenges of instituting such a tax have largely kept it off the table. The political difficulties have been compounded by the challenge of implementing carbon taxes globally – which country wants to walk into the propeller first? Cap-and-Trade at least had the virtue of being fungible; emissions banked in one country could be spewed out in another corner of the world.

Climate policy expert Felix Matthes, of the Institute for Applied Ecology, sat down to talk with Spiegel Magazine about the stark implications of Parliament’s decision, which he sees as the death knell for EU-wide emissions reduction. The ironic result, he says, will be a return to a national, rather than regional, approach to carbon reduction with serious consequences for global efforts to reign in emissions. Noting that while right wing politicians hope to undermine climate change policy entirely, and those on the left seek more regulatory protection, he still believes carbon trading is the most fruitful means of dealing with the global reach of carbon emissions. Unfortunately, the dramatically reduced energy consumption and industrial output following the economic crisis, combined with a glut of credits from China, have resulted in a flood of certificates on the market and a corresponding precipitous decline in their price.

California Cap-And-Trade Kicks Off

Let’s hope this doesn’t represent the future of California’s cap-and-trade system. Photo by Chuck Coker, some rights reserved.

Starting next Tuesday, 350 California companies will begin to pay for their emissions. The New York Times has a piece on the decisions these companies are faced with and how industries will be affected.

The Global Warming Solutions Act of 2006 directs the state’s Air Resources Board to operate a cap-and-trade system. At the end of 2014, the 350 companies to whom the system initially applies will present allowances for each ton of emissions from 2013. Most of these credits have been granted for free, but the number distributed will decrease quickly over the next five years. The goal is to reduce emissions to 1990 levels by 2020, and to structure incentives so that investment in energy efficiency both cuts costs and reduces emissions.

Regulators are trying to be sensitive to industry concerns. The rules are fine-tuned for each industry to avoid imposing severe economic hardship, but they walk a fine line with making the rules ineffective. However, the New York Times gives the example of the tomato industry, whose high-emissions processers fall under the law’s first round of emitters. The industry is wary of going the way of California’s garlic industry, which lost half its market to Chinese imports in less than ten years.

California wants to show that a cap-and-trade system can work in the U.S., but they also fear that if their industries lose a competitive edge, other states will be even more wary of adopting a similar approach. On the other hand, the more allowances are passed out for free, the less effective the system is in reducing emissions.

Many economists say that more important than the cost effects of the emissions allowances is if the market for the emissions credits produces a stable price – which would inform companies on the relative costs of emitting and investing in cleaner technologies.

President Obama Opts Out of E.U. Aviation Fees

Photo by thatsabigif. Some rights reserved.

Hot on the heels of his re-election, President Obama signed a bill Tuesday (one that had no trouble getting through the Senate and then the House earlier this year) that would exempt the U.S. (and more pointedly, its airlines) from a carbon tax for planes flying in and out of Europe. The carbon fees were first proposed by the E.U. in 2006 and adopted by the European Parliament in 2008, however the plan was delayed by the EU itself earlier this month, hoping that a year delay would give time for “a global agreement on aviation emissions.”

The legislation itself operates much like other carbon credits-based trading plans, where airlines would receive trade-able credits that would cover certain amounts of CO2 emissions per year, and any additional emissions would result in the mandatory purchase of more credits. The idea, as is most likely apparent, is to promote more efficient, less environmentally-damaging air travel by imposing taxes that are of low cost to the consumer.

The White House has thus far been quiet in their response to the bill exempting the U.S. from the carbon fees, though the industry group Airlines for America has said that “Obama’s signature will allow carriers to reduce emissions through international agreements.”

California Cap-and-Trade Goes International

Photo by Mike Baird. Some rights reserved.

California’s cap-and-trade program, known as “AB32,” is moving closer to its first binding auction. Mandated as part of California’s Global Warming Solutions Act of 2006, it requires greenhouse gas emissions in California to be reduced to 1990 levels by 2020 and to 80 percent of 1990 levels by 2050.

Recently, the state modified its greenhouse gas / carbon trading market to expand the reach of the program, proposing a formal link between the AB32 cap-and-trade system and a similar program in Quebec. The link, they expect, will expand participants’ trading options and increase liquidity in carbon markets. K&L Gates has a brief analysis of the linked system here.

The programs are similar in many ways. California’s program will at first cover 360 businesses responsible for 85% of the state’s greenhouse gas emissions. In 2013, the regulations will apply to industrial polluters, and in 2015 to distributors of transportation fuels, natural gas, and other fuels. Its credits were designed to integrate with other cap-and-trade programs. Quebec’s market will include 75 companies mostly in aluminum and mining industries beginning in 2013 and include a much larger group of companies in 2015, aiming to reduce greenhouse gas emissions to 20 percent below 1990 levels by 2020.

A joint press release from California and Quebec expresses their expectation that other regions involved in the Western Climate Initiative in North America, especially Ontario and British Columbia, may soon connect their trading schemes with California and Quebec’s, possibly rivaling the European Union’s in size eventually.

The California Air and Resource Board will hold a practice auction in August 2012, and a joint auction with the Quebec market is scheduled for November 14, 2012.

The Green Mien has covered at least one interesting objection to California’s cap-and-trade system: environmental justice groups opposing its “industry-preferred” approach that does not mandate reductions, ignoring that polluters are disproportionately located in low-income, minority communities.

D.C. Circuit Puts Cross-State Air Pollution Rule on Hold

Photo by Señor Codo. Some rights reserved.

Implementation of the EPA’s Cross-State Air Pollution Rule (“CSAPR”), requiring states to reduce power plant emissions that contribute to air pollution in other states, has been put on hold by a December 30th ruling of the United States Court of Appeals for the D.C. Circuit. Until the court’s review of the rule’s validity is complete, the EPA will continue to administer the Clean Air Interstate Rule (“CAIR”), which CSAPR was intended to replace. The order is the latest development in what has been a wave of opposition to the rule from Congress and both states and private companies since the final rule was published this summer.

CSAPR requires 28 eastern states (excluding New England) to reduce SO­2 and NOx emissions, and a supplemental rule finalized in December requires five states to make summertime NOx reductions as part of CSAPR ozone season control program. The regulations are designed to assist states in attaining ozone and fine particle National Ambient Air Quality Standards. The EPA has a page describing the rule here.

Several law firms published commentary on the rule in July, including memos from Van Ness Feldman and from Cadwalader, and our previous post summarized opposition to the rule. Two bills in Congress would delay the compliance deadline of CSAPR, but for now the conglomerate of suits brought by several parties under EME Homer City Generation, L.P. v. EPA has delayed implementation of the rule for at least one year. According to another Van Ness Feldman alert on the issue, the order suggests that the court has at least some concerns about the legal validity of CSAPR. However, when a predecessor to CAIR was similarly stayed in 1999, it was ultimately upheld, indicating that the stay of CSAPR does not necessarily mean the Court will invalidate the rule.

The stay provides that the parties must submit responses by mid-January so that oral arguments can be heard by April, in hopes of a final ruling by summer or fall of 2012. The postponement of CSAPR obligations is a victory for the states and companies concerned, but the EPA will be able to finalize “technical adjustments” rulemaking before the rule is put into effect. An Environmental Finance article on the issue notes that even in the EPA’s “best case” scenario of a mid-2012 go-ahead ruling, implementation during the fall presidential race is unlikely.

More immediately, the impact will be felt in the new market for CSAPR allowances. Another Environmental Finance article covers the volatility of the markets for CAIR and CSAPR emissions allowances in the wake of the decision, quoting a market analyst describing the markets as “in an absolute state of flux.” Some transactions for 2012 CSAPR allowances had been made before the ruling, and the EPA had already withdrawn 2012 CAIR allowances after finalizing CSAPR.

Environmentalists vs…Carbon Cap-and-Trade?

Photo by West Point Public Affairs. Some rights reserved.

A recent Update from ML Strategies (a consulting affiliate of law firm Mintz Levin) tipped us off to an interesting case that pits California’s proposed carbon cap-and-trade system against two environmental justice groups.

Environmentalists were largely united in their excitement over the passage of California’s Global Warming Solutions Act (more popularly known as AB 32), which was signed into law by Governor Schwarzenegger in 2006. The Act directed the California Air Resources Board (CARB), to develop regulations and market mechanisms that would help the state meet its goal of a 25% reduction in greenhouse gas emissions by 2020.

However, the cap-and-trade program that CARB proposed as part of its implementation of AB 32 created a sharp rift among those environmentalists. While many were elated to see the plan take shape, some saw the cap-and-trade program as the “industry-preferred” approach – one that does not require polluters to reduce emissions, rather allowing them to buy “reductions” from other polluters. Opponents of cap-and-trade argue that these polluters are “disproportionately located in low income communities of color.” A 2010 study by the University of Southern California affirms this argument.

In 2009, a group of individuals, along with attorneys from the two environmental justice groups, Center on Race, Poverty & the Environment and Communities for a Better Environment, filed a lawsuit against CARB, arguing that it had violated the California Environmental Quality Act (CEQA) when it failed to analyze and consider alternatives to the cap-and-trade program prior to implementation of AB 32.

(It’s interesting to note that representatives from both the Center on Race, Poverty & the Environment and Communities for a Better Environment sit on CARB’s Environmental Justice Advisory Committee, though perhaps this speaks to the limited influence the Committee ultimately has on CARB’s implementation plans.)

Less than two months ago, a San Francisco Superior Court judge ruled in favor of the petitioning environmental justice groups, and enjoined CARB from any further implementation of AB 32 until it “has come into complete compliance with its obligations under its certified regulatory program and CEQA.”

Pursuant to the judge’s decision, the petitioners were ordered to submit proposed documents (“Writ of Mandate”) to finalize the Court’s order. As explained in the accompanying letter, these proposals limit the scope of the injunction to include only the development and implementation of the cap-and-trade program, in order to allow “the good part” of AB 32 to move forward.

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