Weekly Climate Change Policy Update - February 25, 2008

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Commentary

At the end of this month, and early next month, look for analyses from the Environmental Protection Agency and the Energy Information Administration of the costs and emissions impacts associated with the Lieberman-Warner bill.  These analyses could shape the debate about the bill, and particularly its “cost containment” provisions, i.e., the Carbon Market Efficiency Board, allowance banking, allowance borrowing, and – in particular – offsets . . . State activity continues to accelerate, and not just in California.  Maryland has taken steps to implement a program with economy-wide emissions limits.  The Midwestern Greenhouse Gas Reduction Accord states have an end-of-year deadline to develop a model rule for their multi-state program.  And Colorado might set up a “carbon fund” to support voluntary emission reduction projects . . . Is the Bush Administration opening a window to the global carbon markets?  The Administration’s Asia-Pacific Partnership is supporting a coal methane capture project in China, which also will seek to earn Certified Emission Reductions under the Clean Development Mechanism. 

Congress

• House Committee Seeks Answers on FutureGen Cancellation.  The Chairman of the House Science and Technology Committee, Bart Gordon (D-TN), asked the Government Accountability Office (GAO) this week to investigate the Department of Energy’s (DOE) decision to end federal support for the FutureGen project – a public-private partnership to construct a zero-emissions coal-fired power plant using carbon capture and sequestration technology.  DOE announced in January 2008 its decision to abandon the project because of escalating cost estimates.  The price of the program was expected to increase from $900 million to $1.8 billion.  In his letter to the GAO, Chairman Gordon said that DOE’s decision will delay the advancement of clean coal technologies.  The letter was also signed by Reps. Nick Lampson (D-TX), Jerry Costello (D-IL) and Dan Lipinski (D-IL).  DOE has said that it is committed to a restructured approach to encouraging low-carbon power generation, which will focus the agency’s resources on developing carbon capture and sequestration technologies.

Administration

• FERC Asserts Informal Role in Climate Change Debate.  Chairman of the Federal Energy Regulatory Commission (FERC) Joseph Kelliher said this week that the commission has a key role in the shaping of climate change legislation.  Speaking at a conference hosted by DOE and the National Association of Regulatory Utility Commissioners, Chairman Kelliher said that the agency must work to strike a balance between energy and environmental policy to ensure that climate change policies do not impair energy security.  The Chairman also noted that the Commission’s climate change position would not affect FERC’s legal authority.  He said that the agency will participate in the debate through informal discussions with lawmakers and through Congressional testimony.  

States and Cities

• Revised Low Carbon Fuel Legislation Introduced in California.  A California state senator has reintroduced legislation creating a low-carbon fuel standard that was previously vetoed by Governor Arnold Schwarzenegger (R).  The proposed legislation would require the California Air Resources Board (CARB) to reduce the carbon intensity of gasoline and diesel by 10 percent by 2020.  In rejecting the previous version of the bill, Gov. Schwarzenegger said that the standard could affect air quality negatively and impede the development of low carbon fuels by failing to provide authority for CARB to use market mechanisms to implement the legislation.  The new version of the bill addresses these problems by requiring CARB to analyze the pollution impacts of the standards and authorizing market-based mechanisms with language similar to that contained in AB 32, the bill passed in 2006 that created state-wide GHG emission limits.
• Midwestern Accord Model Rule Due in Late 2008.  Members of the Midwestern Greenhouse Gas Reduction Accord (Accord) expect to complete a model rule for the regional cap-and-trade program by the end of 2008.  Each of the Accord members would then have eighteen months to adopt the model rule at the state level through executive, legislative, or regulatory action. Illinois, Iowa, Kansas, Michigan, Minnesota, Wisconsin, and the Canadian province of Manitoba are participating in the regional effort.  Members have agreed to establish emissions targets, but the states still must negotiate the specific emissions targets and cap-and-trade design issues such as an auction format, number of credits, and the list of covered industries.  Accord members are also considering linking the program to other regional cap-and-trade programs, including RGGI in the northeast and the Western Climate Initiative in the west.  
• Minnesota Advisory Panel Recommends Regional Cap-and-Trade Program.  A draft report by Minnesota’s climate change advisory panel recommends a multi-state cap-and-trade program as the most cost-effective way for the state to reduce its GHG emissions.  The report stated that Minnesota should create an economy-wide cap-and-trade program along with the other members of the Midwestern Greenhouse Gas Reduction Accord.  The panel estimated that the price of allowances for the program would range from $45-48, with lower prices possible if the program linked with California’s emissions trading program. 
• Maryland Legislation Would Create Economy-Wide Cap-and-Trade Program By 2012.  Legislation currently before the Maryland State Legislature would create an economy-wide cap-and-trade program intended to reduce the state’s GHG emissions to 25 percent below 2006 levels by 2020 and to 90 percent below 2006 levels by 2050.  The legislation is based on recommendations of the Maryland Commission on Climate Change and is modeled on California’s AB 32.  The bill is designed to incorporate and expand on Maryland’s emission reduction obligations under the Regional Greenhouse Gas Initiative (RGGI), which applies to the power sector only.  The program, which has the support of Maryland Governor Martin O’Malley (D), would go into effect in 2012. The State Senate Education, Health and Environmental Affairs Committee held a hearing on the measure on February 19 and the House Environmental Matters and Economic Matters Committees will hold a joint hearing on February 29.
• Kansas Legislation May Temporarily Revive Coal-Fired Power Plant Expansion.  Both houses of the Kansas legislature have passed legislation approving expansion of a coal-fired power plant in western Kansas.  The legislation would effectively overturn an October 2007 decision by the Kansas Department of Health and the Environment (Department) denying an air quality permit for the power plant expansion due to concerns about CO₂ emissions.  A joint conference committee of members from the two houses will attempt to create a compromise version of the bill that will be sent to Governor Kathleen Sebelius (D).  However, Governor Sebelius supported the initial decision by the Department to deny the permit and is expected to veto the legislation.  Observers do not believe that a compromise bill will receive sufficient votes in the House to survive the governor’s veto.
• Colorado Voluntary Carbon Fund Under Development.  Colorado is creating a voluntary carbon fund that will help the state meet its goal of reducing GHG emissions 20 percent by 2020.  The carbon fund, which will allow entities to purchase carbon credits to offset their GHG emissions, is expected to be operational by late spring 2008.  The state is seeking a manager for the carbon fund who will partner with offset developers, financiers, brokers and aggregators.  The state’s emissions goal was announced as part of Governor Bill Ritter’s (R) Climate Action Plan late last year.

Industry

• Conventional Coal Plant with Carbon Controls Planned for West Texas.  The energy company Tenaska, Inc. announced plans for a 600 MW conventional coal-fueled power plant that will be able to capture up to 90 percent of CO₂ emissions.   The $3 billion plant is to be sited near Sweetwater, Texas, and the captured CO₂ is expected to be used for enhanced oil recovery (EOR) in the Permian Basin.  Tenaska indicated that the final decision to proceed with the project will be made in 2009, with completion anticipated for 2014.
• U.S. Auction for Environmental Commodities Launched.  World Energy Solutions, Inc., an operator of online exchanges for energy, announced the launch of an online auction platform for environmental commodities, to be known as the World Green Exchange.  The new platform will provide a marketplace for green power, renewable energy certificates (RECs), verified emission reductions (VERs), and carbon offsets.   

Studies and Reports

• Survey Indicates that Less than One-Half of E.U. Member States Prepared to Issue Emission Allowances on Time for E.U. Emissions Trading Scheme.  The consultancy Point Carbon reports that less than one-half of E.U. member states expect to issue allowances by the February 28, 2008 target date for the second phase of the E.U. Emissions Trading Scheme (ETS).  The survey indicates that approximately one-third of the overall cap of 2 billion allowances will be ready on time, and that countries with a large number of allowances, such as Germany and Poland, will likely miss the target date.  The delay is expected to result in disruptions in the spot trading market, which represents approximately 10 percent of all E.U. ETS trading.
• United Nations Report Encourages Facilitation and Stimulation Role for Governments in Environmentally-Sound Economy.  The United Nations Environment Programme (UNEP) released its annual yearbook for 2008, An Overview of Our Changing Environment, which recaps environmental issues from the past year and provides recommendations for moving forward.  The yearbook dedicates one section to emissions trading, describing trading as a mechanism for confronting climate change “which provides valuable lessons for governments on how to put the pieces together and develop effective policy incentives that support the transition to an environmentally-sound economy.”  The yearbook also points out that governmental subsidies for fossil fuels and inefficient technologies still remain, and need to be replaced by significant positive financial incentives for low-carbon and efficient energy such as “tax credits, subsidies, direct funding, loan guarantees, procurement policies, and feed-in tariffs.”  The report is available at http://www.unep.org/publications/.

International

• British Columbia Considers Carbon Tax.  British Columbia Finance Minister Carole Taylor announced the Balanced Budget 2008, which would impose a revenue-neutral carbon tax, issue a $100 Climate Action Dividend to all residents of the province, and create more than $1 billion in incentives for energy efficiency projects and low-carbon investment.  The tax would apply to most fossil fuels, including gasoline, diesel, natural gas, coal, propane and home heating fuel, and is intended to help the province meet its goal of reducing GHG emissions by one-third by 2020.  The proposal would set the tax rate at C$10 per metric ton of carbon dioxide equivalent GHG emissions in the first year, rising C$5 each of the next four years to C$30.  Revenues from the tax would be returned to businesses and individuals through reductions in personal income tax rates, the general corporate tax rate, the small business income tax rate, and the introduction of a Climate Action Credit for low-income tax payers.  If passed, the Balanced Budget 2008 plan will go into effect on July 1, 2008.  Environmental groups praised the proposal, calling it a “powerful incentive” to discourage carbon emissions, but a member of the opposition party said it could harm low-income taxpayers.
• Joint US, Chinese Project To Generate CERs By Capturing Coal Mine Methane.  A joint venture between US and Chinese companies will capture methane emissions from coal mines in China’s Hunan province.  The captured emissions will be used to run 22 500-kilowatt electric generators.  The project also is expected to generate approximately 250,000 Certified Emission Reductions (CERs) under the Kyoto Protocol’s Clean Development Mechanism.  The Clean Development Mechanism provides CERs to qualifying emission reducing projects in developing countries; countries with emission limits under the Protocol can use the CERs to meet their obligations.  The United States government’s Asia-Pacific Partnership on Clean Development and Climate will provide technical assistance for the project.
• France Will Seek to Pass EU Climate Measures By End of 2008.  French Prime Minister Francois Fillon said that during the country’s upcoming term as EU President, France will focus on climate change and energy security issues.   France will take over the rotating EU presidency from Slovenia in the second half of 2008.  France’s goals for its term include passage of a variety of climate measures that the European Commission proposed in January.  The measures are aimed at reducing EU-wide GHG emissions to 20 below 1990 levels by 2020 and include renewable energy and biofuels targets, and new rules for the third phase of the EU Emissions Trading Scheme.  France will propose that the measures include provisions to maintain European industry’s competitiveness compared to nations that do not enact mandatory GHG emission limits.