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Registry starts accepting California CO2 offsets

18 May 2012 | Reuters

Offset registry the Climate Action Reserve (CAR) announced Friday it will start accepting projects that will generate carbon credits for California’s cap-and-trade scheme in a bid to ensure there is an ample supply of credits before the market starts in 2013.

CAR, which is in the process of being accredited by California regulators to be one of the market’s official offset registries, said it has become the first registry to accept California-compliant project submissions.

Gary Gero, president of CAR, said he hopes the move can expedite the issuance of carbon credits for the nascent carbon market.

“By processing compliance projects at this juncture, we are helping to ensure that there will be sufficient offset supply for the market in the early going,” he said.

CAR has developed the only four offset protocols to have been adopted so far by the California Air Resources Board (ARB) for use in the state’s cap-and-trade program.

“We are excited about the opportunity to grow our respected offsets program into the regulated sector,” Gero told Reuters Point Carbon.

 HEAD START

Once a project developer or owner submits project design documents to the CAR registry, CAR will review them to make sure they are eligible for compliance with the California market.
This “head start” will enable the projects to be ready once the ARB has accredited third-party project verifiers, which Gero expects to happen in July.
California is expected to issue its first allowances to emitters by this autumn and will hold its first compliance auction in November.
The market will begin trading in 2013, by which point it is expected to begin the process of linking to a similar carbon market being implemented in Quebec under the Western Climate Initiative (WCI).

WCI

The WCI on Thursday announced it is reviewing its own set of offset protocols for its regional carbon trading scheme.
It will evaluate projects that reduce emissions managing manure from cows and pigs; eliminating ozone depleting substances; capturing methane from coal mines and from small landfills.
WCI may also consider offset protocols related to municipal and industrial waste water treatment, forests, N20 emission reductions from fertilizer application, rice cultivation, and enteric fermentation.
CAR’s Gero said the WCI shortlist includes offset protocols that CAR has already written and has experience implementing.
“We will work the WCI partners as closely as we can to adapt those protocols for use in the WCI,” he said.

Development of WCI Offset Protocols

Western Climate Initiative

Development of WCI Offset Protocols The Western Climate Initiative (WCI) Partner jurisdictions will be reviewing offset protocols to support the WCI cap-and-trade program. In a series of design documents released over the last several years, WCI recommended the creation of rigorous and consistent offset protocols, and processes for reviewing and developing offset protocols in an open and transparent way. WCI Partners will begin the review and evaluation of the protocols listed below. Offset Protocols for WCI Review Avoided CH4 from Manure Management (cows and pigs) Ozone Depleting Substances Coal Mine Methane Small Landfills WCI may also consider reviewing additional protocols relating to municipal and industrial waste water treatment, forests (all project types), fertilizer application N2O emission reductions, rice cultivation, and enteric fermentation. Important Note: The WCI Partner review of these protocols, or any others, does not constitute an endorsement or approval of these protocols, or any existing credits issued under those protocols, as being eligible for use in any WCI jurisdiction program.

Why Investors Should Be Paying Attention To California's Carbon Auction

After numerous attempts to stop its cap-and-trade law (AB32), and more than one delay of the law’s implementation, California is finally preparing for its first carbon auction. The results of that auction–there will be a “practice” auction in August, with the first real auction scheduled for November–are likely to determine the fate of carbon regulation in the United States and, perhaps more importantly, the value placed on carbon in the U.S. marketplace.

Under AB32 the state will dole out so-called carbon allocations to utilities and various other carbon-emitting companies. The number of allocations distributed will be based on the amount of carbon or carbon equivalent (a ton of methane, for example, is equal to 23 tons carbon) emitted in 2012. Investor-owned utilities are required to sell their allocations into the market and use the money to benefit ratepayers, while other utilities and companies can opt to either use or sell their allocations. A utility that’s given 10 allocations, equivalent to 10 tons of carbon emissions, but has made efficiency improvements and only emits eight tons of carbon or carbon equivalent, can sell its remaining allocations. Any un-used or un-sold allocations expire at the end of the auction’s initial two-year period. The price floor set for carbon in the auction is $10 per ton, but many are predicting that the price will level out at $15 per ton. The Governor’s office is predicting revenue of at least $1 billion from the initial auction.

Over time, the number of companies included in the cap-and-trade program, and the auctions, will increase, and the number of allocations allotted will be driven down, necessitating further emissions reductions and/or the purchase of more allocations on the market. Some companies and utilities will be looking to buy advance allocations as well–these are allocations priced at today’s market rate, but which cannot be used until 2015. Those companies that know they will need to buy more allocations and want to lock in today’s carbon price may opt to stockpile advance allocations. This could be particularly true not just for more expected players, such as utilities, but also for the high-tech sector, where emissions of sulfur hexafluoride (SF6), which is used widely in the semiconductor industry, could prove to be quite expensive. SF6 has a carbon equivalent of 23, 900, so even emitting a relatively low amount of the stuff could have a major impact on a company’s bottom line.

Move up Move down

There is one remaining political squabble: Under California’s Proposition 13, anything that could reasonably be described as a tax must be approved by two-thirds of voters. AB32 was passed by voters, and Proposition 123, which aimed to kill AB32, was voted down by 62 percent of the state’s voters, but it did not get two-thirds of voters’ approval. That means any money raised by the bill will need to be tied directly to greenhouse gas reductions or else risk being frozen by opponents to cap and trade. While some of the Governor’s initial plans to use the auction revenue to help fund high-speed rail may pass muster, others–namely using the funds to beef up the state’s ailing General Fund–would certainly not.

Irrespective of what happens with the auction’s revenues, however, California is likely to set the stage for federal carbon regulation, no matter who wins the next election or which party controls Congress. “California has put into place the first real market system that lashes the markets to climate change solutions,” says Larry Goldenhersh, CEO of environmental ERP software provider Enviance, which is working with companies such as Valero, Chevron, and PG&E to prepare for the shift in California. ”The results will determine whether we have federal cap and trade in the next five years. It doesn’t matter who’s elected.”

That’s true whether the auction and the cap-and-trade program exceed all expectations or fail spectacularly. Current revenue projections are based on the assumption that most, if not all, of the allocations that are auctioned off will sell, but there’s no guarantee that will happen. Should cap and trade flop in California, federal regulators will nonetheless learn from the experiment, and either work toward a revised cap-and-trade idea or revive the notion of a carbon tax.

“There’s been a whole raft of greenhouse gas emissions regulations passed in the last few years and if Obama is elected I think we can expect to see the drumbeat of ever-increasing greenhouse gas regulatory pressure continue,” Goldenhersh says. “By mid-term, industry will demand a national solution that puts a market solution in place. If you were to poll utilities right now, I think you would find that most of them want a price on carbon so that they can pass it on to their rate payers and make a financial plan around this stuff.”

The California experiment will have an impact if Romney is elected, as well, according to Goldenhersh. “If Romney wins I think you’ll see a reluctance to reverse any of the greenhouse gas regulations already in place,” he says. “If you research Governor Romney, yes he said recently that the EPA is out of control and appears to be a tool to crush private enterprise, but he also launched greenhouse gas legislation in Massachusetts, which set a short term goal of reducing greenhouse gases to 1990 levels by 2010 and which  he labeled as  the ‘no regrets policy towards climate change.’ He is also on record as saying mankind has contributed to climate change and we need to do something about it. Romney is conflicted on climate.”

Either way, with many U.S. companies already dealing with a price on carbon in California, plus a patchwork of federal greenhouse gas regulations, Goldenhersh is hearing from his customers that they want some sort of federal, market-based solution. “When Congress gets pushed for a solution, what will they be looking at? They’ll be looking at the way the 8^th largest economy in the world has managed this issue. And I think that will accelerate the development of a federal carbon market.”

That’s good news for data management companies like Enviance (and others, such as SAP and OsiSoft), which will be tapped to help companies track and analyze their emissions. Back in 2005, Enviance helped American Electric Power build the world’s first cloud-based system for managing greenhouse gas emissions. At the time, AEP was reputed to be the largest CO2 emitter on earth. The Enviance system enabled AEP executives to see the greenhouse gas emissions attributable to every  ton of coal burned at any of their plants, and helped them begin to size the impact greenhouse gas regulation would have on their business.

“Tracking emissions is the first step toward figuring out how much it will cost you when you have to start paying for carbon,” Goldenhersh says. “It gives your CFO information like at $10/ton we will have $350 million in carbon  exposure by 2013, so what do we do about that?”

http://www.forbes.com/sites/amywestervelt/2012/05/14/why-investors-should-be-paying-attention-to-californias-carbon-auction/#comment_reply

Report on the Inaugural Meeting of the Climate and Clean Air Coalition

The Climate and Clean Air Coalition (CCAC), a group of countries organized to address the short-lived climate pollutants of HFCs, black carbon, and methane, held its inaugural meeting April 23 and 24 in Stockholm, Sweden. The initiative was announced by Secretary of State Hillary Clinton in February. 

Since the announcement of the CCAC, Colombia, Japan, Nigeria, Norway, the European Commission, and the World Bank, have joined the inaugural members: the United States, Canada, Bangladesh, Ghana, Mexico, Sweden, and the UN Environment Programme.  Several other countries, Australia, Denmark, Finland, the Republic of Korea and the United Kingdom, were also present as interested observers that may become full partners. 

At the meeting, the parties discussed 12-16 proposals for action across a number of initiatives in multiple focus areas.  Of those proposals, they narrowed the list down to five areas of policy that they intend to initially work upon: 

·      HFCs - Accelerating alternatives to HFCs.

·      Diesel emissions - Fast action on diesel emissions including from heavy-duty vehicles and engines.

·      Brick Kilns - Upgrading old inefficient brick kilns that are a significant source of black carbon emissions.

·      Landfill Methane - Accelerating the reduction of methane emissions from landfills.

·      Oil and Gas Methane - Speeding up cuts in methane and other emissions from the oil and gas industry. 

The Alliance was the only true representative of the private sector that attended the meeting, which was open to invited observers through much of the first day but subsequently closed.  Though the CCAC’s press release noted the presence of “delegates from the private sector” aside from Kevin Fay the only observers were a representative from the Stockholm Environment Institute, a representative the International Council on Clean Transportation, and Durwood Zaelke, from the Institute for Governance and Sustainable Development. 

Furthermore, in discussion with EPA it appears there is scant evidence that the sectors targeted by these initiatives have been fully engaged with the proposals that were presented at the meeting, or in current plans about a path forward for those proposals.  This is particularly concerning because, while participation in CCAC is voluntary for any country, the proposals under discussion could ultimately include mandatory regulatory initiatives.  Therefore, while voluntary for countries to participate, the initiatives will not necessarily be voluntary for affected industries once agreed to by the group. 

It also appears that there has been little definitive thought invested as to how CCAC will interact with many of the other international forums addressing climate such as the UNFCCC, the Major Economies Forum, and the G-20, or to the Montreal Protocol in the case of HFCs.  There is a possibility that the coalition will have a side-event at the Rio +20 meeting in Brazil in June, but it is not expected to dwell on the specifics of any of the five initiatives. 

A second meeting of the CCAC will be held in Paris during July at a date to be determined. 

Attached is a draft of the concept paper developed by the United States on the HFC initiative.  As you will note, it focuses on “promot(ing) climate-friendly, cost-effective alternatives and technologies for new and existing equipment; minimize(ing) HFC leaks through responsible management; and encourage(ment of) recovery, recycling, reclamation, and eventual destruction of existing HFC supplies.” 

During the discussion in Stockholm, the World Bank asked if this could also be expanded to include CFC destruction as a component.  The United States replied that it would welcome consideration of that as part of the initiative.

The US was designated to take the lead on the HFC initiative.  It will be recalled that EPA and State Department representatives had presented this as a means to promote the North American amendment proposal, however, the paper does not address this nor was it discussed during the meeting.  Representatives from EPA and the State Department will be invited to a future Alliance Board meeting to discuss their plans for this initiative.

The partnership contemplates a Secretariat operating out of the UNEP IE office in Paris.  Current partners have pledged $18 million to date, including $12 million from the United States towards the secretariat and to get the partnership operational.

The summary statement from the Ministerial portion of the meeting is also enclosed.

Dave Stirpe
Executive Director
Alliance for Responsible Atmospheric Policy
2111 Wilson Blvd., 8th Floor
Arlington, VA 22201

phone: (703) 243-0344
website: www.arap.org

California carbon down 3 pct ahead of electricity meeting

* Trading down 63 percent from previous week
* Traders await insight on electricity import rules
SAN FRANCISCO May 3 (Reuters Point Carbon) - California carbon allowances (CCAs) for delivery in 2013 closed at $15.50/tonne on Thursday, down 50 cents from a week ago, as market players held back on trading ahead of a key regulatory meeting on Friday that they hope will give new market players more clarity about their obligation in the cap-and-trade scheme.

Just 30,000 CCAs changed hands on the IntercontinentalExchange (ICE) this week, a 63 percent drop from the previous week.

Sources said the market was quiet in the run up to the California Air Resources Board's (ARB) workshop in Sacramento that will focus on regulations pertaining to electricity importers.
Under California's "first deliverers" system, the first entity that sells power to the California grid, ranging from power producers to banks, has to hold allowances to cover the related greenhouse gas emissions.

California imports about a quarter of its electricity from out of state, which tends to come from more carbon-intensive sources like coal plants and accounts for about 50 percent of California power-sector emissions.

At this point, the CCA market moves more on regulatory developments than supply-and-demand fundamentals, so brokers and traders said they'll be watching the meeting carefully to see if it might entice new entities to engage with the market.

"The hearing could definitely have an impact on the market because a lot of market maker-type entities, like banks, own a lot of the PPAs (power purchase agreements) for out-of-state generation in California," one broker said Tuesday.

"So if they get a little more clarification from ARB on what they are liable for from a compliance standpoint, they may begin to translate that into market activity," he said.

RESOURCE SHUFFLING
The workshop will also examine the controversial issue of "resource shuffling."

Resource shuffling is when an out-of-state power producer sends more of its clean electricity generation to California to make it appear that it has reduced its emissions while keeping its dirty generation in state.

California has indicated that since it would not provide any environmental benefit, resource shuffling will be banned by the program.

But lawyers have said it's unclear whether the state has the legal authority to enforce the ban, since California is prevented from regulating economic activity taking place in other states.

In its regulations, ARB requires power producers to swear an oath that they will not engage in the practice.

OFFSETS
Carbon offset credits derived from projects that destroy ozone-depleting substances (ODS), which will count for compliance with the program, were offered at $8.50/t on Thursday, sources said.
"There's not a lot of bid-side interest. We've heard indications of $7.50-$7.75/t, but nothing is significantly materializing there," one broker said.

He added that interest in the market for Climate Action Reserve Climate Reserve Tonnes (CRTs) is fading as market participants await the introduction of official ARB-issued credits, which the air regulator has not yet started minting.

On Thursday ARB announced it would begin accepting applications for companies wanting to serve as offset registries, verifiers and early action programs. (rory.carroll@thomsonreuters.com; Editing by Bob Burgdorfer)