Thursday, June 13, 2013

Coming to America

U.K.'s A-Gas Plans Expansion Into North America

A-Gas’s acquisitions in the U.S. will set it up for a significant expansion into North America, including the international rollout of its refrigerant reclamation technology.

This year, A-Gas celebrates its 20th year in business, but no time in those two decades has been quite as busy as last year. The past 12 months have seen intense activity as the Bristol refrigerant distributor and reclaimer bought two U.S. specialists, Coolgas and RemTec, and set up a fully fledged North American division. The firm has transplanted U.K. managing director Ken Logan to oversee the establishment of the U.S. operations for the next two years at least.

The acquisition of the U.S. businesses, plus a further distributor in Australia, Technochem, has seen the A-Gas Intl. group top £100 million turnover for 2012, with a worldwide headcount of 237.

Acquiring Assets


“A-Gas is now the largest independent refrigerant player outside of the U.S.,” said Jon Masters, European managing director. “Our core territories are in the U.K., South Africa, and Australia, in each of which we have a 30-35 percent market share. So we were keen to try and take that offering to the U.S. — it was the right opportunity in terms of the business and the regulatory framework.”

That framework is the U.S. phase out of HCFCs and the probable phase down of HFCs, expected to closely follow the European Commission’s proposed F-Gas model — although progressive states like California are already bringing in more stringent rules.

The particular attraction of RemTec is that its core business is halon reclamation. Although these are largely from fire suppressants, this offers the right range of skills and technology to allow an expansion into refrigerant reclamation. This is where A-Gas brings its own skills to bear, said Masters. “We can bring our reclamation knowhow, and the benefit of the U.K. experience of selling the reclaimed HCFC product. The U.S. market is maybe four or five years behind Europe, but it is rapidly developing, and the EPA [Environmental Protection Agency] has announced more cuts in HCFC volume.”

The plan is for the RemTec operation to be brought up to the same standard for refrigerant reclamation as A-Gas’s Bristol facilities by the end of this year.

The commercial implications of the rapid cuts should not be underestimated; in the U.S. over the past year, virgin R-22 has increased in price from $3 per pound to $15 per pound.

Coolgas, by contrast, is a conventional refrigerant distributor, but again the purchase is strategic, providing a foothold in the Southwest, from which A-Gas can build, with a brand name well known to the American market. It also holds all-important import rights to HCFCs.

A foothold in such a large territory is a big deal in its own right, but the potential is far bigger. “The U.S. business is roughly the same size as the U.K. business, but whereas in the U.K. that brings a 30 percent market share, in the U.S. it is only 2 percent of the market. It should be easier to double from 2-4 percent than from 30-60 percent.”

If the plans for reclamation at RemTec go well, it could be joined by other sites. While the U.K. can function well with a single reclamation site, the scale of the U.S. is likely to require a network of two or three more. With reclaimed HCFC expected to be useable in the U.S. beyond 2020, that is an attractive long-term target.

Reclamation Technology


In a relatively short time, refrigerant recovery and reclamation has become a serious business for A-Gas. Its environmental services operations now account for around 20 percent of turnover (refrigerants is the largest proportion at 60 percent).

U.K. business director John Ormerod said, “What we do falls into two areas: cleaning up dirty gas by removing contaminants and separating out gases from refrigerant mixtures.

“We probably lead the world in refrigerant reclamation. There is only one other company in the U.K. and three in the U.S. who can separate refrigerants like we do,” he said.

The separation facilities at Bristol have come on apace since the pioneering days when its technology could be housed in a corner of the warehouse. The original plant is still in situ, but it has been joined by Separator 3, located outside the warehouse and large enough to be able to accommodate tanker-sized volumes of refrigerant, with a capacity to process around 400 tonnes a year.

Although the precise technology is secret, both plants are designed to reclaim refrigerant to Air-Conditioning, Heating & Refrigeration Institute (AHRI) 700 standards, as well as being able to split mixed refrigerants into usable batches and to reclaim individual gases from cocktails of recovered refrigerant. The latter is where A-Gas claims distinctiveness, as “the only supplier who has both the technology and the capacity to provide this level of service.”

Content for the European Spotlight is provided courtesy of Refrigeration and Air Conditioning Magazine, London. For more information, visit www.racplus.com.

Publication date: 5/20/2013

U.S.-China climate deal called "breakthrough" but no long-term cuts yet


       
WASHINGTON (Reuters) - China and the United States took a major step in the fight against climate change over the weekend, but what was termed a "breakthrough" might not do much in the longer term to lock in legally binding carbon emission cuts from the world's two biggest emitters of greenhouse gases.

Still, environmental groups and some U.S. and global policymakers said the agreement could give fresh momentum to the United Nations' arduous process of finalizing a global treaty to replace the Kyoto Protocol on climate change by 2015.

In their first talks, U.S. President Barack Obama and Chinese Premier Xi Jinping agreed to phase out production and consumption of the gases known as hydrofluorocarbons (HFCs), working under the U.N's 1987 Montreal Protocol.

Used mostly in air conditioners and refrigerators, ozone-harming HFCs make up roughly 2 percent of greenhouse gas emissions, but are rising at a rate of up to 9 percent annually.

The White House said a global phase-down could reduce the carbon dioxide equivalent of 90 billion tons by 2050, roughly two years worth of global greenhouse gas emissions.

"We see that as just the first step of a long and robust international climate agenda in the second term," Heather Zichal, deputy assistant to the president for energy and climate change said on Tuesday.

Analysts worry that the U.N. climate talks continue to be hampered by deep divisions between developed and developing countries over the responsibility for carbon emissions.

One official close to the negotiations said the agreement was a political breakthrough, but the road ahead to a global deal on climate change would still be long.

The official said the weekend agreement, which followed earlier talks between Secretary of State John Kerry and Xie Zenhua, a vice chairman in China's top economic development body, can inject a dose of optimism into the U.N. climate talks. But the deal represents a powerful example of what can be done when two major powers work together, the official added.

TALE OF TWO TREATIES
Experts have said addressing HFCs under the separate Montreal Protocol, regarded as a successful international treaty, can lead to major emissions reductions while negotiators hammer out parameters of a workable new climate treaty by 2015.

"This is the biggest, fastest, most effective climate mitigation that could happen in the near term," said Mark Roberts, international policy advisor of the Environmental Investigation Agency, a group involved in climate issues.

Unlike carbon dioxide, the most prevalent and longest-lasting greenhouse gas produced across many sectors of a country's economy, HFCs are short-lived and confined to just a handful of sectors, making them easier to tackle.

The Montreal Protocol also creates different timetables for rich and poor countries to phase out production of the gases and gives poor countries financial support to use alternatives. It has already phased out the use of 100 hazardous chemicals.

The United States, Mexico and Canada first proposed the phase-out of HFCs under the Montreal Protocol in 2009. At that point China, India and Brazil opposed the plan, arguing that HFCs should be addressed in U.N. climate negotiations.

Durwood Zaelke, founder of the Institute for Governance and Sustainable Development, said the constraints of U.N. climate talks have created the need for diplomatic moves outside of that process, such as the new U.S.-China agreement.

"This is the beginning of a movement to enlist more climate mitigation from parallel venues," he said, adding that such deals take some pressure away from U.N. climate talks and open the way for other solutions.

Zaelke pointed to negotiations within the International Maritime Organization and the International Civil Aviation Organization as examples of venues where shipping and aviation emissions can be addressed untethered from U.N. climate talks.

The HFC agreement is "rebuilding an urgent sense of optimism" in the multilateral process that can pave the way for agreements on other short-lived greenhouse gases, such as black carbon, the soot emitted from cook stoves and diesel engines, Zaelke said.

More of these kinds of agreements could be on the horizon, those familiar with climate negotiations have said.

A U.S.-China climate change working group formed in April is expected to come forward with a number of new proposals at the next U.S.-China Strategic and Economic Dialogue from July 8-12.
Diplomats will also gather in Bangkok on June 24 for a week of Montreal Protocol meetings and could start negotiations on an HFC phase-down at that point.

UPDATE 2-California carbon permits sell for record high price

Tue May 21, 2013 4:22pm EDT

(Adds details on market, quotes from consultant and broker)

By Rory Carroll
SAN FRANCISCO May 21 (Reuters) - California's largest greenhouse gas-emitting businesses paid $14 per metric tonne (1.1 tons) for the right to release carbon this year, a record-high price that narrowly beat market expectations, the state said on Tuesday.
The state sold all of the more than 14.5 million allowances it offered to cover carbon emissions in 2013 at its third permit auction on May 16.
Allowances that cover emissions in 2016, which were also for sale, saw lighter demand, with buyers snapping up 7.5 million of the more than 9.5 million permits that were offered.
Those allowances cleared at the program's auction floor price of $10.71 per tonne.
"The auction results show increased maturity from program participants and from the market and confirm the good health of the carbon market in California," said Emilie Mazzacurati, managing director of climate consultancy Four Twenty Seven.
Following the release of the results, California carbon allowances in the secondary market were trading at $14.50 a tonne in large volumes on the IntercontinentalExchange, one carbon broker said on Tuesday.
Had allowances cleared the auction at a price higher than $14 a tonne, market speculators would have been more inclined to buy allowances, he said.
"The market looks pretty flat," he said. "I don't see the results as having a dramatic impact either way."

REVENUE RAISED
The state's three auctions have so far raised $256 million for the state and $556 million for its largest utility companies, which are required to use the money to protect ratepayers from higher energy costs.
The state is currently drafting a spending plan for the revenue it takes in from the program, which is required by law to be spent on efforts to drive down the state's emissions of heat-trapping greenhouse gas emissions.
Last week, California Governor Jerry Brown announced that he would lend the $500 million the state expects to raise during the program's early years to help balance the state's budget under the condition that the money be paid back eventually with interest.

LAWSUITS
California's quarterly allowance auctions are not without controversy.
The auctions are currently the subject of two lawsuits, one by the California Chamber of Commerce, California's largest business group, and one by the Pacific Legal Foundation, a conservative legal group that filed the suit on behalf of a handful of affected California businesses and residents.
Both lawsuits argue that the California Air Resources Board, the program's regulator, is violating state law by raising revenue by selling permits. (Reporting By Rory Carroll; Editing by Peter Galloway, Bernard Orr)

Taking Stock of Climate Change Efforts: As European Carbon Market Falters, CA Expands Cap and Trade to Canada

Unlike many environmental problems, which can be addressed at a local or regional scale, climate change is inherently global in nature: greenhouse gas (“GHG”) emissions from any source join with historic and contemporary GHG emissions from other sources globally to contribute to the total store of GHGs in the atmosphere.  The global nature of the issue is a key reason why, from the onset of climate change efforts, policymakers and environmentalists have attempted to address GHG emissions at an international scale.

Failure of Kyoto Protocol Leaves Void in International Climate Change Efforts
The primary effort to address climate change at an international scale is the Kyoto Protocol, adopted in 1997 in connection with the United Nations Framework Convention on Climate Change.  Unfortunately, through the first “commitment period” (which ended in 2012), the Kyoto Protocol has not achieved expectations, as the two largest GHG emitting countries—China and the United States—never signed the Protocol.  The sense that the Kyoto Protocol will ultimately fail as a climate program was compounded by the inability of negotiators at the 2009 Copenhagen Summit to agree on a framework for climate change mitigation for the period following the end of the first commitment period in 2012.  Since Copenhagen, climate policymakers have looked for a regional model to lead the way to a new international climate framework.

European Trading System in Disarray
With the Kyoto Protocol faltering, hopes have been pinned on the European Union’s climate change program—the Emissions Trading Scheme (“ETS”).  These hopes are rapidly fading.  In the past few months, the ETS has experience significant growing pains, with the price of carbon allowances having dropped from about € 25 per ton in 2008 to below € 3 per ton in April.  Although reductions in GHG emissions in the EU are still on pace to meet the target of the Europe 2020 Strategy (20% lower than 1990 emissions), most analysts believe that carbon prices at this level are too low to spur investment.  The severe drop in carbon allowance prices has led many, including The Economist, to question whether the ETS has any future.

California Expanding its Cap and Trade Program to Canadian Province of Quebec
In the midst of Europe’s difficulties, California has moved forward to link its cap and trade system with that of the Canadian Province of Quebec.
On April 19, 2013, the California Air Resources Board (“CARB”) approved a plan to formally link with Quebec beginning on January 1, 2014.  Linkage will create a relatively seamless cap and trade market, with compliance instruments—carbon allowances and offset credits—being interchangeable in the two systems.  California and Quebec will also hold joint auctions of carbon allowances.
The linkage of the California and Quebec cap and trade systems is a modest first step towards a robust North American cap and trade system.  Although Quebec is Canada’s largest province by size and has a population of about eight million people (second only to Ontario among provinces), its economy is not nearly as large as that of California: Quebec has a GDP of about $300 billion compared to California’s GDP of about $1.9 trillion.  About 80 entities (referred to as “establishments” in Quebec’s program) are subject to Quebec’s cap and trade regulations.  In comparison, California’s cap and trade program covers about 350 entities representing 600 facilities.  Also, Quebec’s allowable GHG emissions are substantially lower than those of California: Quebec’s cap starts at about 23.2 million tons of GHG emissions (CO2e) in 2013 and ends at about 54.7 million tons in 2020, while California’s cap starts at about 162 million tons of GHG emissions (CO2e) in 2013 and ends at about 334 million tons in 2020.  (Note that the increase reflects the addition of transportation fuels and natural gas in 2015; over time, the cap will go down — become more stringent —for all covered sectors.)

Testing the New Model
CARB recognizes that a key aspect of linkage with Quebec is that it may establish a new template for climate change efforts globally.  As stated by CARB in its response to comments: “[T]he experience gained now in demonstrating that two separate governments, in two separate countries, with two separate economies, can effectively partner to put a price on carbon and reduce greenhouse gas emissions is invaluable to accelerating national and international efforts to address climate change.”
However, California’s cap and trade program is less than a year old and already several lawsuits have been filed challenging various aspects of the program.  So the jury is still out as to whether California’s program will succeed.  Moreover, the addition of Quebec will make the cap and trade program more complicated (and mistake prone) without offering a meaningful test run that could be expected of a larger, more complex regional program.
Nonetheless, given the problems with the Kyoto Protocol and the ETS, the need for a successful model is certainly there, and California and Quebec may be the start of such a model.  In the interim, California and Quebec will undoubtedly have to iron out a number of issues (ranging from the integrity of offsets to the logistics of operating a linked market in two languages).
In the event that the California-Quebec market sets the tone for a revamped European system or a new Kyoto, monitoring the developments of the North American effort will be a key task for businesses and governments (not only within California and Quebec, but in other states and provinces as well), as they may be incorporated into the system at some point in the future.

Gov. Brown wants to grab $500 million in cap-and-trade proceeds for general fund

 


California Adopts Sweeping Plan To Combat Greenhouse Gas Emissions

David McNew/Getty Images

California's carbon-credit market has raised $500 million in revenue, which Governor Brown wants to borrow to balance general fund expenses.
Gov. Jerry Brown plans to borrow $500 million from a program to fight climate change, as part of his effort to balance the budget - a move that has stirred up clean air advocates.

California has begun auctioning off carbon emission permits as part of its cap-and-trade program. They're basically licenses to pollute that businesses can buy to offset their emissions. The money -- $500 million collected so far -- goes into the Greenhouse Gas Reduction Fund.

Brown wants to use that money to cover the state's general fund expenses, and pay it back later, with interest. He argues that it's okay to borrow the money because greenhouse gas reduction programs are just getting off the ground.

The Sierra Club, the Greenlining Institute and other environmental groups say the permit fees can only be spent on programs that reduce greenhouse gases.

They argue that some of the money the governor wants to borrow was going to fund clean air programs in low-income and minority neighborhoods near refineries and other sources of pollution.

The governor did sign a law last year meant to protect carbon fees from being diverted for general fund use. But SB 535 doesn't stop him from borrowing the money.

California Considering 25 Projects for Carbon Offset Credits

 

             
California, the second-largest carbon-polluting state in the U.S. behind Texas, will decide whether to award its first carbon offset credits for 25 projects designed to cut greenhouse-gas emissions.
The candidates for offset credits include a project to improve forest management practices to avoid emissions related to timber harvesting and several to destroy biogas at farms, according to a list posted on the state Air Resources Board’s website. All of the projects must be reviewed by a certified “offset verifier” and then by the air board itself before being deemed eligible.
Should all of the projects be approved, they’ll generate as many as 3 million offset credits to be used under California’s carbon cap-and-trade program, the only system of its kind in the U.S. and the second-largest in the world, behind the European Union’s program. The state defeated a lawsuit in January that claimed the offsets, which companies can use to cover as much as 8 percent of their emissions, aren’t new efforts to cut carbon and would occur without investments.
The projects listed by the air board today will be held to “rigorous verification standards,” Mary D. Nichols, the agency’s chairman, said in a statement posted on its website. “We have determined that every single California offset credit allowed into the program represents a real ton of greenhouse gas reductions.”

Contracts Rising

Contracts based on California offset credits, each allowing the release of one metric ton of carbon, have risen 25 cents, or 2.1 percent, in the past month, according to data compiled by environmental broker Evolution Markets based in White Plains, New York. “Golden” offsets, which come with a seller guarantee to replace any invalidated credits, were unchanged at $12 a ton today, according to Evolution.
The projects would be awarded “early action” credits, which the state agreed to consider to generate an initial supply of offsets for the market. To be eligible, they must cut emissions in the U.S. between 2005 and 2014 and be listed in a preexisting registry designed to meet the state’s early action criteria, among other things.
Emissions-reduction projects that begin in 2015 and beyond must meet a different set of state standards.

Carbon Allowances

Under the cap-and-trade program, California established a pool of carbon allowances, each permitting the release of one metric ton of carbon. That pool is designed to shrink through 2020 to cut statewide emissions by roughly 15 percent. Companies over their emissions limits can buy allowances from those below the cap, as well as a limited number of offset credits, to meet their compliance obligations.
Futures based on 2013 California carbon allowances, which also allow for the release of one metric ton of carbon each, climbed 5 cents to settle at $14.55 a ton today, according to Atlanta-based IntercontinentalExchange Inc. (ICE)
California’s cap-and-trade system will eventually regulate 85 percent of greenhouse-gas emissions released in the state and cover all industries, including power generation, oil refining and transportation. A similar program in the U.S. Northeast, known as the Regional Greenhouse Gas Initiative, regulates emissions from power plants only.

Europe Glut

In Europe, an oversupply of offset credits has added to pressure on European Union carbon futures, already trading 49 percent below a year ago because of a glut of allowances due to the recession.
Kathrin Goretzki, an analyst at Unicredit Bank AG in Munich, estimated Jan. 29 that the EU market may have been oversupplied by much as 1.6 billion metric tons of permits by the end of 2012.
The United Nations Clean Development Mechanism has approved 6,619 offset projects in developing countries, more than half of which are in China, according to the UN’s website. More than 2,000 of these projects have supplied 1.26 billion tons of “Certified Emission Reduction” offsets for emissions-trading systems participating in the Kyoto Protocol, UN data compiled by Bloomberg show.
California’s air resources board may take “several weeks” to issue its first offset credits, according to the agency’s statement.
To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

Canadian Cap-And-Trade Program

http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm

Brown wants California's carbon market to link with Quebec's

Brown wants California's carbon market to link with Quebec's

By Dale Kasler
dkasler@sacbee.com

Published: Wednesday, Apr. 10, 2013 - 12:00 am | Page 6B
 
Starting next January, California's cap-and-trade carbon market probably won't be operating on its own anymore.
Gov. Jerry Brown on Monday gave state regulators the green light to link California's carbon market with a similar market in the Canadian province of Quebec. The California Air Resources Board is expected to vote April 19 on whether to link with Quebec.

If the two become linked, California companies could buy carbon credits from Quebec and vice versa. "The allowances will be completely fungible," said David Clegern, spokesman for the Air Resources Board.

In addition, "this obviously is a way to have an impact (on climate change) beyond what happens in California," he said.

California regulators had hoped that their carbon market would be part of a Western states consortium. But while California's market debuted last fall, no other state has committed to running a market yet; Quebec is the only Canadian province to join in.

The market is the centerpiece of AB 32, the state's 7-year-old global warming law.

Several hundred big industrial polluters are required to reduce their carbon emissions below a certain level – the "cap." If they don't, they have to buy emissions allowances to compensate.
The total cap shrinks slightly each year, which is supposed to result in a gradual reduction in emissions.

Read more here: http://www.sacbee.com/2013/04/10/5329469/brown-wants-californias-carbon.html#storylink=cpy

California's carbon market may succeed where others have failed

California's carbon market may succeed where others have failed


by Brendon Bosworth
Most weekdays, a long line of rail cars delivers thick slabs of steel to a factory about 40 miles east of Los Angeles. Deep in the bowels of California Steel Industries, the slabs are toasted until they glow white-hot and then rolled into thin sheets used to make shipping containers, metal roofing and car wheels.

The plant churns out more than 2 million tons of flat rolled steel each year, using enormous amounts of natural gas and electricity and releasing over 190,000 metric tons of climate-altering carbon dioxide annually. Now, California Steel and many other businesses have to pay for their carbon emissions under California's new cap-and-trade law, the first of its kind in the nation.

Last November, the company participated in the state's first auction of carbon allowances, purchasing an undisclosed number, each worth one metric ton of carbon dioxide and selling for $10.09. The online auction went fairly smoothly, says Brett Guge, executive vice president of finance and administration at the company. But for Guge, the long-term challenge is finding ways to meet California's ambitious greenhouse-gas reduction targets (down to 1990 levels by 2020) while remaining profitable.

The Golden State forged ahead with the carbon dioxide cap-and-trade program despite the U.S. Senate's 2010 failure to pass a national program. Given the state's history of implementing environmental regulations that later become national policy, a successful cap-and-trade system could serve as a federal model. If cap-and-trade in California "fails, or is perceived to have failed, then that could be the nail in the coffin for cap-and-trade consideration as a policy instrument in Washington," says Robert Stavins, a Harvard professor who studies climate policy.

While its overall impact on U.S. emissions won't be major, the California experiment makes several improvements to existing cap-and-trade strategies. It covers more sources of pollution than the five-year-old Regional Greenhouse Gas Initiative in the Northeastern U.S., which applies only to power plants. The European Union started the world's largest carbon cap-and-trade program in 2005, but it had a significant flaw: the initial stage of the program gave away too many free credits, resulting in some power companies raking in windfall profits by raising electricity prices even though they didn't have to pay for their allowances. It also contributed to low prices for carbon allowances, which provides scant incentive to cut emissions.

Mary Nichols, head of the California Air Resources Board, the agency steering the state program, is confident that California's effort will be different. The program covers 360 businesses, which represent about 600 facilities that each release more than 25,000 metric tons yearly -- enough to put a big dent in California's total carbon output. The EU's difficulty, Nichols notes, was that authorities didn't have an accurate measure of the total quantity of emissions initially. California, though, has had a greenhouse-gas reporting requirement in place since 2008.

"We knew (what polluters) were actually putting into the atmosphere," says Nichols. "That gave us the assurance that if we started a (cap-and-trade) program … we would be able to implement it in a way that would not cause the kinds of problems that occurred in Europe."

Fraud could be another obstacle, but experts agree the state is equipped to keep that to a minimum. The Air Resources Board uses third-party verifiers to check reported emissions, and has a system to track allowances and prove their authenticity. Companies that fail to supply enough credits to cover their emissions are fined by having to purchase four times the number of outstanding allowances. While not flawless, the program is unlikely to suffer from market manipulation and fraud, according to an analysis by the University of California, Los Angeles.

But even if the cap-and-trade system works as intended, its economic impacts are a big unknown. Because of its many regulations, high electricity rates and taxes, California is already a costly place to do business.

Guge is worried there won't be a feasible way to reduce the carbon dioxide output of his company's gas-powered furnaces, which account for 75 percent of the plant's total releases. Without reductions, his company will have to pay for more allowances as the cap tightens, but it's reluctant to pass those increased costs on to customers because that might put it at a competitive disadvantage.

Proponents of cap-and-trade hope the system will drive innovations, with new companies popping up to provide emissions-curbing breakthroughs. In late January, the Sacramento-based firm Clean Tech Advocates launched to do just that. It works to help clean tech developers get state funding, generated from the carbon credit auctions, for their projects, and its consultants help companies reduce emissions. Founder Patrick Leathers says that, over time, the auctions will bring in "billions of dollars," which will boost the state's clean tech industry and result in carbon-cutting solutions for companies dealing with cap-and-trade. Environmentalists -- and businesses -- are hoping he's right.

Carbon Markey with Quebec

carbon market with Quebec
Last week, California Governor Jerry Brown approved the link of the state’s carbon market with Quebec. The next step is for California’s Air Resources Board to consider changes to its cap-and-trade program that will allow it to link with Quebec. The Board is scheduled to meet on April 19th. A spokesman has stated that the Board intends to continue to work on all necessary additional steps to ensure California’s efforts to link with Quebec are successful.

If approved by the Board, California and Quebec intend to implement the link between their carbon markets on January 1, 2014. Once linked, they will hold joint auctions of carbon emission allowances which can be used for compliance in either jurisdiction. In the interim, the two jurisdictions will test their auction platforms and trading systems for compatibility.

Both governments are hopeful that linking the carbon markets will improve liquidity for carbon allowances by increasing the pool of permits and companies trading them, as well as encourage expanded investments in low-carbon technologies.

New Lawsuit Opposes California's Cap-and-Trade Carbon Market

New Lawsuit Opposes California's Cap-and-Trade Carbon Market


California's quest to reduce global warming hit another obstacle on Tuesday. A conservative legal group filed suit to block California's new cap-and-trade carbon market.
(Craig Miller/Climate Watch)
(Craig Miller/Climate Watch)
The Pacific Legal Foundation alleged that the market's charge for carbon emissions violates California law because it constitutes a tax, and taxes in California require approval by a two-third majority in both houses of the state Legislature.

“California’s cap and trade regulation was developed and is being implemented in full accord with all state laws," Dave Clegern of the California Air Resources Board (abbreviated as both CARB and ARB) said in an email response to the lawsuit. "ARB will continue moving forward with this important program to fight climate change and develop a clean energy future for California.”

The cap-and-trade market is the centerpiece of California's effort to reduce emissions of gases that cause global warming. It launched Nov. 14.

Cap and trade functions like a stock exchange for greenhouse gas emissions . Businesses, including oil refiners and manufacturers, have to buy permits for each ton of carbon they emit and can then resell these permits.

The California Chamber of Commerce has also sued to block the cap-and-trade program.
Both lawsuits challenge the way the law behind the program is being implemented.
They say ARB had no authority to auction off carbon allowances, raising billions of dollars for the state.

“PLF’s lawsuit holds CARB’s feet to the fire because CARB cannot be allowed to siphon billions of dollars from California taxpayers in violation of the California Constitution,” said Ted Hadzi-Antich, a lawyer for the foundation, in a press release. “CARB must obey the law, just as the rest of us are required to do.”

Based in Sacramento, the Pacific Legal Foundation frequently challenges government regulations. For example, it sought to remove wildlife from endangered species lists.

The European Union's eight-year-old Emissions Trading System (ETS), the world's largest cap-and-trade carbon market, is broken.

The European Union's eight-year-old Emissions Trading System (ETS), the world's largest cap-and-trade carbon market, is broken.

A coal power plant in Grevenbroich, Germany.

Steam billows from RWE's Frimmersdorf coal power plant near Grevenbroich, Germany. The European Union's carbon market was meant to curb greenhouse gas emissions, but heavy industry has resisted steps that would make the system more effective, and fossil fuel more expensive.

Photograph by Wolfgang Von Brauchitsch, Bloomberg/Getty Images

Thomas K. Grose in London

National Geographic News

Published April 18, 2013

 

The European Parliament this week voted 334-315 (with 60 abstentions) against a controversial "back-loading" plan that aimed to boost the flagging price of carbon, which since 2008 has fallen from about 31 euros per tonne to about 4 euros (about $5.20). Since the vote, the price has fallen even farther, to 2.80 euros. The collapsing market is hardly the kind of firm foundation needed for building a clean-energy economy. (Related: "Renewable Energy Not Growing as Fast as Necessary," and "IEA Outlook: Time Running Out on Climate Change")

"Now, the market is dead, as far as I can see," said Steffen Böhm, director of the Essex Sustainability Institute at Britain's Essex Business School.

What will be the aftermath of the ETS collapse? Here's a quick primer on what happened, and what it could mean elsewhere, particularly in California, which inaugurated a new carbon market at the start of this year. (Related: "California Tackles Climate Change, But Will Others Follow?")

Q: First of all, what's a carbon market?

A: The U.S. introduced the concept of using market forces to rein in greenhouse gas emissions during the talks that lead to the 1997 Kyoto Protocol, an international agreement to combat climate change. Ironically, Europe wasn't initially keen on the idea. But after it failed to enact an EU-wide carbon tax, Europe ultimately launched the ETS in 2005.

The basic idea is setting an ever-tightening cap on carbon dioxide (CO2) emissions, then issuing allowances up to that level. Major contributors of greenhouse gases-mainly power companies and heavy industry-face heavy fines if they don't have enough allowances to cover their emissions.

The cleanest companies can either bank the ones they don't need, or sell them to companies in need of more.

The idea is to make it more expensive to emit CO2, and to make green technologies-including renewable fuels, and carbon capture and sequestration-that are initially expensive more competitive with fossil fuels.

Trading certainly was happening; Bloomberg estimates that the ETS represents 89 percent of the $61 billion worth of carbon emissions traded worldwide.

But experts say a price of 30 euros ($39.20) or more is needed for the ETS to be effective at driving adoption of cleaner energy. (Related: "As U.S. Cleans Its Energy Mix, It Ships Coal Problems Abroad")

Q: So why has the price of carbon in Europe fallen?

A: "There were far too many allowances in the system in the first few years," Böhm said. Moreover, he said, Europe was flooded with "cheap CDMs," or clean development mechanism offsets that companies earned for funding green initiatives in developing countries. But what really pummeled the market was the 2008 Great Recession and the subsequent anemic recovery, said Tomas Wyns, director of the Center for Clean Air Policy Europe, a Brussels-based nonprofit, because demand for goods and power has dropped.

Q: Recessions do happen, so wouldn't that always be a problem for carbon markets?

A: Wyns certainly thinks so. The problem, as he sees it, is that while demand fluctuates, the supply of allowances is fixed. "There is no way to respond to the supply side in its (the ETS's) current form." One possible fix, Wyns said, would be a price-stabilization reserve that buys up allowances when prices are too low.

Q: Wouldn't a simple, straightforward carbon tax be a better solution?

A: Some economists think so, and that was certainly the first choice of many European policymakers. But in the EU, a tax needs the support of all member states, and that proved impossible. (Related: (Related: "British Columbia Rethinks Its Pioneering Carbon Tax" and "Coal-Fired Australia, Buffeted by Climate Change, Enacts Carbon Tax")

In the United States, Republican antipathy toward new taxes also makes a carbon tax unlikely. In addition, "taxes have a way of hitting the wrong people at the wrong time and can be pretty inflexible, as well," Böhm said,

Q: What would backloading have done, and would it have worked?

A: Back-loading would have taken a huge chunk of allowances out of the market for two years, creating a temporary scarcity that proponents say would have boosted the price of carbon. But Wyns estimates that, at best, it would have only pushed the price up to about 10 euros ($13.08), well below what would be necessary to effect change.

Q: Who opposed it, and why?

A: Mainly heavy industries that use a lot of energy, Wyns said. These industries-ranging from steelmakers to beer brewers-argued that if carbon prices rose, they wouldn't be able to compete against American rivals who are benefiting from cheap shale gas. "That's a very simplistic argument," he said, "but it plays well."  (Related: "U.K. Dash for Gas a Test for Global Fracking")

Q: Is that the end, then, for ETS?

A: Probably not. As Wyns said: "This is Europe; these things never end." He expects some sort of revised plan will surface eventually.

But Böhm, who is not a fan of carbon trading, said, "They really need to start from scratch." He doubts that will happen, because the political backlash from admitting failure would be too terrible.

Q: The U.S. Senate killed a cap-and-trade plan in 2010, and Japan has also backed away from one. Now, given the ETS debacle, is carbon trading essentially a dead concept?

A: No. California launched an ambitious emissions market last November (though it faces lawsuits), and Korea is considering one, as are seven Chinese provinces. "The good thing is other countries will learn lessons from Europe," Wyns said. Clearly, he would hope that future markets have a mechanism to respond to an oversupply of allowances. (Related: "British Columbia Rethinks Its Pioneering Carbon Tax")

"If it has to be a market solution," Böhm said, then there must be the political will to set a very tough cap. "But if you do that, you effectively have a carbon tax, which is why Europe's cap was not all that tough." He's also dismayed that California's plan accepts international credits. CDMs, he said, lead to "creative accounting" and not effective reductions in emissions. It is better, he said, to keep markets local.  (Related Interactive: "World Electricity Mix")