Selected category: Emissions trading & markets

California carbon market's latest auction results show continued resilience

Source: Wiki

May 2016 auction results show an ongoing lawsuit challenging California's cap-and-trade program’s allowance auctions is likely impacting market dynamics, but the market is proving resilient. Image Source: Wikipedia

The results of California and Quebec’s latest carbon auction show that an ongoing lawsuit challenging the cap-and-trade program’s allowance auctions is likely impacting market dynamics, but that California’s market is proving resilient, in part due to the strength of its design.

The May 18 auction, the second of 2016, offered 67,675,951 current vintage allowances (available for 2016 compliance) and sold only 7,260,000. Just under one million of the just over ten million future vintage allowances (available for use in 2019 and after) were sold. The unsold California state allowances will go back to the auction holding account and will not be available for sale until the auction clears above the floor price for two consecutive auctions, a critical regulatory feature that removes unexpected, excess supply from the market and provides further price support. Utility allowances that were consigned to auction and did not sell will be offered again for sale at the next auction.

Increased attention to the litigation brought by the California Chamber of Commerce and the Morning Star Packing Co. et al., as well as higher participation in the secondary market, caused lower demand for allowances in the May auction. Secondary market prices have traded as low as 44 cents below the floor price in the last couple of months. But the real story is the positive and stabilizing impact of the floor price itself.

Other markets without such a strong floor price have seen price drops that are much more dramatic when the market receives a disturbance. But in California, the volume of trades on the secondary market has been higher than usual, showing that some entities are taking the opportunity to buy allowances at a discount.

It's worth noting that these results in no way impact the overall performance of California's program, which will continue to incentivize carbon pollution reductions.

EDF’s take on the litigation of the cap-and-trade auction program’s legality

At this critical juncture, opponents continue to litigate and challenge carbon auctions, an integral component of the cap-and-trade program that promotes equity and a healthy carbon market.

We are confident, however, that California courts will ultimately confirm the Legislature’s broad grant of authority to the California Air Resources Board (ARB) to design effective programs to address the imminent threat of climate change, and will reject the claim that auctioning valuable, marketable emission allowance constitutes an unconstitutional “tax.”

In supplemental briefings submitted May 23 to the California court, ARB argued persuasively that, even if the intermediate appellate court were to find a legal flaw in the auction, there would be no valid legal justification for disrupting the cap-and-trade program including its auction components while the state Supreme Court considers the case or ARB develops a suitable solution. This outcome is well-grounded in legal precedent affirming courts’ obligation to avoid remedies that imperil public health and welfare or cause needless disruption to public and private interests that rely on the current status quo.

California’s ability to continue utilizing a cap-and-trade program designed to meet its needs through 2020 and beyond is essential to California and to global climate momentum.

While EDF has a high degree of confidence that the lower court decision rejecting the challengers’ claims will be upheld, even if it is not, settled judicial procedures should help to ensure that the environmentally and economically important cap-and-trade program continues with minimal disruption.

California’s ability to continue utilizing a cap-and-trade program that is designed to best meet the state’s needs through 2020 and beyond is essential not just to California itself, but also to global climate momentum.

We’re at a watershed moment for climate action, and California is at the forefront. The U.S., China, and 173 other countries signed the Paris Agreement last month, and a group of leaders convened by the World Bank and the International Monetary Fund expressed a goal of moving from 12% to 50% of global carbon emissions covered by carbon pricing by 2030. All the while, California is providing one of the most successful examples of economy-wide carbon pricing that is reducing emissions and promoting equity while the state’s economy is thriving.

There is every reason for confidence both in the legality of CARB’s choice to auction allowances and in the commitment of California’s leaders to deliver on California’s climate goals. We expect that a resilient cap-and-trade program will remain at the heart of the state’s increasingly ambitious and effective climate strategy long into the future.

Also posted in California, News| Leave a comment

How a Coalition of Carbon Markets Can Complement the Paris Agreement and Accelerate Deep Reductions in Climate Pollution

Paris_._Eiffel_Tower_in_the_evening_Final

International cooperation is essential to achieve the Paris Agreement’s long-term goal of keeping warming “well below” 2 degrees Celsius. While the Paris Agreement provides several market- and transparency-related tools that can help spur international cooperation, countries must now create the coalitions needed to move forward with implementation. Image Source: Jorge Royan

As countries gather here in Bonn, Germany to begin the work of translating the historic Paris Agreement into action, there is widespread recognition that individual countries’ carbon-cutting pledges must be strengthened in the coming years to deliver the ambitious long term goal agreed in Paris: keep warming “well below” 2 degrees Celsius (3.6 degrees Fahrenheit), and achieve global net zero emissions before 2100.

The Paris Agreement provides several market- and transparency-related tools that can help spur the international cooperation necessary to achieve its long term goal, including provisions that facilitate high-integrity, “bottom-up” linkages of domestic carbon markets to cut carbon pollution. These linkages (described in Article 6 of the Paris Agreement as “cooperative approaches”) promise to reduce costs, and unlock the finance needed to drive deeper global emissions reductions. The agreement on cooperative approaches in Paris reflects the widespread recognition among nations that carbon markets, accompanied by a clear, comprehensive transparency framework, will help drive the deep emissions reductions needed to prevent the most severe impacts of climate change.

With the urgency of climate action clear, the key challenge now becomes: how can we accelerate the international cooperation needed to solve the Paris equation?

One concrete step, drawing on the cooperative approaches provisions of the Paris Agreement, would be to establish a coalition of carbon market jurisdictions to catalyze the development and increase the ambition of domestic carbon markets.   Much as the General Agreement on Tariffs and Trade (GATT) helped broaden participation and ambition in trade, a voluntary coalition of carbon market jurisdictions (CCM) could expand the scope and maximize the cost-effectiveness of ambitious climate action around the globe.

Why coordinate on carbon markets?

As carbon markets continue to expand, coordination among jurisdictions using or considering carbon markets – especially on the rules and standards needed to ensure environmental integrity and maximize cost-effectiveness – will give governments and the private sector the confidence to go faster and farther in reducing their climate-warming pollution.

A coalition of carbon markets can help deliver on the promise of the Paris Agreement and catalyze the deep global emissions reductions that climate science demands.

Although the Paris Agreement provides a framework for international cooperation on carbon markets, it is ultimately up to countries to work together to agree the detailed rules necessary for international carbon markets to drive emissions down and investment up.

The good news is that groups of countries can make substantial, early progress, ultimately informing and complementing the longer-term UNFCCC process.

 

“Minilateral” efforts can stimulate faster, deeper emissions cuts and strengthen international cooperation

Rapid and early emissions cuts are the single most important determinant of whether the global community is likely to meet the Paris Agreement’s goal to limit warming to well below 2 degrees Celsius (3.6 degrees Fahrenheit). And delaying necessary action to reduce global warming pollution dramatically increases costs to the global economy.

For both the climate and our economies, not all emissions reductions are the same:  the earlier, the better.

That’s why it is so important that Article 6 of the Paris Agreement affirmed that cooperative emissions trading between countries can continue and expand while multilateral accounting guidelines are developed. Transactions will need to be “consistent with” any multilateral guidance developed by Parties to the Paris Agreement over the coming years – particularly to ensure that the same emission reductions are not claimed toward more than one mitigation pledge (“double counted”).

A “minilateral” coalition of carbon markets could complement efforts under the UNFCCC by fostering agreement on detailed standards for the accounting, transparency, and environmental integrity of internationally transferred emissions units. These “nuts and bolts” standards, which will help avoid errors in tallying up total emissions and traded units, form the bedrock of high-integrity emissions trading. Early agreement would give countries the confidence to move forward quickly in implementing their Paris pledges and a basis for increasing their ambition over time.

Practically speaking, future UNFCCC guidance on cooperative approaches will likely be influenced by working examples of international emissions trading, making the success of a carbon markets coalition an important precedent for broader cooperation on markets in the UNFCCC. This process could mirror recent progress on standards for reducing emissions from deforestation and degradation (REDD+), where technical advances made by countries in the Forest Carbon Partnership Facility contributed to greater progress in the UNFCCC.

What’s next?

In Paris, a diverse group of 18 developed and developing countries led by New Zealand announced that they will work quickly together to develop standards and guidelines to ensure the environmental integrity of international market mechanisms.

This group – or another similar coalition – could “set the bar” for market-based climate action by developing robust accounting and transparency standards for environmental and market integrity. Coordinated leadership by forward-looking jurisdictions would help ensure that the growth of international emissions trading is accompanied by enhanced ambition and real, permanent, additional, and verifiable emissions reductions.

Over a longer period, these same guidelines could support the establishment of a common trading framework among a coalition of carbon market jurisdictions. A framework might include mutual recognition of emission units, harmonized approaches to verifying emissions reductions and generating offset credits, and a shared trading infrastructure, which together could ensure environmental integrity and encourage more countries, states, and provinces to cap and price carbon.

Paris began a new, more ambitious chapter in the history of climate action, but much of the chapter is yet to be written. We’re in the race of our lives to finish the work of protecting future generations and building prosperous low-carbon economies. A coalition of carbon markets can help deliver on the promise of the Paris Agreement and catalyze the deep global emissions reductions that climate science demands.

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Who should pay for pollution?

Recent study by American Lung Association finds that 80% of Californians are still at risk from unhealthy air. Opponents to clean air claim the "right" to pollute in ongoing litigation.
Image Source: Flickr, San Bernardino Valley, 2009

It’s pretty clear we have to limit pollution. This week the American Lung Association released their “State of the Air Report” finding that 80% of Californians are still at risk from unhealthy air, despite decades of effort and significant progress. Climate-destabilizing air pollution is harming our state in countless ways, from the Sierra to the Central Valley to the coastline. Given the high cost of pollution, who should pay and take responsibility when it occurs? Should the responsibility primarily be with polluting companies, or should the costs be borne by society at large?

California has been regulating conventional air pollutants for decades, but has only recently started regulating climate pollutants that not only warm our planet but also worsen and are otherwise directly linked to sources of local air pollution.

Many businesses in California are good corporate citizens on this issue. They accept that pollution imposes a cost on society. They even appreciate the flexible, cost-effective approach California regulators have adopted of capping carbon pollution and allowing regulated businesses to trade “allowances,” so pollution can be reduced in the least expensive way possible.

This support is most often demonstrated quietly, through actions like consistently meeting obligations under the cap-and-trade program, engaging constructively at workshops to strengthen the program, and most importantly by not obstructing progress in the courts and the halls of government.

Groups seeking free allowances or to avoid regulation altogether have spent millions on campaigns and lobbying.

But others, like those represented by the California Chamber of Commerce and the Pacific Legal Foundation, are delaying efforts to clean up our air — seemingly arguing that they have a right to pollute for free. They are challenging California’s practice of auctioning some carbon allowances and using the revenue to further reduce carbon pollution.

This litigation has been dragging on for years, ever since the CalChamber filed its suit on the eve of the first cap-and-trade auction in 2012. The Pacific Legal Foundation didn’t file until the next spring. Both lawsuits were filed too late to stop the auctions from taking place, but were just in time to insert doubt and opponent’s views about their right to pollute for free into California’s historic effort to regulate carbon pollution. Back in 2013, a trial court rejected claims that auctions were illegal. But these challengers were not dissuaded, they appealed and the case is still pending.

Failing so far in court, those seeking to pollute for free are attempting to take their case to the court of public opinion after the appellate court asked for supplemental briefing in the case. The appellate court has asked both parties to answer several questions. While the court is giving careful attention to this important issue, opponents are cynically using op-eds and other media stories to plead their case for why polluting should be free.

Groups seeking free allowances or to avoid regulation altogether have spent millions on campaigns and lobbying. The California Legislature is likely the ultimate audience for this effort. Bills to provide free allowances or exempt some polluters have been proposed before but have never gotten any traction.

California has been successfully regulating harmful climate pollutants for over three years now. And holding polluters accountable for some of the cost that society bears is an integral part of the state’s strategy. Hopefully legislators will continue to see this current round of rhetoric for the self-serving ploy that it is.

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California’s Climate Leadership Can Help Save Tropical Forests

Source: Environmental Defense Fund, Steve Schwartzman

Source: Environmental Defense Fund, Steve Schwartzman

Back in 2006, when California was passing the Global Warming Solutions Act (AB32), some in industry pushed back hard, claiming that California couldn’t stop climate change by itself and that all AB32 would do was compromise the competitiveness of the state’s economy. California has proved the naysayers wrong – its economy is booming, and emissions are falling. Far from going at it alone, the Golden State is increasingly leading a global trend.

Now, California has an opportunity to build on its international leadership. By setting the gold standard for carbon market credit for international sectoral offsets – the subject of the California Air Resources Board’s (CARB) upcoming workshops – it can send a powerful signal to communities and governments that are fighting to stop tropical deforestation: carbon markets will help support their struggle.

California’s climate change program has prompted a plethora of bottom up climate action programs around the world, some of which are already achieving large-scale emissions reductions. Last December in Paris, California hosted a meeting of the “Under 2 MOU”, a group of 127 sub-national jurisdictions started by California and Baden-Wurttenburg in Germany, accounting for over a quarter of the global economy that have committed to reducing emissions below 2Mt per capita or 80% – 95% by 2050. Since the national commitments made at the Paris UN climate conference represent about half of what the science tells us is needed to keep warming below the critical threshold of 2°C, the Under 2 MOU could contribute significantly to closing the gap.

California has an opportunity to build on its international leadership by setting the gold standard for carbon market credit for international sectoral offsets.

California was also a founder of the Governor’s Climate and Forest Task Force (GCF), with Amazonian states and Indonesian provinces, in 2008. The GCF now includes 29 states and provinces from four continents, covering over a quarter of the world’s remaining tropical forests and collaborates on low-carbon rural development and creating incentives for reducing emissions from tropical deforestation and forest degradation – and GCF members have become global leaders in reducing CO₂ emissions.

Between 2006 and 2013, the states of the Brazilian Amazon, supported by national policy, reduced Amazon deforestation about 75% below the 1996 – 2005 annual average, reducing emissions by about 4.2 billion tons of CO₂ — far more than any other country or region in the world — while simultaneously increasing agricultural output and improving social indicators. Regional leader, Acre, is developing a market-based system to reward landowners and forest communities financially for conserving forest, and dedicated 70% of the proceeds of the first international transaction for forest carbon credits to indigenous and forest communities.  Overall,  reduced deforestation resulted from both state and federal policy, law enforcement, and signals from major consumer goods companies that deforestation-based soy and beef would be denied market access. California and the GCF’s work on carbon market credit for reducing deforestation gave communities and producers the prospect of economic incentives – for the first time – for protecting rather than destroying forests.

Around the world, some 50 states and countries are moving ahead with either cap-and-trade emissions reductions regime or carbon taxes – most of which began well before the Paris Agreement and President Obama’s Clean Power Plan. Meanwhile, 188 nations have made reduction commitments  covering about 90% of global emissions through the UN Paris Agreement. Increasingly countries and states are recognizing – as California and the Amazon have demonstrated – that they can stop Greenhouse Gas pollution and grow their economies at the same time, and that learning how will make them more competitive and prosperous in a carbon-constrained global economy. California, Acre, and other GCF members’ innovative development of international sector-based credits will ultimately give all of these  carbon pricing  initiatives more options and make them stronger.

Moving ahead with allowing international sector-based offsets into California’s carbon market will take the process to the next level, signaling to tropical jurisdictions globally currently responsible for more Greenhouse Gas pollution than all the cars and trucks in the world that living forests can become worth as much as dead ones.

Also posted in Deforestation, Forestry, REDD+| Leave a comment

Solving the “Paris equation”: The role of carbon markets in meeting the Paris Agreement’s ambitious goals

Source: UN,

Source: Flickr, UN Photo/Mark Garten

As nations around the world consider the results of the historic climate agreement reached at the 21st annual climate talks in Paris last December, one thing is clear: the Paris Agreement is contributing to – and a sign of – growing momentum around the world to address climate change. For the first time in history, nearly all the countries of the world have put forward concrete pledges to cut pollution and address the impacts of climate change on local communities.

Two significant outcomes of the Paris Agreement reflect that momentum:

  1. A more ambitious global goal, in which nations agreed to hold warming to “well below” 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels, and “pursue efforts” to limit warming to no more than 1.5 degrees Celsius (2.7 degrees Fahrenheit).
  2. A requirement that nations come back to the table every five years to strengthen their individual pledges, in order to achieve their collective goal over time.

While the pathway necessary to limit warming to 2.7 or even 3.6 degrees Fahrenheit is not specified by the Paris Agreement, nations did agree that they would achieve a “balance” between anthropogenic (i.e., human-caused) emissions of greenhouse gases (GHGs) and anthropogenic removals by so-called carbon sinks, such as via reforestation or afforestation, “in the second half of this century.” That translates to the following simple equation, which nations agreed to solve no later than 2100:

(anthropogenic emissions of GHGs) – (anthropogenic removal of GHGs by forests and other sinks) = 0

Notably, nations also provided several market- and transparency-related tools that could help solve this “Paris equation”:

  • Provisions that facilitate high-integrity, “bottom-up” linkages of domestic carbon markets to cut carbon pollution. These linkages (described in the Agreement as “cooperative approaches”) promise to reduce costs, and unlock the finance needed to drive deeper global emissions reductions;
  • A new, centralized market mechanism, governed by the UN Framework Convention on Climate Change (UNFCCC), to reduce GHG emissions and contribute to sustainable development; and
  • An enhanced transparency framework, requiring regular reporting and review of all nations’ climate efforts.

These three elements of the Paris Agreement reflect the widespread recognition among nations that carbon markets accompanied by a clear, comprehensive transparency framework will help drive the deep emissions reductions called for by science.

 

What the Paris Agreement means for carbon markets

By affirming a role for carbon markets in international climate cooperation, the Paris Agreement recognizes the realities already on the ground, where emission trading systems are at work in over 50 jurisdictions home to nearly 1 billion people. When China adopts a national carbon trading system, beginning in 2017, that number will rise to 2 billion – almost a third of the world’s population.

Figure 1:  Existing, Emerging, and Potential Carbon Pricing Jurisdictions

And more than half of the world’s countries are using, or plan to use, carbon markets to stimulate the innovation and investment needed to meet their Paris climate pledges.

With the UN now blessing the growing use of bottom-up cooperation between jurisdictions to link their markets and spur greater efficiency, as California and Quebec have done, the challenge now becomes how to accelerate the transparent, high-integrity international cooperation needed to solve the Paris equation.  That cooperation – needed both inside and outside the UNFCCC – is the subject of my next post.

Also posted in Paris, UN negotiations| Leave a comment

6 successes from California and Quebec’s third year of cap and trade

Source: Flickr

Photo Source: Flickr / JoeBehr

The joint carbon market in California and Quebec holds its first carbon market allowance auction of 2016 today.

The auction offers a good opportunity to reflect on some of the notable successes of the market in 2015.

The California-Quebec market is one of the prime examples of a successful carbon market that many countries will look to as they consider how to meet the commitments made in Paris, where countries successfully negotiated an ambitious climate deal that outlines multiple pathways for nations to use markets to meet their long-term goals.

Here are the top six successes of California and Quebec’s carbon market in 2015, in no particular order. Read More »

Also posted in California, United States| Leave a comment
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