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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.

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To understand airplanes’ climate pollution, a picture is worth a thousand words

Thousands of words have been written this week about a new efficiency standard recommended by a technical group of the International Civil Aviation Organization (ICAO). The standard, if adopted by ICAO’s executive council, is intended to require aircraft manufacturers to start producing more efficient airplanes.

But one picture makes clear that even with the new efficiency standard, international aviation still has a huge gap between its anticipated emissions and its own environmental goals.

Graph of aviation's emissions gap

Source: Environmental Defense Fund

The top of the upsloping curve shows how international aviation’s emissions are slated to skyrocket in coming years.

The horizontal red line toward the bottom, labeled “Emissions Cap at 2020 levels,” shows the industry’s own goal of “carbon-neutral growth from 2020.” ICAO has also embraced this goal.

The area below the top of the curve and above the horizontal red line at 2020 is the total amount of emissions that international aviation must deal with to meet this goal.

This week, ICAO’s Committee on Aviation Environmental Protection (CAEP) recommended that ICAO’s Executive Council adopt, at its next meeting in June, a carbon dioxide efficiency standard for aircraft, akin to a fuel economy standard for cars. That’s a step in the right direction.

But how big a slice will this new standard take out of international aviation’s skyrocketing emissions? At best, that’s the blue sliver shown in this picture. (The red sliver aviation hopes to cut through “operational improvements” like better air traffic control.)

That leaves a huge “Emissions Gap” – shown in green – about 7.8 billion tonnes of carbon pollution that international aviation will have to deal with to meet its own climate goals, let alone the kinds of reductions that will be needed if the sector is to bring emissions down to the dashed red arrow, along the lines of the Paris Climate Agreement.

The industry has a long way to go to make carbon pollution go down, not up.

ICAO’s pledged to finalize, this September, a global market-based measure (MBM) with offsetting to drive industry’s net emissions down to the 2020 cap. President Obama has made climate action a centerpiece of his legacy. Success in cutting aviation emissions could help – but that will only happen if the Obama administration takes the lead in the intensive talks now underway in ICAO.

The picture is clear: While the aircraft standard will help, the Administration now needs to keep its eyes on the prize the ICAO decision on the market-based measure in September.

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International action on aviation emissions: What's at stake in ICAO

If international aviation were a country, it would be a top ten emitter of carbon dioxide (CO2), on par with Germany or the United Kingdom. And it’s expected to grow enormously: with more than 50,000 new large aircraft slated to take to the skies, its emissions are expected to triple or quadruple by 2040.

In Paris in December 2015, the world hailed the success of the UN Framework Convention on Climate Change (UNFCCC) in adopting the first broadly applicable instrument to start driving carbon pollution down, with a goal of limiting warming to 1.5-2° C.

But Paris didn’t cover pollution from flights between countries. Why not? Because in 1997, aviation lobbied for, and got, the UNFCCC to defer these to another UN body, the International Civil Aviation Organization (ICAO).

ICAO talked about the issue for fifteen years until 2013, when, with Europe poised to enforce a cap on emissions of inbound/outbound flights, ICAO pledged to act by 2016. Quiet talks are now underway on:

  1. An ICAO CO2 standard for aircraft – akin to a miles-per-gallon standard for cars. In Montreal next week, possibly as early as Monday, February 8, 2016, a technical group is expected to agree a recommendation for this standard.
  1. A cap on international aviation’s total CO2 emissions at 2020 levels. ICAO is slated to vote in September 2016, on the cap and a market-based measure (MBM) to help airlines implement it.

Here’s what’s at stake:

Caption

Source: Environmental Defense Fund

Without any new rules, international aviation’s carbon pollution is expected to skyrocket (top red line). Better air traffic control can trim some pollution (top red wedge). An ambitious CO2 standard would mean fewer emissions per passenger-mile, further slowing the sector’s emissions growth (blue wedge). But because the industry’s overall emissions are expected to far outstrip these per-trip efficiency gains, there’s still a huge gap (green triangle) – at least 6-8 billion tonnes – to get to the goal of an emissions cap at 2020 levels (red horizontal line), or even more ambitious goals along the lines of the Paris agreement (red dashed line).

The real prize is the market-based measure to cap aviation emissions and drive pollution down, not up.

Learn more at edf.org/aviation.

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Report back from Paris: What the new climate deal means – and where we go from here

caption

Source: Flickr/ UNClimateChange

The United Nations climate agreement in Paris, and the intense negotiations leading up to it, were a breakthrough in a number of important ways.

First of all, the agreement represents the coming of age of climate diplomacy. It was evident from the beginning that French Foreign Minister Laurent Fabius, who chaired the talks, had the full trust and confidence of the room.

He artfully identified a zone of agreement among 196 delegations that gave nearly everyone something they wanted without crossing red lines.

The agreement was also the culmination of months of bilateral diplomacy at the highest levels, most visibly between the U.S. and China. The direct involvement of President Obama and other world leaders was critical to success – and shows a strategic savvy and leader-level involvement that we haven’t seen in past climate talks.

But it’s the language of the agreement itself, and the broad backing it received, that makes it such a big deal. It means that we now have a chance – not a guarantee, but a chance – to put the world on a healthier path.

Read More »

Also posted in Deforestation, Emissions trading & markets, Paris, REDD+, UN negotiations| Leave a comment

To know what the United States is really doing on climate change, look past the political theater

Photo of U.S. Capitol

The U.S. Clean Power Plan – the U.S. Environmental Protection Agency program to cut carbon pollution from the country's largest emitting sector, electric generating stations – is here to stay. Image: cropped photo from Flickr/ USCapitol.

It’s always hard to interpret political maneuvering in other countries. Governments resign, coalitions form, legislation means something other than what it seems to mean. So in the coming weeks, when newspapers around the world run headlines saying “U.S. Congress Votes to Overturn Clean Power Plan,” their readers may be forgiven for some confusion about America’s position coming into the Paris climate talks.

The first and most important thing to understand is that the Clean Power Plan – the U.S. Environmental Protection Agency program to cut carbon pollution from our largest emitting sector, electric generating stations – is here to stay. Bills to “block” the Plan may pass the U.S. Senate and House of Representatives, but they will go no further. That is because those bills cannot become law unless President Obama signs them. He has made it abundantly clear that he won’t agree to dismantle his leading climate initiative.

Read More »

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Brazil's climate pledge is significant, but falls short on curbing deforestation

Amazon rainforest. Credit: Adrian Cowell, used by EDF with permission.

This post was co-authored by Paulo Moutinho of the Amazon Environmental Research Institute (IPAM) and Steve Schwartzman of EDF.

Brazil did the UN climate change negotiations – and hopefully, the planet – some good Sunday when President Dilma Rousseff announced emissions reductions targets in the UN General Assembly. However, it missed an opportunity do itself and the planet much more good.

President Rousseff deserves credit above all for announcing an absolute, economy-wide, emissions reductions target, rather than reductions below a business-as-usual projection, or a “carbon intensity” target. The goal is a 37% reduction by 2025 and 43% by 2030, both in relation to 2005. She also spoke promisingly of “decarbonizing” Brazil’s economy.

Brazil’s announcement is an important contribution to a successful agreement in the UN climate talks in Paris

Brazil has thus aligned itself with other major emitters, such as the U.S., China and the European Union, which have committed to becoming part of the solution to climate change. And the decision by one of the world’s most important emerging economies to take on an absolute emissions reduction target provides yet another signal that the world has moved on from the Kyoto Protocol approach of dividing the world sharply into “developed” and “developing” countries — a division that has helped lead to deadlock in the negotiations. For both reasons, Brazil’s announcement represents an important contribution to a successful agreement in the UN climate talks in Paris this December.

While the announcement did not go into detail, it is clear that these targets can only be met if Brazil sustains the 80% reduction in Amazon deforestation by 2020 in its National Climate Change Policy, passed by Congress in 2009.

Beyond this, the devil-in-the-details starts to show his face. Read More »

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