Monthly Archives: November 2010

What's the matter with Arkansas?

Midwestern states have traditionally been reluctant to embrace cap and trade. Now it looks like they may well turn into some of the larger beneficiaries of the California cap-and-trade system.

The largest supplier of likely carbon offsets for the California program so far? Arkansas.

Midwestern suppliers

States of origin for CAR credits

Besides California and New York, numbers 2 and 3 on the list, none of the other states currently have cap-and-trade systems in place.

Michael Wara has a terrific blog post on this phenomenon and the ensuing politics of cap and trade. [Update: New graphs and data. The story doesn't change. The graphs are prettier, though.]

Of the four types of offsets initially allowed in California (landfills, livestock, conservation forestry, and domestic ozone depleting substances), Midwestern states are the main beneficiaries.

Not CDM

How will that change the politics?

The Clean Development Mechanism (CDM), the UN-brokered international offsets system has perverse incentives. It motivates companies supplying large amounts of CDM credits (and receiving billions of dollars in return) to lobby their governments against instituting stricter domestic policies and having cap-and-trade systems on their own, lest they lose their chance of selling exactly those CDM credits. That's one of the many reasons why the CDM system ought to be radically reformed.

What makes all the difference here is that CDM credits originate mainly from industrial and energy sectors that ought to be part of domestic cap-and-trade systems in the first place. California's offsets are focused on sectors not covered by its own cap-and-trade system and most likely not covered directly in a US-wide emissions market.

A US-wide cap-and-trade system would only increase demand for these kinds of agricultural offsets and those from ozone depleting substances (ODS), making selling them even more attractive.

That by itself may not revolutionize federal politics, but at least the incentives are working in the right direction. Read More »

Posted in California, Cap and Trade, Politics| Leave a comment

Two proposals and a reality check

by Mikel JasoYesterday's New York Times published three terrific op-eds worth a second thought.

Veerabhadran Ramanathan and David Victor argue that, "To Fight Climate Change, Clear the Air." Carbon is the main climate culprit, but we can't ignore and might as well start with tackling the other greenhouse gas pollutants.

Bruce Usher argues that, "On Global Warming, Start Small." Not too small, mind you. Individual volunteerism won't do. But U.S. energy policy is made in the states, and many states are making significant progress on sensible policy measures.

Jack Hedin provides "An Almanac of Extreme Weather" from his Minnesota family farm and an important wake-up call for why we are doing what we doing. In the end, "climate instability"—the extreme fluctuations around a warming climate—may prove at least as damaging as the slow but steady upward trend in temperatures.

Posted in Climate science, International, Politics| Leave a comment

$100 billion in 1000 words

The Copenhagen Accord enshrined $100 billion as the target for north-south climate finance flows by 2020. Earlier this month, the U.N. high-level Advisory Group on climate change Financing (AGF) issued its final report on how to get there.

My colleague Miriam Chaum and I tried to summarize the 80-page report in 1000 words:

AGF report, middle carbon price scenario ($25/tCO2e in 2020). Ranges are for the middle price scenario and span net and gross flows, where applicable.

The main message is clear: $100 billion are out there. The big question is whether we can muster the political will to put the right incentives in place and indeed free them.

Some more messages and background in this short, one-page AGF fact sheet [PDF].

Posted in 1000 words, International| 1 Response

Bending the curve

Cutting emissions is about creating opportunities for new, clean energy sources, not about crashing economies.

The Great Recession saw a crash with the most severe consequences for employment and other measures of economic output since the Great Depression. Emissions responded in kind.

Pierre Friedlingstein and a slew of co-authors provide an "Update on CO2 emissions" in the latest Nature Geoscience (HT: BBC):  Global CO2 emissions declined by 1.3% in 2009. No surprise there, although the decline was lower than projected. (A closer look at the breakdown doesn't come as much of a surprise, either: U.S. emissions declined by almost 7% in line with miserable economic figures. Chinese emissions increased once again, by +8%, in line with its continuing strong economic growth.)

The disconcerting part: global emissions are scheduled to shoot right back up in 2010 and then some at +3%.

(C) Nature Geoscience

The atmosphere barely notices these kinks in the general trend line, which continues to march up unabated. Crashing economies doesn't do anyone any good. The charge is to decouple emissions from economic development and start bending the curve [PDF].

Posted in Climate science| Leave a comment

To the mattresses

Last week saw the start of a new American environmentalism on climate policy: the gloves seem to be coming off.

Our own Fred Krupp’s article in the Huffington Post on Tuesday revealed the new fighting spirit:

[W]e have well-financed enemies in this fight, and it is time to sharpen the nation's focus on the businesses that obstruct vital progress.

Our view is that the public and the investor community need to have far greater awareness of the companies engaged in indiscriminate obstructionism. We will look for ways to hold them accountable through every reasonable lever at our disposal. We will learn to be as tough with them as they have been with us.

Looks like Al Gore took noteGodfatherHis group Repower America launched KochIndustriesFacts.com, which flags Twitter and Facebook-ready snippets on the money involved, some of the smoke and mirror tactics used (speak "front groups"), and the dirty environmental trail left by Koch Industries.

With well-funded opponents like that it is not hard to see how cap and trade got swallowed up in D.C., no matter how strong the economic arguments in favor of a well-designed carbon market were. But beware: climate change isn't going away.

To the mattresses it is.

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CCX, RIP—or is it "good riddance"?

Chicago Mercantile ExchangeThe Chicago Climate Exchange, one of the first voluntary cap-and-trade programs, is shutting down next month. That's bad news for the planet, isn't it? Just take a look at today's Wall Street Journal editorial page for an apparent confirmation. There the news is being celebrated as "cap and retreat." Check.

That should indeed be confirmation enough. Sadly, what's good for the Journal tends to be bad for the planet. Here that may not hold, although it's not for the reasons the Journal thinks.

One among many

The full editorial is behind a firewall. That's just as well. The rest is as wrong as the beginning. Let's start with the only direct quote. The Journal opinionators say the CCX advertised itself as "North America's only cap and trade system for greenhouse gasses." In fact, CCX's own webpage says it's "North America's only cap and trade system for all six greenhouse gases." That makes all the difference.

Carbon dioxide, the main greenhouse gas, is or will be covered in at least 15 states. RGGI covers 10 Northeastern states with its carbon cap, and Californians just reaffirmed with a clear vote of 60 to 40 to put in place theirs (which also covers all six greenhouse gases). New Mexico has announced similar plans.

Volunteerism won't do

There's also a much larger point here. The CCX was voluntary. Companies volunteered to sign up. It doesn't take a Ph.D. in economics to realize that the only companies who sign up for reasons other than marketing purposes are the ones that have allowances to sell. Those that need to buy them, stay as far away as possible.

No market can operate under these conditions. If anything, it's surprising the market held up as long as it did—no doubt due to companies' willingness to write off their participation as a marketing expense. Why else would the price for a ton of emissions ever be much above zero?

Thanks for the memories

CCX did provide some valuable lessons for participants. Chief among them, how to implement such a trading system internally, how to minimize emissions and make money, and whether and how it would be different from SO2 trading, something many CCX participants did successfully for over a decade.

But CCX was never meant to be anything other than a precursor for a U.S.-wide system.

The same, of course, goes for most state-wide initiatives. New Mexico's plans will put the state ahead of most others in the U.S., but Santa Fe alone will not prevent China from pulling farther ahead of the U.S. in generating sustainable jobs, or decrease the billions we send to the Middle East every year.

Posted in Cap and Trade Watch| Leave a comment

Everything's Amazing, until you illuminate it

We live twice as long as people only ten generations ago. We are richer, much richer than anyone alive two generations ago. Or in other words, it once took weeks, months, or years to make it from sea to shining sea. Now, flying from California to New York means "you watch a movie, take a dump, and you are home."

Not if, when

But flying is more than watching movies. It also comes with real pollution. Lots of it. A flight from New York to Delhi creates more carbon pollution than the average Indian produces in a year. Individually that has little impact on the planet. Collectively it makes all the difference.

It's  no longer a question of if, it's when vast coastal areas will be under water, if we don't change course soon. We are distorting the global nitrogen cycle beyond recognition. Our oceans face multiple assaults from collapsing fisheries to ocean acidification and often still unknown consequences from oil spills and other toxins.

It may well be both. Many things are getting better most of the time, largely due to awesome technological innovations. Yet we are also facing enormous challenges of unprecedented proportions.

Nightfall or Singularity?

Ian Morris's magnum opusStanford historian Ian Morris argues in his impressive magnum opus, Why the West Rules—for Now, that we face a choice. But the choice is not what you think.

It's not about educating American children and investing in American ingenuity to fend off the inevitable ascendancy of the "East." It's about educating American children—all children—and investing in global innovation to ward off something much bigger: the possibility of planetary mayhem akin to total nuclear annihilation, "Nightfall." His words, not mine.

Levels of innovation—"progress"—are so rapid, so unprecedented in human history that the question is not whether we will be making cross-country flights even faster or more convenient than they were only thirty years ago, or whether China or India will build faster planes than Boeing or Airbus. We don't know what the frontiers of travel itself will look like thirty, twenty, or ten years from now. The question, according to Morris, is how to avoid the entire system spinning out of control.

The happy opposite of Nightfall is "Singularity," a state where everyone, all humans, live at unprecedented levels of wealth, and in harmony with each other and the planet.

That's quite a tall order. The question is how to get there.

Make Wikipedia history

First and foremost, it's about channeling human ingenuity to work for rather than against us. That comes down to finding governance systems to guide market forces in the right direction.

The single most important step is to make everyone accountable for their full actions. "Privatizing profits and socializing losses" has its own Wikipedia page. That page, for now, only talks about the financial crisis as a classic symptom of the misguided mantra.

The planet is in exactly the same boat. Profits accrue to each and every one of us, personally. The losses are spread across everyone—you, me, your children, my unborn children.

You don't have to believe in Morris's stark choice between Nightfall and Singularity—although after reading his book, he will likely have convinced you—to realize that the planet will be getting worse unless, and only unless, that Wikipedia entry becomes a historical footnote.

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Gung-ho about cap and trade

"Why are you so gung-ho about cap and trade? Don't you realize it's a corporate takeover of the atmosphere?"

I’m paraphrasing here, but this was the gist of an audience question I got while moderating a panel on Getting Carbon Market Governance right from Day One at the International Anti-Corruption Conference on Friday. The rest of the discussion was a frank exchange of ideas on how to ensure a workable, transparent carbon market. More on that later. For now a quick response to this question because I think it gets to the heart of why we do what we do. Why are we so "gung-ho" about cap and trade?

We ought to be polluting less because it's the right thing to do, not because someone else limits pollution and hands out allowances to companies. Well, yes. If everyone woke up tomorrow and decided that global warming pollution was bad and that we ought to stop dumping billions of tons a year into the atmosphere, far be it for me to stop them.

Things aren't quite that easy. We clearly ought to be moving toward a more coherent climate ethic. One of our panelists, ethicist Don Brown, made exactly this point. The question is how to get there.

No volunteers, please

Volunteerism simply won't do. Misguided collective action got us into this mess. Properly guiding collective action is the only way out. That means polluters ought to pay. Pollution must not.

There may be academic debates to be had on cap-and-trade versus carbon taxes, but fundamentally the best way in the real world is to put a firm limit on pollution. It worked for combating acid rain in the 1990s. A version of it works for combating overfishing. And the EU has shown that it works for carbon on a large scale.

Carbon markets around the globe

Global carbon markets operating, likely, and under consideration.Cap and trade might be "dead" in Washington at the moment, yet it is clearly alive and well and spanning the globe: from existing systems in the EU, the Northeastern US, Alberta in Canada, and New South Wales in Australia, likely systems in California, South Korea and Japan, to systems under discussion or in planning stages in Mexico, Chile, Brazil, and Russia—not to forget China, which will likely at least experiment with cap and trade as part of its 12th five-year plan, in place starting in 2011.

Good for the environment, good for business

Will there be business interests pulling for cap-and-trade? Hopefully. The task is to guide a $5 trillion-a-year fossil-fuel-based energy sector into a cleaner, leaner future. There better be—and there will be—plenty of money to be made in the greener economy.

Yet far from being a corporate takeover of the atmosphere, a well-designed carbon market is a way to make polluters pay for the costs they now shove off onto others by treating the atmosphere as a free dumpster.

Posted in Markets 101| 7 Responses