Author Archives: Jonathan Camuzeaux

The United States Could Lead the Next Tech Revolution by Investing in Clean Energy

New Risky Business Report Finds Transitioning to a Clean Energy Economy is both Technologically and Economically Feasible

In the first Risky Business report, a bi-partisan group of experts focused on the economic impacts of climate change at the country, state and regional levels and made the case that in spite of all that we do understand about the science and dangers of climate change, the uncertainty of what we don’t know could present an even more devastating future for the planet and our economy.

The latest report from the Risky Business Project, co-chaired by Michael R. Bloomberg, Henry M. Paulson, Jr., and Thomas F. Steyer, examines how best to tackle the risks posed by climate change and transition to a clean energy economy by 2050, without relying on unprecedented spending or unimagined technology. The report focuses on one pathway that will allow us to reduce carbon emissions by 80 percent by 2050 through the following three shifts:

1. Electrify the economy, replacing the dependence on fossil fuels in the heating and cooling of buildings, vehicles and other sectors. Under the report’s scenario, this would require the share of electricity as a portion of total energy use to more than double, from 23 to 51 percent.
2. Use a mix of low- to zero-carbon fuels to generate electricity. Declining costs for renewable technologies contribute in making this both technologically and economically feasible.
3. Become more energy efficient by lowering the intensity of energy used per unit of GDP by about two thirds.

New Investments Will Yield Cost Savings

Of course, there would be costs associated with achieving the dramatic emissions reductions, but the authors argue that these costs are warranted. The report concludes that substantial upfront capital investments would be offset by lower long-term fuel spending. And even though costs would grow from $220 billion per year in 2020 to $360 billion per year in 2050, they are still likely far less than the costs of unmitigated climate change or the projected spending on fossil fuels. They’re also comparable in scale to recent investments that transformed the American economy. Take the computer and software industry, which saw investments more than double from $33 billion in 1980 to $73 billion in 1985. And those outlays continued to grow exponentially—annual investments topped $400 billion in 2015. All told, the United States has invested $6 trillion in computers and software over the last 20 years.

This shift would also likely boost manufacturing and construction in the United States, and stimulate innovation and new markets. Finally, fewer dollars would go overseas to foreign oil producers, and instead stay in the U.S. economy.

The Impact on American Jobs

The authors also foresee an impact to the U.S. job market. On the plus side, they predict as many as 800,000 new construction, operation and maintenance jobs by 2050 would be required to help retrofit homes with more efficient heating and cooling systems as well as the construction, operation and maintenance of power plants. However, job losses in the coal mining and oil and gas sectors, mainly concentrated in the Southern and Mountain states, could offset these employment gains. As we continue to grow a cleaner-energy economy, it will be essential to help workers transition from high-carbon to clean jobs and provide them with the training and education to do so.

A Call for Political and Private Sector Leadership

Such a radical shift won’t be easy, and both business and policy makers will need to lead the transition to ensure its success. First and foremost, the report asserts that the U.S. government will need to create the right incentives.  This will be especially important if fossil fuel prices drop, which could result in increased consumption.  Lawmakers would also need to wean industry and individuals off of subsidies that make high-carbon and high-risk activities cheap and easy while removing regulatory and financial barriers to clean-energy projects. They will also need to help those Americans negatively impacted by the transition as well as those who are most vulnerable and less resilient to physical and economic climate impacts.

Businesses also need to step up to the plate by auditing their supply chains for high-carbon activities, build internal capacity to address the impacts of climate change on their businesses and put internal prices on carbon to help reduce risks.

To be sure, this kind of transformation and innovation isn’t easy, but the United States has sparked technological revolutions before that have helped transform our economy—from automobiles to air travel to computer software, and doing so has required collaboration between industry and policymakers.

We are at a critical point in time—we can either accelerate our current path and invest in a clean energy future or succumb to rhetoric that forces us backwards. If we choose to electrify our economy, reduce our reliance on dirty fuels and become more energy efficient, we will not only be at the forefront of the next technological revolution, but we’ll also help lead the world in ensuring a better future for our planet.

Posted in Energy efficiency, Politics, Technology| Leave a comment

How Companies Set Internal Prices on Carbon

This post was co-authored with Elizabeth Medford

Despite the uncertainty created by the recent election, companies around the globe are demonstrating a commitment to keeping climate change in check. More than 300 American companies signed an open letter to President-elect Trump urging him not to abandon the Paris agreement. Others are acting on their own to reduce emissions in their daily operations, by setting an internal price on carbon.

The number of companies incorporating an internal carbon price into their business and investment decisions has reached new heights, a recent CDP report shows, with an increase of 23 percent over last year. The more than 1,200 companies that are currently using an internal carbon price (or are planning to within two years) are using them to determine which investments will be profitable and which will involve significant risk in the future, as carbon pricing programs are implemented around the world. Sometimes, they also use them to reach emissions reduction goals.

Not all carbon prices are created equal, and companies differ in how they set their specific price. Here’s a look at some of these methods:

Incorporating Carbon Prices from Existing Policies

 Some companies set their carbon price based on policies in the countries where they operate. For example, companies with operations in the European Union might decide to use a carbon price equal to that of the European Union Emissions Trading System (EU ETS) allowances, and those operating in the Northeastern United States might adopt the carbon price that results from the Regional Greenhouse Gas Initiative market.

ConocoPhillips, for example, focuses its internal carbon pricing practices on operations in countries with existing or imminent greenhouse gas (GHG) regulation. As a result, its carbon price ranges from $6-38 per metric ton depending on the country. For operations in countries without existing or imminent GHG regulation, projects costing $150 million or greater, or that results in 25,000 or more metric tons of carbon dioxide equivalent, must undergo a sensitivity analysis that includes carbon costs.

Using Self-Imposed Carbon Fees

Others take a more aggressive approach by setting a self-imposed carbon fee on energy use. This involves setting a fee on either units of carbon dioxide generated or a proxy measurement like energy use. These programs also often include a plan for using the fees such as investment in clean energy or energy efficiency measures. This can be an effective method for incentivizing more efficient operations.

Microsoft, for example, designed its own system to account for the price of its carbon emissions. The company pledged to make its operations carbon neutral in 2012 and does so through a “carbon fee,” which is calculated based on the costs of offsetting the company’s emissions through clean energy and efficiency initiatives. Each business group within Microsoft is responsible for paying the fee depending on how much energy it uses. Microsoft collects the fees in a “central carbon fee fund” used to subsidize investments in energy efficiency, green power, and carbon offsets projects. Still, by limiting carbon fees to operational activities, Microsoft has yet to address a large chunk of their emissions.

Setting Internal Carbon Prices to Reach Emissions Reduction Targets

 Other companies set an internal carbon price based on their self-adopted GHG emissions targets. This involves determining an emissions reduction goal and then back-calculating a carbon price that will ensure the company achieves its goal by the target date. This method is a broader approach focused more on significantly reducing emissions while also mitigating the potential future risk of carbon pricing policies.

Novartis, a Swiss-based global healthcare company, uses a carbon price of $100/tCO2 and cites potential climate change impacts as a motivator. The company has its own greenhouse gas emissions target, which it is using to cut emissions to half of its 2010 levels by 2030. These internal policies mean that Novartis, which is included in the European Union’s Emissions Trading Scheme (EU ETS), has been able to sell surplus allowances and thus far avoid an increase in operating costs.

Where we go from here

 While these internal carbon pricing activities are welcome – and we hope they continue – they are not sufficient to reduce greenhouse gases to the degree our nation or world requires. Like these forward thinking companies, nations around the world, including the United States, need to consider the costs of inaction, including the climate-related costs, to avoid short-sighted investments. Ultimately, we will need public policies that put a limit and a price on carbon throughout the economy.

The spread of internal carbon pricing could signal greater support for carbon pricing by governments. But companies can do more: the ultimate test of a company’s convictions and commitment to carbon pricing might be their willingness to advocate for well-designed, ambitious policies that achieve the reductions we need.

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

Good news in California as carbon auction results improve, and carbon emissions continue falling

Co-authored by Erica Morehouse and Jonathan Camuzeaux (this post was originally posted in EDF Talks Global Climate).

While we hope President-elect Trump will listen to the almost unanimous global voice of governments and business leaders who all understand that we must act to avert catastrophic climate change, it’s indisputable that leadership from U.S. states will be of paramount importance. Amidst this chaos and uncertainty California and Quebec are now four years into a successful cap-and-trade program with shrinking carbon pollution footprints and thriving economies.

California and Quebec released results today from a much anticipated carbon auction that took place on November 15, and sold a greater number of allowances than in the past two auctions resulting in proceeds for the state Greenhouse Gas Reduction Fund.  This good news comes after California’s 2015 greenhouse gas reporting data earlier this month showed another year of carbon pollution decline for the Golden State.

These year-over-year pollution declines are the most important indicator of success.  But understandably the auction performance and amount raised for climate investment priorities will get a lot of attention in California, Quebec, and Ontario, which is slated to launch its own cap-and-trade program in January with linkage likely to California and Quebec in 2018.

Auction results see increased demand

The November 15 auction offered more than 87 million current vintage allowances (available for 2016 or later compliance) and sold almost 77 million. Approximately 10 million future allowances were offered that will not be available for use until 2019 or later; over one million of those allowances were sold.

These auction results represent a significant increase in demand from the August auction which offered a similar number and sold about 31 million allowances, up from a little over eight million allowances sold at the May auction, the first auction to experience very low demand for allowances.  The May and August auctions raised almost no revenue for the California Greenhouse Gas Reduction Fund (GGRF).  While final numbers won’t come in for another few weeks, based on the allowances sold, this auction likely raised over $360 million for the California GGRF. 

Impacts on demand for this auction

A number of factors, good and otherwise, contributed to this quarter’s results.

  1. One of the most immediate factors that likely contributed to increased demand in this auction is the knowledge that the minimum sale price or “floor price” will rise to about $13.50 in 2017. This is the last auction that participants will be able to purchase allowances for $12.73 before the annual increase.
  1. A constant during this and previous auctions is litigation brought by the California Chamber of Commerce and others challenging California’s cap-and-trade program design. The case was brought the day before California’s very first auction in 2012 and California won at the trial court level. The plaintiffs appealed, and the Court of Appeals will hear oral arguments on January 24, 2017. This outstanding litigation may be leading some potential auction participants to take a wait-and-see approach.
  1. This wait-and-see approach is only possible if regulated businesses in California already have enough allowances to cover their 2016 obligations. California just released preliminary data for 2015 which shows emissions were about 14 percent below the cap. This suggests a successful set of climate policies that are incentivizing polluters to lower levels of pollution below required levels if they are able.  Some have referred to this as an oversupply of allowances, but it’s perhaps more accurate to refer to it as over-compliance.  Businesses have a choice of how to respond when they over-comply: avoid buying allowances in a future auction or buy allowances when they are presumably cheaper and bank them for future use.

A big question is how much the passage of SB 32 in August has impacted auction demand.  Governor Brown had previously established a target of reducing carbon pollution 40 percent below 1990 levels by 2030 through an executive order, but SB 32 cemented this requirement into law making it much more certain.  Setting a 2030target could increase demand for allowances, but the market will not necessarily get certainty about that target or how California will meet it in one fell swoop.  While SB 32 set the 2030 target, like AB 32 it was silent on policy tools to meet that target so decisions about cap-and-trade post-2020 are still outstanding.

Greenhouse gas emissions decline again in 2015

California’s Mandatory Greenhouse Gas Reporting program requires that state’s largest polluters to report their emissions annually. The California Air Resources Board released the final tally of 2015 greenhouse gas emissions on November 4th, which showed yet another year of carbon pollution decrease.

In 2015, California’s emissions covered under the cap-and-trade program decreased by roughly one percent compared to the year before. California is on track to meet its target of reducing pollution to 1990 levels by 2020.  Carbon pollution for capped and uncapped sources was down in 2015.

Meanwhile, data from the Bureau of Economic Analysis shows the state’s gross domestic product increased by almost six percent in 2015 – while California also experienced an increase of total employment of a little over two percent in 2015 – proving again that economic output and emissions don’t necessarily go hand in hand.

With these results California is on solid footing to continue as a beacon of hope for climate action in the United States and perhaps even to attract new partners inside or outside the country who are ready to join a successful program.

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EDF-IETA maps show how the world can double down on carbon pricing

Carbon pricing

Currently, about 12% of the world's greenhouse gas emissions are covered by carbon pricing. More details about this map can be found in the Doubling Down on Carbon Pricing report by EDF and IETA.

There are a number of signs we are entering a golden age for carbon pricing. Perhaps the most important one is that many countries around the world are currently considering carbon pricing policies to achieve their greenhouse gas emissions reduction goals.

And for good reason.

A price on carbon gives emitters a powerful incentive to reduce emissions at the lowest possible cost, it promotes innovation while rewarding the development of even more cost-effective technologies, it drives private finance, and it can generate government revenue.

This spring, World Bank Group President Jim Yong Kim and International Monetary Fund Managing Director Christine Lagarde convened the Carbon Pricing Panel to urge countries and companies around the world to put a price on carbon. On April 21, 2016, the Panel announced the goals of doubling the amount of GHG emissions covered by carbon pricing mechanisms from current levels (about 12 percent, as illustrated in the map below) to 25 percent of global emissions by 2020, and doubling it again to 50 percent within the next decade.

EDF and the International Emissions Trading Association (IETA) worked together to explore a range of possible, though non-exhaustive, scenarios for meeting these goals. You can see the results in a series of maps which show how carbon pricing can be expanded worldwide.

Achieving the Carbon Pricing Panel’s goals will be a crucial stepping stone to realizing the ambition of the Paris Agreement, which aims to hold the increase in the global average temperature to well below 2°C above pre-industrial levels. Meeting that objective will require countries not only to implement the targets they have already announced, but to ratchet up their efforts dramatically in the years ahead. Carbon pricing will have to play a key role in that effort.

Explore how the world can reach the Carbon Pricing Panel’s ambitious goals.

This post originally appeared on Climate Talks.

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California Market at Three: All Grown Up and Thriving

This post was co-authored by Jonathan Camuzeaux and Derek Walker.

2960384757_155b4e2efa_zAs we pointed out in August, no news is good news when it comes to California’s cap-and-trade quarterly allowance auctions, which have been running effectively and without hiccups since November 2012. That’s right, last Tuesday’s auction marks the three-year anniversary of the program’s first auction, and the fifth time that California and the Canadian province of Quebec have conducted a joint auction. Time flies by when you settle into a routine, and another set of consistent, stable results indicates once again that California has a strong, well-functioning cap-and-trade program.

Steady results equal a healthy carbon market

Over 75 million current vintage allowances – which covered entities can use for compliance as early as this year – were offered at last Tuesday’s auction, and 100% of these allowances were purchased at a price of $12.73. This price, known as the settlement price, is 63 cents above the floor price set by the California Air Resources Board (CARB) for this auction, and is in line with previous auctions where allowances have cleared at prices slightly above the floor. In the advanced auction for 2018 vintage allowances – which can only be used starting in 2018 – over 10 million allowances were offered and 100% of these were purchased at a price of $12.65. Read More »

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Cap and Trade under AB 32 – Now it’s an “Official Success”

(This blog post was co-authored with Tim O’Connor and originally posted on California Dream 2.0.)

iStock_000004415617SmallMany people have been following the AB 32 cap-and-trade program since it kicked off on January 1, 2013. After all, it’s the most comprehensive carbon market in the world; it has created billions in investments for pollution reduction in California communities and garnered intense international attention. Now, based on data showing the program has cut climate pollution during its first compliance period, the chair of the California Air Resources Board (CARB) has dubbed it “officially a success.”

Under California’s Mandatory Greenhouse Gas Reporting program, the largest polluters in the state across all sectors must report their emissions every year. This data is then collected and counted by CARB. Yesterday, the agency released the final tally of the 2014 greenhouse gas (GHG) emissions covered by cap-and-trade, and with data, we get the final word on what happened during the program’s first compliance period (for years 2013 and 2014).

Covered emissions went down…            

According to CARB’s report, although GHGs in 2014 experienced a slight increase compared to the year before, total climate pollution across the compliance period (2013 and 2014) decreased by over three percent to approximately 146 million metric tons (MMt) of carbon dioxide-equivalent. This means California’s emissions were nine percent under its 2014 cap of 159.7 MMt, putting the state well on its way to achieve its short-term emissions reduction target: bringing emissions back to 1990 levels by 2020. It also shows how cap-and-trade is best evaluated across compliance periods: since businesses have the incentive to cut pollution as quickly and deeply as possible, reductions in one year of the program may outpace those in another year.

… While California’s economy continued to prosper

Total emissions reported under the Mandatory Greenhouse Gas Reporting program, including those not covered under cap and trade, also decreased between 2012 and 2014, by about 1.3 percent. Meanwhile, the state’s gross domestic product (GDP) increased by almost three percent in 2014, surpassing the two percent GDP growth California’s economy underwent the year before. So while emissions were declining under AB32, the state’s economy grew, proving once again that economic output and emissions don’t necessarily go hand in hand.

California also experienced remarkable job growth during the same period. In 2013, California saw total employment increase by 2.1 percent, beating the national average. In 2014, job growth in the state reached an impressive 3.2 percent. As a comparison, the rest of the United States experienced only an average 2.2 percent growth in jobs that year.

Companies are complying with cap and trade

Under California’s cap-and-trade program, regulated polluters are also required to surrender some of their emissions allowances every year. Yesterday, they did just that, turning in allowances needed to cover the remainder of 2013 emissions and all of 2014 emissions. Total allowances for the first compliance period represent approximately 290 MMt of carbon dioxide-equivalent.

According to data released by the agency, over 99 percent of the required allowances were surrendered in the first compliance period, barely short of a perfect score, proving companies are prepared to incorporate cap-and-trade obligations in their everyday business practices.

Looking ahead

Starting on January 1 of this year, transportation sector emissions are also regulated under California’s cap-and-trade program. This is another important step forward: emissions from transportation represent almost 40 percent of the state’s GHG emissions. It is also a crucial building block, putting California on the right track to achieve its ambitious medium and long-term targets – with the ultimate goal of reducing emissions 80 percent below 1990 levels by 2050.

Today’s results confirm that the cap-and-trade program’s first compliance period was a success and that California has a strong foundation to build upon as it takes the next critical steps towards its climate change goals.

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