Climate 411

CDM design flaws can taint CORSIA, but supply from small developing countries could provide real emissions reductions

By Guest Author / Published: July 12, 2018
Aruba’s Vader Piet Wind Park

Aruba’s Vader Piet Wind Park. Credit: Miles Grant

By Kristin Qui, Environmental Defense Fund Tom Graff Fellow, International Carbon Markets

Last month, the 36 countries that make up the Council of the UN’s International Civil Aviation Organization (ICAO) adopted the set of rules that will guide the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Known as the Standards and Recommended Practices (SARPs), these rules constitute a significant step to get CORSIA up and running, and contribute to ICAO’s goal of capping net emissions from international aviation at 2020 levels.

However, much work remains to be done at ICAO between now and the end of 2018. The Council has not yet adopted some key elements, including details on CORSIA eligible emissions units, sustainable aviation fuels and criteria for both. Furthermore, the Council has yet to establish the Technical Advisory Body (TAB) that will make recommendations to the Council on which emissions units airlines can use. A transparent TAB, with broad stakeholder participation, is necessary to provide recommendations on high-quality units that represent real emissions reductions in CORSIA.

One mechanism under consideration to satisfy CORSIA demand for emissions units is the Clean Development Mechanism (CDM) established by the Kyoto Protocol 20 years ago. The purpose of the CDM, as specified by Article 12 of the Kyoto Protocol, is to assist rich countries in complying with their Kyoto emission reduction commitments by using emissions reductions credits from projects in developing countries, and to help the latter achieve sustainable development and contribute to the ultimate objective of the Convention, i.e., averting dangerous interference with the climate system. However, the CDM has run into a number of obstacles. In fact, several studies, including a new EDF analysis, finds that in many cases, the CDM’s methodologies and design don’t address additionality, don’t provide real and credible baselines and don’t avoid double counting. Below are some of the biggest issues with the CDM:

  1. Lack of additionality: Some CDM projects have been found to be non-additional, meaning that those projects would have happened in the absence of the CDM and its finance from the sale of CERs. Thus, under the CDM’s current design, countries can earn credits from projects for which they did not require CDM financing. This is quite alarming in a landscape where many smaller developing countries have trouble accessing the necessary climate finance to cope with the harsh impacts of climate change.
  2. Crowding out small countries: The majority of CDM projects originate in large developing countries, e.g. 85% of issued Certified Emissions Reductions (CERs) occurs in China, India and Brazil, effectively crowding out smaller countries in need of finance for low carbon development. Even further, EDF’s analysis shows that one large developing country has a potential supply of about 10 times the demand of CORSIA, when projecting the maximum potential CDM supply out to 2030.
  3. Accounting issues: Other projects like HFC-23 destruction projects have been flagged for baseline inflation, meaning that project proponents overstated the number of reductions resulting from a given project. The atmosphere therefore sees less emissions reductions than the CDM project promises, setting back mitigation progress. Using such credits to offset an increase in emissions under CORSIA means that airlines would not be meeting their goals of carbon neutral growth from 2020.
  4. Lack of Transparency: Lack of transparency in the CDM Executive Board decision-making, communication and publishing of CDM data makes it challenging to understand the CDM project cycle. Shockingly, there is no way to tell when CERs have been used by an entity to offset an emissions increase.
  5. Lack of legal basis for using CERs in CORSIA: The future of the CDM is legally uncertain. The Kyoto Protocol establishes the CDM only for the twin purposes of helping non-Annex I Parties (developing countries) with sustainable development and Annex I Parties (developed countries) to meet their Kyoto emissions reduction commitments. The Protocol does not establish the use of CDM CERs for CORSIA or the Paris Agreement. Thus, the CDM Executive board has no legal authority to issue CERs after 2020, and may not have authority to issue CERs now. To use CERs in CORSIA, ICAO and the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol must take the necessary legal decisions.
  6. Fraud: Recent analyses have demonstrated that a significant number of CERs may be fraudulent. In particular, large dams in Brazil were registered as CDM projects based on assertions that the projects depended on carbon finance for their future construction and operation. However, investors have successfully prosecuted lawsuits demonstrating that their funds disappeared in the Lava Jato corruption scandal, and the dams were built anyway. Airlines face big reputational risks if the units they use to meet CORSIA requirements are fraudulent in any way.

Some CDM projects could deliver environmental benefits

A recent analysis by EDF shows that CDM activities in small island developing states (SIDS), least developed countries (LDCs) and other African countries are more vulnerable to discontinuation without support from market mechanisms, meaning that such activities are more likely to be additional. Because of these reasons, and to improve access to market mechanisms for smaller developing countries that were effectively denied access by larger countries, rules for post-2020 use of CERs should focus on a particular subset of CDM activities. EDF’s analysis concludes that the highest likelihood of delivering environmental benefits from CDM activities, would arise from limiting use of CERs to those originating from activities in SIDS and LDCs, provided that they satisfy quality and accounting standards, including the need to avoid double counting.

Also posted in Aviation, International, Policy / Comments are closed

Second California-Quebec-Ontario carbon auction sells out, showing market’s strength

By Katelyn Roedner Sutter / Published: May 23, 2018

 

https://www.pexels.com/photo/golden-gate-bridge-san-francisco-61111/

San Francisco Golden Gate Bridge. Photo by Juan Salamanca.

The second California-Quebec-Ontario joint greenhouse gas allowance auction has sold all current allowances, just like the inaugural tripartite auction in February 2018. There was again strong demand for future allowances, all indicating that despite political and regulatory uncertainty from a key partner, Ontario, the market is on solid ground.

May auction at-a-glance:

  • All 90,587,738 current and previously-unsold allowances sold, clearing at $14.65, which is 12 cents above the $14.53 price floor. This is slightly higher than the February settlement price.
  • 6,057,000 of the 12,427,950 future vintage allowances offered sold at the floor price. This is 2,519,000 million less than sold at the February auction. The decrease is likely due to ongoing uncertainty in Ontario, but as these allowances are not available for use until 2021, it is still an indicator of confidence in the Western Climate Initiative market down the road.
  • An estimated $681,051,270 was raised for California’s Greenhouse Gas Reduction Fund to continue funding climate and equity priorities like urban greening, electric vehicle infrastructure, and affordable housing near public transit.
  • Ontario raised approximately $369,271,300 USD for funding public transit, electric vehicle incentives and energy efficiency upgrades.
  • Quebec raised approximately $151,353,660 USD to support the province’s transition to a green economy.

These results are encouraging because they show that despite ongoing political uncertainty in Ontario, the market is strong and stable. They also show the benefits of linkage to a larger market are real. All three linked jurisdictions have access to more trading partners through the Western Climate Initiative, which creates opportunities for even greater climate ambition. This kind of international cooperation shows that jurisdictions can have an outsized influence on global climate action, particularly at a time when federal leadership from the United States on climate is lacking.

Previously unsold allowances
The role of previously unsold allowances could also be impacting today’s auction results in two ways.

First, this is the third auction where held, or previously unsold allowances were offered for sale. These allowances increase the number of available allowances in the auction, which may contribute to keeping the price near the floor. This demonstrates the importance of that price floor. It is a central feature of the program that ensures stability of the market and the revenues.

Second, back in July 2017 the California Air Resources Board (CARB) adopted the so-called “24 Month Rule.” This establishes that any state-owned allowances that remain unsold for 24 months are either moved to the Allowance Price Containment Reserve (APCR) or retired. This has the effect of tightening the cap either temporarily (if prices were to unexpectedly jump) or permanently. The first significant retirement of allowances could happen after the August auction, so companies could be buying now in anticipation of decreased supply later.

Looking Forward
CARB is in the process of drafting a regulatory update for the cap-and-trade program post-2020. The program has been successful at reducing emissions, as demonstrated by current emissions being below the cap, even as California has grown to the fifth largest economy in the world. This emissions trend provides an important opportunity for California to continue driving increased ambition by setting a tighter post-2020 emissions cap, and continue showing that ambitious climate action can go hand-in-hand with strong economic growth.

Of course the biggest question in the linked carbon market right now is Ontario, which is having elections in June. Although two of the leading parties want to preserve the program, one party wants to end it, but would need to overcome a mountain of legal hurdles. The outcome of the June election could set up either increased confidence in the future of cap-and-trade in Ontario or lingering questions. But the results for both current and future vintage in this auction indicate that confidence is steady, and the California-Quebec-Ontario market remains a world leader in driving climate action.

Also posted in California / Comments are closed

California Models Climate and Air Pollution Action with Balanced Approach

By Quentin Foster / Published: July 12, 2017

Air pollution visible in downtown Los Angeles | Photo by Diliff, via wikipedia comms

California is once again demonstrating its bold climate leadership. As Washington, D.C. continues to abdicate its role as a climate champion, California is stepping up to extend its landmark cap-and-trade program, address local air pollution, and push California businesses forward toward a cleaner economy.

Environmental Defense Fund strongly supports AB 398 (E. Garcia) and AB 617 (C. Garcia), as well as their authors, Legislative leadership, and the Brown Administration. We commend their vision and initiative on a bill package that addresses the growing threat from climate change and improves public health outcomes by addressing local air pollution in the most impacted neighborhoods.

AB 398: Extending the cap-and-trade program

This bill seeks to extend California’s groundbreaking cap-and-trade program until 2030, with a 2/3 vote. We support this bill for 3 key reasons:

  1. This bill maintains the environmental integrity of California’s cap on emissions. By introducing a price ceiling on allowances, the Air Resources Board with the Legislature’s guidance provides greater certainty on costs. Done poorly, such a ceiling can put environmental outcomes at risk. This proposal addresses that concern by requiring that any excess emissions be made up for by high-integrity emissions reductions outside the cap. This ensures that California does not bust through its emissions cap.
  2. This proposal extends the economic benefits of cap and trade. California has added over a million jobs since cap and trade launched in 2013, and this bill includes important provisions to further develop a green workforce for the 21st century economy. At the same time, cap and trade encourages investments in alternative forms of fuel. This decreases our dependence on fossil fuels, which protects consumers from volatile gas prices.
  3. Extending cap and trade sets a national example for other states to follow. California is on track to meet our 2020 target of reducing emissions to 1990 levels, and the 2030 goal is even more ambitious. We are demonstrating that emissions reduction and a thriving economy can go hand-in-hand. And we will not leave our most vulnerable communities behind.

AB 617: Clean air for California’s most vulnerable communities

The second part of this essential package is an unprecedented air quality bill which seeks to address local air pollution in California’s most impacted neighborhoods. For EDF, these are the 3 main reasons we are committed to supporting this bill:

  1. This measure targets neighborhoods burdened by multiple sources of air pollution. California communities like Richmond, Modesto, or Torrance aren’t polluted by just cars or one refinery – they have many different sources of air pollution. This bill identifies these neighborhoods and focuses monitoring and emissions reduction plans based on burden, rather than source.
  2. Industrial facilities are required to upgrade their technology. There are many facilities that have not been upgraded in decades. This means they emit far more pollution than if current technology were used. This bill requires that industrial sources covered by cap and trade are retrofitted to a standard that reflects technological advances, but are also cost-effective.
  3. This bill increases penalties for big polluters. Many air pollution penalties haven’t been adjusted since the 1970’s. This bill increases these so big polluters no longer have an advantage over facilities that follow the law. This is critically important to hold polluters accountable, especially for the residents who live nearby.

Yes, there is still compromise in politics

California can address climate change without leaving communities behind.

The ability to compromise seems absent from most political arenas these days. The zero-sum strategies of filibusters and government shutdowns are more the norm than a negotiated settlement. However, the California State Senate and Assembly Leadership, along with Governor Brown’s Administration have re-discovered the art of the possible, and isn’t that what politics is all about? They have managed to find the compromise with stakeholders that addresses the twin challenges of climate pollution and air quality.

This package is a path forward that demonstrates to the country and to the world that California can address climate change without leaving communities behind.

There is no silver bullet to accomplish this, despite what we all wish. The environmental community needs businesses to thrive so California’s economy remains strong. Business needs the environmental community to hold them accountable. The Legislature needs all of us to help continue setting the standard on climate policy. We don’t get to take our ball and go home because things aren’t going our way.

As we demonstrate how to address climate change and air pollution, let’s also demonstrate to Washington, D.C. how to compromise. We urge the Legislature to support AB 398 and AB 617.

Also posted in California, Greenhouse Gas Emissions / Comments are closed