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What about that other climate bill?

Posted by Danny Morris on March 30, 2010

This post appeared originally on Progressive Fix, the schnazzy new blog from the Progressive Policy Institute.

You may not have noticed lately, but there are other major legislative initiatives, including climate and energy, on the Senate’s docket. One climate action bill that has received a lot of attention is the bill sponsored by Sens. Maria Cantwell (D-WA) and Susan Collins (R-ME). When the bill, officially called the Carbon Limits and Energy for America’s Renewal (CLEAR) Act, was first introduced in December, it caught the eye of some in the enviroblog world, but didn’t make much of an immediate splash in the Senate. Between the long build-up of the Kerry-Lieberman-Graham multi-partisan grab bag and the poorly understood Copenhagen outcome, however, it filled a vacuum with a poorly appreciated concept at the time: offsetting costs of climate legislation to consumers by cutting them a check.

The Basics

Also known as “cap-and-dividend,” the Cantwell-Collins bill is pretty simple: starting in 2012, it would mandate monthly auctions of pollution permits, called carbon shares, to the first seller (producer or importer) of fossil fuel carbon into the economy. The bill sets a floor price (shares can’t be sold for less) of $7 and a ceiling price (shares can’t be sold more) of $21 in the first auction in 2012, with the cap lowering — leading to rising prices — over time.

Most of the revenue from these auctions is distributed back to citizens in the form of a monthly check, while the rest is placed in a Clean Energy Refund Trust (CERT) fund established by the bill for use on a variety of different purposes: energy R&D, climate change adaptation, non-CO2 greenhouse gas reductions, international forestry and agriculture offsets, carbon capture and storage projects. First sellers cannot trade carbon shares and carbon derivatives are prohibited. In addition, the legislation has economy-wide emissions reduction goals of 20 percent below 2005 levels in 2020, 42 percent in 2030, and 83 percent in 2050.

The Good

Advocates of Cantwell-Collins praise it for being simple and transparent. As has been noted by others, it is a mere 40 pages, certainly an easier read than Waxman-Markey, the behemoth, 1,400-page cap-and-trade bill passed by the House last June. It regulates fossil fuel-related CO2 as far “upstream” in the economic supply chain as possible, meaning that whoever produces or imports a fossil fuel is on the hook for the CO2 content. Under Cantwell-Collins, coal mines and oil producers are responsible for paying for carbon, which means that only about 3,000 facilities need to be regulated. This upstream approach is administratively more streamlined, affecting far fewer parties than Waxman-Markey, which regulates electricity producers, natural gas distributors and manufacturers (over 75,000 regulated facilities).

The CLEAR Act also rejects the convoluted system of free and auctioned allocations in Waxman-Markey for a straight-up auction of all carbon shares. All regulated parties must participate in open monthly auctions, the revenue from which is split 75-25 percent: 75 percent is redistributed per capita to every American citizen and 25 percent is placed in the CERT. Whether you agree with the approach or not, offering to cut a monthly check for every U.S. citizen is not a bad way to gain some political support. Also, from the perspective of regulated firms, the use of price floors and ceilings, also known as a price collar, would reduce future price uncertainty and help them better predict investment needs.

Finally, the bill is co-sponsored by a Republican and a Democrat. That bipartisan provenance could certainly help its chances for passage.

The Bad

So with a bill that’s easy to read, easy to monitor and easy on the wallet, is there anyone who won’t like it? Well, anyone who favors hard targets for emissions reductions and anyone who believes in markets, for two. First, while the bill establishes economy-wide reduction goals as strong as Waxman-Markey, the auction system alone will not reach them. National emissions are capped at 2012 (note that it only caps CO2 emissions, unlike Waxman-Markey, which covered other greenhouse gases as well), and the cap doesn’t tighten until 2015, at which point it decreases by 0.25 percent that year, then by an additional 0.25 percent every corresponding year (so in 2016, the cap reduces by 0.5 percent, in 2017, 0.75 percent, etc).

This slow lowering of the cap will result in only five percent reductions below 2012 emissions by 2020, well short of the 20 percent reductions by 2020 goal. Even at that, the cap is not rock solid due to the price collar, which functions as a sort of safety valve. That is, if the auction price goes higher than the established ceiling price, then that essentially releases extra carbon shares for firms to bid on until the price falls back below the ceiling.

That means the remaining reductions to be met in 2020 will have to come from technology advances, land use offsets in forestry and agriculture, and reductions of non-CO2 gases, all of which are paid for by the CERT (which will be administered by the Department of Treasury). If we assume an initial carbon price of $15 in 2012 (a middle-range price, based on analyses done by the EPA and EIA), and the projected cap of roughly 7.2 billion carbon shares, then the CERT will get about $27 billion in the first year of the program.

That’s $27 billion to be split among all the uses listed above to help reduce emissions, as well as adaptation projects, energy efficiency efforts, and support for trade-sensitive industries and low-income families. The problem with a bill that’s only 40 pages is that it doesn’t have a lot of room for details — indeed, the CLEAR Act provides no guidance on how to prioritize uses of CERT funds. Although CERT funds will increase as the price of carbon shares rise, it will likely not even be close to enough to compensate for the majority of necessary carbon reductions.

A carbon market could mobilize private capital to help address some of these issues efficiently, instead of leaving all the choices and funding responsibility to the federal government. While it’s understandable that the public and politicians might still distrust markets in the wake of the recent financial collapse, the fact is that when it comes to finding inefficiencies and catalyzing innovation, nothing works better. But the “market” in Cantwell-Collins is simply an auction system. Unlike in Waxman-Markey, regulated firms can’t trade their permits, and carbon derivatives are strictly prohibited. These restrictions are going to severely limit the efficacy of the program to find the cheapest emissions reductions.

Also, there is a huge amount of risk in carbon markets (both in terms of accurate compliance and extreme events), so while they should be tightly regulated, derivatives are a necessary component because they allow firms to hedge against the risk of non-compliance or shifting standards. You will be hard-pressed to find any industry player who will advocate for a market without any trading, and there will need to be at least some industry support for any viable future climate legislation. Moreover, the monthly auction system may generate more carbon share price volatility than a continuous market, making it even more unattractive to firms.

The Upshot

Cantwell-Collins injects some great ideas into the climate policy debate that had not been prominently discussed before. If a policymaker wants to reduce the burden of increased energy costs on consumers, a direct rebate is an efficient and effective way to do it. The bill overall, however, is a somewhat naïve approach that does not fully appreciate the ability of markets to generate efficient emissions reductions and does not limit carbon emissions effectively. Its merits (simplified approach, upstream regulation, price collar) are outweighed by its limitations (extremely slow cap reduction, heavy reliance on CERT-funded reduction programs, draconian market restrictions). The CLEAR Act will continue to play a role in the climate debate of the Hill, but in its current form, it is unlikely to be the last bill standing.

Posted in cap and dividend, Climate Change, Legislation | 2 Comments »

On Curling and Climate Change

Posted by Tiffany Clements on February 24, 2010

Put on the chicken soup, buy some extra Kleenex and bring me another blanket, I’ve got Olympic fever. Not unlike most conditions resulting from contact with British Columbian substances, it’s filled me with a giddy contentment and an obsession with quirky people and pastimes. Like curling.

Hazy from the O-fever today, I Google “climate change and curling.” To my surprise, the Internet spit something interesting back at me. Apparently, according climatologist Philip Mote, the world’s population is like a collective curler and global temperatures—and all their environmental consequences—are the stone.

Based on what those guys who call the matches on CNBC have taught me, curlers have an awful lot to consider. Throw too hard, you miss the goal completely and get no points, not hard enough and you still lose. The key is figuring out what it will take when you let go to get the stone in the house.

Curling is fraught with uncertainty. So is predicting the interaction of policy, emissions and temperatures. From (the now-defunct, RIP paper newspapers) Seattle Post Intelligence’s Dateline Earth:

In projecting where the temps will go, scientists must first consider the various scenarios for greenhouse gas emissions, Mote said. There’s no way to know where we’ll end up, policy-wise, and what that will mean in terms of emissions.

Scientists also are not sure just how sensitive the globe and its atmosphere are, global warming-wise, to those emissions scenarios.

Whenever we can reduce emissions is analogous to when the player lets go. After that, does the stone go a long way? “Or do we have a very unresponsive climate that will stop at a few degrees” increase?

With no interest in wading into a scientific debate, I’ll just say for those of you who’ve been missing out on curling, its super disappointing when your team effs up its throw, even when they’re wearing pants like this.

Posted in Climate Change | 1 Comment »

Guilty by voluntary association

Posted by Andrew Stevenson on January 28, 2010

Cross-posted from RFF’s incredibly awesome climate policy blog Weathervane.

The first deliverable in the Copenhagen Accord was a pledge by all nations to submit their planned mitigation actions or targets to the United Nations Framework Convention on Climate Change (UNFCCC) secretariat by January 31, 2010. Since nations “took note” of the Accord instead of adopting it, in the weeks after Copenhagen there was uncertainty about whether some countries would ignore this quasi-commitment. Even UNFCCC head honcho Yvo de Boer was concerned, calling the deadline “soft” while imploring nations to “associate” themselves with the Accord. “Association” was likely understood to mean acknowledgement of some formal status for the Accord within the UNFCCC, giving the secretariat greater authority to convene official negotiating sessions around the document.

In any case, from the perspective of developed nations the central task for 2010 was to merge any new discussions around the Copenhagen Accord with the Kyoto Protocol (KP) and long-term cooperative action (LCA) negotiating tracks that were created by the Bali Action Plan in 2007 and intended to be the fundamental basis for negotiating an agreement in Copenhagen. While countries made progress on these tracks in Copenhagen—including things like forestry and adaptation—when they “took note” of the Accord on the last night of COP-15 they essentially left all that progress on the table to be taken up in 2010. Many developing countries wanted, and still want, to just pick up where they left off on these texts and pretend the Accord never happened.

If all key countries “associated” themselves with the Accord, one theory was that this would streamline the process of merging the Accord with KP and LCA by giving it at least some level of official status. For many developed countries, it was hoped that this would lead to the dissolution of these tracks and the use of the Accord as the new basis for negotiating a comprehensive global agreement. The fundamental developed-developing distinction of Kyoto would fall by the wayside, and the new starting point could eventually lead to the only kind of agreement the United States might be able to ratify. This is why some international policy wonks in the United States were so excited about Copenhagen.

However, one assumption implicit in this was that submission of targets or actions would necessarily go hand-in-hand with association, and vice versa. If a country wanted to “associate” itself with the Accord, it would entail accepting the Accord’s obligations, including the submission of a target. If a country submitted a target that would also imply acceptance of the Accord’s obligations and indicate that a country wished to be “associated” with the Accord going forward. In turn, it was thought that a country could not “associate” itself with the Accord without acknowledging it had some kind of official status.

As expected, by Monday nearly all developed countries, including the United States, will have both submitted their target and expressed their willingness to be associated with the Accord. Many of these targets are on the lower end of what was conditionally proposed (Europe 20 percent instead of 30 percent below 1990 levels by 2020, Australia 5 percent below 2000 levels by 2020) and come with numerous strings attached (Japan 25 percent below 1990 levels by 2020 with a global agreement), but they are on the table and show a commitment both to the Accord’s obligations and using it as a primary focus of negotiations in 2010.

However, a recent joint statement from the BASIC countries (Brazil, China, India and South Africa) presents a more complicated situation, and reveals that the association-with-action-implies-acceptance-of-some-official-status assumption is highly suspect, if not outright false. It appears that these countries are willing to submit their actions, as pledged in the Accord, but do not view this submission as implying any “association”—at least in the sense likely envisioned by the UN secretariat and most developed countries. Even if China, India, Brazil and South Africa technically “associate”, they do not see this as creating any obligations under the UNFCCC (such as the submission of targets, which they claim to do voluntarily), and certainly not as giving the Accord legitimacy as a negotiating text. It seems that in their view, they made a political pledge in Copenhagen to submit their actions—which just happened to be included in the Accord—and they will do so in order to uphold that pledge, but they will not do so because it is an obligation created by the Accord.

While this does not mean the Accord is “dead”, it does have implications for the negotiating process in 2010. For starters, it would be a heck of a lot easier to negotiate a binding agreement in Cancun, at least one that would be preferable to the United States, if all countries formally “associated” themselves and understood that “association” to create legitimacy and obligations. The reality of the BASIC position makes Mexico’s already delicate task—massaging the two-track UNFCCC process and Copenhagen Accord process together in a way that satisfies 190+ countries—that much more difficult. As a positive sign, they appear to understand the difficulty of this task and be up to taking it on. It will require delicate diplomacy that escaped the Danes, but the fact that Mexico is a “developing” country and OECD member could give it the needed climate cred to make it happen.

Observing this dance will require tracking both any “friends of the Accord” processes that occur outside or on the sidelines of the UNFCCC (and seeing who shows up, what they say and how), and tracking how key elements of the Accord are discreetly worked into the two official tracks. If anything, it will be fascinating to watch.

Posted in Climate Change, COP | Tagged: , , | 4 Comments »

Old McDonald hates climate legislation

Posted by Danny Morris on January 13, 2010

The American farmer, long the backbone of our upstart and formerly agrarian society, is one of the proud archetypes we Yanks like to incorporate into our national identity (much like the cowboy and the Hasselhoff). The strong farmer, reserved in demeanor and stout in constitution, laboring dutifully for the good of the nation. It’s a powerful image. Know what else about farmers is powerful? Their lobbyists. How powerful you ask? Well, powerful enough that after agriculture and land use were excluded from regulation under Waxman-Markey, they got one of their favorite Congressmen (Collin Peterson, D-MN) to throw a tantrum and threaten to derail the whole bill unless he got what. In the name of the mighty farmer.

So now that farmers got what they want, that’s one less obstacle for climate legislation working through the Senate, right?

The American Farm Bureau Federation, the most powerful group in this most powerful lobby, has come out firmly against any climate bill. According to Reuters:

In a speech opening the four-day AFBF convention, Stallman said American farmers and ranchers “must aggressively respond to extremists” and “misguided, activist-driven regulation … The days of their elitist power grabs are over.”

Vast amounts of farmland could become carbon-capturing woodlands under cap-and-trade, “eliminating about 130,000 farms and ranches,” said Stallman. One federal analysis says 8 percent of crop and pasture land could be turned into trees by 2050 because trees would be more profitable than crops.

On top of that, Rep. Peterson is having second thoughts about all his hard work being difficult last Spring:

Blue Dog Democrat Collin Peterson, who played a major role securing rural lawmakers’ support for cap-and-trade climate legislation this summer, now says he would vote “no” if a similar bill returned to the House for final passage.

The Agriculture Committee chairman said he was “stuck voting” for the bill (which awaits Senate action) in June because House Speaker Nancy Pelosi granted his requests for broad agriculture concessions, but he won’t support it again if it remains unchanged.

Man, I totally hate it when I get ‘stuck’ soing something I agreed to do in exactly for just about every concession I asked for. Poor Collin Peterson, 2009 was a rough year.

As for the Farm Bureau Federation and their concern that a swarm of carbon-hungry forests are going to swoop in and conquer the Grain Belt, they might yet be saved from the onslaught of immobile carbon zombie hordes, with their sinister foliage and penetrable cellulosic skin. A new study out of the University of Gothenburg in Sweden finds that paying people to preserve forests may not be sufficient to keep them standing. According to researchers Martin Persson and Christian Azar, a price on carbon from a cap-and-trade regime will drive demand for carbon-neutral fuel sources, such as palm-oil. This will compete directly with REDD schemes designed to pay for the preservation of tropical forests. In almost all the scenarios modeled in the study, clearing forests and planting palm oil is more profitable, meaning additional incentives aside from REDD program are necessary to keep forests standing.

While the study focuses on tropical forests and palm oil, and thus is not directly applicable to the Grain Belt per se, it does suggests that the competition for land between biofuels and forest carbon offset is not  so cut and dry. Demand for biofuels from US sources has the potential to overwhelm demand for offsets, especially if cheaper international options are available. Farmers may yet be saved from being taken over by ravenous groves of fast growing trees. Thank God, because they need all the help they can get.

Posted in Agriculture, Climate Change, Legislation | 3 Comments »

Post-holiday Post-mortem

Posted by Danny Morris on January 6, 2010

If I may, I’d like to start with a holiday-appropriate metaphor. Let’s pretend that you are convinced you’re getting a pony for Christmas. You’re absolutely sure of it; the momentum built up from previous years’ Christmas presents is too strong for this year to be anything but a pony. As the year creeps closer to Christmas morning, you see warning signs that suggest you might not get your pony this year: Mom and Dad are struggling to make ends meet, the pony market is down overall, and you live in a high-rise apartment. Regardless, you keep thinking that pony is coming because it has to. This is the year of the pony.

When Christmas comes, you rush downstairs to find…no pony. All you got was a pair of socks. They’re nice socks. Thick and warm, they’re made of Smartwool, so they’ll keep your feet dry. They will be great socks to wear the day when you eventually get a pony. Your friend, who wasn’t expecting to get anything for Christmas got the same socks and is actually pretty stoked, considering he didn’t expect to get anything. It doesn’t matter to you, though, because you had your heart set on a pony and all you got was a stupid pair of socks. Worst December ever.


When people ask me how Copenhagen turned out, I tell them it depends on what you were expecting going into it. For some, expectations for the conference were huge, a-pony-for-Christmas huge. So, it shouldn’t be a surprise that many of them view the results as a dismal failure. Negotiations on text for what would have become the Copenhagen Agreement or Protocol (or whatever official sounding name for a document you prefer) did not progress well enough over the course of the year to produce a great outcome at COP15.

The U.N. tried to lower expectations in the preceding months, and after meetings in Bangkok and Barcelona, it was pretty clear Copenhagen was not going to deliver on what many were hoping for, namely legally binding emissions. The Copenhagen Accord, the result of two weeks’ worth of brain-numbing negotiations and some impressive ad hoc diplomacy by President Obama, to turned out to be something like (to stick with the metaphor) a comfortable pair of warm socks: underwhelming and perhaps disappointing to a lot of people, but still useful, probably more helpful than we realize, and something on which we can stand on the future.

What actually came out the meeting? The Copenhagen Accord, a three-page document that reiterates the International community’s commitment to reduce emissions enough to prevent a 2 degree Celsius rise in global temperatures. It asks developed and developing countries to commit to mitigation actions under the basic structure of the Kyoto Protocol (and submit them by January 31), and establishes a framework for monitoring, reporting, and verifying nations’ emissions reductions. Along with recognizing the importance of reducing emissions for deforestation and forest degradation (REDD) and market approaches to emissions reductions, it also establishes mechanisms through which developed countries can provide financial support to developing countries for adaptation purposes.

The Accord, while not officially adopted by the Conference, will help move the process forward. Before you start making hotel reservations for Mexico City in December, let’s take a look back on some the important things we saw in Copenhagen and how they might affect the process moving forward.

Do we need to scrap the COP? – If there was one thing that was pretty clear after two weeks in the snow and fog of Copenhagen, it’s that the current structure for international negotiations is very limited in what it can achieve. It would be difficult to get 193 nations to agree on something trivial like who was the best Bond (quite obviously Connery), so getting them to agree on how best stop a global catastrophe is not going to be a walk in the park. The UNFCCC structures and processes, however, make progress painfully difficult at times.

The final result of the COP is a perfect example. After weeks of arguments, stalemates, and walkouts, it took five heads of state trapped in a room together (Obama and the leaders of Brazil, China, South Africa, and India, also called BASIC) to come up with three pages of somewhat vague agreements to be solidified at a later date. Most of the plenary was happy enough to have some kind of outcome and voted to approve the politically binding (not legally) Accord. To adopt an accord, however, requires a unanimous vote of approval from the delegates. Venezuela, Bolivia, Nicaragua, Cuba, and Sudan all felt that the Accord developed by the big kids did not include their particular interests or they were not properly consulted, and at least four of them voted against the Accord. Thus, instead of adopting it, the COP took note of the Accord, meaning that it acknowledges its existence and COP members can voluntarily comply with it, but it currently has no legal authority. None of this means that the Accord is not significant, but it shows how fragile COP proceedings can be. All it takes it one cheesed-off country (or one that is scared of economic spectres) to stand between the world and a binding international climate agreement.

So, are there alternatives? Indeed there are, and they may become more attractive as nations look to move forward from Copenhagen. It’s clear that the complexities of climate change are a bit overwhelming for the UNFCCC process. Parallel conversations need to happen to more effectively address major issues and disagreements. As I said before, the Accord was written between the US and BASIC. Those nations represent over 50% of the world’s CO2 emissions. Throw the EU, Japan, and the rest of the world’s 17 largest economies and you have over 90% of emissions represented in one room that is much smaller and more manageable than the Bella Center. Dialogues between these critical nations can help break some of the loggerheads encountered in the COP discussions. There are two possible avenues through which parallel negotiations can help:

  • Bilateral and multi-lateral talks: What if the US and China went into Copenhagen with a semi-formal agreement for technology sharing and MRV? Or if the EU worked out a deal with Brazil, South Africa, and Indonesia for funding programs for REDD and adaptation that could easily be plugged into UNFCCC institutions? Major emitters working directly with each other to smooth out differences and reach understandings before entering COP negotiations may help cut down on the static and grease the skids for legally binding outcomes that robustly address major issues.
  • Major Economies Forum: About that smaller room I mentioned earlier. The MEF can play a substantial role in advancing COP discussions if it wants to. It can provide a more intimate setting in which the US and EU can talk about monitoring emissions and trade restrictions with China and India without the chaos and pressure of the COP negotiations. The MEF also does not have entrenched categories of Annex I and Non-Annex I countries that were established by the Kyoto Protocol, so the distinctions between developed (US, EU, Japan, etc.) and emerging (BASIC and others) are more flexible and can better reflect the economic realities in each nation.

These suggestions are not advocating a total dismantling or abandonment of the UNFCCC process. Instead, these negotiations can occur outside the process, but the end results can be designed so they can easily plug into on-going COP discussions. There will likely be issues regarding equity for developing countries and many of them will probably resent not being actively involved in the process. But going outside the COP may lead to significant progress on climate change and could also spur action within the COP as well. If you don’t want to take my word for it, you can listen to Rob Stavins and Joe Romm instead.

Et tu, China? – Going into Copenhagen, it looked like the US was once again going to end up looking like the bad guy. Leave it to China to beat us at our own game. Without the US to hid behind anymore, China and India to a lesser extent, stepped forward to block huge progress. For the two weeks of the COP, China stonewalled and refused to budge on its demands for the developed world. Then in the final hours, when things got real with the various heads of state, China gave the proceedings the proverbial middle finger by sending a mid-level official to talk to the leaders of the other nations. Even after Obama managed to track down Chinese Foreign Minister Wen Jiabao and get him talking, China still vetoed the inclusion of language requiring a 50% reduction in total global emissions and 80% reduction from developed countries by 2050. Following the meeting, British Climate Secretary Ed Miliband called out China for trying to hijack the conference and being an obstacle to progress.

China’s actions, while discouraging, are not entirely surprising. It had all the leverage in this situation. Unlike other countries like Brazil and, to some extent the US, there was no domestic political pressure for the Chinese to reach a deal. The Chinese know they are key to any international agreement, and they know how big a role they play in US domestic climate debates. Why should they move when they hold all the cards? It is also pretty clear that the Chinese have no desire to be an international leader on climate change. They have announced what they consider strong reductions (45% reduction in carbon intensity by 2020) and they have been going nuts on the renewable energy front, but they don’t want to commit to anything that’s going to cut into their economic growth over the next few decades. If the US and EU are looking to form some kind of coalition of the willing for climate change, they’d be better off going after Brazil, Indonesia, and other emerging economies first. Everyone else might have to be on board first before the Chinese decide to play.

The more things change, the more they stay the same – The Obama Administration came entered 2009 looking to reclaim American leadership on climate change. The US was engaged and negotiating in good faith for the first time in eight years. But, ever the realist, Obama wouldn’t sign anything that has no chance of passing the Senate. Consequently, US negotiators would not commit to anything that was not laid out in domestic legislation. What domestic legislation am I talking about? Well, uhh…

It’s pretty simple. The world can’t take effective action without the US, and the US can’t act effectively without domestic legislation. Things cannot move forward until the Senate acts. Obama cannot make “transformative and inspiring commitments” that will not pass a filibuster vote, let alone the 67 votes needed to pass an international treaty. Copenhagen may have some effect on the Senate debate in 2010, and that debate will loom very large over future COPs just as it did in Copenhagen.

REDD in the face – If you followed our on-the-ground reporting, then you know the silver lining in all the chaos and tomfoolery was the advances in REDD and protecting tropical forests. The negotiations regarding the REDD text were consistently the most promising. While a final agreement was not reached, there were some promising developments. First, the US, Australia, Japan, Norway, Britain, and France pledged $3.5 billion for REDD programs over the next three years. Second, the Accord acknowledged how important REDD is to achieving robust emissions reductions and discussions are going to continue into the future. There are still some issues to iron out, like national vs. sub-national monitoring systems, but saving the forests was one of the rare things on which almost everyone could agree. Insert tree-hugging hippie joke here.

Copenhagen was a disappointment in a lot of ways, and a disaster in some ways (I’m not going to talk about logistical problems here), but it had real outcomes that matter. It is not the solution many were hoping for, and the world is currently a long way away from keeping temperature rises from 2 degrees Celsius. But things are moving forward. Think of Copenhagen as a baby step, with a really nice wool sock.

Posted in Climate Change, COP | 3 Comments »

Compelling late night/early morning reading – 12/16/09

Posted by Danny Morris on December 17, 2009

Technically, since I published it here first, this didn’t originally appear on Weathervane, RFF’s climate policy blog, but it’s over there too.

Yesterday (Wed. the 16th) was the last day for on-the spot reporting at the Bella Center. NGO access has been severely restricted due to security concerns from potential invading protestors and the critical mass of heads of states with their extensive entourages. According to the UN Secretariat, 7000 delegates from NGOs were supposed to be allowed to enter the Bella Center yesterday. Much less than that actually got in because security cut off access to the NGOs about mid-morning, even if they had the proper documentation to get in. Today and tomorrow (Thursday and Friday), only 300 NGO delegates are allowed in. According to UN officials at a briefing this blogger attended last night, Yvo de Boer argued vigorously with Denmark security officials for more access for civil society, but ended up with only 300. Needless to say, in my humble opinion, civil society has got the shaft over the pat few days. Security concerns typically trump everything (and rightfully so), but the NGOs are a major part of these proceedings and have every right to be consistently engaged in the discussions at the COP. It’s hard to be part of the discussion, however, when you’re locked outside. On with the show…

Messy (I) -  Last night, talks hit another major snag, or as UN climate guru Yvo de Boer called it, “an unexpected stop.” Delegates apparently needed more time to discuss the basis of further talks, which is in theory what they have been doing the past two weeks. de Boer remained optimistic, but underlined that the next 24 hours are absolutely critical.

Messy (II) – Connie Hedegaard, Denmark’s Environmental Minister, resigned as president of the Conference yesterday morning, handing the keys to Prime Minister Lars Rasmussen. There are two ways to look at this development. One is Hedegaard was simply following protocol, which says that when heads of state arrive at the conference, it should be led by a head of state. The second is that Hedegaard’s resignation signals how much trouble the COP is in, especially with rumors about her unhappiness with the negotiating language Denmark is developing. Hedegaard remains in the thick of talks and will be there until the end.

Messy (III) – If you think the negotiators are happy, you should see some of the other folks around here. More protestors were arrested as they tried to storm the Bella Center, resulting in violent clashes with police. Inside the Center, indigenous peoples demanded more rights and larger voices with a march through the halls. Some demonstrators were removed. On top of all that, 60 members of NGOs held a sit-in at the entrance gates to protest their exclusion from the proceedings. There are not a lot of happy people in Copenhagen right now.

One bright spot – If you’re looking for some good news, or you like forests, you’re in luck. Some major developed countries, including the US, pledged serious money to help protect international forests from deforestation. US Department of Agriculture Secretary Tom Vilsack pledged $1 billion in support over the next three years. Combined with commitments from Japan, France, Norway, Australia and Britain, $3.5 billion will go into rainforest preservation over the next three years. Once again, forests are the thing on which people can agree.

Posted in Climate Change, COP, Uncategorized | Leave a Comment »


Posted by Danny Morris on December 15, 2009

This post originally appeared on Weathervane, RFF’s climate policy blog.

COPENHAGEN — If there is one topic at the COP that gets people excited, it is the issue of international forests. Many people I’ve talked to, from delegate members of developing countries to negotiators for major corporations, see a lot of potential for REDD (reducing emissions from deforestation and forest degradation) to have a major impact on the negotiations. For those not in the know, REDD programs basically would pay people to keep the carbon currently locked up in the trees and soil of forests.  Truth be told, if had I to make everyone at this event decide on something slightly more scandalous than the statement “chocolate is tasty,” it would be “REDD is a vital part of any climate agreement.”

With that in mind, the RFF team has been scouring many of the REDD-related meetings over the past couple days. Though the side events and presentations have been varied, a couple of consistent themes have cropped up:

  • Stakeholders – working with people who are on the ground, especially indigenous groups who can benefit from REDD schemes (paying people to protect their forested land), is a critical component of a successful project. The indigenous people here at the COP are very skeptical about the ability of REDD to improve their lives or protect their lands. This was especially evident in one side event that focused on the social and environmental standards necessary for REDD projects hosted by Nepal. After a series of presentations about how best to involve people living in forests and the importance of their rights, a number of indigenous representative stood up and lamented how no one appreciates their rights and they are not being involved. Ensuring indigenous rights (and convincing them they are a part of the process) will be key for any tropical forest carbon program.
  • Equity – similar to the stakeholder issues, equity among all involved parties in REDD programs is something people here are hammering home. People receiving payments need to be treated fairly for them to maintain standing forests.
  • National strategies – Coordinated national strategies are important, but no one knows quite how to do them yet. The solution, reiterated in multiple events, is to take lessons learned from small-scale projects and eventually upgrade them to the national scale. While it’s not a perfect strategy, options are currently limited.
  • Upfront investment – REDD is not a slow-boil proposition, something you can just sit back and let develop slowly. Without robust investment in critical components (capacity building, monitoring, etc) from the beginning, REDD programs will likely fail. National governments are the only entities with the resources to fully deploy everything necessary to make REDD succeed.

Forestry issues are one of the least contentious issues being negotiated here, but there are still a lot of important considerations and problems to be solved. Don’t count on them being solved in the next ten days.

Posted in Climate Change, COP, Uncategorized | Leave a Comment »

Compelling late night reading – Dec. 15

Posted by Danny Morris on December 15, 2009

This post originally appeared on Weathervane, RFF’s climate policy blog.

COPENHAGEN — Things started to heat up both inside and outside the Bella Center yesterday as negotiators prepared for the arrival of environmental ministers.

Interior protests – The African countries were true to their word yesterday when they led a boycott of the negotiations and were supposed by all 135 developing countries, including China and India. Their major concern was that the industrialized countries were conspiring to kill the Kyoto Protocol, which the developing countries value due to its many beneficial programs, such as the Clean Development Mechanism. By the end of the end, however, negotiations were back on as the developing countries receive enough assurances that Kyoto would be killed to come back to the table.

Get it together – There were multiple calls for negotiators to get their work done ahead of the arrival of senior government officials and heads of state. UN Secretary-General Ban Ki-moon asked nations to stop blaming each other and get something done before various heads of state reach the conference. India was more specific, saying that ministers and heads of state can’t negotiate, so something has to be done by Tuesday night. The clock is ticking.

Exterior protests – Protestors continue to swarm Copenhagen, and last night they confronted police with molotov cocktails in the Freetown Christiania area, just north of the COP meeting in the Bella Center. After street barricades were lit on fire and tear gas was used to disperse crowds, nearly 200 protestors were arrested, though most were released by early this morning.

SUPER SPECIAL MID-DAY 12/15 UPDATE: You knew it would come to this – The Chinese are accusing the developed world, namely the United States, of not taking responsibility for historical emissions and stalling on a climate deal. The U.S. and China are at loggerheads about an agreement for monitoring, reporting and verification of emissions reduction, something the U.S. views as critical. With time growing shorter, it remains to be seen what a potential deal will look like …

Posted in Climate Change, COP, Uncategorized | 1 Comment »

Forests and Climate? Just Google It

Posted by Danny Morris on December 15, 2009

This post originally appeared on Weathervane, RFF’s climate policy blog.

COPENHAGEN — Yesterday at the COP, Google was in the air (if you’re wondering, Google in the air smells faintly like mint). First, Copenhagen managed to conquer the most frequently search term list. Tiger Woods is no longer no.1, on the Internet or in our hearts. Second, Google threw delightful side events where they unveiled a new tool that could be a game changer for monitoring the world’s forests and could put Google on the map in the climate change philanthropy world.

Since its inception in 2004, has been using 1 percent of Google’s total revenues to address issues like global health, but it has concentrated mainly on investing in products to reduce energy usage and commercialize electric vehicles, all the while challenging the world to create renewable energy that costs less than coal.

These seeds have yet to blossom, because as powerful as Google is, its engineers haven’t yet figured out how to completely redesign the world’s energy systems. Google is not an energy company, it is an information company. If they are incredibly innovative in the information business, it stands to reason they might have a better chance of being innovative in information philanthropy than in other things.

But yesterday Google finally accepted what we knew all along: that they’re not an engineering firm, an automaker, a public health center, or a policymaker. They’re facilitators. The business model for the profitable arm of Google is based on a superior ability to facilitate the transfer of information. They’re finally applying this skill set to climate change in the form of a new forest monitoring tool. Utilizing the amazing capability of the “Google cloud,” scientists can use an online platform to take satellite imagery data compiled over time and use it to track changes in forests. This tool is a major step forward in identifying areas of deforestation and reforestation, and may help solve some of the current problems with forest monitoring and measurement. A full rundown of the tool is here. See what happens when Google tries to do something it’s good at?

Thanks to Virginia Kromm for her insights into the inner workings of Google.

Posted in Climate Change, COP, Uncategorized | Leave a Comment »

Compelling late night reading – 12/09/09

Posted by Danny Morris on December 10, 2009

This post originally appeared on Weathervane, RFF’s climate policy blog.

COPENHAGEN — A late batch of links is better than none at all. Here is a collection of some of the compelling stories from Dec. 09 in Copenhagen.

Tuvalu takes a stand – The developing countries are starting to squabble among themselves and their row helped bring negotiations to halt yesterday. Tuvalu, a small island nation in the Pacific, called for a new legally-binding protocol to complement an amended version of the Kyoto Protocol. The Association of Small Island States (AOSIS) and other developing nations supported the plan, but some major developing nations, including China and India balked at the idea. After some contentious back and forth, Tuvalu asked for the negotiations to be suspended until a solution could be reached. It got what it wanted, setting up another tense day of work to follow.

Paying for forests can pay dividends – A new report released by the Center for International Forestry Research (CIFOR) sees forests a winning issue for the Copenhagen negotiations. Implementing financial schemes to pay countries for reducing their emissions from deforestation and forest degradation (REDD). Harnessing benefits from REDD will require in-country reforms, including governance, land use tenure, and monitoring. While many project have not succeeded in the past, the report says financial backing for REDD could provide the political will to implement it.

The big kids are getting feisty – Head U.S. Negotiator Todd Stern said he doesn’t think China needs help cutting its emissions, and it certainly doesn’t need U.S. taxpayer money. As soon as he arrived in Copenhagen yesterday, he called for China to increase its emissions reductions. Funny thing that, because China said the same thing earlier in the week. The world’s two biggest emitters will continue to trade blows as the negotiations progress.

Posted in Climate Change, COP, Uncategorized | Leave a Comment »

Endangerment is my middle name

Posted by Danny Morris on December 9, 2009

This post originally appeared on Weathervane, RFF’s climate policy blog.

COPENHAGEN — If the old adage I just made up, “A party without someone from the Environmental Protection Agency is not a party,” is true, then Copenhagen officially became a party today. The cavalcade of Obama administration officials kicked off today when EPA Administrator Lisa Jackson delivered a ‘this is where we stand’ speech in the U.S. Center at the COP meeting. Jackson summarized many of the important actions the administration has taken since the beginning of 2009, highlighting:

  • $80 billion from the stimulus package spent on renewable energy and smart grid projects
  • EPA’s Energy Star program for household appliances
  • CAFE standards of 35.5 mpg starting in 2016
  • A new national greenhouse gas registry for large emitters, covering 85 percent of U.S. emissions
  • An executive order from the president requiring all government agencies to adopt emissions reduction standards by 2020, improve their energy efficiency, and reduce fuel use.

Now, that’s all well and good, but there was another issue in which people were keenly interested. That would be the announcement Monday that the EPA finds greenhouse gases are a threat to the public health and can be regulated by the Clean Air Act. Jackson said the announcement was the latest in a chain of events set of by the Supreme Court ruling on Massachusetts vs. EPA, which gave the agency the authority to regulate CO2 and other GHGs as pollutants. By finalizing the ‘endangerment’ finding, she asserted that Clean Air Act allows EPA to take reasonable and common sense steps to reduce pollutants (emphasis hers).

All in all, not much ground-breaking news in this speech, which is essentially what one would expect from someone trying not to rock the boat before the boss shows up. She avoided speaking about the negotiations whenever possible, and repeated that actions under the CAA will be reasonable and common sense.

One interesting, slightly off-script response occurred when she was asked about Exxon’s criticisms of CAA regulation. Jackson said that you can’t call the CAA not transparent and that it can provide the clear signal businesses are hoping legislation will give in the form of a price on CO2. One could call her comment not transparent, as it was unclear whether she meant the CAA sends businesses a clear signal with a price signal or it just sends a clear signal to businesses that they will be regulated. But, as Jackson mentioned in a later question, the EPA tends to think in terms of who is going to sue them and why, so the answers will come regardless eventually.

Posted in Climate Change, COP, Regulation | 1 Comment »

Risky Business

Posted by Danny Morris on December 9, 2009

This post originally appeared on Weathervane, RFF’s climate policy blog.

If you’re looking for an industry that is on the cutting edge of assessing the effects of climate change and forming appropriate responses, look no further than the insurance industry. At a small side event sponsored by Climate Consortium Denmark, experts from major European insurance companies came together to call for a larger role for governments in the industry through public-private partnerships. The insurance industry has been dealing with nasty weather as long as it has been around, but the steroid injection of climate change into weather systems creates a whole new ballgame.

With those future risks in mind, Richard Ward, CEO of Lloyd’s, asked policymakers here at Copenhagen to help level the playing field amongst companies by strongly regulating the entire industry. While it’s not often you hear the CEO of a major corporation asking for stout government regulation, Ward emphasized the need for more clarity for future planning and investment. He also called for the formation of national adaptation plans, especially in developing countries, to provide the industry insights that can help move capital into new or burgeoning markets.

His calls were echoed by Patrick Liedtke of the Geneva Association, an international industry think tank, who said that the industry wants stronger partnerships with governments. He pointed to the Kyoto Statement, in which 56 insurance companies state their great concern about extreme climate change, as an example of the commitment of the industry to addressing climate change.

Two major issues popped up throughout the presentations that highlight the unique tension the industry faces. First was the role of insurance in the developing world. Insurance companies can encourage both mitigation and adaptation through investments in renewable and sustainable technologies and offering products that encourage adaptive measures and better building codes. Unfortunately, it can be difficult for companies to establish themselves in developing countries. Insurance is a luxury good, and poor farmers are more likely to spend money on extra livestock or seeds than on floor insurance. Consumers need much more education before they will try to access insurance markets. Moreover, many of these markets are still primitive and require government action to get firmly established. And while insurance companies can manage risk, they can’t reduce it alone, further showing the need for private-public partnerships.

Second is the issue of data. Both Ward and Liedtke emphasized the importance of robust data and the need for more data collection and data sharing from national governments. Better information will inform the risk assessments that are critical to the insurance industry and this need for better data has driven the industry to be on the forefront of climate assessments for years. “Good risk management needs good risk data,” according to Ward and he made a strong plea for governments to make more data freely and publicly available.

Data sharing is a two-way street however, and one (like me) could argue that the insurance industry needs to be more transparent with its risk assessments and make its data more accessible to the public. Prices that reflect true risks are the best way to make them clear to consumers, but there are other means to achieving clarity as well, including data and information sharing.

At the end of the day, it’s still the price tag that drives behavior, especially in insurance markets. Profit drivers are still an essential part of the system, so there is a limit to how much coverage can exist, especially in areas highly exposure to climate change risks. As national governments continue to devise ways to grapple with the effects of climate change, they may need to provide the insurance industry with a little more assurance that they won’t leave it over-exposed.

Posted in Climate Change, COP, Insurance | 2 Comments »

Compelling late night reading – 12.08.09

Posted by Danny Morris on December 8, 2009

Here’s a collection of stories that have bubbled up during Day 2 of the COP in Copenhagen that you really want to read if only you can find the time…

Danes crashing their own party? – Draft compromise text developed by Danish negotiators was leaked to news outlets today and has angered many developing nations. Among their complaints: the secrecy under which the text was generated, a new definition of ‘least developed countries,’ and a transfer of authority away from the UN to the World Bank – something the developing nations see as an indirect transfer of power to the industrialized world. Despite it being December, things are heating up in Copenhagen.

Great minds think alike? – Despite the well advertised differences amongst various nations, at least one survey finds that negotiators are not all that different in their thinking. In a new working paper from the Center for Global Development, authors Nancy Birdsall and Jan von der Goltz share their results from a survey of 500 international development professionals in 88 countries. According to the authors, most respondents see eye to eye on the differentiated responsibilities of developed and developing countries, support strict monitoring, and want to limit the use of trade measures for enforcement. It seems, though, the devil is in the details…

Shoot for the Ki-Moon, land in the stars – Optimism is not a scarce resource here at the beginning of the COP. Everybody seems to have a little bit, and if you’re missing some, UN Chief Ban Ki-Moon has some extra. Speaking to reporters today, Ban cheered what he called ‘unprecedented momentum for a deal,’ and predicted an eventual agreement to go into effect immediately.

Posted in Climate Change, COP, International | Leave a Comment »

Apparently, e-mails can’t change physical reality

Posted by Danny Morris on December 8, 2009

This post originally appeared on Weathervane, RFF’s climate policy blog.

COPENHAGEN — While Climategate has been taking some of the wind out of the already luffing sails of the build up to Copenhagen (at least in the U.S. and Britain), scientists at the conference claim the science remains airtight. In a side event meant to highlight the findings of the Fourth Assessment Report conducted by the Intergovernmental Panel on Climate Change, Chairman Rajendra Pachauri said the only thing that deserves serious attention in relation to this issue is finding who is responsible for the hacking of files from the University of East Anglia. He also reinforced the robustness of IPCC standards and procedures, mentioning that the IPCC will conduct reviews to ensure this remains the case in light of the controversy.

In response to questions from the press, Pachauri emphasized there is no question about the science in the AR4, noting that governments must sign off on the findings of the IPCC before they are released. As much as members of the American and British press continue to harp on the scandal, Pachauri continues to stand by the work of the IPCC. The issue is certainly an attention-getter, as the room is overflowing with observers. Whether Pachauri’s confidence will do anything to quell the naysayers, my guess would be probably not.

Posted in Climate Change, COP, International | Leave a Comment »

COPping a feel

Posted by Danny Morris on December 8, 2009

Sometimes, even suckers get lucky. As a result, I’m currently stationed in Copenhagen for the next two weeks. I will be regularly blogging events as they transpire for RFF’s climate blog Weathervane, which I will also post here. In addition, I will take full advantage of the lack of stylistic restrictions Common Tragedies provides to give some insight into some of the less professional aspect of international climate meetings. As you can tell by the title, I’m already expanding my horizons (as they relate to obvious and puerile humor). Stay tuned for more throughout the week.

COPENHAGEN — The first few days of the negotiations here in Copenhagen probably will not result in any big statements or major developments. It’s mostly a time for countries to remind everyone where they stand and try to see who may be willing to give a little bit. As you might have guessed, things stared off with countries saying exactly what you would expect them to. The Least Developed Countries stressed the need for financing mechanisms for mitigation and adaptation efforts, capacity building for those efforts, and immediate financing for current impacts. The African countries made similar statements, reminding the world that it is experiencing climate change impacts already and does not have the capacity to respond effectively. The Alliance of Small Island States (AOSIS) advocated strong action now (like right now), because it quite obviously has the most to lose from inaction. The Umbrella Group, which included the United States, Australia, Japan, and other major developed economies hinted that monitoring, reporting, and verification (MRV) is going to be a important issue for moving forward.

There have been some interesting developments in the past 24 hours. Saudi Arabia, which feels that its economy will suffer major losses due to climate change, proposed an independent, international investigation into “Climategate.” When asked about the investigation proposal, IPCC Chairman Rajendra Pachuari said (with just a hint of cheekiness), “I would be worried if they didn’t ask for an investigation,” later adding “Oil and politics mix very well, I’m not sure that politics and science mix so well.”

In another development that could have broader implications for the next two weeks, Bangladesh has asked for 15 percent of any agreed-to climate fund. Bangladesh is one of the most obvious poster children to the nasty effects of climate change, and feels like it deserves justice in the form of major international funding. It’s unclear how this pronouncement will affect the dynamics among developing countries, but it will no doubt play a prominent role in the financing discussions moving forward.

Posted in Climate Change, Government Policy, International | 1 Comment »

Mad Max: Beyond Carbondome

Posted by Danny Morris on August 2, 2009

Things are moving slowly on the climate legislation front these days. While there were a couple Senate hearings this week and maybe a couple more scheduled for next week, climate has taken a back seat to health care and likely won’t be a major talking point until mid-September. Though eventual passage of the bill looks a wee bit shaky right now, that’s not stopping other nations from being bullish on the prospects on of a U.S. carbon offset market.

Tim Flannery, one of my favorite science writers (his book the Weather Makers partially inspired me to start working on climate issues), and 2007′s Australian of the Year, recently told the Australian government that it should set up a single trading desk that can sell carbon offsets into the U.S. market. According to Mr. Flannery, Australia could buy up 10% of the 1 billion tons of international offsets available in H.R. 2454, generating a substantial amount of revenue for the land down under:

‘‘The Government could then buy a certain amount of permits from farmers for carbon soil storage … at, say, $15 a tonne and sell them on to the US at $20 through the desk,’’ Mr Flannery said. ‘‘If we could get 10 per cent of the US market at, say, $20 that would be about $2 billion a year coming into Australia and [would] help Australian farmers expand carbon storage projects.’’

Now, you could seriously debate whether or not the benefits Flannery claims are available for Australia. Assuming he’s speaking in Australian dollars, he’s predicting that Australia will be able to corner 10% of the international offset market by selling ag and forestry credits at $17US (current exchange rates have $1US = $1.19AUD).

Consider that EPA is predicting allowances will come into the market at $13 at the low end (though they certainly could come in higher). Also consider that the huge amount of offsets in H.R. 2454 were put in their as a cost containment mechanism, meaning they will assuredly be less expensive than allowances. Lastly, while they may not be available right away, forest offsets from developing countries are going to take up a massive chunk of the international offset market and they are likely going to be much cheaper than $17. Paying for a plot of rainforest in Bolivia is probably going to be much cheaper and better PR than paying a farmer in the Murray-Darling basin to rotate his crops differently.

Aside from the economic reality, Flannery offers a compelling institutional vision for the future of the carbon market. Presuming some vaguely similar version of H.R. 2454 passes the Senate, the international carbon market is going to blow up. That rapid growth will require a lot of quality control throughout the product chain. Establishing government agencies that are wholly responsible for managing the entry and sale of offsets in the market could help provide a level of security. Of course, it could be subject to corruption in less-stable countries (like the Democratic Republic of Congo, for example). Additionally, such an institution would limit the amount of over-the-counter (OTC) sales, which is where the offset buyer makes the purchase directly from the seller. OTC transactions dominate the voluntary market currently, and limiting them will have major implications for the functionality of the international carbon market.

The suggestion of a single carbon desk is not unlike one recently made by RFF scholars Ray Kopp, Nigel Purvis, and our own Andrew Stevenson. In the paper, they argue for the formation of an International Forest Conservation Corporation, which would be primarily responsible for working with countries to prepare them to enter the carbon market and monitoring the volatility of the market. With such an entity in place, it could encourage other nations to follow Australia’s lead and establish their own carbon-specific trading agencies.

It will be interesting to see if Flannery’s proposal gains any traction with Kevin Rudd‘s government. In the meantime, I sincerely hope that carbon trading with Australians is more civilized than oil trading with Australians:

(A little forced maybe, but I gotta take my Mad Max references where I can get them.)

Posted in Climate Change, Commodities Markets, Offsets | 2 Comments »

Solving one type of knowledge problem

Posted by Danny Morris on July 28, 2009

Have you ever found yourself wandering through midtown Manhattan, thinking “I wonder how many tons of CO2 humanity has cumulatively released into the atmosphere”? Well, you’re lucky that Deutsche Bank had you in mind when they designed their new billboard:

Now you know. And I have no doubt this counter will have as much of a lasting impact on the national conscious as the National Debt counter.

H/T: G2 Weather Intelligence

Posted in Climate Change | 8 Comments »

Allocation Mechanisms – The Details Really Matter

Posted by jab12004 on July 22, 2009

A few days ago I received an e-mail from a reader asking about allowance distribution mechanisms in Waxman-Markey.  As I wrote a response, I thought it would make more sense to make a post out of it.

As it stands in Waxman-Markey, allowances will be distributed to LDCs based on a 50/50 split of their emissions and deliveries.  This is often overlooked, but it is important as to where in the country allowance value is allocated, and ultimately how prices will change.  Below i’ve listed three allocation mechanisms, their benefits and some of the problems.  Keep in mind that a “benefit” in this discussion has to do with receiving more allowances ($) and hence has to do with more consumption/emissions (which we usually consider bad).

Consumption based – This metric benefits those who consume a lot of electricity, and are really inefficient at doing so. This is bad for states like California who have invested a lot in demand side energy efficiency.  Consumption weighting also benefits those regions that already generate a lot of electricity from low carbon sources.  If you could imagine a region that only generated electricity from zero carbon sources, they would get a whole lot of free permits, and they could turn around and sell them for pure profits.  Some might argue this is unfair, but personally I think this can almost be seen as a reward for states which have spent the money to make low carbon generation investments.

Emission based – This metric is great for those states who haven’t invested money in low carbon sources of power.  Think the Midwest and the Southeast.  Some might argue that these are the states that need the most help, and that climate policy is going to hurt them the most in percentage terms.  While I think that it is important to protect coal states, it is also important to acknowledge the expensive investments some states have made in low carbon generation.

Population based – This is not a part of Waxman-Markey, but I think it deserves a bit of discussion.  This clearly would benefit those states with a high population.  In some ways, this is the fairest system since one might assume that more energy is consumed in higher population areas.  It does, however, disadvantage low population states that emit a lot of carbon.  For example, Wyoming [remember this?] with its high emissions per capita would receive a very small amount of allowances even though it emits a ton of carbon.

At the end of the day, which system you pick depends on what you think is important.  Personally (if you can’t tell already), I think it makes sense to reward those states that have already invested in lower carbon sources of power.  These states typically face much higher electricity prices than the rest of the country.  My personal feelings aside, there is an equally valid argument that the regions with lower electricity prices (and more emissions) also tend to have a lower cost of living.  Large increases in electricity prices in these areas will constitute a larger burden as a percentage of income.

In the end, it is probably a political compromise which decided the 50/50 split, so there isn’t much we can do about it.  It is just interesting that while a lot of the debate surrounds percent allocations, much less discussion has foused on the mechanism behind the allocation.

Posted in Climate Change, Uncategorized | 3 Comments »

Senate Debate vs. House Debate

Posted by Danny Morris on July 9, 2009

The beauty of writing for two blogs is you get to post the same thing twice and you get double the credit for it, or something like that. This post originally appeared on Weathervane, RFF’s fancy and informative climate blog:

How will the Senate Climate Debate Differ from the House Debate?

By Daniel F. Morris

The climate debate kicked off in the Senate this week with the Obama administration encouraging senators to pass legislation comparable to H.R. 2454, the mammoth bill that passed by a vote of 219-212 last month. In testimony given to the Environment and Public Works Committee, Energy Secretary Steven Chu, Agriculture Secretary Tom Vilsack, Interior Secretary Ken Salazar, and EPA Administrator Lisa Jackson all urged the Senate not to slow the momentum behind the passage of the House bill.

The formation of the Senate bill and the debate surrounding it will be significantly different from the experience in the House. First, a huge component of the Senate strategy will involve wrangling 60 votes to block a potential filibuster, which will probably require more compromises to accommodate Midwestern Democrats who currently feel compelled to oppose the bill. Concessions may involve the stringency of the cap in the early years of a cap-and-trade market (14% reduction of 2005 emissions by 2020 instead of 17%), allowance allocations given away to energy-sensitive industries, especially coal, oil, and manufacturing, and the role of nuclear power in the nation’s future energy portfolio.

Second, the bill will receive much more scrutiny at the committee level than the House bill received. H.R. 2454 was fully marked up only by the Energy and Commerce Committee. Input from other committees, like Ways and Means and Agriculture, were included in a manager’s amendment inserted during floor debate. In contrast, the lead for drawing up the Senate bill will be Sen. Barbara Boxer (D-CA) in the Environment and Public Works Committee, but the legislation will ultimately include pieces constructed by at least five other committees, including, Agriculture, Commerce, Energy and Natural Resources, Finance, and Foreign Relations. Senate Majority Leader Harry Reid (D-NV) has tentatively slated a deadline for the bill to clear the committees of Sept. 28, so September will be a hectic month. Boxer is indicating she wants to wait until after the August recess to take up any climate bill.

Aside from dynamics distinct to the Senate, there are a number of specific issues that may develop disparately from the House debate. Some of the prominent topics are:

  • Price collar: H.R. 2454 established a minimum carbon price (or price floor) of $10, but did not include a matching maximum price. The strategic reserve auction mechanism (Sec. 726) protects much more against extreme price volatility than consistently high allowance prices. In the interest of protecting regulated industries and reducing overall costs of the entire program, the Senate will likely take a much closer look at employing a price collar that sets both a minimum and maximum price for emissions allowances. Previous studies conducted by RFF scholars, one by Dallas Burtraw and Karen Palmer and another by Harrison Fell and Richard Morgenstern show that use of a price collar can reduce the total costs of implementing a cap-and-trade system.
  • Competitiveness: President Obama expressed some dismay about the last-minute addition of protectionist language (Sec. 3) included in H.R. 2454 targeting imports from emerging economies that do not take on similar emissions reductions. Language in the bill explicitly names China and India as countries that deserve scrutiny. Those concerned that such language will lead to conflict in future climate negotiations with the two countries see the Senate as the place to scrub the inflammatory verbiage. Foreign Relations Chairman John Kerry (D-MA) has already stated that he and others in the committee intend to make changes in the hopes of avoiding retaliatory measures from India and China. Midwest Senators Carl Levin (D-MI) and Sherrod Brown (D-OH), however, have expressed support for the provisions and disagree with the President’s assessment. The matter will no doubt receive considerable attention from both the Foreign Relations and Finance committees.
  • Market Regulation: Both chambers want to see stringent regulations for the potentially huge carbon trading markets to come out of cap-and-trade measures. H.R. 2454 split responsibility for oversight between the Commodity Future Trading Commission and the Federal Energy Regulatory Commission. Sen. Dianne Feinstein’s (D-CA) experience with FERC during California’s deregulation woes of the early part of the decade have led to her strong distrust of the agency, and she has introduced a bill giving CFTC full authority for regulating carbon markets. This debate may continue to evolve as the Senate bill begins to take shape.
  • Agriculture: In the House debate, powerful agriculture concerns found voice in Rep. Collin Peterson (D-MN), who had a major influence over the final version of the bill, including a provision that give authority to the Dept. of Agriculture to determine what constitutes domestic forestry and agriculture offsets. Many farm groups lined up against the House bill after its passage and their influence could spell doom for Senate passage. Agriculture Committee Chairman Tom Harkin (D-IA) has already expressed his dissatisfaction with the House bill and intends to protect agriculture and farmers. Expect agriculture to play an even bigger role in the Senate debate.

Undoubtedly, other issues will surface over the summer as committees begin drafting separate pieces. The Senate has somewhat of a head start in that a major energy provision has already been shepherded through committee by Energy and Natural Resources Chairman Jeff Bingaman (D-NM).

The path to President Obama signing climate and energy legislation is far from clear, however. The Senate bill must navigate skeptical and apprehensive Midwest Senators, substantial efforts from environmental groups to strengthen it, and ardent opposition from many in the Republican minority. Even though the Fourth of July was last weekend, it appears that we can look forward to plenty of fireworks for the rest of the summer.

Posted in Cap and Trade, Climate Change, Legislation, Political Economy | 4 Comments »

Unexpected Consequences of Climate Change

Posted by jab12004 on June 30, 2009

bz ISLAND 06-22-09WB

I’ll bet CBO didn’t consider avoiding these kinds of problems when they estimated the benefits of climate change legislation.

H/T bizarro for having a great comic and blog

Posted in Climate Change, Humor | Leave a Comment »


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