Climate Bills and a Green Economy

IEA Says U.S. Must Adopt Carbon Pricing System

February 3, 2010

Reuters - The United States must adopt a carbon pricing system, like the one President Barack Obama has submitted to Congress, if it hopes to meet its U.N. commitments on greenhouse gas emissions, the International Energy Agency's head said on Wednesday.

Nobuo Tanaka, executive director of the Paris-based IEA which advises 28 industrialized nations on their energy policy, said Washington's 2020 target of cutting carbon emissions by 17 percent from 2005 levels meant it would have to adopt new legislation imposing a cost on carbon waste.

Tanaka said the U.S. Senate needed to pass an energy bill, already given initial approval by the House of Representatives, which would allow a cap-and-trade system to set limits on greenhouse gas emissions and allow companies to trade permits.

"To really achieve these (emission) targets, the U.S. certainly has to introduce carbon prices either by cap-and-trade or carbon tax," Tanaka told Reuters.

"The Senate must pass this comprehensive energy and climate bill otherwise it cannot design a cap and trade system."

Facing opposition from states with big coal reserves, Democratic senators are still working on the details of the mechanism, with the aim of presenting the bill by April.

Tanaka welcomed proposals by Obama to curb proprietary trading by U.S. banks, which he said could have short-term impact on speculation by financial institutions in commodity markets. But he sounded a note of caution.

"In the long-term or mid-term, if this prevents companies from investing in risky exploration of oil and gas, it could lead to higher oil prices," he said.

MORE TRANSPARENCY

Tanaka said greater transparency was needed to address the volatility of energy markets and added the IEA was organizing a seminar at the end of this month in Tokyo to discuss this.

"We wish to set an action agenda (in Tokyo) on our side as well as the regulatory side, because we want to see more transparency," Tanaka said.

Tanaka has said speculation played a role in driving crude oil prices to a record high of around $150 a barrel in 2008.

He welcomed initiatives by the U.S. Commodity Futures Trading Commission and Britain's Financial Services Authority toward curbing speculation in commodities markets.

"We are very happy to help them," Tanaka said. "The CFTC has suggested an interesting move toward some position limitations."

In terms of the fundamentals of global oil demand, there were both upside and downside risks, Tanaka said.

While the markets responded with concerns to risk to the global economic recovery, such as the tightening in Chinese monetary policy, he noted that fourth-quarter GDP growth figures from the United States were stronger than forecast.

Tanaka said the impetus for a recovery in oil demand this year would come from developing nations like China and India, with consumption in the 30-nation Organization for Economic Cooperation and Development -- which accounts for roughly half of global demand -- remaining flat.

Tanaka said he was "disappointed" by a U.N. summit in Copenhagen in December which failed to set new emissions targets and put off talks on a legally-binding U.N. treaty on climate change until a new conference in Mexico in November.

"Huge private sector investment is necessary, and to make it happen, Copenhagen should have set a more clear target," he said.

Obama Budget Drops Revenue Outlook for Carbon Trade

Global warming is real, is happening now and is the result of human activities. The number of Category 4 and 5 hurricanes has almost doubled in the last 30 years. Glaciers are melting faster; the polar ice caps are shrinking; trees are blooming earlier; oceans are becoming more acidic, threatening marine life; people are dying in heat waves; species are migrating, and eventually many will become extinct. Scientists predict that absent major emission reductions, climate change will worsen famine and drought in some of the poorest places in the world and wreak havoc across the globe. In the U.S., sea-level rise threatens to cause massive economic and ecological damage to our populated coastal areas. -Barack Obama, Barack Obama's Plan to Make America a Global Energy Leader, 2008

Februray 1, 2010

Reuters - The White House on Monday dropped prospects for revenue from a climate cap-and-trade system opposed by many lawmakers, but its proposed budget still called for a "market-based" policy to fight climate change.

Last year the administration forecast revenues of $646 billion for 2012-2019 from a program in which the output of greenhouse gas would be capped and polluters would be forced to buy, and could later trade, emissions permits.

"Unlike last year, we do not show an assumed amount of cap-and-trade revenue since the exact nature of the legislation remains in flux," an administration official told Reuters.

As a bill to tackle climate change was stalled in the Senate amid opposition from lawmakers from coal-and oil-producing states, the omission of the revenues shows uncertainty about how much revenue can be generated.

It also shows a wariness that revenues could be seen by some lawmakers as a tax on oil and coal companies that would raise energy prices.

"Keeping the revenues out of the budget is a political calculation to make it harder for skeptics to characterize cap-and-trade as a tax," said Michael Levy, a climate expert at the Council on Foreign Relations.

Obama pledged during his campaign to auction 100 percent of the credits in the early years of an emissions trading system, an assumption that was included in last year's budget.

But the climate bill passed by the House of Representatives would auction only 15 percent of the permits, while most of the rest would be given away at first to polluters.

In another compromise, the budget on Monday tripled loan guarantees for new nuclear power plants to $54.5 billion in a bid to win votes for the bill from Republican lawmakers.

NO CARBON TAX, FORGING AHEAD

Some have wondered whether Obama would pursue another type of climate legislation this year such as a carbon tax.

The proposed budget for the fiscal year to September 30, 2011, said the administration would push for a "market mechanism" to reduce U.S. greenhouse gas emissions by roughly 17 percent in 2020 compared to 2005 levels.

"The President doesn't support a carbon tax, so the market mechanism is cap and trade," a White House official said.

The emissions reduction targets in the budget are in line with those Obama has pledged at an international level.

"I don't think you can read anything into the budget about the administration's wavering on a commitment on a comprehensive climate bill," said Evan Ard from Evolution Markets, a carbon and energy broker based in New York.

"The idea is to set a target for reducing emissions and setting up a program that hopefully allows you to do it at low cost; it's not about generating revenue."

The budget unveiled on Monday is subject to change by Congress.

White House aides are working to advance climate legislation among lawmakers, and the budget includes the loan guarantees for new nuclear power plants as well as $545 million for capturing and burying carbon emissions from utilities to win over skeptical Republicans.

A Senate bill is still in the works, but chances of passage appear dampened by the congressional election in November as lawmakers fear being punished for supporting a measure that some say would increase energy costs.

A climate law is crucial to Obama's efforts to get international momentum behind efforts to fight global warming and craft a follow-up pact to the Kyoto Protocol. The administration last week formally embraced the Copenhagen Accord on global warming.

The budget also said the United States "will take prompt, substantial action to help vulnerable countries adapt and build resilience to the effects of climate change."

The administration is also pushing the federal Environmental Protection Agency to move toward regulating greenhouse gases in an effort to push companies to support climate legislation.

The budget includes more than $6 billion in funding for clean energy technologies, with a focus on research, development and demonstration projects, the White House said.

Factbox: Climate change spending in new Obama budget
Historic EPA Finding: Greenhouse Gases Harm Humans
Climate Exchange Plc Trading Update for 2009: Continued Growth In Futures Volume
"In the U.S., although the timing remains uncertain, work continues on bipartisan climate legislation. Regional efforts such as RGGI and the Western Climate Initiative are growing and attracting interest from market participants, and the EPA is providing additional clarity on its authorities and evaluating next steps. Each of these outcomes should provide us with growing business opportunities, and Climate Exchange is well positioned to take advantage of their tremendous potential however the U.S. legislature determines to address the issue of climate change." - Richard Sandor, Executive Chairman of Climate Exchange plc
Scenarios: Climate Change Options for Congress in 2010
The Environmental Protection Agency is threatening to regulate carbon emissions if Congress won't. Regulations could go forward as early as March. But a barrage of lawsuits is expected from opponents, which could delay action. President Barack Obama would rather have Congress act on a bill that could provide more protections for industry while also accomplishing more comprehensive pollution control. He's using the threat of EPA regulation to encourage lawmakers. Meanwhile, Republican Senator Lisa Murkowski is threatening legislation to strip EPA of the power to regulate.

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