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Luntz on Climate

by Richard T. Stuebi

Frank Luntz is an influential pollster in Republian circles. So, it’s notable when Luntz releases findings that support movement on the climate front.

That just what happened in late January, when Luntz’s firm The Word Doctors collaborated with Environmental Defense Fund to announce recent polling data that suggest that a majority of Republican voters continue to believe that human-induced climate change is a real phenomenon and want action to address it.

Some of the more interesting findings in the report “The Language of a Clean Energy Economy” include:

  • The concept of “carbon neutral” does not resonate well with the American public. “Energy efficiency” and “healthier environment” carry more weight.
  • The statement “it doesn’t matter if there is or isn’t climate change; it is still in America’s best interest to develop new sources of energy that are clean reliable, efficient and safe” is the most compelling framing of the issue.
  • National security tops every other reason to support climate action — particularly among Republican voters but also among a large segment of Democratic voters.

As Luntz summarized in his own words, “Americans want clean, safe, healthy, secure energy. That’s why Republicans and Democrats alike strongly support action to address climate change. Sure, Republicans are more concerned about the national security component and Democrats the health component, but support for action right now spans all partisan and ideological lines.”

It’s a fine and pleasant synopsis, but I’m not as sanguine as Luntz, only because energy independence is a strained rationale (not to mention probably more unattainable than major carbon emission reductions) for dealing with climate change. Why? Two reasons:

  • One, if you want to maximize domestic energy production immediately and cheaply, you’ll rush right to coal — which only exacerbates the climate concerns.
  • Two, until America’s vehicle fleet becomes electrified — a long way off — you can’t run America’s vehicle fleet on coal or any other lower-emitting form of domestically-produced electricity. For the foreseeable future, we’ll have cars and trucks running primarily on (mostly imported) oil, and producing carbon emissions to boot.

I’m not the only observer to be concerned about an unrealistic or even ill-advised pursuit of energy independence — see “Oil Independence: Realistic Goal or Unrealistic Slogan?” for a good summary of the literature, and a nuanced and balanced view of the notion of “energy independence”. This reinforces how unfortunate it is when the seemingly only basis for bipartisanship on climate policy is a principle that is very slippery at best and easily warped at worst.

Richard T. Stuebi is a founding principal of the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

An Evening With Ernest Moniz

by Richard T. Stuebi

Last week, the MIT Club of Northeast Ohio hosted a talk at the Great Lakes Science Center in Cleveland by Professor Ernest Moniz, the Director of the MIT Energy Initiative, and a member of the President’s Council of Advisors on Science and Technology.

Over the course of about an hour of spirited commentary and responses to questions, Prof. Moniz made a number of interesting points. A few highlights:

  1. Arguably the key challenge facing the energy sector is the virtual monopoly that petroleum has on the transportation sector. Producing more non-petroleum options/alternatives for transportation will be pivotal to a better future. By virtue of its considerable domestic resource and lower carbon intensity, natural gas is an attractive option — either as a transportation fuel directly (e.g., CNG), or in generating electricity to support electrified vehicles.
  2. One must never lose sight that energy is a capital-intensive commodity industry subject to “complex politics”, which in turn means that the asset base changes very slowly, and (unlike other economic sectors such as consumer products) is driven first-and-foremost by considerations of cost. Technologies exist today to address most of our challenges, but “inconveniently” they are considerably more expensive, which is not attractive to either customers or politicians.
  3. Although more study at greater detail is always helpful, climate scientists have erred in framing public debates via increasingly sophisticated analysis. Over a century ago, predictions were made about carbon dioxide levels and planetary impact that are a good first-order approximation of what is being evidenced today. Rather than being required to prove that human-induced climate change is occurring, the burden of proof should be on others to show convincingly that human-induced climate change isn’t occurring — that second- and third-order effects (such as feedback loops and consideration of other variables) are somehow dominating the first-order linkages between carbon dioxide concentrations and average planetary temperatures.
  4. The exact future impacts of climate change are unknown, but the distribution of probable planet-wide average outcomes is fairly well described. An increase of 2 degrees Celsius by 2050 — what many consider to be the point beyond which planetary impacts become much more problematic — is on the lower-end of the range of possibilities even if global per capita carbon dioxide emissions are cut by 80% from today’s levels. If status quo is maintained, there’s virtually no statistical chance of containing temperature increases to 2 degrees Celsius by 2050.
  5. From a technological standpoint, advancements in all forms of low-carbon electricity generation — nuclear, renewables, and coal with carbon sequestration — will need to be pursued intensively. In addition, because some amount of future climate change is virtually predetermined given our past history, adaptation strategies and technologies should get much more attention. Although premature to employ, and scary because of the principle of unintended consequences, serious research should at least begin on planetary engineering approaches (e.g., deliberate emissions of sulfates) to offset the effects of an increased level of carbon dioxide concentrations in the atmosphere.
  6. The recent climate negotiations at Copenhagen never had much of a chance of producing a meaningful agreement without U.S. Congressional action. Hopefully, Congress will act to pass good legislation on climate change, because the prospect of EPA regulating carbon dioxide and other greenhouse gases as pollutants under the Clean Air Act is “horrific”.

In Prof. Moniz’s view, there is significant urgency for action, and a good chance of a not-very-good outcome. But, all we can do is the best we can do, so we have to move forward in a mood of determined optimism.

Richard T. Stuebi is a founding principal of the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

Why Can’t Tom Friedman Find Cleantech?

Thomas Friedman, one of my favorite authors, had an editorial this week entitled, “America must lead in energy technology“. As with most of his recent writings and speeches, it’s targeted around the thesis of his Hot, Flat and Crowded book, which basically argues that a combination of climate change, globalization, and population growth are creating a crisis point in energy and resource use that must be dealt with by utilizing a shift of technologies to cleaner and more sustainable economic practices (some of us call that cleantech). Not a new idea, but as usual Tom Friedman articulates it well.

So for those of us who work in the trenches of cleantech, I found the language he used quite delightfully flighty.

Number one, when it comes to actually doing something about climate change, Friedman can’t seem to get beyond the idealists idea of a carbon tax.

In his article he mentions

cap-and-trade/carbon tax
tax on carbon
long term price on carbon

But not one mention of carbon trading or Kyoto, or CDM, ETS or any of the carbon trading work ($125 Billion in 2008) that makes up the vast majority of the current global response to climate change in process now.

The basic idea here is that the theoretically most efficient way to “put a price on carbon” is to tax carbon. Of course this ignores the reality on the ground that we are really, really bad at making efficient taxes, and the best real world that we absolutely have to have involved to succeed (read India and China) is even worse. So carbon tax basically means carbon trade war if you’re not careful. In the real world, a global response of cap and trade ends up being more efficient as it allows the melding of international trade schemes better, lets industry find the least cost path to comply, and also actually means compliance can be assured. And carbon tax ignores that fact that any economist worth their salt knows full well that a tax ensures some level of revenues to the taxing goverment, but does not necessarily mean you hit your abatement targets (some people just pay the tax). And didn’t we say it’s all about hitting the abatement targets? In the real world we’d actually like to do that with as LOW a carbon price as possible, as long as we hit the critical abatement levels. Unless you don’t like your current standard of living, in which case the fastest way to fight climate change is just take it out of GDP.

We as a globe entered into cap and trade and carbon trading as the best alternative that would 1) ensure we actually reduced GHG emissions enough (a tax doesn’t even pretend to do that) and 2) do it in the least cost path with the least economic collateral damage.

I heard him speak, so I’m pretty sure he knows how this works. But Friedman seems blissfully uninterested in diving down into the details on “how”, prefering to stay only in the “why” realm. Maybe because the how is actually hard. Unfortunately, when it comes to climate change action, the devil is ALL in the details of the how.

Number two, Friedman must really, really hate the term cleantech. He uses everything else he can think of.

clean power 2 mentions
clean-energy hawk 1 mention
green hawk 1 mention
E.T. 3 mentions
energy technology 3 mentions
green-tech 1 mention
clean energy 3 mention

but not a single mention of the word cleantech or clean tech. Now do a google search and see how those terms compare. It’s not like cleantech is one of the top segments of the venture capital world. And it’s not like cleantech investment isn’t anchoring billions upon billions of market and policy dollars. Oh wait, yes it is.

I guess my only request is this, Tom, please come back to the real world, and give the guys in the cleantech and carbon trading trenches their due. They’ve been working hard for years on the topics you are just now discovering. And yes, I have a vested interest. That’s because I’m actually working in the trenches.

Neal Dikeman is the founder of Cleantech Blog, and the Chairman of Cleantech.org, and Carbonflow, and a partner at Jane Capital Partners LLC.

Fight Stupidity Now!

by Richard T. Stuebi

As a big sports fan, I’ve become an enthusiastic listener of Mad Dog Radio on Sirius, enjoying the rantings and ravings of both hosts and callers alike. It’s quite an eyehole (or earhole) into an interesting segment of Americana.

Unfortunately, one disconcerting aspect about this segment is reflected by the advertisers that choose to send their messages to this audience. Advertisers include such products and services of dubious veracity as the Hollywood Cookie Diet, the California Psychic Hotline, and water vapor cigarettes.

Clearly, the demographic of the Mad Dog Radio listening audience is such that discriminating intelligence is not its hallmark characteristic.

To this apparently intellectually-challenged audience, an organization called the Institute of Policy Innovation has begun to run a 30-second soundbite called “Is the Earth Actually Cooling?”, narrated by Dr. Merrill Matthews. Dr. Matthews, whose stated credentials are in health care policy (in contrast to climatology, a more useful background for someone who’s going to opine on this topic), alleges – without substantiation, other than the offhand comment that unnamed “Russian scientists” are increasingly convinced – that the evidence is now suggesting that the earth is “on the verge of a mini-Ice Age”, rather than warming. He closes with the following cheap shot:

“ But at least all those global warming scolds may leave the rest of us alone allowing them to fly around in their private jets openly and guilt free.”

This dreck I find very annoying and insulting. By affiliation with its fellow advertisers, I put the Institute of Policy Innovation right alongside the California Psychic Hotline in terms of credibility. However, to an audience inclined to believe that psychics can provide good personal advice, no doubt Dr. Matthews’ asinine and unsupportable message is compelling to many.

This is not to say that cleantech advocates don’t also offer up their share of absurdities. As an example, I can’t tell you how fatigued I’ve become with “green job” mantras, almost implying that such jobs can be created by whim or fiat. No, they can’t: jobs (at least, good long-term non-governmental ones) are created only after economic opportunities for profit- and wealth-creation emerge. Instead of focusing on creating green jobs, the debate should be about creating a healthy market environment within which employers can/will hire people to pursue those economic opportunities.

I don’t know about you, but for me, I want people in key positions affecting my life – such as my doctors, for example – to be both smart and educated in their disciplines. Why don’t more of us insist that those who are debating our political and social futures, on key issues such as climate change and the future green economy, also be among the most intelligent and well-informed?

More of us need to take a stand: fight stupidity now!

Our future increasingly depends on wise choices in a complex world. We cannot abide those who pollute airwaves with misleading or erroneous statements on critical civic topics — especially to listeners whose judgment on matters more important than sports is probably not highly refined, but who nevertheless vote and otherwise make their voices heard in the political arena.

As the Fellow for Energy and Environmental Advancement at the Cleveland Foundation, Richard T. Stuebi is on loan to NorTech as a founding Principal in its advanced energy initiative. He is also a Managing Director at Early Stage Partners, and is the founder of NextWave Energy.

Money Walks, Fossil Fuel Talks

by Richard T. Stuebi

as posted to Huffington Post
Earlier in September, a group of investors from around the world with over $13 trillion under management issued a statement calling on governments to agree at the United Nations Climate Change Conference in Copenhagen this December to require greenhouse gas emission reductions of 25-40% below 1990 levels by 2020.
$13 trillion. That’s a lot of money. It’s the kind of money that makes decision-makers sit up and take note.

This money is telling world leaders that maintaining the status quo — of essentially doing nothing substantive to mitigate the prospects for human-induced climate change — will be expensive and risky relative to undertaking prudent and prompt action to reduce greenhouse gas emissions.

Since investors are the engine of the global economy, without which productive growth cannot occur, you’d think that industries seeking to be major players in world markets for decades to come would want to be arm-in-arm with the big sources of capital.
In few industries is access to capital as critical as the conventional energy industry. It takes billions of dollars to make a major oil discovery or build a new baseload powerplant. Energy requires massive amounts of capital, no two ways about it. And, in a world where energy demand growth has resumed and is likely to continue unabated to satisfy the increasing appetites of China, India and other developing economies, many trillions of dollars will need to be obtained by energy industry players from the world’s capital markets in the decades to come.
Yet, many of the main purveyors of fossil fuels — the bedrock of the energy sector — are fundamentally at odds with the growing ranks of investors clamoring for global government action on climate change.

For instance, here in the U.S., an “astroturf” (i.e., false grassroots) organization called Energy Citizens, backed (according to this recent article in The Economist) by the American Petroleum Institute and other oil/gas interests, is sponsoring rallies around the country denouncing the American Clean Energy and Security Act that passed the House a few months ago — a bill that would lead to substantially less emission reductions than the aforementioned investors wants to see.

Now, it must be said that the fossil fuel industry — oil, gas and coal — represents one of the strongest aggregations of political muscle on the planet. And, although maybe not as much as the financial centers of the planet, the energy companies have plenty of financial resources to throw at an opposing “call to inaction”. After all, consumers worldwide spend roughly $5 trillion per year on energy, putting lots of dough in the coffers of the energy suppliers.
So, over the coming months running up to Copenhagen, it will be interesting to see which side can amass more force: finance or fossil fuels.

In the U.S., it is doubtful that any climate change bill will become law this year, with Congress being mired in the ongoing health care debate. Without a U.S. climate bill passed in Congress, representatives in Copenhagen will be challenged to achieve anything meaningful. Thus, the fossil fuel folks may well win this round of the battle.

But the energy companies must remember that they will need to go to the capital markets, hat-in-hand, many times in the coming decades if they want continued successful growth. And, investors are going to be less and less willing to fund management teams for business growth if the same management teams are stifling progress on something that represents a bigger wealth-destroying factor for their overall portfolios.

Energy companies like to say that they fuel the economy. That may be true, but capital fuels the economy at least as much — and fuels the energy companies to boot.
In the long-run, I’d put my bets on the money managers making change happen, than on the energy industry preventing change from happening. Because when money walks away from them, all that fossil fuel interests will have are declining resource extraction businesses starving for capital. All they will have left, is talk. And talk is cheap.

As the Fellow for Energy and Environmental Advancement at the Cleveland Foundation, Richard T. Stuebi is on loan to NorTech as a founding Principal in its advanced energy initiative. He is also a Managing Director at Early Stage Partners, and is the founder of NextWave Energy.

A Tale of Two Cities

by Richard T. Stuebi

as posted to Huffington Post

It is the best of times; it is the worst of times. The climate isn’t changing; we must move to a sustainable way of life.

Earlier in August, a meeting called “Debunking Climate Change Myths” was held in Springfield, Missouri, bringing together about 150 figures and sympathizers of the climate skeptic community. The meeting was organized by Ron Boyer, a member of the Missouri Air Conservation Commission who also founded a group called Scientists for Truth. I didn’t attend their meeting, so I don’t know firsthand what this event was aiming to accomplish, but here is a breathless report on how the meeting transpired.

Apparently, Mr. Boyer convened the meeting because he wanted to increase the public platform for climate skeptics to tell their story, which essentially boils down to this:

“We can’t be sure that human-induced climate change is really happening, so therefore we shouldn’t bend over backwards to do anything different until we’re absolutely sure that human-induced climate change is really happening. And, in fact, we’re absolutely sure that human-induced climate change is NOT really happening.”

Put another way, the story being told in these self-referential (and self-reverential) circles is effectively:

“We like the way things are, thank you very much, and we don’t want to change the way we produce or use energy. We’re very pleased to be spewing lots of carbon dioxide in the atmosphere, and we’re seduced by the allure of consuming lots of resources in doing so, and we simply can’t be bothered to entertain any other different way of life, liberty or pursuit of happiness.”

It seems as if the skeptics’ story is gaining currency among a fearful, confused and angry public: a Gallup poll from earlier in 2009 reports an increase in the number of respondents doubtful about climate change, so the tactics of the climate skeptic storytellers seem to be effective in the current environment. As a result, I would guess that you’ll be hearing their story told more frequently and loudly as the debates about the Waxman-Markey climate legislation to be considered in the Senate intensify: expect the disciples of the Springfield skeptic crowd to participate in Tea Party protests against any action, coming to a local auditorium near you.

While the climate skeptics congregated in Springfield, several hundred miles northeast in Cleveland, I joined about 700 other people in attending a city-wide sustainability summit entitled Sustainable Cleveland 2019. Convened by Cleveland Mayor Frank Jackson, the summit was designed to have a broad cross-section of interests begin charting a course for the region’s future, premised on a concerted move to a green economy as an engine for overall revitalization.

After a rousing introductory keynote speech by Van Jones, the Special Adviser for Green Jobs, Enterprise and Innovation at the White House Council on Environmental Quality in the Obama Administration, the attendees spent three days assessing the region’s strengths and opportunities to surface priorities for action in the coming decade, to provide something worth celebrating in 2019 – commemorating 50 years since the infamous Cuyahoga River fire, which awakened the U.S. environmental movement.

As profiled extensively in reporting by John Funk of The Plain-Dealer, Sustainable Cleveland 2019 was an exuberant gathering. In contrast to the “just say no” story being told among the climate skeptics in Springfield, the story being written in Cleveland is one of optimism and constructive engagement. The story goes something like this:

“We the people of Cleveland want to reinvent our city and region. Because of forces far larger than us, we know we must fundamentally change the way we live and work. We understand the situation we face, and we will not resist or complain. In fact, making the necessary changes provides us the opportunity to create something much better than we have now – and even better than we ever had.”

A number of voices in the blogosphere pooh-poohed the Sustainable Cleveland 2019. To be sure, the summit was far from perfect: it was too long, and at times entailed too much hyperbole and rah-rah for my tastes, sometimes lapsing into unrealistic naivete. However, these faults are worth tolerating, if it means greater traction among a broader constituency so as to improve our chances for achieving wide-scale beneficial change. If I were to criticize anyone, it would be the cynical bloggers for sitting on the sidelines and throwing rocks at passers-by with their unhelpful comments.

Cleveland, Springfield: there’s no doubt in my mind which city was hosting the more interesting and significant gathering – the one offering any path forward worth pursuing.

In his provocative remarks to the Cleveland audience, Peter Senge, Senior Lecturer at MIT’s Sloan School of Management, observed that most segments of the world population were increasingly coming to the recognition that “the future has no future”.

For those minds that convened in Springfield, this fear of the future has the skeptics running like lemmings back to the unrecapturable past. Here in Cleveland, a big chunk of our population sees that the present (much less the past) is truly unsustainable and is taking responsibility to invent a new and improved world for themselves: a future that indeed has a future.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Effective September 1, he will also become Managing Director of Early Stage Partners.

Cap-and-Trade: How it works and why it’s the been the option of choice

In the run up to Copenhagen and the debate over Waxman-Markey, I think it’s worth laying out some of the key debating points on how cap and trade works and why it’s been our weapon of choice to date in the climate change fight.

I like to think of our carbon and energy problem as follows. We built the first industrial economies and long term economic growth model in all of human history in the last 200 years on a cheap, available energy base, in part by effectively running down our existing inventories of energy stocks from the least cost to the most expensive. We now need a lot more inventory each year (since we’ve been successful and are a lot bigger), and we’re into the expensive layer of our inventory, so it’s hitting our global cost of goods heavier than before. And we know we need to find more sources to replenish inventories, and we know that if we move immediately to higher cost sources we’ll pay the price in GDP.

We also know that producing and using those inventories had a non zero (and we argue about the level) cost to our environment that we have not measured well, but have been working on reducing for the last three decades. But we’ve now run into a new part of that cost with carbon or GHGs that’s very large, and is going to take a much larger and bigger hit to take care of, and depending on your view, has an aggressive time fuse on it. Essentially this means pricing carbon into our economy – which will basically add a whole new cost in all of our supply chains, a cost that varies from country to country and industry to industry, and will shake up comparative advantage in trade. And because it’s global, as far as the environment is concerned, for carbon, unlike most environmental pollutants, it doesn’t matter where in the world it’s emitted or reduced. So our problem is China’s problem is Europe’s problem is our problem.

So we start with a first climate change goal: to reduce the carbon emissions levels in the economy, by a level that we all debate by a point in time that we all debate. But we have to realize that while we do this, we do need to replace those energy supply inventories to both keep us where we are in GDP, and find new ones to sustain growth, or we’ll solve our GHG problem simply by being really poor. And we have to remember that adding costs has to be paid for, and it isn’t “business” that pays for it, it’s us, with business as our proxy.

So my corollary is the goal should be to squeeze carbon emissions out of the global economy in the fastest, least cost path, and as fairly as possible. Sorting out what that means and how to do so is the rub. But part of fair should mean a “do no harm” principal for the economy as well as the environment – meaning that when we start, as far as possible no country or group or industry or company within industries gets penalized out of the gate without either compensation or enough time to adjust. Think of it like eminent domain. If we give something up to the greater good, we deserve to get paid for it.

We have two main ways to go about it, place a tax or penalty on the emissions, or constrain the emissions factors (like power generation, driving, etc.) Cap and trade is essentially a hybrid of the two. The cost of such carbon reduction, because of the ubiquitous nature of carbon, and typically inelastic demand curves for most energy and carbon intensive products, is spread across all consumers in any scenario, but depending on system design can be borne disproportionately by some groups, industries or countries. Our special challenge is because of that global nature, we literally HAVE to have a solution that can engage and work in every country. Unlike cleaning up a local toxic spill, where we can fix ours without our trading partners, in carbon, if China fails, we fail. So if we try and succeed, and China does not try, the environment loses, and we lose worse.

Carbon Tax – Basically with carbon tax the government picks a series of carbon intensive industries or products, assigns a carbon value to them by one of a number of methods, and levies a tax on them. It’s often touted by economists as theoretically the cheapest method, and generally an industry favorite because they know how much they’ll have to pay and can plan.

But carbon taxes have big drawbacks. You can’t be sure you’ll actually get the level of reductions you want, because the tax fixes price, not volume. Worse, carbon is a global problem, and getting global tax codes to mesh together is virtually impossible (we can’t even do it inside the US), which means we may end up with everybody paying a different price of carbon and a complete mess. That certainly would throw the efficiency argument out the window. The next big disadvantage is that if you don’t get the tax level and structure exactly right, businesses and consumers get hurt in unpredictable ways, and have little room to adjust if we get it wrong. So while theoretically better, it’s not a very “fault tolerant” plan.

Main advantage is that you have a known cost to industry (which is why most industry prefers tax to trade or command and control). Next main advantage is that the the government gets lots and lots of revenue, which is why many politicians favor it.

The second option is classic environmental “command and control”, if you’ll excuse the perjorative sounding nature of that term. Esstentially the EPA or equivalent simply regulates every one who produces GHGs, and tells them how much they can produce through a permitting process.

The advantage is that you know exactly how much emissions reduction you are going to get. The disadvantage is that you may pay much more than you thought, and sink your economy, especially if your trading partners are more lax on either regulation or enforcement, and you let the EPA pick the winners and losers. The other disadvantage is that there is no upside. Under no circumstances will you ever get more reductions than you thought, unlike cap and trade, where done right, you may.

Cap and trade is the middle ground (which is why it keeps coming up). With cap and trade, the system operator (UN, EU, EPA, CARB etc) designates how many credits can enter the system, and prints, them like money. It then designates how many credits a company must turn in each year or period per unit of production (ie 0.5 tons/MWH of power produced), and penalizes or shuts down the company if they don’t turn in enough to meet their obligation. So no more emissions from a regulated sector will occur than credits (often called allowances) exist.

Then the regulator decides whether to sell the credits to the industry that needs them, or to simply allocate them (often based on some measure of current production). Both methods have pros and cons, and in practice have nothing to do with environmental protection or the price of carbon (the total level of credits and the relative level of credits to demand sets that) and more with subsidizing one industry vs another, or collecting revenue for the government.

Finally, the regulator can let offset credits be produced from the remaining unregulated sectors (or from inside a regulated or “capped” sector if appropriate adjustments are made), and sold to the emitters (it simply adjusts the cap so that the total level is where we want it to be). The advantage of this is that the regulations can be phased in easier, and we get a more equal price of carbon.

And what happens is that in unregulated sectors any time potential reductions exist (eg, a very inefficient emitter that could be shut down or run more efficiently), carbon developers pay up for the rights to the reduction, and that emitter finds it’s more profitable to do the right thing. The downside is that it looks like emitters are getting a profit off emissions. In reality, they are getting paid to reduce emissions for you and I, at just the right price.

Then emitters and financial parties buy and sell these credits from the government or each other or develop offset credits in a race to pay the least. And since the regulator starts reducing the number of credits it puts into the system, it’s kind of like musical chairs, the slowest, most carbon inefficient company gets left out and has to shut down, or shifts to a lower carbon production in order to stay in business.

The main advantages of cap and trade – 1) it assures us that we will meet our target goals like command and control 2) but it allows industry the flexibility to figure how to meet them cheapest (which is good for all of us), 3) it tells us what the real price (or cost) of carbon actually is, 4) and it’s better at equalizing the price of carbon so everyone pays the same across different industries and geographies, 5) in practice it costs less, and is easier to implement in a multicountry environment than command and control or tax.

Main disadvantages, it takes some time to get up and running, and makes it look like (not really true), that emitters are making money off it. Trust me, if they thought it was a profit center, they’d be all over it. The final disadvantage is it depends on the government operator to manage a market, something where we’ve had some good success (like NOX and SOX trading and up until recently the Fed), but can be susceptible to politics as usual.

In essence, you can think of cap and trade as a carbon tax with a tax rate that varies with the market (going up if industry is worse at producing carbon reductions than the government thought and down if they are better, and similiarly going down when the economy is bad and we can’t afford it and up when the economy is strong) and a tax base that is higher for emitters and emissions intensive industries than for those more efficient.

In any case, all three options need a lot of money spent on new technology and good measurement and verification. All three options will be expensive, and will be paid for by you and I at somepoint. And in practice, we are doing all three options to varying degrees right now.

Neal

The Past Few Hectic Weeks in Climate Change

The last few weeks have seen a number of big moves in climate policy.

US EPA Lets California Regulate GHG Emissions in Cars – On June 30, 2009, the US EPA backed off and let California Air Resources Board proceed with its longstanding plans to regulate greenhouse emissions from cars, after long resistance from the Bush Whitehouse.

Quick & Dirty Analysis – When it comes to the environment, where goes California, goes the US, eventually, and in climate policy where goes the US goes the world, probably. At the very least this plus a California low carbon fuel policy will make for interesting auto industry machinations at least.

Waxman-Markey Passess – This month, the US climate change bill Waxman Markey passed the House. On to the real battle, in the Senate.

Quick & Dirty Analysis – We’re out of the House, but the battle’s begun. Compromises are good, since it was never going to get through the Senate without them, especially since the US has a huge geographic divide over the economic impacts of cap and trade. The bill is a study in compromise, but this was a big, big test ahead of Copenhagen.

And the G8 starts thinking climate change.

Quick & Dirty Analysis – This is good. Climate change solutions are are heart a trade problem, not a local environmental protection problem like NOx, SOx, et al. The Bush policy, and the Clinton policy (both of them), and the McCain policy, and hopefully the Obama policy, was always to circle up the big emitters, including China, Russia, India, Brazil + the rest in the G8, and get on the same page. Until that happens. No nice for saving the world.

Neal Dikeman is a partner at Jane Capital Partners, and has cofounded, run, invested in, or served as a director of multiple startups in cleantech and technology. He is Chairman of Carbonflow and Cleantech.org, and Texas Aggie.

Climate Change Legislation and the Midwest

by Richard T. Stuebi

As virtually every reader of this blog probably knows, Congress has recently made more progress on climate change legislation than it had ever before achieved. The House has now passed the American Clean Energy and Security Act (H.R. 2454), more commonly known as the Waxman-Markey bill.

The path forward for this bill is likely to be torturous. In the Senate, conventional wisdom is that passage is within reach if all Democratic Senators vote for a bill (augmented perhaps by a few Republican votes). But there’s a significant swath of Democratic Senators who are, at best, “on the fence” about supporting climate legislation.

Many of these swing votes reside in the Midwest, where a group of Senators loosely called the “Gang of 16” have publicly raised concerns about the prospect of climate legislation. As you might expect, their concerns largely stem from the potential economic harm that might be borne by Midwestern interests — through higher electricity prices and reduced global competitiveness in industrial markets — as a result of policies adopted by the U.S. to reduce carbon emissions.

Against this backdrop, over the past year, the Chicago Council on Global Affairs convened a Task Force, comprised of regional thought-leaders in the private, academic and non-profit sectors, to consider the challenges facing the Midwest in moving to a carbon-constrained world. The goal: to make a public statement to elected officials from the Midwest on appropriate directions for climate policy.

In June, the Task Force released its report “Embracing the Future: The Midwest and a New National Energy Policy”, which represented a synthesis of the perspectives of the Task Force members (of which I was privileged to be one).

The report is based on the presumption that human-induced climate change is occurring, and a national policy to mitigate emissions contributing to climate change is appropriate to put in place. The report offers no safe haven to those who believe climate change is bunk — or even if real, is not worth doing anything about. Rather, the question that the report wrestles with is what kind of climate policy should be put in place that will maximize opportunities for Midwestern economic revitalization while minimizing the downsides to the Midwest, given the region’s inherited assets and liabilities.

The summary findings of the report contain little that is groundbreaking:

1. “The Midwest can and must turn the challenge of changing energy and climate policy to its economic advantage.”
2. “Prompt enactment of national climate change legislation is essential to the Midwest’s future prosperity and competitiveness.”
3. “Regional and local action [in the Midwest] is likewise essential.”
4. “Addressing carbon emissions will not be cheap.”

To the last point, the report emphasizes the urgency of capturing the full range of economically-attractive energy efficiency opportunities — many of which are available at negative cost to society — or else the costs of climate policy are likely to be much higher. Ditto, the report advocates that emissions offsets be allowed in climate policy so as to enable economic sectors (e.g., agriculture) offering low-cost emission reduction possibilities to contribute to the overall solution at reduced societal cost.

Arguably, more important than what the report says is who the Task Force represents. The Task Force was co-chaired by John Rowe, Chairman and CEO of Exelon (NYSE: EXC), and included active participation by senior executives from such industrial stalwarts as Arcelor Mittal (NYSE: MT), Caterpillar (NYSE: CAT), Duke Energy (NYSE: DUK), Ford (NYSE: F), and Johnson Controls (NYSE: JCI).

Opponents of Waxman-Markey, or of any climate change legislation, will have difficulty claiming that these Midwestern industrial employers don’t accurately reflect the interests of old-line manufacturing concerns. If these companies are saying we can cost-effectively — and therefore should — do something to address climate change, it adds a lot of credibility to the position of taking definitive action.

Would it were that more Midwestern companies had the type of visible and proactive leadership exhibited by Mr. Rowe. At an event publicizing the release of the report on June 8 in Chicago, Mr. Rowe stated his strong support of Waxman-Markey (notwithstanding its imperfections), and urged those with close friends in D.C. to enlist more support. In the Senate, this means solidifying the positions of the Midwestern Gang of 16.

It will be an interesting summer here in the Midwest — the key battleground for the fate of climate change legislation.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director of Early Stage Partners.

Just Say No: Climate Skeptics and Deniers

by Richard T. Stuebi

The community against taking action on climate change — skeptics who honestly or otherwise question the science, and deniers who have already concluded it’s all a bunch of bunk — seems particularly strident these days. For instance, check out the harsh comments underneath this blog post reviewing the recent release of a report from the U.S. Global Climate Change Research Program detailing the climatic changes that are already in evidence.

I’m somewhat knowledgeable about technologies to address climate change, but I’m less knowledgeable about climate science per se, and therefore less able to separate the wheat from the chaff in the climate debates. So, I was very pleased to when the Cleveland office of URS Corporation (NYSE: URS) and Ideastream recently hosted a presentation by someone who understands the issues very well: Peter Adams, Associate Professor at Carnegie Mellon University.

Prof. Adams offered a very cogent and non-hyperbolic synopsis of what is known and what is unknown about climate science. In his view, it can be stated with confidence that climate change is happening, and is being at least somewhat driven by human activities, though the degree/pace of future changes are highly uncertain.

I particularly appreciated the way he carefully and non-disparagingly handled the issue of climate skeptics and deniers. Prof. Adams noted that some of the skeptics have seemingly impressive credentials, but illustrated how nefarious their tactics can be by using a powerful analogy involving the statue of Venus de Milo:

“The scientist would say that the Venus de Milo is a statue of a woman, whereas the skeptic would say ‘A woman has arms, and this statue has no arms; therefore, it’s not certain that this is a statue of a woman, and it can’t be proven as such until the arms are found.'”

In other words, skeptics are having some successes undermining the consensus on climate science and reinforcing the vigor of the denier blogosphere by weaving intricate arguments in which each of their statements is factually or technically correct but completely lacking in context. Unfortunately, because much of the public is so poorly-informed on energy and environmental issues, and on technical matters generally, many of our masses are unable to see how the “true” statements made by credentialed skeptics lead to a “false” (or at best, highly misleading) conclusion.

One such misled soul was in the audience for Prof. Adams’ talk: a member of the public who was apparently quite certain that climate change wasn’t happening, based presumably on readings of skeptic publications and web-sites. In the post-presentation Q&A session, our in-audience denier was sufficiently bold to offer a sequence of rebuttals to Prof. Adams’ talk, disguised in the form of awkwardly-phrased questions to Prof. Adams. It was actually a bit humorous to watch Prof. Adams cordially but definitively dissect the denier’s parries — kinda like the scene in “Monty Python and the Holy Grail” in which the Black Knight stubbornly fights King Arthur and is sequentially severed of all his limbs, until as a bloody stump he cheerfully announces from the ground “OK, we’ll call it a draw.”

If I were a denier such as our misguided fellow audience member, I wouldn’t have been so stupid to take on Prof. Adams — an obviously intelligent researcher who studies this stuff every day for hours, and who is clearly not an extremist prone to overstatement. Actually, because he seemed to be such a thoughtful observer of the skeptic/denier universe, I asked Prof. Adams two questions related to climate skepticism that were puzzling me of late. While he responded verbally at the presentation, he did some follow-up research and subsequently emailed me more detailed commentary, which I’ve included below (with his permission):

1. Given that climate science and meterology are related in some important ways, why do some meterologists (such as ours here in Cleveland) have the opinion that climate change is NOT happening?

Adams’ response:

“[Reporters] interviewed the head of the American Meteorological Society (AMS) and asked him why so many meteorologists do publicly disagree with the Intergovernmental Panel on Climate Change (IPCC) consensus. His comments are insightful, and he even admits to being a former skeptic. He personally accepts the IPCC position now as does the AMS as an institution. Basically, he points to some cultural factors in [the meteorologist] community: they have an inherent distrust of models, natural variability is their major focus, and long-term drivers of climate such as CO2 levels are not part of their world view (they are completely irrelevant to tomorrow’s forecast)….The danger is that [meteorologists] are not really climate experts although the average person perceives them to be. They are Bachelor’s level scientists, not researchers. Most probably have not read much of the climate change literature and, as even the AMS head points out, weather forecasting is different than climate science in significant ways.”

2. What has changed since the 1970’s, when many scientists were concerned about “global cooling”, not global warming?

Adams’ response:

“[It appears that] the discussion of ‘global cooling’ was exaggerated in the popular press [in the 1970s] compared to scientific circles and the scientists were much more tentative about it than they are today about global warming. Moreover, the ‘global cooling’ vs. ‘global warming’ apparent contradiction really is not a contradiction at all. Global cooling scientists were mostly concerned about the cooling effects of atmospheric haze particles, but there were already concerns about global warming from CO2. Of course, today, climate scientists still recognize the important cooling effects of haze particles that have partly offset global warming (the ‘air pollution that has saved us from global warming’ that I mentioned [in my talk]). So, the major change between now and then is not a different physical understanding per se but rather a reappraisal of the relative importance of these two factors. Moreover, there are very good reasons why this shift/reappraisal has taken place. First, with the advent of the Clean Air Act [of 1970], our greenhouse gas emissions have continued to increase at the same time that we have reduced haze significantly. It is probably not a coincidence that the post-WWII cooling ended in the 70s (circa Clean Air Act). In fact, climate models that include greenhouse gases and haze particles tend to predict the observed flat temperatures or cooling from 1945 to the 70s and then accelerated warming thereafter. Second, science tells us that greenhouse gases will always tend to win in the end. This is because haze particles are short-lived (atmospheric lifetime is about one week) whereas CO2 is long-lived (about 100 years). So, even if your mix of CO2 and haze emissions cancel each other out in the short term, the haze goes away and the greenhouse gases continue to build up. We would eventually have flipped from cooling to warming even without the Clean Air Act.”

Prof. Adams closed his email to me with the final thought about climate skepticism/denial among the public:

“As long as enough of the public is predisposed towards believing in climate change, trusts the IPCC and/or simply acquiesces when CO2 caps come along, we can solve the problem. Witness how many areas of public policy there are (e.g., some subsidy) where the majority of people think it’s a bad idea but don’t care enough to override the efforts of a determined special interest group. Climate change policy may end up being like that, except in this case, [the special interest] helps to save the world. The idealist in me would prefer for everyone to buy into the science and the need for CO2 regulation. But acquiescence might be the ‘least bad’ of the possible solutions.”

I’d accept acquiescence too — if we could even achieve that. But it’s hard to make progress on responsible climate legislation when the deniers are shouting so loudly, absolutely unwilling to entertain any views other than what they positively know to be the case, and drowning out discussion on the items where reasonable people can disagree reasonably.

I see this as a highly unfortunate development: climate science has become a “hot button” moral issue, akin to abortion, wherein parties hold non-negotiable positions based on fundamental beliefs rather than any set of facts.

At least a little bit of the blame for this must accrue to Al Gore and others of his ilk who make claims that are likely to be overly dramatic, from a lecturing and too-certain stance, that the planet is heading to certain/imminent climate disaster.

But the problem is more fundamental across our society. As long as we live in a point/counterpoint world of people convinced of their rectitude and shouting past each other in insulting fashion — “Jane, you ignorant slut” — constructive dialogue will be near-impossible, and progress (much less resolution) on any important and complex social problem like the climate issue seems beyond grasp.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director of Early Stage Partners.

Addressing Cost Concerns in the Climate Debate — Focus on Offsets

By Lisa Jacobson

After hundreds of Congressional hearings and over a dozen legislative proposals, the House of Representatives took historic and concrete action last month to advance federal climate change legislation. Through a largely collegial and efficient committee “mark-up” of the American Climate and Security Act of 2009 (ACES), a deal was reached that earned the support of several conservative Democrats and one Republican. The bill establishes a national cap-and-trade program — with opportunities for domestic and international offsets to help meet compliance obligations while containing costs — as well as incorporating critical complementary energy policies.

The House is now poised to move the bill through other key committees with jurisdiction in June and could take floor action on the legislation as early as July.

Given the current state of the economy, the issue of cost was understandably central to the committee’s debate. Concerns were raised that businesses and consumers would face higher electricity bills or incur other costs associated with the cap-and-trade program. In rebuttal, proponents of the bill spoke about of the economic opportunities presented by transitioning towards a low-carbon and clean energy economy. Clear and sustained market signals that result from the cap on emissions will drive capital investments into existing technology solutions – such as renewable energy, energy efficiency and other clean generation options. This new investment will make our economy more efficient and secure, while creating high-quality jobs in the US. As this transition takes time, offsets provide an important balancing mechanism in the face of economic downturn, for containing program costs while new technologies are developed and implemented.

Another refute to this argument was the flexibility at the heart of the cap-and-trade model. The bill’s cap sets emissions limits that ramp down over time, and the ability to trade results in lower cost compliance costs. The cost-containment benefit of this market-based approach is further enhanced with the inclusion of a robust and high integrity offset program.

Offsets have an important role to play in the coming debates over ACES, both because they provide one of the best rebuttals to anti-cap and trade arguments about cost concerns, but also because they truly have a role to play in moderating the blow of energy cost increases in the short term while still promoting emission reductions outside of the cap. Furthermore, the combination of emissions trading and offsets drives over-performance and technology innovation and deployment, especially when a broad set of offset projects are eligible.

Ensuring the environmental integrity of offset credits is essential to meet desired emission reduction levels and ensure a well functioning cap and trade system. Real and additional offsets must be the standard for program integrity, and independent, third-party monitoring and verification requirements are essential to ensuring that greenhouse gas emission reductions are delivered. The offset provisions in ACES provide a foundation for quality domestic and international offsets to help achieve the proposed US emission reduction targets more cost-effectively. However, leading up to possible floor action, improvements to the bill should be considered that expand opportunities for both domestic and international offsets.

Currently, ACES allows up to 2 billion tons of offsets to be used for compliance purposes. Of this, 50 percent can be offsets generated in the United States and 50 percent can be generated outside the U.S. If, in any given year, the EPA determines that the domestic limit will not be reached, the international limit can be increased to 1.5 billion tons per year, which offers important added cost savings.

A key change from previous draft proposals is the removal of a 25 percent discount on domestic offsets. According to a preliminary analysis by US EPA, this change will result in an 11 percent increase in the use of offsets and lowers allowance prices by 7 percent in each year.

International offsets are subject to discounting starting in 2018, however, which dampens their cost containment benefits. In addition to discounting provisions, international offsets face additional limitations, such as restrictions on the countries where offsets can be generated. Under ACES, only offsets that are generated in a country that has entered into an agreement with the US can qualify. US EPA has the ability to accept offsets issued under the United Nations Framework Convention on Climate Change, such as the Clean Development Mechanism, but the current language leaves considerable uncertainty. Because a domestic offsets program will likely take a few years to operationalize, international offsets will be critical bridge to filling the supply gap left by domestic offsets, and providing cost containment in the early years of the program.

As a start, discounting of international offsets should be removed, and clarity is needed on the role of international offset eligibility, especially for CDM projects. Increasing the eligibility of high quality offsets – inside and outside the US — reduces the cost of the program to consumers and businesses, while advancing the objectives of the program – greenhouse gas emission reductions. If the political opposition continues to raise cost concerns in order to question the legitimacy of climate change legislation, offsets certainly provide one crucial component of the answer.

Lisa Jacobson is the President of the Business Council for Sustainable Energy, a coalition of business and trade associations representing the energy efficiency, renewable energy and natural gas industries in the United States.

If Larry King Wrote My Column….

by Richard T. Stuebi

You heard it here first: the energy consultancy Douglas-Westwood is claiming in a May 11 white paper that “peak oil” may have already happened, as far back as October 2004, and that the oil price boom followed by economic collapse is indicative of how things will play out over the decades to come as oil supplies are unable to expand in the face of increasing demands. Stay tuned….

The American Wind Energy Association (AWEA) exposition WINDPOWER 2009 attracted 23,000 attendees to Chicago earlier this month. Glad AWEA didn’t ask me to do the headcount!….

Your stock portfolio isn’t the only thing that’s plummeted. According to a snippet in the March 2009 issue of Power, so too have PV prices fallen, by an estimated 10% since last October, with a further 15-20% decline expected in the coming year. Seems that, after several years of tight supplies, there’s now a glut in the market, due to collapsing demand in Europe….

Lots happening in DC these days. Looks like cap-and-trade requirements for carbon dioxide emissions are making real progress, embodied in the grandiosely called “The American Clean Energy and Security Act” (H.R. 2454) — better known as the Waxman-Markey bill. Cap-and-trade might even pass the House sometime this summer. Don’t think it’s going to be so easy in the Senate, though….

The U.S. Department of Energy (DOE) has created ARPA-E, to fund the initial evaluation of new whiz-bang ideas for energy, just like DARPA’s been doing for out-of-the-box defense gizmos for decades. One can only imagine what’s going to come out of that shop in years to come….

It also appears that the e-DII concept floated by Brookings earlier this year, to create Clean Energy Innovation Centers mainly affiliated with universities, is gaining traction, now having been tucked into the Waxman-Markey bill. Wonder what the national research labs, such as NREL, NETL, ORNL, LBNL and other alphabet soupers, think of this?….

Speaking of NREL, hats off to Joel Serface, who just completed a year’s residence there on behalf of uber-VC firm Kleiner Perkins to help accelerate technology commercialization and spin-outs from the lab. A year in Golden/Boulder is hardly hardship duty, but as Joel indicates in a recent post at this very CleanTechBlog site, it wasn’t enough time to make much of a dent in the bureaucracy….

Congratulations to my former colleague Cathy Zoi, who’s been tabbed by President Obama to lead the Office of Energy Efficiency and Renewable Energy at DOE. Wish her good luck: she’ll need it!….

Let’s hear it for Joseph Romm, now a Senior Fellow at the Center for American Progress. He calls ‘em like he sees ‘em. In a note in the May/June Technology Review, Romm claims “it’s not possible to have a sustained economic recovery that isn’t green” and calls our economic system a “global Ponzi scheme: investors (i.e., current generations) are paying themselves (i.e., you and me) by taking from future generations.” Whew!….

The U.S. Chamber of Commerce just released a study performed by Charles River Associates estimating 3 million jobs to lost in the U.S. by 2030 as a result of climate change legislation. Last year, the Chamber commissioned a similar study announcing a similar doom-and-gloom result. I’m not saying there won’t be job losses as a result of cap-and-trade – there certainly will – but I don’t think it’s going to be apocalyptic either….

Gotta hand it to Bob Galvin, former Chairman of Motorola. Not content to be retired, he has launched the Galvin Electricity Initiative to promote a “Perfect Power System” to help prevent future blackouts. In a sense, he’s trying to Galvinize the grid….

Last Wednesday evening, the Cleveland Chapter of the American Jewish Committee honored The Cleveland Foundation for its advanced energy initiative. Accepting the award on behalf of the Foundation was President and CEO Ronn Richard. A good time was had by all….

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director of Early Stage Partners.

Thank Goodness for Contrarians

by Richard T. Stuebi

One of my favorite bumper-stickers of all-time reads “My Karma Ran Over Your Dogma”.

In addition to being a wonderful word-play, the one-liner reflects my deep disdain for those who are far-too-certain of their positions — whatever their positions may be. I haven’t done any statistical analysis, but I often find that the strength of people’s opinions is inversely correlated with their knowledge of the subject.

So, it’s actually a service to be reminded by intelligent people offering alternative views with substantial supporting evidence that what we think we really know may not actually be truth.

In the energy realm, I’ve encountered a number of articles by or about very accomplished and expert individuals who don’t subscribe to conventional wisdom.

For instance, in late March, the Sunday New York Times Magazine ran a provocative article called “The Civil Heretic”, profiling the Princeton mathematician Freeman Dyson, who has been the subject of significant and hostile criticism for suggesting (as has Bjorn Lomborg, author of The Skeptical Environmentalist) that too much concern is being paid to the phenomenon of climate change.

On the oil front, Ruchir Sharma, the head of emerging market research at Morgan Stanley (NYSE: MS) wrote an article in the April 20 Newsweek entitled “If It’s In the Ground, It Can Only Go Down”. Sharma doesn’t buy the peak oil theory, and argues that the long-term trend of declining oil prices will re-emerge.

Even if you disagree with their positions, you can’t say that they are stupid people. There are grains of truth in their arguments that we are all well-served to recognize and embrace.

As stated so beautifully in The Tree of Knowledge by Humberto Maturana and Francisco Varela:

“The knowledge of knowledge compels. It compels us to adopt an attitude of permanent vigilance against the temptation of certainty. It compels us to recognize that certainty is not a proof of truth. It compels us to realize that the world everyone sees is not the world but a world.”

We must be honest with ourselves in admitting that the future is not knowable with certainty in advance, and that all projections can at best be only grounded speculations. Being confronted by obviously smart and wise people who hold different views than ours about the future is a good exercise in humility for all of us. If we respond thoughtfully to considerate alternative views, we are driven to re-examine our own thinking and logic, and strengthen or alter it accordingly.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director at Early Stage Partners.

Director of Congressional Bugdet Office on Cap and Trade

A couple of days ago the Congressional Budget Office Director Douglas Elmendorf wrote about his Senate testimony on cap and trade revenue redistribution on his blog late last week. Worth a quick read, the main text below. The full 28 page testimony is linked in his note. It’s worth noting that the homepage of the CBO has a climate temperature chart on in front and center this week.

“Testimony: The Distribution of Revenues from a Cap-and-Trade Program for Carbon Dioxide Emissions

I testified this morning before the Senate Finance Committee on the distribution of revenues from a cap-and-trade program for carbon dioxide emissions. My comments emphasized these points:

A cap-and-trade program would lead to higher prices for energy and energy-intensive goods, which would provide incentives for households and businesses to use less energy and to develop energy sources that emit less carbon dioxide. Higher relative prices for energy would also shift income among households at different points in the income distribution and across industries and regions of the country. Policymakers could counteract those income shifts by using the revenues from selling emission allowances to compensate certain households or businesses, or by giving allowances away.

In distributing the value of the allowances, policymakers have a wide range of options but face trade-offs. For example:

  • If allowances were auctioned, some of the revenue could be used to fund climate-related research and development. This approach might reduce the cost of transitioning from a high carbon emissions economy, but it would not provide any immediate help to affected industries or households.
  • Instead, auction revenue could be used to reduce existing taxes on capital or labor. This could lessen the overall economic cost of restricting emissions but would do little to offset the burden that higher prices would impose on certain industries or households.
  • A different approach is to use the revenue to give rebates to low-income households, perhaps using the tax system. This would lessen the burden on these households but not trim economy-wide costs.
  • Alternatively, allowances could be given away for free to certain industries. Giving away allowances is generally equivalent to auctioning the allowances and giving the proceeds to the same firms. Giving allowances to energy-intensive manufacturers would not, by itself, hold down the price of their output, which would rise to reflect the private market value of the allowances. The result could be windfall profits for these firms, which would tend to benefit higher-income households who own most stocks. However, if receipt of free allowances was tied to future production or employment, then prices would not rise as much as otherwise. At the same time, because these firms would not reduce emissions as much as they would have without free allowances, other sectors of the economy would have to reduce emissions by a larger amount to meet the overall cap.”

Neal Dikeman is a partner at cleantech merchant bank Jane Capital Partners and Chairman of Carbonflow, Inc. and Cleantech.org.

SGS Climate Change Head on the First Carbon Credits from the Voluntary Carbon Standard

I had the chance to catch up with Robert Dornau, an economist who is Vice President of SGS Climate Change Programme, one of the leading verifiers of carbon credits, just as SGS verified the first carbon credits under the Voluntary Carbon Standard.

Robert, I saw the press release on the first verified VCUs by SGS. Can you tell me a little bit about what VCS is and how it’s different?

I am happy to tell you that SGS also validated the first projects registered under the Voluntary Carbon Standard (VCS). The VCS provides a rigorous, trustworthy and innovative global standard and validation and verification program for voluntary emission reduction projects. It ensures that carbon credits generated from those projects can be trusted by business and consumers and have real environmental benefits. The VCS was initiated by the Climate Group, the World Business Council for Sustainable Development (WBCSD) and the International Emissions Trading Association (IETA). What sets the VCS apart from other voluntary standards is not only this prestigious group of founding fathers, but the fact that it has undergone two rounds of global stakeholder consultation and was developed under guidance of an international steering committee from the business, industry and non profit sector (including SGS).

The VCS provides innovative approaches to a credible and diligent approval of new methodologies especially for the forest sector. Another element that sets the VCS apart is the recently launched registry system.

We’ve heard the VCS discussed for some time now – are these really the first carbon credits from VCS? Why did it take so long? Are we going to see more of these?

The first version of the VCS was released on 28 March, 2006. Soon after, first projects were validated and verified against this standard. Until the recent launch of the registry system, the credits generated were only traded on the back of certificates issued by verification companies like SGS. Having a registry system that lives up to the high standards of financial registries was a number one goal of the VCS from the start. Unfortunately it took a bit longer than expected to develop this system. It now consists of three independent registries and the VCS database. I am absolutely certain this was the final launch pad for the VCS to establish itself as the standard of choice for any credible market participant.

What can you tell us about the differences between validation and verification of projects under VCS as compared to CDM and the Kyoto carbon project markets?

In principle there are not many different ways to conduct a proper validation or verification of a GHG project. The VCS relies on the principles for validation and verification of GHG projects established by the International Organization for Standardization (ISO). The new set of standards for the Carbon Market (ISO 14064 family) was develop taking into account best practice and experience from a number of global programs while being in itself program neutral.Two of the main differences are, that 1) the aim of the VCS is to assure that the emissions reduced by a project are measured, reported and verified correctly. If a buyer is interested in additional sustainability criteria, he/she can add those by applying a different add on standards like the Gold Standard for energy efficiency projects or Forest Stewardship Council (FSC) for forest projects. 2) Project developers can rely on methodologies approved in other accepted GHG Programs (like the CDM) to establish baselines, additionality and monitoring procedures. However, if the project developer wants to use a new approach towards additionality or a new methodology for baseline and monitoring of project emissions, this has to be approved by two verifiers (Double approval process). We expect this process to be a lot quicker than the current CDM process while delivering results of similar environmental integrity.

You’ve mentioned 3rd party verification. Is this similar to getting a CPA’s financial audit of a company? What role do you think 3rd party verification will play in the voluntary and US carbon markets going forward?

Market credibility requires that data used for emission trading is reliable, true and fair as well as credible. The third-party verification model has played an integral role in providing this credibility, and it has been accepted in major established markets. Third-party verification has been important in relation to both emission offsets, such as CDM and JI projects, and organization GHG emissions such as EU ETS, JVETS,.UK ETS, The Climate Registry, Western Climate Initiative. As emission allowances, related to the verified emissions, have the status of a financial commodity, it is a requirement that its verification and assurance meet financial market needs. In this regard, the third party verification model involves assessment of an organization’s internal control system including calibrations and QA/QC checks as well as actually data checks. It is also common in existing GHG programs for the verifier to assure the market risk of misstatements or omissions in any GHG emissions report and hence allowances or credits traded. We sincerely hope that a similar approach will finally be taken in the US for inventory and project emissions to assure that this market can be linked with other markets on the basis that “a ton is a ton” and the allowances traded have the same environmental and financial integrity.

I know that your main competitor in the global carbon markets, DNV, has also been growing it’s US presence.

Are we seeing a new wave of European carbon expertise moving into the US?
SGS is in the very fortunate position to be able use extensive global expertise in the development of our internal procedures. We of course always adapt those to local GHG program requirements. We bring in expertise from Europe in key technical quality management positions in the beginning of any new market. But the aim is and will be to run a local program with local capacity. I encourage everybody interested in the interesting job of a GHG auditor to apply with SGS an join our international team of experts.

You’ve told me that SGS has been hiring in the US for climate change, where is your office and what plans can you share?

SGS has offices in most US states and employs a staff of more than 3000 in the US working in all kinds of industry sectors. Our climate change program is headquartered in Ontario, California, but we are already in the process of training auditors across the country. SGS has been a first mover in all GHG programs globally and we understand that we have to develop expertise and manpower before the market is actually there. As such, SGS has been an active verifier under CCAR for years and is one of only six entities that achieved ANSI accreditation for ISO 14064 verification of TCR and CCAR. DNV by the way is not ANSI accredited.

And finally, you’re an economist by original training, so can you share a personal opinion on the causes of recent carbon price collapse and the recent article by Point Carbon suggesting that prices should rise by 2012?

The recent price collapse is a result of the international credit crunch and economic crisis. Decreasing industrial production resulted in lower emissions, which had an immediate effect on the demand for allowances in the EU. In addition companies were cash strapped and were selling EU allowances. 2012 is the final true up for phase II emissions in the EU ETS, until then companies will be able to borrow from next years allocation of allowances to meet last year compliance requirements, so that we should see the true demand and supply balance only towards the end of the period. Another result of the credit crisis is that less energy efficiency measures are being undertaken at industry and household level now, so that while the crisis caused relatively less emissions in the short run, it might cause relatively higher emissions in the medium and long run.

As EU companies can meet their compliance targets also with CDM credits, CDM supply also has an influence on the equation. The credits crisis results in less CDM project being started, meaning less supply of CDM credits. New GHG Markets in Australia, New Zealand and the US will compete for this reduced amount of credits. This will result in a decoupling of the CDM price from the EU ETS price, which has basically been the benchmark to date. So when you talk about the price of carbon, I don’t think that there will be a uniform price by 2012 yet.

So, depending on how deep and lasting the cuts in industrial production are, you will see an upward trend in prices towards the end of the Kyoto phase. So much for the different economic developments that will influence carbon prices, but as you know, the econometrician in me will simply say: the best forecast for tomorrow’s price is the price of today…

Thanks Robert, always good to catch up.

Neal Dikeman is Chairman and CEO of Carbonflow, providing software services to carbon developers and funds cut the cost of carbon abatement, including managing the validation and verification processes. Carbonflow is partnered with both SGS and DNV.

CDM Baby, CDM

By Guest Columnist Sonia Medina, US Country Manager, Ecosecurities

At 24, a recent graduate from Oxford, I thought the idea of joining a tiny consultancy firm doing carbon reduction projects was something very cool. At the time, I did not mind that I had to cycle 5 miles across town to work at a country house in the outskirts of Oxford. That did not have heating during the winter. Not the kind of job expectation one may have when you have graduated from a so-called good university. But five years later, I have travelled a million miles, visited more than 50 countries across five continents, negotiated contracts to build a portfolio of hundreds of carbon-abatement projects and spent an enormous amount of time learning about other cultures. What a ride!

After that fantastic experience, I thought that the next frontier for climate change is the sleeping giant of the United States and I found myself buying a one-way ticket to JFK to ‘try to figure out how to make it here’ as the new US Country Director for that same firm I joined five years ago (and which now has nearly 300 employees, plus heating). In my first three months, it already feels like going back to that small cold country house in Oxford when it comes to the debates about the science of climate change or the rationale of a carbon market that I hear in NY, DC and Sacramento, but with a twist – I have to facebook people the information about my company – something people in the developing world prefer to do over a beer, rice wine or green tea!
Four years ago, our work really picked up when the Kyoto Protocol was finally ratified by Russia, after years of back and forth. It was almost an anti-climax when they finally decided to go ahead after so much playing around. I guess Putin has always like intrigue games from his days at KGB. It was at that point when the Clean Development Mechanism (CDM) – a project-based mechanism to generate offsets regulated by the United Nations and part of the Kyoto Protocol – found itself flooded with real demand.

Most of my work these five years has been in building a portfolio of CDM projects worldwide ranging from landfills in Latin America and biomass-to-energy projects in India to industrial energy efficiency in South Africa and China, to name a few. During that time, my relationship with CDM has been of love and hate. There have been days that I thought it was the most fantastic mechanism of the world, that allows people to align themselves to do good, channels foreign investment to clean projects in the developing world and truly promotes sustainable development. Other days I’m convinced that the bureaucracy that the UN has built around the system will make it collapse under its own weight, and I put my hands up in desperation and I think. ”we will never go anywhere!”

But to be fair, even though the process to get an offset certified through the UN system can be onerous, it is also true that the mechanism does preserve environmental integrity, has helped built enormous awareness around the issue of climate change across continents, has created a pipeline of over 4,000 projects across five continents and has issued over 250 million of high-quality offsets in the last three years. Accomplishments other carbon standards cannot even dream of.

That is why knowing the good and the bad on the CDM, it is quite shocking that policy-makers and industry groups in the US totally ignore the work done and lessons learned from this incredible period of growth. It’s especially ironic when funnily enough, the CDM was actually created by the Clinton Administration back in 1997 when negotiating Kyoto. It is important that knowledge builds rapidly because there is no time to reinvent the wheel. When the Obama administration enacts a cap and trade bill, industry groups know very well that environmentally sound offsets are a key price control mechanism. The US could do a double-service to the world and to itself by fixing the procedural issues of the CDM, and adopting an already-created high-quality pipeline of projects seeking to make real emission reductions.

Next Week: The rights and wrongs of CDM criticisms and why knowing the difference should matter to the US

Throwing down the gauntlet to Secretary Clinton

By Marc Stuart

Secretary Clinton’s weeklong trip to Asia was notable for a number of firsts. The first time a new Secretary of State of a new administration has opened her tenure by flying west, rather than east. Well, George Schultz apparently went south, as the exception that proves the rule. It’s also the first time that these kinds of “nice to meet you” meetings have happened in the eyewall of an global economic meltdown, at least since Cordell Hull got on the boat for FDR. And it’s clearly the first time that climate change was generally at or near the top of any agenda for any Secretary of State at any time.

Secretary Clinton stopped in four countries – Japan, Indonesia, South Korea and China – who for various reasons are each a keystone to a future climate accord. Including the US, the four industrial countries are all among the world’s top ten emitters and roughly account for just about half of the world’s direct emissions from fossil fuels, while Indonesia is generally regarded as the largest emitter from land-use change – i.e. deforestation. So, to paraphrase the bank robber Willie Sutton on why he robbed banks, if we’ve looking for emission reductions, you could do a whole lot worse than starting with these five countries.

And, to briefly get into the odd position of praising the Bush administration on climate policy, its recognition of efficiencies in getting the world’s biggest emitters around a far smaller table – and thereby launching the Major Economies Meeting – was really not a bad one. The UN process of embedding 200 countries into a highly complex stream of multifaceted negotiations is, if nothing else, a giant time suck at a moment when alacrity is of the essence. And to be blunt, it really doesn’t matter what Togo, Paraguay and Laos do when it comes to emissions. Emit to your heart’s content – go nuts. By and large, the decisions and agreement of those 17 countries are what matters – some 85% of the world’s emissions – even if the MEM itself was quite deliberately impotent. And Secretary Clinton’s itinerary went straight to the heart of both the MEM and, more importantly, APEC, a international configuration that indeed might have some teeth going forward, as trade, environment and social issues begin to bubble together around the Pacific Rim.

Leaving aside Indonesia ‘s annual half billion tons of forest clearing CO2 emissions for the moment, Japan, South Korea, China and the US represent not just massive emitters, but the foremost inventors, disseminators and consumers of technology. But beyond that, their status differs quite radically. Despite being the symbolic birthplace of the Kyoto Accord, Japan has consistently argued that its namesake agreement treats it unfairly, giving no credit for its impressive embedded efficiency (catalyzed by the 1970’s oil shocks), as well as the direct impact of its technologies around the world. In other words, Japan thinks should get some kind of credit (beyond a pat on the shoulder) for all the Prius’s and other superefficienct gizmos’s that develops and exports around the world. For South Korea, despite being the world’s 9th largest emitter and having per capita GDP roughly comparable to places like Spain, Portugul and Belgium, it has been classified under Kyoto as a developing country without emission caps. They recognize that this is certain to change and today Seoul is gripped with a mini-carbon fever, as they get ready to become a major importer of emission credits after 2012, if indeed the current architecture is continued.

But it is undoubtedly China where the State Department and others should be putting their focus. China and the US have such an integrated economic relationship that it is foolhardy to think that global emission policy derives from anything else but the power politics that characterize their “coopetition” rivalry. China and the US account for some 40% of the world’s emissions and are definitely each others largest potential markets for the GHG friendly technologies that both Beijing and Washington trumpet commitment to. China has also easily been the largest beneficiary of Kyoto’s Clean Development mechanism with some 60% plus of all forthcoming emissions reductions. Yet despite this, at the last global climate meeting in Poznan, China fired off critiques of the CDM’s woeful inefficiencies that would have made industry blush. All in all, this represents a market and policy gap that is waiting to be filled

So, Secretary Clinton, how about something like this the next time you head over for banquets in Forbidden City? We negotiate a permanent free trade agreement between China and the US for all low emission technologies. That’s all of them – wind turbines, fuel cells and solar panels, smart meters, microturbines, cellulosic ethanol and nuclear reactors and everything else that comes out of the skunk works of either Silicon Valley or Shanghai. We seek a bilateral emissions trading regime between our two countries that starts with sectoral benchmarks and caps on key output areas of China, combined with a hard aggregate cap on the US. We develop a constant stream of exchange on green technology development, finance and execution via channels such as the Energy Foundation, Tsinghua University, World Resources Institute. etc We start a serious dialogue about how to embed carbon issues into the WTO negotiations, so that countries can actually have leverage on each other for emissions underperformance, malfeasance and fraud.

And last, but not least, we agree to use our collective bully pulpit to drag the rest of the world towards a real half century policy trajectory that mirrors the aims of the IPCC and President Obama’s campaign commitments. We’ll bring in the Europeans, Canada the Australians and Japan. China can use carrots and sticks with rest of the developing world. Maybe it’s the other way around – who knows. We can split Korea, since they are still on both side of the fence. But a united front from China and the US on this key issue of our time would be difficult to object to

We can only hope that President Obama and Secretary Clinton realize as well that the world’s two largest emitters have gone without any kind of serious comprehensive emissions policy for at least a decade too long. The world is subsequently much closer to an environmental tipping point than anybody should feel comfortable with. The economic dislocation is giving us a profound and unique opportunity to hit a bit of a reset button on a whole lot of levels. The opportunities from developing a technology and trade partnership for greenhouse gases with China are extremely compelling, whereas the risks of keeping to the old modalities are unacceptable.

Marc Stuart is the Co-Founder and Director of New Business Development for EcoSecurities, a global carbon trading firm. The views expressed are his own and do not necessarily represent the view of EcoSecurities.

Weather Does Not Equal Climate

by Richard T. Stuebi

as posted to Huffington Post

For most of us in the Eastern U.S., January was a really tough month to endure. In Cleveland, it was almost ceaselessly cloudy, snowy and cold. It was really easy to get into a funk.

So, I have an iota of sympathy for Kevin O’Brien, a columnist in The Plain-Dealer, in regards to his February 5th editorial “Another Disappointing Year for Global Warming Hopefuls”.

You see, I too was grumpy, and I too was damn tired of the bitter weather. As O’Brien rightly notes, it was the second-snowiest on record for Cleveland. According to National Weather Service data for Cleveland for January, there were two stretches of at least seven days when the temperature didn’t rise above freezing, and twelve morning lows below 10F. Thus, at one level, O’Brien’s rant was somewhat understandable.

But I can’t cut O’Brien much slack. Unlike O’Brien and others in the blogosphere (such as this February 4 oped in the Washington Times by Deroy Murdock entitled “Warming Up the Laughs”, I don’t wildly extrapolate from one month’s worth of weather to claim not only that climate change is bunk, but that the “global warming panic machine is quite detectably losing steam” or that “both troglodyte right-wingers and lachrymose left-wingers find Albert Gore’s simmering planet hypothesis increasingly hilarious.”

I concede that Al Gore and others have been guilty at times of overpromoting the cause: being a bit too flippant in describing the state of climate science as bullet-proof, and a bit too hyperbolic in suggesting impending ecological disasters as certain and imminent.

That being said, that doesn’t mean that Gore et al don’t have the story directionally-correct.

If you strip away the hype and review the sober assessments of the vast majority of highly-clinical climate experts who have weighed the enormous body of scientific evidence, there is little doubt remaining that human-induced climate change almost certainly is actually occurring, with the net effect of driving a trend of higher average temperatures across the planet. Legitimate questions certainly do remain about pace and impact, but the basic phenomenon is within the realm of little doubt. All one has to do is spend a few minutes reading the work, and the bona-fides, of the Intergovernmental Panel on Climate Change (IPCC) to get pretty comfortable with that conclusion.

For the skeptic crowd including O’Brien and Murdock, there seems to be one misapprehension that tends to underlie their often-angry dismissals of the entire climate change movement. It is a simple logical defect, no doubt stemming from a poor understanding of statistical principles, leading such critics to completely ignore (when convenient to do so) the difference between the concept of weather and the concept of climate.

I’ve been thinking up an analogy that better illustrates the distinction between weather and climate to deniers who pooh-pooh climate change on the basis of one cold month such as January 2009 in the Eastern U.S. I’ve been working on telling the following story, one that’s a little more accessible for the typical layman (and this interview with Professor Daniel Esty of Yale University discusses polling data indicating that many fewer men than women are concerned about climate change):

Consider the 1998 New York Yankees, clearly one of the best teams in baseball history, with an astounding final regular season record of 114-48, and a post-season record of 11-2, culminating in a four-game sweep of the San Diego Padres in the World Series.

As great as this team proved itself over the course of a very long season, there were several multi-game stretches in which these 1998 Yankees compiled losing records. For instance, from August 19 to September 21 — more than a whole month — the Yankees were downright mediocre, with a record of 14 -18. From almost any vantage-point within that stretch, and only considering the games during that stretch, it would be easy for an observer to declare that group of Yankees a so-so team. However, over the much broader season, the verdict is unambiguously and incontestably the opposite: that the 1998 Yankees were an outstanding team.

Weather is to climate what one pitch is to an entire baseball season: an instantaneous reading of conditions, an infinitesimal snapshot, in the midst of something incredibly larger and broader.

Sure, we can have a record cold day, week or month – while at the same time being in the midst of a long-term upward trend of temperatures. This doesn’t seem so hard to understand, really.

(By the way, many believers of climate change are often guilty of snidely commenting about a brutally hot summer day by saying something like “Enjoying the climate change?” while wearing a knowing grin. These are cheap shots that I wish would cease, because they too are inappropriate extrapolations from a small-sample, just like the practice I’m decrying above.)

Not only is climate an assimilation over time of local weather conditions, it is also an assimilation across geography of weather conditions. For instance, while those of us in Cleveland and the Eastern U.S. were shivering in January, places elsewhere like Southern California experienced the warmest January on record, as documented in this article. If Kevin O’Brien had spent January in Los Angeles instead of Cleveland, maybe he wouldn’t have written the same essay. (Well, he probably would have just waited for the next cold snap to trot out his faulty arguments: O’Brien tends to retread this “global warming is nonsense” column every time Cleveland experiences a longish spell of below-average temperatures.)

From a mathematical standpoint, one can intellectually consider the concept of climate as essentially the integral of weather over time and over space. Alas, I suspect that many of those who don’t believe in climate change are probably not too well-versed in the principles of calculus.

Ultimately, I feel sorry for the most strident climate change deniers. People who speak with a conviction masking their lack of understanding often do so from an entrenched position of fear and ignorance, which is a terrible way to live.

As for the pitiful O’Brien, I thought about writing a letter to The Plain-Dealer in response to his February 5th oped, but I doubted that the editors – worried about reader attention span and comprehension – would print something of sufficient length and depth to present a reasoned argument.

So, I wrote this piece instead, but as a concession to brevity, I’ll close by stating something simple, in the hope that he and others of his ilk will soon get it: “Weather does not equal climate.”

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become a Managing Director at Early Stage Partners.

Here we go again . . .or not. Carbon trading vs taxes in economic dislocation

By Marc Stuart

One of my favorite quotes of all time I heard attributed to Barry Diller, the guy who worked for Rupert Murdoch long enough to get the Fox Network up and running, thereby kick starting The Simpson’s and many family moments of mirth in the Stuart household. At some point, Barry purportedly said “Anything worth doing is worth doing badly”. Which Fox undoubtedly proved at its outset. But what Barry meant is that you can spend all your time passing around memos and white papers and studies on what to do and bureaucratize something to death. Or you can just do it and figure things out on the fly.

I think a lot about that when I think about emissions trading and the way these first couple years have fared. We’re now in the 5th year of trading emissions in Europe and there is plenty of evidence that while “badly” may be a bit strong, there are at some serious ambiguities regarding its success. The first three year phase (2005-2007) saw the emissions commodity take a 99% price dive, from over €30 to less than 30 eurocents, in a period of a year or so. Clearly, if it only costs 30 cents to toss a ton of CO2 into the atmosphere – hey, my kids could do it with the spare change they find in the couch while watching The Simpsons.

As the second Phase of the European market begins its second year, it’s starting to have the same familiar smell of Phase 1. Ok, today we’re not that far along – the European carbon allowance is down only some 65% from its peak, and what was €30 is now meandering under €10. What does it mean? Coal to gas switches will go the other way – buy cheap coal and cheap allowances and you’ve got an economic winner that doesn’t put money in Putin’s pocket. Wind development in Europe will finally slow. Carbon capture and storage plans are being shelved. Emission credits from developing countries – the kinds that EcoSecurities specialize in, have followed the same price trajectory. With the prices so low, people are reconsidering the financial viability of investments to lower emissions and in some cases, stopping projects altogether and tearing up contracts. Banks who bought forward emission rights at €15 are deeply underwater in yet another new and inexplicable market. The net result is that certain hydro projects in China are unlikely to get financed, smelter efficiency upgrades in South Africa will go back to the drawing board and landfills in Brazil will keep bleeding uncontrolled methane into the atmosphere.

Bottom line is if you want any kind of emissions mitigation in the developing world, you better hope for some kind of price recovery in the carbon market. And soon.“Cratering the Carbon Market – The Sequel “- will of course give critics of emission trading another opportunity to trot out their arguments that trading doesn’t work and the only way to control emissions properly is via a tax. I might give some credence to that argument – if the price crash in the two periods was created by remotely the same thing. Well, on a macro level, of course it was – imbalance of supply and demand – but here’s where it gets tricky. Phase 1 was caused by too much supply, when EU governments failed to set individual emission caps at the right level, having been convinced by their industries that “just a little more” wouldn’t hurt anybody. Conversely, the Phase 2 retreat has been caused by an unprecedented free fall in demand, when European industry followed Wall Street and the rest of the world into economic strangulation and basically went on vacation, just waiting for somebody, somewhere to order something. In latter 2008, steel production in Germany dropped 30%, thermal electricity in Spain more than 20%, auto production in the UK virtually ground to a halt. Hey, if China’s industrial production dropped double digits in response to the crisis, what the heck do you think Europe – not exactly known as the most cost effective place to do business in the first place – is going to do?

Same thing, some will say – it shows that the market that emissions trading can’t work, that it’s just a shell game foisted upon public policy by a financial sector always looking to create new markets and products. Carbon tax , they say, that’s far more transparent, fairer, effective, can’t be gamed. Just one problem – it simply doesn’t reduce emissions. Unless you get so draconian as to be politically suicidal – not a common condition among our elected leaders. Sweden has had $100 plus carbon taxes for nearly two decades and emissions are down just a tiny fraction in that time. Other carbon taxes in Europe at best have managed to halt emissions rise. And here in the US, you can consider the de facto carbon tax of $200 a ton we managed to layer into the gasoline supply system in 2007 and 2008 while oil climbed to nearly $150 bucks a barrel. Yep, a hundred gallons of gas emit a ton of CO2 – so when you move a gallon of gas a buck, it’s costing you another hundred dollars to emit a ton of CO2. And we barely moved the needle on consumption when all of a sudden we were paying $4-5 a gallon. If ExxonMobil is out there advocating a carbon tax – as they reportedly are – my bet is that their research shows that this is the best way to not impact their sales. Plus they know that in American politics, asking for a tax is about the best way to make sure that nothing happens If you want to reduce emissions, you simply have to cap emissions on as big a part of the economy as you can swallow, stick to the cap and keep ratcheting the cap down. Over decades, not years.

What the small EU experiment has shown – and yes, covering some 6% of global emissions means it’s small – is that there probably is a role for a central emissions bank to tweak emissions rights supply during extreme economic dislocation. Probably not quite as needed on the top end of the market (where emission credits and domestic abatement can mitigate price spikes), but there could be a role there as well, particularly if the Clean Development Mechanism (CDM) continues to underdeliver because of bureaucratic morass, even in bullish economic periods when emission reductions are highly valued.

Despite the initial snickering of being on Fox, The Simpson’s are now among both the longest running and most profitable shows in the history of global television. The network that Barry Diller started with entertainment equivalent of baling wire and scotch tape has gone from being a running joke to televising Super Bowls and having the highest rated shows on the air. Perseverance with emissions trading will similarly pay off in the end far better than any carbon tax. Doing it comparatively “badly” in a first half decade of experimentation has taught us well how to improve the system to achieve the necessary sustainable downward ratchet of carbon emissions over the next 100 years.

Marc Stuart is the Co-Founder and Director of New Business Development for EcoSecurities, a global carbon trading firm. The views expressed are his own and do not necessarily represent the view of EcoSecurities

Soil Carbon from Rangelands in the US

Written by Karla BellgravatarcloseAuthor: Karla Bell Name: Karla Bell
Site: http://www.carbonflow.com
About: Pragmatic Environmentalist and Entrepreneur

A long time pragmatic environmentalist, Karla is probably best known as the driving force behind developing the Green aspect of the Olympics starting with the first Green Olympic Games in Sydney, while working for Greenpeace in the Atmosphere and Energy campaign. She has since been an advisor to both the public and private sector on green infrastructure and emissions trading, and has been a proponent of the need to bring transparency and automation to help scale emissions trading markets.

Born in Fiji, Karla holds an undergraduate degree from Macquarie University in Sydney and is a Senior Research Fellow at the Royal College of Art in London on Sustainable Development. Karla is a co-founder of Carbonflow, Inc dedicated to reducing the transaction costs and ensuring the transparency and environmental integrity of the global carbon credit market. Karla Bell is the Opinion writer and editor of The Greenhouse Gas Blog on GHGblog.com.See Authors Posts (53) November, 2008

Scientist, Allen Savory in his paper “A Global Strategy for Addressing Global Climate Change describes a holistic method of restoring grazing lands, arid lands and degraded lands using methods of animal husbandry that mimic nature and restore soil health, increase biodiversity and absorb carbon back into the soils. He says, soils are further degraded by industrial agriculture using pesticides and chemicals and modern methods of animal husbandry. Dr Savoury has founded holistic management as a movement.

Dr Allen Savoury has 50 years of scientific and practical experience with a network of farmers now representing 30 million acres worldwide using his holistic management techniques. Holistic management has been proven to work even in drought for over 23 years.

His work is very timely and needs to be explored as more focus on Agricultural Emissions as a contributor to GHG emissions is emerging. So far global projects under CDM/JI have not considered soil carbon and no methodologies have been approved. Most new proposed Emissions Trading schemes including Australia, and New Zealand do not include agricultural offsets, the exception is the proposed US Cap and Trade mooted for 2009. To pass the Senate support from rural American states will be necessary. Soil carbon credits may be the rural stimulus package that Clean Tech is for the cities’ utilities and transport infrastructure.

If the car industry spearheaded by GM has to reinvent itself so may the agricultural sector. Following close on the heels of Global Climate Change is a food crisis noted by UK Scientist Professor Lang and some like Scientist Dr Allen Savory believe these twin issues are linked and part of the same problem.

The first and current high technology path under the current Kyoto Protocol focuses on reducing GHG emissions from industry, utilities and transport by plant improvements, fuel switching from coal to gas or oil to bio-diesel and using alternative energy such as solar, wind, nuclear as examples. The high tech path is the focus of mainstream Scientists including the IPCC where the focus is on reducing fossil fuel emissions. It does not address the burning of the world’s grasslands, savannah and does not mention land degradation as a major source of carbon emissions leading to Climate Change.

Furthermore, Savoury maintains that low impact agriculture is the second path, to combating climate change and the only path that can deal with the existing build up of carbon emissions in the atmosphere. Savoury also notes the limitations on carbon sequestration underground or in the oceans and as many others have noted in the long term carbon can be expected at some point to be released or cause ocean acidification.

Organic farming is often seen as the solution as it may not use chemical and pesticides but this does not mean it is a naturally managed system integrated with animals. The new agriculture will need to be truly holistic in that it mimics nature and restores soil health-keeping soils permanently covered. The cropping practices are more akin to nature’s poly-culture complexity than today’s single-crop fields that leave the soil bare between plants and rows and, in many cases, over the entire non-growing season.

Such a new agriculture will remove and store carbon from the atmosphere risk-free, while also increasing water retention. According to the United Nations, one-third of the earth’s land surface (10 billion acres/4 billion hectares) is threatened by desertification, the bulk of which is rangelands. And this estimate is conservative. Rangelands are similar to croplands in that if the soil is bare any time of the year, they will deteriorate and release carbon previously stored. At the same time the ability of such rangelands to store water is reduced. As so much of the soil in rangeland areas is bare – grasslands that appear healthy to anyone driving by in a vehicle commonly have 50% to 90% of the soil bare and exposed between plants – the erosion figures from them dwarf the dramatic figures recorded for croplands.

Soil Carbon farmer Tony Lovell and Bruce Ward made a submission to the Garnaut Climate Chanage Review regarding Landuse, Agriculture and Forestry. They were suggesting that soil carbon be accepted as a source of carbon credits under Australia’s proposed Emissions Trading Scheme. They maintain that using holistic management far more land is available to store carbon. Estimates are that forestry projects could absorb about 5% of Australian emissions, but the real opportunity for acting as major carbon sink is the 64% of landmass of rangelands, crop lands, that currently remain an unrecognised sink for carbon emissions.

Dr Savoury takes exception to the notion that large herbivores cattle, sheep and goats producers of methane are the problem, but indeed could be a major part of the solution. The generally accepted wisdom is that livestock overgrazing and trampling is responsible for a major part of the land degradation as well as methane emissions.

See Clean Living, this blog on Food Miles

Savoury noted, “An alternative to grassland burning and inevitable desertification as a young biologist/game ranger in Africa in the 1950s. Studying the damage from Government policy to burn Africa’s grasslands, he noticed the healthiest land was associated with remnant wild populations of large game animals, where large populations of thousands of buffalo and game, complete with packs of lions that followed closely and kept the herds bunched, the soil and vegetation was healthiest. What the wild, large concentrated herds did not consume, they trampled onto the ground, thus removing the old growth and preparing both plants and soils for new growth.

The animals in intact communities were doing what we were doing using fire, but doing it better with no adverse effects of soil, wetlands, springs and rivers. The world’s vast savannas and grasslands developed over millions of years with soil, soil life, plants, grazing herbivores and their predators-all acting as one vast indivisible functioning whole in nature.

The world’s large grazing animals run in herds as a defence strategy against pack-hunting predators. The larger the number of animals, both prey and predator, the larger the herd masses. Such herding grazers have what are referred to as non-self-regulating populations. This means their numbers are only controlled by accident, disease or predation, rather than any innate breeding control. Because they cannot regulate their own numbers these populations were often enormous with numbers running to many millions.

In fact, as we have discovered, only through increasing livestock numbers while planning their concentration and movement carefully can desertification be reversed on most rangelands. Once restored, rangelands can store even more carbon than croplands can for two reasons: the rangelands of the world dwarf the croplands in size; and most croplands support annual plants with lesser root volume and depth than the perennial plants of healthy rangelands. Root volume and depth is crucial to both carbon and water storage in soils.

The diaries of early explorers in Africa and the Americas record vast herds, which in all likelihood were but remnants of earlier much larger numbers. In the early 1800s, for instance, some 17,000 antelope were shot in a one-day hunt provided for the Prince of Wales in South Africa. Records kept by early South African pioneers describe substantial wetlands, sponges and springs associated with the vast herds but which dried up rapidly as soon as the herds were killed off and their former role was replaced with fire”.

If his approach to animal husbandry was adopted, we would not have to give up eating meat. Natural management practices following nature’s evolutionary herding methods, which co-evolved between plants and animals when millions of buffalo / bison / antelope ranged the American / African / middle-eastern rangelands are his solution. In fact he argues in times gone by far greater numbers of herbivores producing methane existed without causing Climate Change.

Using modern management techniques that truly mimic natural herding phenomena mean carbon will be sequestered in soils. For the earth’s soils to once more sequester carbon as it once did – it is essential to restore living soils. Small increases in soil organic matter amount to billions of tons of carbon stored safely. Conversely, small decreases in soil organic matter result in vast amounts of carbon released to the atmosphere.

Restoring soil organic matter and soil structure also increases rates of water retention. Excessive soil exposure throughout most of the year leads to soil degradation and further exacerbated by industrial agricultural use of chemicals and pesticides.

The new agriculture is close to organic practices and more. It will have to allow natural systems to re-emerge with poly-culture complexity extending beyond plants to include animals particularly herbivores. This strategy has great appeal for Australia, Africa, Middle East and the US where large herbivores have ranged over grasslands.

Some Soil carbon scientists believe the entire legacy or carbon load could be absorbed in the world’s croplands if properly managed, which would mean the end of human-caused Climate Change as a problem. It is estimated that 24 billion tons of soil are eroded annually.

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