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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.

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.

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

Wind Leading the Pack of Winning Clean Tech Technologies

by Marguerite Manteau-Rao

Mark Jakobson, professor of Civil and Environmental Engineering, at Stanford University, performed a thorough evaluation of energy solutions to global warming, as applied to alternative vehicle technologies. His answers may surprise you.

Pr. Jakobson looked at the following energy sources:

  • wind turbines
  • battery electric vehicles
  • solar photovoltaics
  • hydrogen fuel cell vehicles
  • geothermal power plants
  • tidal turbines
  • wave devices
  • concentrated solar power
  • hydroelectric power plants
  • nuclear power plants
  • coal with carbon capture and sequestration
  • corn ethanol
  • flex-fuel vehicles
  • cellulosic ethanol

and evaluated them according to the following criteria:

  • resource abundance
  • carbon-dioxide equivalent emissions
  • opportunity cost emissions from planning-to-operation delays
  • leakage from carbon sequestration
  • nuclear war/terrorism emission riks from nuclear-energy
  • air pollution mortality
  • water consumption
  • footprint on the ground
  • spacing required
  • effects on wildlife
  • thermal pollution
  • water chemical pollution/radioactive waste
  • energy supply disruption
  • normal operating reliability
Wind comes out the clear winner. Concentrated solar power, geothermal, solar photovoltaics, tidal, wave, are good additions to the mix. Hydroelectric is added for its load balancing ability. Nuclear and coal are less beneficial. Corn and cellulosic ethanol should not be included in policy options. Hopefully, the next administration will be wise enough to follow Pr. Jakobson’s recommendation . . . and align its subsidies with the right kind of technologies.

Marguerite Manteau-Rao is a green blogger and marketing consultant on sustainability and social media. Her green blog, La Marguerite, focuses on behavioral solutions to climate change and other global sustainability issues. Marguerite is a regular contributor to The Huffington Post. Since Sarah Palin’s VP nomination, she has also been impersonating Ms. Palin at What’s Sarah Thinking? blog

The Next Big Thing in Cleantech Venturing

As always, the venture community is looking for its next big thing. The cleantech world is no exception. Despite the dearth of exits, so much capital has flowed into the cleantech sector that investors need new places to put it. So despite my promise to certain friends not to blog certain funding rumors in each category, the top 4 contenders are:

  1. Green building materials – I’m not sure it would be my thing, but investors across the board seem to think this area is ripe for a hit.
  2. Carbon IT – With some sort of cap and trade a near certainty, the interest is picking up in one of the few areas in carbon that looks like a “venture bet”. I should know, I have one of these companies myself.
  3. Food related technologies – High food prices and rising fertilizer costs, what can I say?
  4. N-generation solar technologies – Everyone not in the first wave is looking to get in to the 4th wave. Not sure venture investors will fare better in the 3rd or 4th wave than they did in the second, but they are going to try.

I had a chance to visit one of the Gaia Hotels, which bills itself as a new eco-hotel chain, this weekend. The experience put those four contending areas in a bit of a new light, as the creator of the Gaia ecotel concept toured me around and shed some light on the decisions that went into them from the demand side. (Note: “ecotel”, “bit of a new light”, “shed some light”, “demand side”, all good cleantechisms).

After launching a LEED Gold Certified facility in Napa Valley a little under two years ago, Gaia opened a new one in Northern California, focused on outdoor recreational travelers, which they expect to achieve at least LEED Silver. I had lunch with Wen Chang, the creator behind Gaia, this Saturday. When it came to green building materials, I was frankly amazed how much impact the LEED program had on the design and materials selection, and how big a selling point LEED was to this concept. Everything from using photovoltaic panels and Solatube daylighting, to low flow shower heads, low water usage and local landscape selection, and chemical free gardening and stormwater management, all the way to the carpet made from recycled materials, CFLs in the night stand, and sustainable forest products. Talk about demand stimulus, after an extensive tour, I was ready to buy a green building materials company myself. Especially since the ecotel was booked solid!

And of course front and center in the lobby, there were Renewable Energy Credits (though not carbon credits) purchased from our friends at Renewable Choice Energy, to offset the power usage, and a monitoring system to show power and water usage, and solar production.

Moving on to the food technology, the Gaia Anderson restaurant is not yet open, but is intended to be an organic and locally grown food (I assume that Napa will count as “local” for the wine, but I did not ask!).

No eco friendly building in this day and age would be complete without a solar panel on the roof. Gaia Napa’s solar system is apparently providing 10% of the electricity needs on site, while at the Gaia Anderson, the panels have not yet arrived. But perhaps the most telling for would-be solar barons, Wen Chang did not know or care whose technology powered the solar panels. Only that they arrived and worked.

All in all, quite an eye opening one day “deep dive” into the demand side of the four top contenders for cleantech’s next big thing. (Pardon the expression deep dive, I’ve always found that term amusing, especially since cleantech VCs use it all the time now to describe the 6 conferences they went to and 12 business plans they read to become an expert in, say, solar, so I couldn’t resist.)

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is the founding CEO of Carbonflow, founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairman of Cleantech.org, and a blogger for CNET’s Greentech blog.

The Voluntary Carbon Market Does Not Reward Complexity

I had a lively discussion with Susan Wood, the CEO of SCC Americas, at the Carbon Finance North America Conference last week. SCC Americas is the US arm of Syndicatum Carbon Capital, one of the largest developers of Kyoto based CDM carbon credit projects in the world, and Susan herself has been doing emissions trading for over a decade, after starting out as an environmental engineer.

The punchline in our chat was quite fascinating – the US voluntary carbon market does not reward complexity in projects, Susan says. Basically, US carbon credit developers are only doing a few limited types of projects, like methane destruction. Why? Because the buyers, who dictate the voluntary markets, tend to be scared off by anything complex that they do not understand, or anything that does not appear to be future proofed against coming US regulations. This stands in stark contrast to the CDM market, where complexity is often the hallmark of the major developers since the methodology and standards process is trusted to a much greater degree by compliance buyers than the voluntary standards are.

One other way to look at this issue is that much of the innovation in new ways to abate carbon is coming from CDM under Kyoto, not the voluntary markets. A bit sad, and a challenge to the voluntary standards community to get its act in order. Possibly the rise of new standards like Voluntary Carbon Standard and Green-e Climate will help fix the crisis in complexity, but we have been saying that for a while. As Susan puts it, we need it to happen yesterday.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairman of Cleantech.org, and a blogger for CNET’s Greentech blog. He is also the founder of Carbonflow, a provider of software solutions for the carbon markets.

Carbon Offsets Work – Will the Mainstream Media Ever Get It?

The carbon markets are an area of keen interest for me personally and professionally, so it is always frustrating that the mainstream media largely refuses to learn the details.

In general, layman and media who don’t understand the details of the carbon markets attack carbon offsets in two areas, first, questioning whether the credits are for a project that would have occurred anyway (a concept known in carbon as “additionality”), and second questioning whether there are checks and balances to ensure the environmental standards are adhered to and the abatement actually happens (in carbon known as the validation and verification processes). The frustrating part for anyone in the industry is that the entire of the carbon credit process set up under Kyoto is all about ensuring the answers to those two questions. Leading certification firms and carbon project developers have been dealing with the details behind those questions for years.

The biggest weakness of the carbon offset process to date has been that the high level of oversight and protection, while working, has led to higher costs and fewer projects getting done, rather than too many. Bottom line, the carbon markets ARE working, and are pouring billions of dollars into fighting global warming, just like the NOx and SOx trading markets helped reduce air pollution faster and cheaper than anyone expected. Now it’s time to figure out how to make them REALLY scale.

I caught up with a friend of mine, Marc Stuart, to give us a little teach in about the real story in carbon offsets, what matters, what does not, what works, and what still needs to be tweaked. Marc should know, he’s one of the founders of EcoSecurities plc (AIM:ECO.L), one of the first, and still the leader in generating and monetizing carbon credits. Marc, thanks for joining us, we appreciate the time and the teach in.

1. Even for those who don’t know much about carbon offsets, many people have heard about the concept of additionality, and almost everyone intuitively understands it at some level. But it is devilishly complicated in practice. I’ve always described it to people as “beyond business as usual”. Can you explain additionality and give us some insight into the details?

Additionality is the core concept of the project-based emissions market. In a nutshell, it means that a developer cannot receive credits for a project that represents “business as usual” (BAU) practices. A classic and often cited example is that industrial forest companies should not be able to get credits simply for replanting the trees that they harvest from their plantations each year, since that is already part of their business model. A utility changing out a 30 year old, fully depreciated turbine would not be able to claim the efficiency benefits, though a utility that swapped out something only five years old might be able to under certain circumstances.

Additionality is easy to definitively prove in cases where there is zero normal economic reason to make an investment, such as reducing HFC-23 from the refrigeration plants or N2O from fertilizer plants. Such projects easily pass a “financial additionality” test, since it’s clear that as a cost without a benefit, they wouldn’t have been economically feasible under a BAU scenario. It gets far more complex though, with assets that contribute to both normal economic outputs and the development of carbon credits, in particular in renewables and energy efficiency. Sometimes these projects are profitable without carbon finance, but there may be other barriers preventing their execution that make them additional.

The UN has developed a very structured and rigorous process that projects must undergo to prove additionality. It is essentially a regulatory process with multiple levels of oversight, in which a body called the Executive Board to the UN’s Clean Development Mechanism (The CDM is the international system for creating carbon offsets called CERs) ultimately makes a binary decision about whether a project is eligible to participate or not. Anchored in the middle of that oversight is an audit process run by independent, licensed auditors, the largest of which is actually a multi-national nonprofit called Det Norske Veritas (DNV). However, many projects don’t even make it to that decision point before they are dropped in the process.

2. One of the benefits of carbon offsets often touted by those who support them is the idea that they provide compliance flexibility and liquidity in the early years of a compliance cap and trade system. What are your thoughts on how that works?

The simple reality is that many assets that emit carbon have a long lifetimes and that legitimate investment decisions have been taken in the past that rightfully did not take into account the negative impact of carbon emissions. For an easy example, think about somebody who is a couple of years into a six-year auto loan on a gas guzzler—can policy just force that person to immediately switch to a hybrid, especially since the used car market for his guzzler has now completely disappeared? Even if society says yes, how long would it take for the auto industry to ramp up its production of hybrids? Now look at infrastructure—for example, most power plants and heavy industry facilities have lifetimes of thirty years plus. Even if we were economically and politically able to affect a radical changeover, simply put, the physical capacity for building out new technology is limited, even in a highly accelerated scenario. So, like it or not, GHG emissions from the industrial world are going to take quite a while to stabilize and reduce.

The point of offsets is that, in fairly carbon efficient places like California or Japan, availability of low cost reductions within a cap-and-trade system is quite limited, meaning there is an incentive to look beyond the cap for other, credible, quantifiable, emissions reductions. Reductions in GHGs that are uncapped (either by sector, activity, or geography), such as are found in the CDM, are thus a logical way to achieve real GHG reductions and accelerate dissemination of low carbon technologies. In effect, the past helps subsidize changeover to the future as buyers of emission rights subsidize other, cheaper, GHG mitigation activities. As caps get more restrictive over time, capital changeover occurs. Offsets allow this to occur in an orderly and cost-effective manner.

3. There have been a number of studies questioning whether offsets are just “hot air” and whether carbon offset projects actually achieve real emission reductions. What is your response to these accusations?

As noted in the first question, the CDM in particular is a market that is completely regulated by an international body of experts supported by extensive bureaucracy to ensure that real emission reductions and sustainable development are occurring. The first and foremost requirement of that body is to rule on whether each individual project is additional. Each project is reviewed by qualified Operational Entity, the Executive Board Registration and Issuance Team, the UNFCCC CDM Secretariat and the CDM Executive Board itself. Plus, there are multiple occasions for external observers to make specific comments, which are given significant weight. So, while there is always the chance something could get through, there are a lot of checks and balances in the system to prevent that.

That said, determining an individual emission baseline for a project – the metric against which emission reductions are measured – is a challenging process. The system adjusts to those challenges by trying to be as conservative as possible. In other words, I would argue that in most CDM projects, there are fewer emission reductions being credited than are actually occurring. It is impossible for a hypothetical baseline to be absolutely exact, but it is eminently possible to be conservative. Is it inconceivable that the opposite occasionally occurs and that more emission reductions are credited to a project than are real? We’ve never seen it in the more than 117 projects we’ve registered with the CDM, but I suppose it’s possible.

4. What about the voluntary carbon market in the US, where there have been accusations that many projects would have happened anyway? How is this voluntary market different from what EcoSecurities does under the Clean Development Mechanism?

The voluntary market has had more of a “wild west” reputation compared to the compliance market. In some ways, that is deserved, but in some ways it is unfair. For a number of years, the voluntary market was the only outlet for project developers in places like the United States and in sectors like avoided deforestation that were not recognized by the CDM. However, because there were virtually no barriers to entry and no functional regulation other than what providers would voluntarily undertake, it was difficult for consumers and companies to differentiate between legitimate providers and charlatans. For EcoSecurities, while the voluntary market has been a very small part of our overall efforts, we always qualified projects according to vetted additionality standards such as the CDM and the California Climate Action Registry, and always used independent accredited auditors. With the emergence of stand-alone systems like the Voluntary Carbon Standard (Editors note: Marc Stuart sits on the board of the VCS), and the growing demand for offsets from the corporate sector, I believe the “wild west” frontier is drawing to a close. [Editors note: Other voluntary carbon standards we watch closely include Green-e Climate, put out by the people who certify most of the renewable energy credits (RECs) in the US]

It is also important to note that while the voluntary market has recorded very explosive growth, it is still a very small fraction of the regulatory market, comprising a few tens of millions of dollars of transactions, versus the potential tens of billions of dollars of value embedded in the highly regulated and supervised CDM. The fact that many observers still equate the occasional problems in the fringes of the voluntary market (which are increasingly history) with the real benefits being created in the Kyoto compliance market is a misperception we’d like to correct.

5. What about these projects we’ve heard about in China, where the sale of carbon credits generated from HFC-23 capture is far more valuable than production of the refrigerant gas that leads to its creation in the first place? How is this being addressed in the CDM and how can future systems ensure that there are not perverse incentives created like this?

HFC-23 projects are the epitome of what is often referred to as “low hanging fruit.” In this case, most of the fruit might have actually been sitting on the ground. While there is no doubt in anybody’s mind that the market drove the mitigation of HFC-23 globally, the extreme disparity between the costs of reducing those gases and the market value those reductions commanded invariably led to questions whether there were more socially efficient ways to have reduced those emissions. In all likelihood, there were. But to catalyze an overall market like this, it is probably important to get some easy wins at the outset to create broader investment interest and this certainly accomplished that. Moreover, Kyoto created a mechanism for engaging these kinds of activities. It would have sent a much worse signal to the market to have changed the rules in the middle of the game. The CDM has subsequently adjusted the rules to make sure that no one can put new factories in place simply for the purposes of mitigating their emissions. I don’t see too many other situations like HFCs in the future, simply because there are no other gases where the disparity of mitigation costs and market value is so severe.

5. Given that the majority of CDM projects currently under development are located in China and India, how can we ensure that these countries eventually take on the binding targets we will need to reach the scientifically determined reductions in GHGs? Doesn’t the CDM simple create an incentive for these countries to avoid binding targets as long as possible?

It is clearly in the world’s interest to get as much of the global economy into a low carbon trajectory as quickly as possible. However, it is politically unrealistic to expect these countries—whose emissions per capita are between one fifth and one tenth the per capita of the United States—to make an equivalent commitment at this juncture, particularly considering that they are in the midst of an aggressive development trajectory. The CDM provides a way for ongoing engagement with these countries, developing the basic architecture of a lower carbon economy. And there is no doubt that China’s emissions in 2012, 2015 or 2020 will be measurably lower than they otherwise would have been, simply because of the current accomplishments of the CDM. Over time, the use of project based mechanisms will contribute to accelerating the development and dissemination of low carbon technologies, which will make those negotiations for binding caps from all major economies far more tenable.

6. It is widely believed that to address the climate crisis on the scale necessary to avert dangerous global warming, significant infrastructural and paradigm shifts must occur at an unprecedented scale. Some people are concerned that offsets provide a disincentive for making these shifts, since companies can just offset their emissions instead of making the changes themselves. Is this something you saw under the EU ETS at all, and if so, how can it be addressed in a US system?

Virtually all of the macroeconomic analysis that has been done of Phase I of the ETS shows that there were real emission reductions undertaken within the system, despite the fact that many companies were also actively seeking CDM CERs. Clearly the fact that both Kyoto and the EU ETS system place quantifiable limits on the use of CDM and Joint Implementation (JI) credits guarantees that emission reductions will also be made in-country as well, so pure “outsourcing” of emissions compliance is not possible. This also appears to be the model being pursued in most US legislation.

7. Many have complained that the CDM system is too administratively complex, unpredictable, and that the transaction costs of the system are so significant that they could almost negate any possible benefits. What lessons can be learned about structuring an offset system in a simpler, but still environmentally rigorous way? What steps is the CDM EB taking to address these issues?

The CDM treads a very fine line between ensuring environmental integrity of the offsets that it certifies and the need to have some kind of efficient process within an enormous global regulatory enterprise. To date, one has to think that they have gotten it about right, as business has complained about inefficiency and environmentalists have complained about environmental integrity. However, it is becoming increasingly clear that the project by project approval approach is creating logistical challenges as the system graduates from managing dozens, to hundreds, to now, quite literally, thousands of projects in all corners of the world. Ironically, it is the success of the CDM in terms of its very broad uptake by carbon entrepreneurs that is causing problems for the current model.

We believe the benefits of the CDM can be maintained by moving many project types into a more standardized approach, whereby emission reduction coefficients are determined “top-down” by a regulatory body, as opposed to being undertaken individually for every project by project proponents. For example, there are dozens of highly similar wind energy projects in China that all have microscopically different emission baselines. A conservative top down baseline set by the regulator (in this case, the CDM Executive Board) would enable projects to get qualified by the system in an efficient manner with far less bureaucratic overhang. This is how California’s Climate Action Reserve deals with project based reductions and we think that it could work well for many sectors.

8. Is there any difference between a renewable energy certificate (REC) and a carbon offset? Does EcoSecurities support the concept of selling RECs to offset carbon emissions?

While renewable energy clearly helps lower the carbon intensity of the electrical grid, there are a great number of other incentives for development of renewables in the US, including significant Production Tax Credits, and in most states, RECs or Green Tags. For EcoSecurities, this makes it extremely problematic to claim that these assets are additional, despite their obvious benefits to the global environment and decarbonization of the economy. Acknowledging this, EcoSecurities—along with many other companies—has steered clear of developing REC projects for VERs in the voluntary market. There are other firms that have chosen other approaches, which again highlights the need for standardized approaches like the VCS. That said, we are very active in helping create carbon value for RE projects throughout the developing world via the CDM, where incentives such as RECs are almost universally non-existent.

9. There has been a lot of concern about “carbon market millionaires” profiting from selling offsets, and that the only “greening” going on is in the lining of peoples’ pockets. As a carbon market millionaire yourself, what do you think about this concern?

Capital markets exist to reward innovation and punish underperformance. EcoSecurities has existed for more than 11 years and the founders – of which I am one – have devoted more than 15 years to building up various aspects of the carbon market. For many of those years, as we watched friends and colleagues flourish in other markets like internet and biotech, our decision to stay in this seemed fairly quixotic. But we understood enough of the science of climate change to recognize that a fundamental policy response had to be forthcoming, or we would be heading to a global catastrophe. Now those policies have come into focus and the overriding recognition is that society will need to mobilize trillions of dollars of capital to decarbonize the global economy. As part of the proverbial “bleeding edge” for many years, we were ironically well positioned to take advantage when early movers in the capital markets recognized the capabilities and brand that we had built up over a decade. As for whether that is the only greening – well, I can tell you that given the very conservative and difficult aspects of qualifying projects for the CDM, I am 100% certain that our activities contribute solidly to that decarbonization trajectory and that real emission reductions have occurred all over the world because of our efforts.

10) What lessons have you learned personally about the market as a cofounder of the leading CDM project developer in the world? You must have some interesting lessons learned for the US as you are probably unique amongst your competitors in having been based here in the US for over 10 years.

Thanks for the compliment but actually, I’m not that unique. I started in the market in the early 1990’s when the US was the epicenter of a future carbon trading regime, and Europe and Japan looked at it with suspicion and distaste. Quite a number of us from that era did not give up, but instead spent a fair bit of time since then getting our US passports stamped regularly to search the world for projects. It’s nice to see that we may finally be getting back to where we thought we would be a decade ago—with the US as a driving force for innovation in decarbonizing the world’s economy (coincidentally in a recent report produced by the UNFCCC, the US along with Germany, the UK and France provided over 70% of the clean technology currently being utilized in CDM projects). The US is in a perfect position to learn from the both the successes and mistakes within the first Kyoto iteration and I am looking forward to being part of that next stage as well.

11) What do you say to popular press who don’t seem to believe that Kyoto works?

Honestly, you haven’t seen what I have seen. I’ve traveled all over the world and seen the results of Kyoto, where “carbon entrepreneurs” – ranging from divisions within multinationals to garage inventors on their own—are seeking ways to cost effectively reduce GHG emissions. That simply would not have happened without the market signal that Kyoto created. The fact that the CDM has registered more than 1000 projects and has a backlog of several times that – despite the incredible bureaucratic requirements – shows an uptake several magnitudes beyond what anybody predicted when Kyoto was negotiated. When the managing director of a West African oil refinery is proudly detailing to you the steps he’ll be ordering his engineers to take to help save some 250,000 tonnes of CO2 emissions to the atmosphere, that’s when you realize that you’ve tapped into something significant. And having had the same basic conversation in Mumbai, Jakarta, Sao Paulo and Beijing, you realize that people really want to do something, but that you need a little push from a market. That said, we are still in the first tentative moments of what is probably a century long issue and there are doubtless many improvements that can and will be made. But we have undoubtedly proven that the basic premise works.

Thanks Marc. A pleasure to chat as always. Keep up the good fight.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairman of Cleantech.org, and a blogger for CNET’s Greentech blog. He is also the founder of Carbonflow, a provider of software solutions for the carbon markets.

Super Tuesday was Super for US Carbon Cap and Trade

One things for sure, post Super Tuesday with Governor Mike Huckabee far behind, Mitt Romney out, and McCain the all but crowned Republican nominee, the US is getting a cap and trade system for carbon. The question is which one. I thought I’d track a little of the candidates’ various positions.

The major differences that are left between the parties are on how to do it. In general the Republicans favor US based systems, the Democrats favor a Kyoto based approach, sort of. The Democrats favor 100% allowance, the Republicans favor a slower adjustment scheme (The Kyoto mechanisms today are actually closer the Republican stance).

Don’t forget, the real reason the US has not ratified Kyoto is less about whether to use the market based mechanisms (we were the ones who actually advocated putting carbon trading in), and more about the fact that under Kyoto, our major economic competitors in China and India have no commitments to reduce greenhouse gases, and under Kyoto effectively receive foreign aid from developed nations to build out their powerplants and infrastructure. And this concern has gotten worse, as China has now passed the US as the largest emitter of greenhouse gases, but has consistently refused to consider its own emissions reductions. So in reality, even if the Democrats win, we may still get a US focused cap and trade system if that is all that can get through the Senate.

But while any candidate election would likely make a US cap and trade a foregone conclusion, unlike McCain who has actually put forward US cap and trade legislation with a Kyoto “linkage”, Hillary and Barack both talk a new treaty and about a G-8 plus major emitters “extra Kyoto” approach that includes China. This sound surprisingly like the approach George W Bush took at the G-8 summit proposing to work within a group of the 15 largest emitters. Not surprisingly, it failed when the Bush Administration refused to sign up to commitments without China and India on the hook, and China still is not interested in signing commitments. Unlike McCain, I’m not sure Barack Obama and Hillary have figured out the details here. But we shall see.

First, the last naysayer.

Mitt Romney

In 2004 Mitt Romney told the Boston Globe he was not sure global warming is happening.

In 2007 on the global warming issue he continued to be anti Kyoto, at least. “As governor, I found that thoughtful environmentalism need not be anti-growth and anti-jobs. But Kyoto-style sweeping mandates, imposed unilaterally in the United States, would kill jobs, depress growth and shift manufacturing to the dirtiest developing nations.” Source

And the Republicans.

Mike Huckabee

Bottom line, likely no Kyoto and but maybe a cap and trade.

Huckabee has come out in support of “economy-wide” cap and trade, in a Bloomberg article on Huckabee’s support for the McCain sponsored bill.

Huckabee adopted the National Governors Association policy:

“not sign or ratify any agreement that mandates new commitments to limit or reduce greenhouse gas emissions for the US, unless such an agreement mandates new specific scheduled commitments to limit or reduce greenhouse gas emissions for developing countries within the same compliance period;”

Kyoto was a mistake, but “Earth in the Balance” is not. You do not have to hug a tree to appreciate one. It would have been a mistake to sign the Kyoto Treaty since it would have given foreign nations the power to impose standards on us. But Al Gore was not entirely wrong when he spoke of earth “in the balance.” Balance is exactly what we need more of in this discussion. All of us need to have a healthy respect for our resources, a responsible level of use of those resources, and a comprehensive plan for either preserving or renewing those resources. Source: From Hope to Higher Ground, by Mike Huckabee, p. 70 Jan 4, 2007 Source

John McCain

A keen proponent of market based environmental solutions, and anti tax to boot. He is heavily in favor of cap and trade, and as coathor of the McCain-Lieberman Senate bill backing a US cap and trade is the only candidate who has actually been doing anything about it. But he has not necessarily supported ratifying Kyoto without Chinese participation like Hillary Clinton (her husband was the one who signed it originally) used to advocate.

Among other things McCain-Lieberman calls for cap and trade, with the amount of allowances to be determined in the future, up to 15% of allowances permitted from other systems (like Kyoto’s CDM mechanism), and an enforcement penalty of 300% of the per ton market price for companies over their cap. A good summary has been done by the Pew Center, as well as a comparison with other climate change legislation.

In 2003 he did a good LA Times Op Ed piece defending cap and trade as a solution to global warming.

In a further interview he reaffirmed his belief that market based environmental solutions will work.

“Is your party where it needs to be on global warming yet?

Sen. McCain: It varies in my party, so I can’t say “my party.” But where I think our party needs to be is to be more involved in market-based economically beneficial green technologies which will then reduce greenhouse-gas emissions.In other words, Lieberman’s and my cap-and-trade proposal is market based. General Electric, the world’s largest corporation believes they’re going to make profits off of green technologies. I was just out at the port of Los Angeles with Schwarzenegger and BP is going to sequester carbon and take some offshoot materials and convert them into some kind of fuel, as I understand it. That’s going to be beneficial to BP to do that; in other words, it’s economically profitable to do these things.

Ponnuru: One of the stumbling blocks people sometimes have is that they look at these proposals to deal with the problem and they seem, not the ones you’re talking about but some of these other ones, incredibly draconian, like Kyoto, and then you look at the pay-off and it’ll solve 0.7 percent of the problem. Is the problem so enormous that these kinds of measures can’t really get you very far?

Sen. McCain: [They can] if they’re market-based. If business and industry sees a way to make money and get returns to their stock holders, then they’re going to move in that direction. And I really believe that again, this cap and trading thing, which is still being sorted out a bit in Europe, is a good market-based approach to it. And again, carbon sequestration is fine, all of these things are fine, but if you want an immediate impact on reduction of greenhouse gases then start building nuclear power plants. And I’m not saying that’s the only answer but I think it’s a significant part of the answer.”

McCain has adopted the Republican Main Street Partnership issue stance:

“The Republican Main Street Partnership supports the goal of immediate, near-term reductions in greenhouse gases, and would move toward this goal by providing strong incentives that have minimal adverse impact on the economy, and to continue to apply our best scientific minds to developing a better understanding of the long-term nature of climate change and the means to cope with it.

Two objectives should be accomplished:

create an “early action crediting system” to provide assurances to companies that actions taken now to reduce emissions of greenhouse gases will be recognized and credited in the eventual system of emissions reductions standards that will be developed; and

commit the necessary resources to national and international scientific efforts to better understand the cause and effect of global climate change.

With regard to global warming, the Republican Main Street Partnership recognizes that a longer debate over the proper U.S. role in implementing the Kyoto Protocol should and will occur. In so doing, we hope to bolster our scientific understanding of the problem and perhaps, in turn, provide immediate incentives for communities and corporations to act in their own and the nation’s best interests in reducing emissions. We are strongly committed to acting on the emerging consensus for progress and constructive change, and maintaining America’s ability to lead the world in the critical area of environmental protection. Source: Republican Main Street Partnership Issue Paper: Environment 98-RMSP2 on Sep 9, 1998″

Ron Paul

A strong environmentalist and free market libertarian, who opposes the Iraq war, Kyoto, and energy company subsidies for all the same reasons, for one, the constitution does not permit it, two, it is the job of the private sector, not government. Despite being the only non cap and trade Republican left in the mix, I always find it hard to disagree with Ron Paul. He and I are kindred spirits when it comes to small government.

Ron Paul on the environment:

“The federal government has proven itself untrustworthy with environmental policy by facilitating polluters, subsidizing logging in the National Forests, and instituting one-size-fits-all approaches that too often discriminate against those they are intended to help.

The key to sound environmental policy is respect for private property rights. The strict enforcement of property rights corrects environmental wrongs while increasing the cost of polluting.

In a free market, no one is allowed to pollute his neighbor’s land, air, or water. If your property is being damaged, you have every right to sue the polluter, and government should protect that right. After paying damages, the polluter’s production and sale costs rise, making it unprofitable to continue doing business the same way. Currently, preemptive regulations and pay-to-pollute schemes favor those wealthy enough to perform the regulatory tap dance, while those who own the polluted land rarely receive a quick or just resolution to their problems.

In Congress, I have followed a constitutional approach to environmental action:

  • I consistently vote against using tax dollars to subsidize logging in National Forests.
  • I am a co-sponsor of legislation designed to encourage the development of alternative and sustainable energy. H.R. 550 extends the investment tax credit to solar energy property and qualified fuel cell property, and H.R. 1772 provides tax credits for the installation of wind energy property.
  • Taxpayers for Common Sense named me a “Treasury Guardian” for my work against environmentally-harmful government spending and corporate welfare.
  • I am a member of the Congressional Green Scissors Coalition, a bipartisan caucus devoted to ending taxpayer subsidies of projects that harm the environment for the benefit of special interests.

Individuals, businesses, localities, and states must be free to negotiate environmental standards. Those who depend on the land for their health and livelihood have the greatest incentive to be responsible stewards.”

From an interview with Grist:

“What, if anything, do you think the government should do about global warming?
They should enforce the principles of private property so that we don’t emit poisons and contribute to it. And, if other countries are doing it, we should do our best to try to talk them out of doing what might be harmful. We can’t use our army to go to China and dictate to China about the pollution that they may be contributing. You can only use persuasion.

You have voiced strong opposition to the Kyoto Protocol. Can you see supporting a different kind of international treaty to address global warming?

It would all depend. I think negotiation and talk and persuasion are worthwhile, but treaties that have law enforcement agencies that force certain countries to do things, I don’t think that would work.

You believe that ultimately private interests will solve global warming?
I think they’re more capable of it than politicians.

What’s your position on a carbon tax?
I don’t like that. That’s sort of legalizing pollution. If it’s wrong, you can buy these permits, so to speak. It’s wrong to do it, it shouldn’t be allowed.”

Then the Democrats.

Hillary Clinton

Hillary Clinton has previously stated she would ratify Kyoto (though has discussed “fixing” it first), and has come out in favor of aggressive cap and trade systems. It is a little hard to understand how she will reconcile her stated desire for environmental protection as a key part of trade policy, and a Kyoto protocol that places no emissions reduction commitments on major US trading partners like China and India. The short answer may be she has backed off Kyoto, focused on cap and trade and a new treaty for Kyoto.

The Hillary Clinton global warming agenda from her website:

“Hillary’s plan to promote energy independence, address global warming, and transform our economy includes:

A new cap-and-trade program that auctions 100 percent of permits alongside investments to move us on the path towards energy independence;

A requirement that all publicly traded companies report financial risks due to climate change in annual reports filed with the Securities and Exchange Commission”

Her previous statements were very strongly pro Kyoto. “As Senator, I will work for New York to get its fair share of federal mass transit funds and to increase the amount of money that goes to transit funds. And, I will vote to ratify the Kyoto Protocol to bring all nations together to address global warming and build a better future for us all. Source: www.hillary2000.org, “Environment” Sep 9, 2000″

But recently she has started hedging a bit, talking about the flaws of Kyoto. “I will start by reigniting our international involvement. We cannot sit here, in the United Sates and expect to deal with global warming if we do not cooperate with other countries. Getting back into process, you know when President Bush took us out of Kyoto, I regretted that but he had an opportunity to start his own process, he didn’t want to do Kyoto, do something else. Reach out to India and China they have to be part of this. One of the flaws of the Kyoto process was I don’t think people anticipated, even in the early 90s how quickly China and India would grow. China is now growing at 12 percent a year. They are the second highest user of energy but they are now the highest emitter of green house gases in the world. India is not far behind. We have got to get a new international process.” “Energy and Environment: Speech on the Green Building Fund,” Hillary Clinton’s official candidate website, July 24, 2007

And further here.

“The President’s failed unilateral energy policy is a part of our failed unilateral foreign policy. It’s deprived us of the credibility and the leverage we need to solve the climate crisis. I’ll change that by leading the process to develop a new treaty to replace the Kyoto Protocol, which is set to expire in 2012. One of the worst messages the President sent was when he took office and rejected completely Kyoto. He could have said we don’t like Kyoto but we’re immediately starting a new process. But that didn’t happen. Well, come January 2009, I’m sending a different message. I want to act quickly to help develop a new treaty. I will engage in high level meetings with leaders around the world every three months, if that’s what it takes to hammer out a new agreement. My goal will be to secure a deal by 2010. We can’t wait for two more years. I will establish an E8 that’s modeled on the G8 which is where the big industrial economies come together. We need the world’s major carbon-emitting nations to come together to tackle these challenges.”

Barack Obama

As aggressive a global warming activist as you will find in the election, he is actually more Republican on his global warming position that he looks. He like Hillary, favors cap and trade, technology investment, and a 100 percent auction for allowances. But with his extra-Kyoto Global Energy Forum and a noncommital “re-engage” Kyoto strategy, like Hillary he does not appear to have worked out the details.

The Obama statements:

“Restore U.S. Leadership on Climate Change

Create New Forum of Largest Greenhouse Gas Emitters: Obama will create a Global Energy Forum — that includes all G-8 members plus Brazil, China, India, Mexico and South Africa –the largest energy consuming nations from both the developed and developing world. The forum would focus exclusively on global energy and environmental issues.

Re-Engage with the U.N. Framework Convention on Climate Change: The UNFCCC process is the main international forum dedicated to addressing the climate problem and an Obama administration will work constructively within it. “

“Reduce carbon emissions by 80% by 2050

Cap and Trade: Obama supports implementation of a market-based cap-and-trade system to reduce carbon emissions by the amount scientists say is necessary: 80% below 1990 levels by 2050. Obama’s cap-and-trade system will require all pollution credits to be auctioned. A 100% auction ensures that all polluters pay for every ton of emissions they release, rather than giving these emission rights away to coal and oil companies. Some of the revenue generated by auctioning allowances will be used to support the development of clean energy, to invest in energy efficiency improvements, and to address transition costs, including helping American workers affected by this economic transition.

Confront Deforestation and Promote Carbon Sequestration: Obama will develop domestic incentives that reward forest owners, farmers, and ranchers when they plant trees, restore grasslands, or undertake farming practices that capture carbon dioxide from the atmosphere.
Source: Campaign booklet, “Blueprint for Change”, p. 24-27 Feb 2, 2008″ Source

“Q: What do you think the toughest choice you have left to make is? What haven’t you made up your mind on yet? And why haven’t you?
A: The issue of climate change. I’ve put forward one of the most aggressive proposals out there, but the science seems to be coming in indicating it’s accelerating even more quickly with every passing day. And by the time I take office, I think we’re going to have to have a serious conversation about how drastic steps we need to take to address it.
Source: 2007 Democratic radio debate on NPR Dec 4, 2007″ Source

“As president, I will place a cap on carbon emissions and require companies who can’t meet the cap to buy credits from those who can, which will generate billions of dollars to invest in renewable sources of energy and create new jobs and even a new industry in the process. I’ll put in place a low carbon fuel standard that will take 50 million cars worth of pollution off the road. I’ll raise the fuel efficiency standards for our cars and trucks because we know we have the technology to do it and it’s the time to do it.”
Source: Take Back America 2007 Conference Jun 19, 2007

“I proposed a cap-and-trade system, because you can be very specific in terms of how to reduce the greenhouse gases by a particular level. What you have to do is you have to combine it with a 100% auction. Every little bit of pollution sent up into the atmosphere, that polluter is getting charged for it. Not only does that ensure that they don’t game the system, but you’re also generating billions of dollars that can be invested in solar & wind & biodiesel. On a carbon tax, the cost will be passed on to consumers. Under a cap-and-trade, plants are going to have to retrofit their equipment. That’s going to cost money, and they will pass it onto consumers. We have an obligation to use some of the money that we generate to shield low-income and fixed-income individuals from higher electricity prices. We’re also going to have to ask the American people to change how they use energy. Everybody is going to have to change their light bulbs and insulate their homes. It’s a sacrifice that we can meet.”
Source: 2008 Facebook/WMUR-NH Democratic primary debate Jan 6, 2006

So here comes the cap and trade. But the how is still up in the air. In the interests of full disclosure, this is an area I fully believe in, and I am not only involved with at least one business that would likely benefit from a US cap and trade, though also a few businesses that would likely suffer from a cap and trade.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, and a blogger for CNET’s Cleantech blog.

FutureGen Stalled?

FutureGen is the major US Department of Energy backed effort to pilot a technological solution to prove that carbon capture and sequestration from coal fired power plants is possible. At a slated price tag of $1.5 Billion ($1 Bil estimated originally, now estimated at $1.8 Billion), it is one heck of a science project – but one that sorely needs to be done.

Now that project appears to have hit a snag. While the site the consortium picked to build the project was selected in December as Mattoon, Illinois, after a short delay in responding, the DOE is now hesitating to give formal approval – their Record of Decision.

The CEO of the FutureGen Alliance, Michael Mudd, seems confused as to why, though cost overruns, disagreements about the scope and technological objectives, and objections to moving to fast for good practice have been suggested.

After thinking about it this morning, I had a few initial reflections:

  1. We are a nation of massive coal reserves and 50% of our power comes from coal generation. Investing in clean coal technology should definitely be a prime DOE objective. let’s keep our comparative advantage in energy.
  2. While CCS is likely to be an expensive way to abate greenhouse gases, if we are going to solve the global warming problem, we are going to need help from everything and the kitchen sink. Pilots exactly like this need to be tried.
  3. At the kind of price tag and scale up risk we are talking about with CCS, government research support and funding is vital.
  4. On a practical level, the Department of Energy is 74% of this project. I really do not understand why there should be any miscommunication. He who writes the checks makes the call. If they have real concerns over cost overruns, technology, or management, make the changes and get going.

There, I said it. Now let’s just get it done, people.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairs Cleantech.org, and a blogger for the CNET Cleantech Blog.

Bringing Seapower to the Fight Against Global Warming

The cleantech sector has developed as a major player in the fight against climate change. One of my friends, Dan Whaley, has founded a company called Climos to attack global warming in a new way, sinking massive amounts of carbon into the ocean depths using ocean iron fertilization. The approach has seen significant scientific study, but as he acknowledges, still has a ways to go to prove its effectiveness. That is where Climos comes in. The exciting part is the sheer scale of the potential carbon sequestration (on the order of a billion tons) and the low cost (possibly on the order of $5 to 7 per ton, according to Dan). Dan and Climos believe that they can use iron fertilization to sequester tremendous amounts of carbon, play a big part in reducing global warming, and use the carbon trading markets to finance the projects. I was also intrigued to learn more from Dan given the quality of the companies, like DNV and Ecosecurities (LSE:ECO.L), that Climos is working with to help design the carbon abatement methodology, and the care that Climos is taking to understand the environmental science. Like our own efforts in carbon, Dan believes in science and standards first. (On a personal note, I do not have a lot of choice in that matter, as my wife is an environmental scientist and statistician.) As a result, we asked Dan to do an interview with Cleantech Blog and tell us how they believe harnessing the power of the sea can play a big role in the fight against climate change.

Dan, you are one of the new class of technology entrepreneurs who is moving into cleantech. Can you share some of your background, and why you chose carbon?

In 1995 I founded the first company to commercialize travel reservations over the net, GetThere.com. We went public in 1999 and sold to Sabre in 2000. If you’ve booked a ticket on United Airlines’ website, you’ve used an example of the infrastructure we built.

I think that entrepreneurs by nature love big challenges. We like to find opportunities where key technologies, services or business transformations can make a profound difference to the world. We understand that the missing ingredient we provide is the vision and the sheer will to make those transformations happen. We are perhaps at our best when the odds are against us, and when most people say we’re crazy.

A few years ago, I drove from here down to Buenos Aires. Somewhere along the way, I think I woke up and really fully realized that there were some extraordinary challenges out there facing us that were much more pressing than most people had been giving them credit for. Challenges that were much more important than whether people could book their travel online, for instance. GetThere was a powerful lesson to me that I could set my mind to something and achieve it, but it was also a little numbing at times too—sometimes I wondered just exactly what I was really contributing to the world.

By contrast, the energy and environmental challenges we face as a species are exactly the kind of thing an entrepreneur likes to tackle head on. Plus it actually makes a difference whether we succeed or not.

Tell me a bit more about the concept of ocean fertilization and how it could abate C02? Why iron?

Ocean Iron Fertilization (OIF) was first proposed nearly 20 years ago by an oceanographer here in California named John Martin, at the time he was the Director of Moss Landing Marine Labs. He was the first to discover that iron was the trace nutrient limiting photosynthesis, and hence primary production, in most of the world’s oceans.

Photosynthesis uses freely available sunlight to convert CO2 to organic material, which higher level organisms consume directly or which sinks into deep waters of the ocean to be sequestered for up to 1000 years. Clearly we need to lower our emissions dramatically, and immediately, but if atmospheric CO2 that we have already put into the atmosphere is ever to decline, it will be photosynthesis that eventually does the work.

Over the last billion years, phytoplankton (the micro algae that grows ubiquitously in the ocean) have helped to concentrate over 80% of all mobile carbon on the planet into the deep ocean. This process is referred to as the Biological Pump, where after plankton bloom, mature and die, they sink to the deep ocean, carrying carbon along with them. The deep ocean recirculates over very long time periods. The lag between downward flux and eventual recirculation creates an extremely effective trap. This process is probably easily 20-30x more effective at storing carbon than plant growth on land, which returns most carbon back to the atmosphere on short time scales (10-100 years).

A tiny amount of iron can stimulate a lot of phytoplankton growth. 12 publicly-funded, open ocean experiments over 15 years have shown this. The science community is now proposing the next generation of experiments, at moderate as opposed to small scale and potentially funded by private sources. We hope to answer the question just how much carbon is sequestered (not just grown), at what scale can this be done safely, and whether this can fit in to the market mechanisms that have evolved worldwide to fund the mitigation of carbon dioxide.

Who else is doing this and what exactly do you do differently as far as ocean fertilization goes?

Up until now, it has been purely been a research effort, with cruises funded by public agencies such as the National Science Foundation. There are now a few companies proposing to do this, though the primary competitor, Planktos, appears to be winding down operations due to problems fundraising. We decided to pursue this because we feel like this is one of the largest potential tools mankind might have to address global warming. Perhaps our primary differentiator is that we want to make sure that if this is done, it is done credibly and scientifically.

Our Chief Science Officer, Dr. Margaret Leinen left NSF in January. She was the head of Geosciences there and managed a $700M research budget. Her research career was in paleoceanography and biogeochemistry. Our Science Advisory Panel includes people such as Dr. Rita Colwell, the former Director of NSF, Dr. Tim Killeen, the Director of the National Center for Atmospheric Research and the recent President of the American Geophysical Union, Dr. Bob Gagosian, the former President of Woods Hole Oceanographic Institute, Dr. Tom Lovejoy, the President of the Heinz Center, and so forth.

What is different about what is happening now is that the demonstrations of OIF will be larger, focused on different questions and also funded in part by the private sector. The carbon market is the mechanism that the world has chosen to fund emissions reductions and carbon mitigation, and so if OIF can be an effective way to safely remove CO2 from the atmosphere, that will probably be financed via the carbon market.

How will you verify that the abatement is happening?

To quantify the carbon removed, we deploy a range of sensors, the most important of which are called “Neutrally Bouyant Sediment Traps” to measure the amount of carbon falling past a certain depth in the ocean. Identical measurements are taken both inside the project area as well as outside the project area—this gives us an idea of what would have happened if we hadn’t been there.

There are further nuances which are important to account for, such as how much carbon really ends up coming out of the atmosphere to replace that which is being used at the ocean’s surface. Also, we will need to model the impact on nutrient stocks before they are replenished via deep winter mixing, etc. There many important other details, but this probably illustrates the basic concept.

Can you go into some more detail on the questions of permanence, always a major concern in new carbon reduction methodologies.

The permanence of storage is measured in choosing the depth we place the sensors at. This depth is determined by looking at what is called the ventilation or residence time of water at difference depths in the project area. Because the oceans circulate so slowly, most of the world’s water mass, in fact the majority, has not seen the surface since before fossil fuels began being combusted in the late 1800s. I think that is a fairly surprising fact to most people. By sampling water at depth for signs of human activity which also have a known history, such as tritium from bomb testing in the 1950s or from CFCs that began being released in the 1920s, oceanographers can tell how long any cubic meter of water has been away from the surface.

Putting this to practice, if you sink carbon past water that hasn’t seen the surface for 300 years, and if you know the directionality of circulation in that place in the ocean, you can be fairly sure that this carbon won’t see the surface for at least 300 years moving forwards. This is how we understand permanence in addition to quantity.

The IPCC defines permanence as at least 100 years, so we will likely use this definition—but ultimately the carbon market will decide what that number is, not us. Keep in mind that significant amounts of carbon are stored for timeframes which are shorter as well, i.e. 75 years, 50 years, etc. This timeshifting of carbon is meaningful and helpful as well, but we won’t claim credit for this. Also, the minimum (i.e. 100 years) is just that, the minimum. Much of the carbon will be stored for much longer—hundreds to even thousands of years.

Many people question the value of ‘timeshifting’ carbon. They wonder if we’re creating a problem for ourselves later when this carbon comes back. There are several important things to consider here. First, we really have no other options—other than emissions reductions, which are important—but really separate. There is no other way to ‘dispose’ of the carbon that we’ve put up in the atmosphere already. Nature timeshifts carbon—at some point, nearly all carbon will see the atmosphere again, the question is on what timeframe. The effectiveness of sequestration in the ocean is the reason that the majority of ‘mobile’ carbon has ended up there over time. Second, this approach gives us time to address our emissions problem. People have likened this to a concept called ‘oscillation damping’, where if you have a pulse that takes time X (as in the number of years we have been adding too much CO2 to the atmosphere) then it may take you 2X or 3X or 4X to ‘dampen’ that pulse, depending on its amplitude. So if we’ve been creating this problem for 100 years, and it takes us another 25 years to solve, then we may have to mitigate for several multiples of that. This is an unscientific quantification, but perhaps a useful illustration—and I think it also serves to highlight what a huge challenge we have ahead of us.

Aren’t you worried about the impact on the environment on “adjusting” ocean nutrients? I know that has been a concern of some environmental groups.

I think there are a number of distinct concerns rolled up in your statement. One is the fear that OIF is ‘messing with mother nature.’ Many people feel that humans simply can’t get anything right, and that we if we try to fix what we’ve already broken, we’re likely to make it worse. This is an unscientific attitude, and one that I think also fails to appreciate some of the unique aspects of this concept.

Other concerns are whether a change in the level of iron is potentially harmful, or whether the drawdown of existing macronutrients such as nitrates, phosphates and silicates (which is what the addition of iron triggers) could result in permanent shifts, or deplete productivity elsewhere—i.e. no net benefit. There are a number of answers for this.

First, this is already happening. Iron naturally fertilizes phytoplankton blooms—and these are the largest source of carbon sequestration happening as we speak. About three billion tons of CO2 is stored safely at depth in the ocean every year, and has been for a long time. Iron is a benign mineral. It in and of itself is simply not harmful.

Second, nature has already done more aggressive iron fertilization at scales much larger and for periods much longer than we are contemplating. During the last million years on at least five or six separate occasions between the major ice ages, natural iron inputs to the ocean increased by many times what they are now for thousands of years at a time. Productivity (i.e. plankton) increases appear strongly correlated with these times of increased iron. A recent paper by Cassar, et al this year has linked nearly 40ppm of the 80-100ppm swing of carbon in the last interglacial to increased iron enrichment of ocean waters by aerosol and other transport mechanisms. If iron fertilization simply removes nutrients that would have eventually been used elsewhere, then you would not have seen sustained productivity increases in the paleo record. Where we are now is a result of all of these previous episodes—and more than likely this will happen naturally again in the future, whether humans do it on purpose or not.

Lastly, OIF will be done gradually, over decades. It can be stopped at any time.

The key is to continue to explore this as a potential mitigation mechanism and to see whether it can be both effective and safe. Demonstrations run by scientists, and funded by the private sector which can deploy the capital required for the larger projects, are probably our best chance of this.

You intend to sell carbon credits based on this process. What standard will you use, and who do you expect will be the likely buyers?

Long term if this is to be meaningful it will need to be accepted in regulated markets, in the short term the voluntary market can help provide the bridge financing to get us there. We think the Voluntary Carbon Standard (VCS) is probably the best current standard, but there are others as well. We’ll target as many standards as appropriate. The methodology we are currently developing is designed around the UN Clean Development Mechanism (CDM) specification—though since it takes place in the middle of the ocean it will never qualify for those credits without changes to the regulatory framework.

You mentioned you approached the problem from the science, standards and measurement & verification end first. That’s an approach I definitely agree with. Can you go into some more detail? I know you had mentioned working with DNV, among others.

A number of things need to be done before larger demonstrations like the one we propose.

First, the key science questions that will to be asked of this next generation of experiments need to be asked. We will be proposing a series of science workshops with the community this year to help facilitate that. One of the conferences will be on long term modeling. Another will be on measurement and verification techniques. We will be announcing these over the next several months.

Second, a comprehensive Environmental Impact Assessment needs to be performed by an outside party that reviews concerns in detail and against the peer-reviewed literature, identifying which are likely not an issue, which are questions of appropriate project design, and which need more study. We will be initiating this process over the next several months.

After these processes are complete we will begin to structure our proposed cruise, and publish this ahead of time. This also involves applying for appropriate international permits, etc.

DNV, or a company like that, will be involved in validating the Project Design Document (PDD) after we select a specific operating site, and before we actually go to sea. They will also come on the cruise to provide direct verification of the results.

Many of these general activities are called for by a document we produced last year which we call a Code of Conduct. We think that it is vital that companies like ours operate in a scientific, responsible and transparent manner.

So this process is kind of like planting trees, except in the ocean?

Yes, except it happens faster and the storage is more permanent. Forests store carbon in the form of standing biomass—in other words, you get storage for as long as the forest is managed and preserved. If it burns down, or gets harvested, a large part of that carbon is returned to the atmosphere. Also, if the tree dies and is not replaced, nearly all of that carbon is returned on short time scales (< 100 years). This is not to say that we shouldn’t be planting trees. We should, and we are—the UN just finished planting a billion trees the week before the recent Bali conference. We need to be doing a lot more of that.

Two of the most attractive aspects of ocean fertilization are low cost and large scale. Can you give us some insight into where ocean fertilization fits on the spectrum of cost and potential abatement levels?

We think credits from OIF can be delivered for about $5-7 a ton long term. No one knows what the annual global capacity might be. Certainly three billion tons a year (CO2) are already being done naturally. It is possible that another billion tons annually might be able to be added to this number, but that is pure speculation. Some people have quoted numbers that are much higher than this, but I think that’s probably not a constructive exercise right now.

And of course, when do you expect to be able to offer credits off of this platform, now that the VCS has been released?

We have just received the first draft of the methodology back from Ecosecurities and DNV (Det Norske Veritas) is in the process of a formal assessment. After their comments, and possible revisions, we will submit the methodology to the VCS steering committee. They have told us they will require a 2nd formal review by a qualified verifier, after which it would qualify to be accepted as a VCS methodology.

We will also be asking other peers in the science community to help us evaluate and refine the methodology. They will certainly be the most important check. We expect it will be refined many times as measurement and modeling approaches improve.

The credits of course will be dependent on the successful completion of our first cruise. We expect this in 2009.

Dan, your OIF approach is certainly exciting given the scale and low cost of the potential CO2 abatement, and I wish you the best. It is certainly not a easy task.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairs Cleantech.org, and a blogger for the CNET Cleantech Blog.

Climate Legislation: Who Gains? Who Loses?

Most Americans now agree that something needs to be done to reduce our greenhouse gas emissions. Hopefully most Americans now appreciate that this is not a small, but even more so, not a simple problem. I am a big believer that the playing field for our low carbon future should start level, and the market should be structured to allow our major power and energy companies a chance to lead the way, instead of simply dishing out punishment for our combined historical choices. Carrots and sticks work well together, but sticks alone are not going to solve our global carbon problem. I think it is also important to ensure that our carbon legislation does not result in a higher cost to consumers in middle America, just because the MidWest happens to have been historically coal fired, than the cost to those of us living on the coasts. Jim Rogers of Duke Energy puts this much more eloquently than I do.

Duke Energy (NYSE:DUK), one of the largest power companies in the US, has been a long supporter of energy efficiency, and known for being forward looking when it comes to a low carbon future, smart metering, and advanced energy technologies, despite having a generation fleet that is 70% coal fired. Cleantech Blog is delighted to welcome Jim Rogers, CEO of Duke Energy, to give us his thoughts on the devil in the details from their perspective. It is heartening to see a major power company take on the carbon issue full force, and like Duke has done, push energy efficiency in a big way.

– Neal Dikeman, Cleantechblog.com

By Jim Rogers
Chairman, President and CEO of Duke Energy

As we debate our differences on how to address the challenge of global climate change, surely we can agree on the end-goal – a secure, sustainable and affordable supply of energy now, and for future generations.

Most Americans also agree that we must act now – and begin building a bridge to an energy-efficient, low-carbon economy.

As the third-largest coal consumer in the United States, and one of the largest greenhouse-gas emitters, Duke Energy has a responsibility to be part of the solution. That means looking at not only how climate change affects our business today, but also the implications for the future.

We support federal legislation to address global climate change by putting a cap-and-trade system in place. The U.S. Senate is in the process of vetting a cap-and-trade bill introduced by Senators Lieberman and Warner in October. This bill is well-intended, contains some good points and appears to have bipartisan support.

But on closer examination, questions arise. Who really stands to gain, and who stands to lose? What are the real costs to average Americans?

You would expect the bridge to a low-carbon economy to have a cost, just as you might pay a toll to cross any bridge. But should some of us have to pay twice? With the Lieberman/Warner approach, that’s exactly what would happen.

Lieberman/Warner proposes to auction a large number of emissions allowances to the highest bidder. In effect, an auction becomes a carbon tax, levied on consumers in the 25 states that depend on coal for electric power – primarily the Midwest, the Great Plains and the Southeast.

Electric power customers in those regions would have to pay for the auctioned allowances up front, and then pay again later to upgrade power plants, or build new ones, as carbon-control technologies become available.

A better approach is to allocate allowances at no cost to generators who emit greenhouse gases – and reduce the number of allowances over time, while new carbon-control technologies are being developed and put in place.

Some say that an auction is the only way to take action to reduce emissions, but history tells us otherwise. Allowances were not auctioned under the 1990 Clean Air Act Amendments; nearly 97 percent of them were allocated at no cost. Since then, new technologies to reduce sulfur dioxide and nitrogen oxide emissions have been developed and implemented. Those environmental controls have reduced emissions by more than 40 percent since 1990, and they continue to decrease, without dramatic rate hikes. In fact, the nation’s average electric rates have declined.

In contrast, some estimates put the Lieberman/Warner bill’s cost to the average family at more than $1,000 per year, while emissions traders would stand to profit greatly from a volatile market for carbon allowances. According to Bloomberg, the Lieberman/Warner bill would create a potential $300 billion annual carbon-trading market by 2020.

So the question comes down to this – are we interested in protecting consumers or enriching emissions traders?

Customers who live in the Midwest, the Great Plains and the Southeast did not choose to get a large portion of their electricity from coal – it was a matter of economics, geography and geology. They should not be punished for decisions made decades ago, in good faith, using the best and lowest-cost technology of the time, with regulatory approval – and long before anyone knew about the impact of carbon emissions on climate change.

And before we dismiss coal as a viable energy source for the future, consider this: The U.S. is sitting on more than 250 years of coal reserves, more than any other nation in the world. This rich natural resource has untapped potential for ensuring our country’s energy security. The challenge is primarily technological – to find smarter and cleaner ways to use it, such as carbon capture and storage. Until those technologies are available, we must continue to use our existing coal resources and protect the interests of consumers who rely on coal.

The goal for carbon legislation should not be to punish utilities for building coal plants to keep the lights on in the past. It should be to create the incentives to put new clean technologies in place for the future – not just clean coal, but also nuclear and renewable energy, natural gas and the “fifth fuel” – energy efficiency.

Under the Lieberman/Warner approach, electric power customers in half of our states will carry a disproportionate share of the burden. We need to pass climate legislation that is fair to all consumers and protects the economic interests of all states and regions. Our climate is at stake, and so is our economy. By allocating most allowances, following the precedent set by the successful Clean Air Act, we believe both can be protected.

Jim Rogers is the CEO of Duke Energy, writing as a guest columnist on Cleantech Blog.

California’s Low Carbon Diet

By John Addison (12/5/07). When Coke and Pepsi were in the middle of their diet wars, California was an early battle ground. It is a state which tends to do much in excess, including drinking colas. In fact, only a handful of countries spend more money on beverages. Parties of happy and surprisingly fit youth were shown on TV commercials drinking their beverage of choice.

Now millions of Californians are being targeted as early adopters for a low carbon fuel diet. More miles, less carbon emission. It is the law. Executive Order S-1-07, the Low Carbon Fuel Standard (LCFS), calls for a reduction of at least 10 percent in the carbon intensity (measured in gCO2e/MJ) of California’s transportation fuels by 2020. Low Carbon Fuel Standard Program

Successful implementation of the LCFS will be critical to California’s even more ambitious law, the California Global Warming Solutions Act (AB-32), which requires California’s 2020 greenhouse gas emissions to not exceed 1990 emissions. The challenge is that in 2020, California’s population will be double 1990.

Because transportation is the main source of greenhouse gases in California, it is urgent that Californians use vehicles with better miles per gallon and that less greenhouse gases be emitted from the use of each gallon of fuel.

The world will learn from the successful implementation of LCFS because gasoline and diesel are currently becoming more carbon intense. There has been a shift from oil that is easy to get, to extraction and refining that increases greenhouse gases, as we make gasoline from tar sands, coal-to-liquids, and a future nightmare of shale oil. For example, monster earth movers strip-mine northern Alberta, extracting tar sands. Elizabeth Kolbert reported in the New Yorker that 4,500 pounds of tar sand must probably be mined to produce each barrel of oil. The converting of tar sands to petroleum will require an estimated two billion cubic feet of natural gas a day by 2012. Carbon intensity includes all the emissions from the earth movers and all the natural gas emissions from refining.

“All unconventional forms of oil are worse for greenhouse-gas emissions than petroleum,” said Alex Farrell, of the University of California at Berkeley. Farrell and Adam Brandt found that the shift to unconventional oil could add between fifty and four hundred gigatons of carbon to the atmosphere by 2100. Article

So, how can California reduce the carbon emission from fuel use? As a major agricultural state, E10 ethanol will be part of the solution. E10 can be used in all gasoline vehicles including 40 mile per gallon hybrids and in the new 100 mile per gallon plug-in hybrids being driven by early adaptors. Higher percentage blends of next generation ethanol are even more promising. Biodiesel is better at reducing carbon intensity than corn ethanol. Most heavy vehicles have diesel engines, not gasoline. Exciting new European diesel cars are also starting to arrive.

There are over 25,000 electric vehicles in use in California. Heavy use of electricity for fuel would take California far beyond the minimal target of a ten percent reduction in carbon intensity. This is especially true in California where coal power is being phased-out in favor of a broad mix of renewable energy from wind, geothermal, solar PV, large-scale concentrated solar, ocean, bioenergy and more.

California Low Carbon Fuel Standard Technical Analysis documents that there is a rich diversity of sources for biofuels within the state and in the USA including the following in million gallons of gasoline equivalent per year:

In-state feedstocks for biofuel production Potential volume
California starch and sugar crops = 360 to 1,250
California cellulosic agricultural residues = 188
California forest thinnings = 660
California waste otherwise sent to landfills = 355 to 366
Cellulosic energy crops on 1.5 million acres in California = 400 to 900
California corn imports =130 to 300

Forecasted 2012 production capacity nationwide Potential volume
Nationwide low-GHG ethanol = 288
Nationwide mid-GHG ethanol = 776 to 969
Nationwide biodiesel = 1,400
Nationwide renewable diesel = 175

A variety of scenarios have been examined with detailed analysis by U.C. Berkeley, U.C. Davis, and stakeholder workgroups that include technical experts from the California Energy Commission and the California Air Resources Board. Several scenarios are promising including one that would achieve a 15% reduction in carbon intensity with the following percentage mix alternate fuels and vehicles of some 33 million light duty vehicles by 2020:

Fuels:
Low-GHG Biofuel 3.1%
CNG 1.7%
Electricity 0.6%
Hydrogen 0.4%
Low-GHG FT Diesel .9%
Sub-zero GHG Biofuel 3.9%

Vehicles:
CNG vehicles 4.6%
Plug-in hybrid vehicles 7.4%
Flex-fuel vehicles 34.7%
Diesel vehicles 25.5%
Battery electric vehicles 0.5%
Fuel cell vehicles 1.9%

The ultimate mix will be determined by everyday drivers in their choice of vehicles and fuels. Low emission choices are becoming more cost-effective with the growth of electric vehicles, waste and renewable hydrogen, fuel from biowaste and crops grown on marginal land, and even fast growing poplar trees that absorb more CO2 than is emitted from resulting biofuels. The alternatives make fascinating reading for those interested in future scenarios for fuels and vehicles:

California Low Carbon Fuel Standard Technical Analysis and Scenario Details
California Low Carbon Fuel Standard Policy Analysis

California’s ambitious goals to reduce greenhouse gas emissions will benefit by the increased motive energy per CO2e that is described in these scenarios. California will also benefit from vehicles that will go more miles with the same energy input. Vehicles are getting lighter and safer as high-strength carbon fibers and plastics replace heavy metal. The shift to hybrids and full electric-drive systems allow replacement of heavy mechanical accessories with light electric-powered components. Hybrids allow big engines to be replaced with smaller, lighter engines. Pure electric vehicles can eliminate the weight of engines and transmissions. Less fuel weight is needed. Aerodynamic vehicles are becoming more popular.

Employer programs are leading to more flexible work, less travel, and increased use of public transit. Demographics may also cause a shift to more urban car sharing, use of public transit, bicycling, walking, and less solo driving. It can all add-up to a celebration of low-carbon living.

John Addison publishes the Clean Fleet Report which includes over 50 articles about clean transportation.

A VC Going Carbon Neutral?

I have mentioned my friend Justin Label, one of the partners at Bessemer Ventures, before. Among other things he writes the Venture Again Blog. Bessemer is a highly respected old line Silicon Valley venture capital firm. They have been an active investor in cleantech for a while, and are backers of Miasole as well as SV Solar. I found myself on a plane recently with one his colleagues, Ted Lin. But more than their investments, Ted was describing to me a new carbon friendly initiative that Bessemer itself is undertaking internally.

Their logic is simple, if they are investing in cleantech because they believe in being part of the global warming solution, not only making money, then they should practice what they preach. While still early days, they are targeting both their power and travel usage, and expect they will likely implement an internal reduction plan as well as purchasing offsets.

I asked Ted where this came from, and he said this initiative has come down from the top of the firm. It makes sense, and it is good to see the activity happening. My hat is off to them.

Ted also pointed out that Bessemer is also going to be buying offsets for their smaller portfolio companies (those under 50 people). “The goal is that when these companies grow into bigger companies and leave the nest, they will continue the tradition. We want them (our portfolio companies) to lead the next generation environmentally responsible enterprises.”

One of the things he did ask, did I know any good offset providers, because as with any venture capitalist, they are looking for the “best of breed”. So if you are interested in helping Bessemer email Ted at Ted@bvp.com.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, and a blogger for CNET’s Green tech blog.

Is Microsoft Vista Global Warming Friendly?

Is Microsoft Vista global warming friendly? Could Vista be the best selling cleantech product in the world? I was thinking about this question the other day, and started emailing the Microsoft (Nasdaq:MSFT) press relations folks looking for an answer.

The Microsoft answer – yes it is. They have a recent release entitled “Windows Vista Power Management Features Can Help UK Companies Reduce Their Carbon Footprint” on some independent research they had done by PC Pro Labs in the UK.

Here’s their quote:

“Windows Vista is Microsoft’s most energy efficient operating system to date with its power management system, functionality, reliability and default settings focused on helping to reduce overall PC energy consumption. The key areas where the Sleep mode in Windows Vista has been improved compared to the equivalent Standby mode in Windows XP include:

• Enter Sleep mode after being inactive for 60 minutes
• In Windows Vista, it is much easier for users to change the power management settings themselves
• The Sleep mode is more reliable than Windows XP’s Standby mode, both in terms of entering the mode and safely resuming back into Windows
• Windows Vista is much quicker at resuming from Sleep, now taking two to three seconds compared to five seconds for Windows XP”

They also published a whitepaper entitled “Windows Vista Energy Conservation“. Reading through it all, Vista does seem to be an energy efficiency masterpiece.

But I wonder – the description of these tests seemed to quite fairly compare the XP and Vista operating systems running through a series of different scenarios – but it’s not a survey of real world conditions.

So I’m probably convinced that if you run the same computer post-Vista the exact same way you ran it on XP, that you’d use less power. Vista itself may actually BE the best selling cleantech product in the world. But in the real world, we don’t work that way. Each year we add a whole lot of new features and programs that suck down power, and buy more powerful PCs to run them on with every upgrade. And part of the promise of Vista is to enable even more such goodies – possibly offsetting the energy savings.

So are Windows users who have upgraded to Vista running the same programs in the same way, and the same (or more energy efficient PCs) and therefore using less power? Or are they actually using more or different features, or on a more powerful energy hog PC, and despite Microsoft’s energy efficiency efforts, using more power on a daily basis anyway after the upgrade? That might not be something Microsoft could control – but I’m sure curious as to the answer from a carbon standpoint.

As a matter of full disclosure, I run XP at the office, Vista at home, own a small amount of Microsoft stock (and am a very big fan) and have a very bad habit of leaving my computer and monitor on – but I’m working on that.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Author for Inside Greentech, and a Contributing Editor to Alt Energy Stocks, and a blogger for CNET’s Green tech blog.

Honeymooning in Costa Rica – The Home of Carbon Neutrality

I’m taking this week off for my honeymoon in Costa Rica. I think it’s quite an appropriate place to take a honeymoon if you work in the effort to fight global warming – as I’ve stated before, we are working on a venture to use software to cut the cost and increase the transparency of carbon offsets.

Among its initiatives to drive its ecotourism and lead the world – Costa Rica is working to become the first carbon neutral nation.

I had a chance to listen recently to a presentation by Bob Epstein, the founder of E2, which is connected with the National Resources Defense Council – on Costa Rica’s efforts. By the way, if you are an executive seriously interested in the enviroment – joining E2 should be a priority.

The NRDC and E2 have also done some work laying out how that path to carbon neutrality would look. Their core arguments and primary recommendations are fascinating when you think of applying the concept of carbon neutrality on a national scale beyond a small case study like Costa Rica.

Beyond the continued reforestation which makes up a significant reduction in Costa Rica’s greenhouse gas footprint, The NRDC proposal emphasized four areas of needed progress:

  • “Increasing energy efficiency
  • Raising fuel economy and promoting plug-in hybrids
  • Encouraging productions of biofuels and biomass for electricity
  • Improving public transport”

The press release and full report is available here.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Author for Inside Greentech, and a Contributing Editor to Alt Energy Stocks.