Law and the Environment

Representative Markey Announces Plan to File Climate Change Legislation That Would Reduce US Greenhouse Gas Emissions by 85 Percent

Representative Edward Markey, Massachusetts Democrat, announced that he is going to file a bill that would require an 85 percent reduction in greenhouse gas emissions in the United States by 2050.   Like almost all other bills filed in Congress, Markey’s bill would rely on a cap-and-trade system to achieve the emission reductions.  Markey is chairman of the House Select Committee on Energy Independence and Global Warming.

John McCain Traveling through Europe Discussing Greenhouse Gas Restrictions

Senator John McCain has been traveling in Europe, and has met with the current Prime Minister Gordon Brown of the United Kingdom and former Prime Minister Tony Blair.  Their talks were wide ranging, but included discussions of actions to address climate change and the use of a cap-and-rade system to achieve greenhouse gas reductions.  They also discussed a post-Kyoto treaty.

"I want to make clear again we will not have a global agreement that is effective unless India and China are part of it," McCain said.  "I am convinced that if we work at it, we will convince India and China that it is in their interests to be part of a global agreement to reduce greenhouse gas emissions.  I think that there will be sufficient international pressures and domestic pressures as well as the facts of the environmental challenges that will bring them into a global agreement."

Senator McCain also met with the European Union environment commissioner Stavros Dimas, who oversees Europe’s emissions trading scheme.

Pension Funds Reach Agreement with Dynegy to Disclose Climate Risks by the End of the Year

Two of the largest pension funds have forced Dynegy Inc., to agree to report on climate risk by the end of this year, and how the company will address this risk.  The California State Teachers' Retirement System and North Carolina Retirement Systems, both of which owned substantial shares in the company, filed a shareholder resolution with Dynegy in January to require the company to report on the feasibility of adopting specific greenhouse gas reduction goals for its existing and proposed power plants.

In exchange for an agreement by Dynegy to make the report, the two pension funds withdrew the resolution.  Dynegy is apparently developing a plan to disclose climate change information to its shareholders, which likely will include the company’s annual greenhouse gas emissions, as well as a plan for mitigating those emissions.  The mitigating steps may include purchase of greenhouse gas offsets or carbon credits.

At the same time, Dynegy is planning to construct coal-fired power plants in Arkansas, Georgia, Iowa, Michigan, Nevada and Texas. Two plants are under construction in Arkansas and Texas.

This development indicates a growing capability of institutional investors to force climate change disclosure from major companies.

Australian Article Reports Company Frustration That Investors Are Not Valuing Their Reductions in Carbon Emissions

The article below from the Herald Sun discusses concern of certain Australian companies that their actions ahead of a carbon cap-and-trade system in Australia to reduce their carbon emissions has not been recognized by the markets and investors.  The article suggest not only the potential of the market to not fully recognize and appreciate the risk from carbon or greenhouse gas emission limitations, but suggests actions take to reduce carbon emissions in preparation for climate change legislation may not be appreciated by the market as yet.  This throws a new wrinkle in the issues relating to environmental governance and disclosure in the sense that companies are usually worried about the need and effect of disclosing risks from carbon emissions and climate change regulation.  Here the issue is not the failure to disclose or the concern of a reduction in stock price because of carbon exposure, but the concern that proactive steps have not been reflected in an increase in stock prices.

The global warming debate may be in from the cold in Australia, but some companies are accusing the share market of freezing them out with sluggish attitudes to climate change liabilities.

More than a fortnight after the Federal Government gave carbon emissions trading the nod, brokers and fund managers are being described as too slow to value the upside of listed companies that have taken steps to minimise climate change risks to their earnings.

"A number of organisations cannot understand why the market is refusing to factor these initiatives into share prices," Joanne Saleeba, chief executive of Investor Group on Climate Change, told BusinessDaily. ASX rules prevent these companies from speaking on the record about some aspects of their share prices. But Ms Saleeba said behind the scenes there was a growing frustration among companies that have implemented carbon reduction programs in recognition that global warming carries risks to investor returns.

Origin Energy communications chief Tony Wood told BusinessDaily that he had seen no evidence of the market factoring in the $40 million worth of investments Origin has made in solar sliver technology.

Origin, whose other investments include gas-fired generators, geothermal technology and some hydro-electric interests in New Zealand, believes the Australian share market has proved it is sceptical about the earnings potential of clean energy.

Greg Pritchard, finance director at Energy Developments - one of the largest listed renewables companies - said the group's power generation from coal mine, methane and landfill gas sites around the world had helped it offset about nine million tonnes of emissions.

"When carbon trading starts here in 2012, this will become a valuable part of our balance sheet," Mr Pritchard said.

But not everyone believes the market should wait four years to put a value on abatement.

"These efforts are being overlooked by the market and it is very frustrating for companies leading the charge into an era of carbon restraint," said Ms Saleeba, whose organisation represents institutions with $225 billion of funds under management.

The group's membership includes AMP Capital Investors, Babcock & Brown, BT Financial Group, Colonial First State and Goldman Sachs JBWere.  It was established two years ago to bring to the market's attention the fact that big investors viewed climate change liabilities as a serious risk to the earnings of companies.  Those risks are divided into five categories: regulatory, physical, litigation, competitiveness and reputation.

Goldman Sachs JBWere head of quantitative research Andrew Gray said there was a "disconnect" between companies that had advanced their business strategies to address these risks and stockbrokers and fund managers that were not reflecting this in their analysis.

"When you consider that many institutional investors have for years taken climate change risk seriously, the disconnect becomes more pronounced," Mr Gray said.

Part of the problem lies in the fact that the federal government is yet to set carbon emissions targets and decide how permits will be distributed.

The uncertainty makes it too difficult for researchers to make a call, according to Dr Ian Woods, senior research analyst at AMP Capital Investors.

He acknowledged that institutions were years ahead of the market on the issue.

"We have been looking at how well companies plan for climate risk for five years because it gives us a good idea of how they plan for risk generally," Dr Woods told BusinessDaily.

Scott Marshall, head of industrial research at Shaw Stockbroking, confirmed that "clean" initiatives were not being factored into valuations by most analysts.

"Being green may be good for the environment, but the only way it is going to be good for the share price is if companies can show it saves money," Mr Marshall said.

"Until we know more about emissions trading, there's no value assigned to stocks for being green.

"It is just too hard to value at the moment."

Mr Shaw said there was "a lot of paperwork estimating the cost of emissions going around between stock brokers and a lot of office commentary on carbon trading", but at this stage this information was not being used to assess risk profile, despite client concerns.

A number of brokers have admitted that big clients and institutions are leaning on advisers for more clarity on how portfolios are likely to be affected when carbon trading starts.

BusinessDaily is aware that numerous organisations have already conducted extensive modelling under different scenarios to assess the impact of carbon trading on different sectors and even individual companies.

But for a number of reasons, the view is that it is premature to reveal this information until the government releases more details on how emissions trading will work.

One organisation that refused to be named said it had already done thorough economic modelling but had been pressured by a government department to not release its findings.

"We used a grant to do the research and now that we have finished, some people are dragging their feet about making it public," the unnamed source said.

But the lid is likely to lift in coming weeks as a number of reports are released in answer to rising demands from institutions for information.

The Climate Institute, which published a climate change report on the electricity sector last month, is expected to produce more detailed analysis at the end of this month on how other sectors are likely to be affected by carbon pricing.

Also at the end of June, institutional investors will begin to have a better idea of how much carbon most of Australia's top 100 companies are emitting thanks to a voluntary reporting exercise.

The investors hope to be able to assess and compare strategies the companies are using to protect shareholder returns from global warming liabilities.

The information will be collated by the London-based Carbon Disclosure Project into a global report and publicly released in September.

Among the project's Australian signatories are AMP Capital Investors, ANZ Bank, BT Financial Group, National Australia Bank, Hastings Funds Management, Portfolio Partners and a number of the biggest superannuation funds.

Last year, just 10 per cent of companies surveyed provided sufficient information for the institutions to gain an insight into how they will manage environmental liabilities.

This year, the response rate from top 100 companies is greater.

The Australian end of the disclosure project is being organised by Goldman Sachs JB Were and the Investor Group on Climate Change.

Mr Gray said responses reveal which companies are fully integrating global warming issues into their planning and are likely to be "better able to turn the climate change issue into a source of competitive advantage and therefore shareholder value".

In a report on the project last year, Mr Gray named 20 Top-100 companies that produced the strongest inclination to embrace environmental risks.

Mainstream investors want to, and need to, consider how exposed they are to climate change liabilities, Mr Gray wrote.

Proposal for a Federal Renewable Energy Standard Spurs Both Support and Criticism

A proposal in Congress for a federal mandate for the amount of electricity produced from renewable energy sources has spurred both support and criticism.  Sen. Jeff Bingaman (D-N.M.), chairman of the Senate’s Energy & Natural Resources Committee, announced he is planning to offer an amendment enacting a national renewable portfolio standard or “RPS” when the Senate takes up energy legislation this month. The RPS would require utilities to provide 15% of the electricity they generate from renewable sources such as wind, solar, biomass, and geothermal. Utilities could also purchase renewable energy credits or “RECs” from other utilities or generators who produce electricity from renewable sources to meet the standards.

 

This proposal would require utilities to supply 15% of electricity from renewable resources received support from nearly 200 corporations, trade associations and other groups on Friday.  These corporations and organizations included General Electric Inc., Google, the United Steelworkers, BP America and Sierra Club.

 

The proposal has been criticized by various utilities and the Edison Electric Institute as creating costs for utilities in states that, because of their location, do not allow for much renewable energy production.  These corporations or organizations believe the state RPS should be left in place and no federal standard imposed.

 

A federal program appears to be gaining support in both the House and Senate. 

EPA Announces Proposed Rules on Renewable Fuels and New Mileage Standards for Vehicles

At a press conference on April 11, 2007,  just a week after the US Supreme Court issued its order rejecting the EPA's decision not to regulate greenhouse gases from automobiles, EPA Administrator Johnson, Energy Secretary Samuel Bodman, and National Highway Safety Administrator Nicole Nason, discussed the RFS program, increasing the use of alternative fuels and modernizing CAFE standards for cars.

“The Renewable Fuel Standard offers the American people a hat trick – it protects the environment, strengthens our energy security, and supports America’s farmers,” said EPA Administrator Stephen L. Johnson. “Today, we’re taking an important first step toward meeting President Bush’s “20 in 10” goal of jumping off the treadmill of foreign oil dependency.”

"Increasing the use of renewable and alternative to power our nation’s vehicles will help meet the President’s Twenty in Ten goal of reducing gasoline usage by 20 percent in ten years," Secretary Bodman said. "The Administration’s sustained commitment to technology investment will bring a variety of alternative fuel sources to market and further reduce our nation’s dependence on foreign sources of energy."

“While we must look at increasing the availability of renewable and alternative fuels, we must also continue to improve the fuel efficiency of our passenger cars and light trucks,” said Nicole R. Nason, Administrator of the National Highway Traffic Safety Administration. “As a part of the President’s “20 in 10” energy security plan, we need Congress to give the Secretary of Transportation the authority to reform the current passenger car fuel economy standard.”

Authorized by the Energy Policy Act of 2005, the RFS program requires that the equivalent of at least 7.5 billion gallons of renewable fuel be blended into motor vehicle fuel sold in the U.S. by 2012. The program is estimated to cut petroleum use by up to 3.9 billion gallons and cut annual greenhouse gas emissions by up to 13.1 million metric tons by 2012 -- the equivalent of preventing the emissions of 2.3 million cars. The RFS is an important first step toward meeting President Bush’s call on our nation to reduce gasoline use by 20-percent within 10 years by growing our renewable and alternative fuel use to 35 billion gallons by the year 2017.

The RFS program is designed to promote the use of fuels such as ethanol and biodiesel, which are largely produced from American crops. The program will create new markets for farm products, increase energy security, and promote the development of advanced technologies that will help make renewable fuel cost-competitive with conventional gasoline. In particular, the RFS program establishes special incentives for producing and using fuels produced from cellulosic biomass, such as switchgrass and woodchips.

The RFS program requires major American refiners, blenders, and importers to use a minimum volume of renewable fuel each year between 2007 and 2012. The minimum level or “standard” which is determined as a percentage of the total volume of fuel a company produces or imports, will increase every year. For 2007, 4.02 percent of all the fuel sold or dispensed to U.S. motorists will have to come from renewable sources, roughly 4.7 billion gallons.

The RFS program is based on a trading system that provides a flexible means for industry to comply with the annual standard by allowing renewable fuels to be used where they are most economical. Various renewable fuels can be used to meet the requirements of the program. While the RFS program establishes that a minimum amount of renewable fuel be used in the United States, more fuel can be used if producers and blenders choose to do so.

The RFS brings the nation closer to President Bush’s Twenty in Ten goal to reduce gasoline consumption 20 percent in ten years. To achieve this goal, the Bush Administration’s Alternative Fuel Standard (AFS) proposal builds on the RFS and requires use of 35 billion gallons of renewable and alternative fuels in 2017 - nearly five times the RFS target of 2012. The AFS proposal will displace 15 percent of projected annual gasoline use in 2017 through the use of fuels, including corn ethanol, cellulosic ethanol, biodiesel, methanol, butanol, hydrogen, and other alternative fuels. The Twenty in Ten plan also calls for reforming and modernizing CAFÉ standards to increase the fuel economy of cars. This will reduce projected annual gasoline use by up to 8.5 billion gallons, a further 5 percent reduction that will bring the total reduction in projected annual gasoline use to 20 percent. President Bush has called on Congress to act on these proposals by the start of the summer driving season this year.

A Green Takover? Investment Firms Offer to Buy TXU and Reduce Number of Coal Plants and Take Steps to Go Green

The Dallas Morning News reports this morning that the investment firms, Texas Pacific Group, Kohlberg Kravis Roberts & Co., and Goldman Sachs, have not only offered to buy TXU, which has been the brunt of controversy and lawsuits over its proposal to build 11 coal-fired power plants in Texas, but to reduce the number of coal-fired plants to three and to otherwise produce more renewable energy.  In doing so, the three firms have entered into agreements with environmental organizations as part of the proposed takover of TXU.  This may be a first in the investment community--a "Green Takeover."

The full text of The Dallas Morning News article follows:

Prospective TXU buyers would build fewer coal plants

Group promises only 3 new coal plants, is likely to cut prices

02:00 AM CST on Sunday, February 25, 2007

By ELIZABETH SOUDER / The Dallas Morning News

esouder@dallasnews.com

The companies that want to buy TXU Corp. would build only three of the 11 coal-fired power plants TXU has proposed, and would cut retail electricity prices, addressing two issues that fueled public outcry against the power company.

The buyers, Texas Pacific Group, Kohlberg Kravis Roberts & Co. and Goldman Sachs, signed an unusual agreement with two environmental groups. They promised to scale back the coal plant building program – as well as to cut pollution and greenhouse gas emissions – if TXU accepts their offer of around $45 billion for the company.

Negotiators say the deal is the first of its kind.

Jim Marston, regional director for Environmental Defense in Texas, described in an interview Saturday the points of the deal his group and the Natural Resources Defense Council signed with the buyout companies.

"It really is, I think, a watershed moment in America's fight against global warming. They have made a number of very important commitments related to both local air pollution problems in Texas as well as commitments to do something against greenhouse gas emissions," Mr. Marston said.

"The fact that it's a Texas company doing this, as opposed to lobbying for delays, is a big deal," he said.

The agreement is designed to clear TXU's name among environmentalists, consumers, regulators and politicians after the plan to build 11 coal-fired power plants prompted substantial environmental debate in Texas. The issue also put TXU at the center of a national discussion about global warming, because coal plants emit more carbon dioxide than plants using other types of fuel. The commitments also address the controversies that drove some state lawmakers to seek to force a breakup of TXU.

Meanwhile, someone with direct knowledge of the buyout offer said TXU's board is meeting this weekend to consider the offer that would take Texas' largest power company private. The deal would be the largest buyout ever.

TXU officials won't comment on the offer, and the buyers have remained officially mum.

Environmental accord

An official with Texas Pacific Group contacted the environmental groups about a week and a half ago to propose talks. The groups met in San Francisco on Wednesday – the day two administrative law judges in Austin decided to postpone the TXU permit hearings by four months. The judges were heeding a decision by a state district judge that Gov. Rick Perry's order to fast-track plant permits is probably unconstitutional.

After a 17-hour meeting, the groups had an agreement. In return for the environmental commitments, the advocacy groups agreed to settle a lawsuit concerning one of the TXU coal plants.

The buyers agreed to the following points:

•Build only three new coal-fired power plants using traditional coal technology. The buyers would pursue permits for the Sandow plant and the two Oak Grove plants, and yank permit applications for all other coal plants.

•Keep TXU's promise to cut total emissions of regulated pollutants 20 percent from current levels after the new plants are built. Those pollutants are nitrogen oxides, sulfur dioxide and mercury, but do not include carbon dioxide.

•Not to propose building any traditional, pulverized coal plants outside of Texas. TXU had planned to expand the building program to the Northeast.

•Support federal legislation to impose a cap on carbon dioxide emissions and agree to cut TXU's own emissions to 1990 levels by 2020. The 11 plants TXU proposed to build would emit 78 million tons of carbon dioxide a year, boosting TXU's total annual carbon dioxide emissions to 94 million tons.

•Join U.S. Climate Action Partnership, a group of 10 industrial and financial companies that are urging the government to create a cap-and-trade program for greenhouse gases. Companies would get credits to emit a certain amount of carbon dioxide each year, and as companies cut their emissions they could sell the credits to others.

•Pursue more wind power, and double the amount TXU spends on energy efficiency programs to $80 million for the next five years. The investors would probably keep TXU at least that long before selling, according to a source with direct knowledge of the buyers' thinking.

•Explore using coal gasification technology for subsequent plants. Coal gasification is a process that burns coal more cleanly and allows the carbon dioxide to be captured and stored. Current TXU managers have said the technology hasn't been proven to work efficiently on Texas coal.

•Create a sustainability energy committee to advise the new company. Officials with the Environmental Defense and the Natural Resources Defense Council would sit on the committee.

Charging less

Cutting retail electricity prices isn't part of the environmental deal. But people with knowledge of the buyers' thinking said they also plan to lower consumer rates.

Such a move would please key Texas lawmakers who have filed legislation designed to cause prices to drop by limiting the size of power companies and forcing TXU to break apart.

Sen. Troy Fraser, R-Horseshoe Bay, last year chastised TXU chief executive John Wilder during a public hearing for hiking retail prices after the 2005 hurricanes drove natural gas prices – and thus power prices – higher but not dropping prices when natural gas rates fell.

TXU executives have argued that Texas needs the plants to meet growing demand for power. Power grid officials predict that by 2010 Texas' power supply will become uncomfortably tight on days when people use the most electricity. But since TXU announced the plan, rivals have announced plans to build their own coal, nuclear and wind generation facilities.

TXU executives have also said building 11 coal plants could reduce wholesale electricity costs by $1.7 billion. That's because coal plants are cheaper to operate than natural gas plants, which are currently the dominant type of generation in the state. By adding the cheaper coal power to the grid, natural gas plants wouldn't have to operate as often. Lower wholesale prices could trickle down to consumers if retail electricity providers cut the price they charge.

The strategy was to design one coal plant, called a reference plant, and replicate it across the state and around the country. By building so many plants at once, TXU was able to push the cost down to about $10 billion, or $1,100 per kilowatt, a cost so low that some rival power executives doubted it could be done.

Some people who oppose the plants speculate that TXU expected the new plants to strengthen the company's market position so much that it would discourage competitors from building their own plants in Texas and would solidify TXU's position as the largest power company in the Texas market.

Why three?

The buyers promised environmentalists they would eliminate the reference plant plan and only build the three plants that TXU had proposed before announcing the reference plant strategy.

Permits for those three plants aren't part of the case that was delayed by four months. TXU had applied for these permits earlier, but they are all also delayed for various reasons.

Hearing judges recommended that regulators deny permits for the two Oak Grove plants. The permits now await a final decision by the Texas Commission on Environmental Quality. And the commission is waiting until the Texas Senate confirms the nomination of a third commissioner so the group can vote on the permits with a full board.

The Sandow plant is unique because TXU wants to build it on behalf of Alcoa to replace some older coal plants at an Alcoa facility. But the process has been delayed by lawsuits brought by environmentalists in federal court.

Environmental Defense is a nonprofit environmental advocacy group with 400,000 members. One of the group's functions is to ask big companies to agree to take specific action to reduce their impact on the environment. If a company refuses to negotiate, Environmental Defense may resort to suing the company over environmental infractions or to block the company's growth plans.

TXU's current executives haven't negotiated with Environmental Defense. Last October, the environmental group sued the Texas Commission on Environmental Quality, which decides on air permits, to block TXU's coal plant permits. And earlier this year, Environmental Defense launched an advertising campaign, including television ads, targeting TXU's proposed plants.

The group will settle its lawsuit if the buyout firms purchase TXU, Mr. Marston said.

Natural Resources Defense Council also uses litigation and lobbying to pursue environmental protection.

David Hawkins, director of the council's climate center, said he didn't get everything he wanted out of the negotiations. He'd prefer TXU didn't build any traditional coal plants.

"But the outcome ... is a very substantial move and one that is a move away from old-fashioned coal technology and toward putting efficiency and renewables at the core of modern business plan for the power sector," he said.

"Multibillion-dollar buyouts occur fairly often, but this kind of decision by the buyout companies to incorporate environmental objectives as part of the overall transaction, I think, has not happened before," he said.

One Money Market Expert Predicts Trillion Dollar Carbon Market

An article from MarketWatch quotes one money market expert who predicts enormous future carbon trading market.

Carbon trading market could be worth $3 trillion

By Padraic Cassidy

Last Update: 1:38 PM ET Feb 22, 2007

SAN FRANCISCO (MarketWatch) - Policy makers at the Emissions Markets and Cleantech Opportunities conference Thursday called for national legislation to set up carbon trading markets. "We need public policy," said Peter Fusaro, chairman of Global Change Associates. He said a carbon trading market could be worth $3 trillion and provide investments for private equity, hedge funds, venture capitalists and investment banks. Other speakers said hurdles and complexities could mean several years before such a system in launched. (Reporting by Steve Gelsi.)

Total Launches the First Integrated CO2 Capture and Geological Sequestration Project in a Depleted Natural Gas Field

From Total's Website:

Total launches the first integrated CO2 capture and geological sequestration project in a depleted natural gas field   

Feb. 08, 07

   

Total announces the launch of a pilot CO2 capture and sequestration project in the Lacq basin in southwestern France. The project, which leverages a technique considered among the most promising in the fight against climate change, calls for up to 150,000 metric tons of CO2 to be injected into a depleted natural gas field in Rousse (Pyrenees) over a period of two years as from end-2008.

“This project will demonstrate the role that CO2 capture and sequestration can play in reducing greenhouse gas emissions from industrial installations,” notes Christophe de Margerie, President Exploration & Production of Total. “It represents the first integrated CO2 capture system using oxy-fuel combustion combined with storage in a depleted hydrocarbon field.”

The first link in the chain is a steam production unit at the Lacq gas processing plant. Oxygen will be used for combustion rather than air to obtain a more concentrated CO2 stream that will be easier to capture. Once purified, the CO2 will be compressed and conveyed via pipeline to the depleted Rousse field, 30 kilometres from Lacq, where it will be injected through an existing well into a rock formation 4,500 metres under ground.

Following preliminary studies in 2006, the Rousse field was selected for its geological structure, which gave the best guarantee of sustainable storage. Total has just launched the engineering study phase. CO2 injection is scheduled to begin in November 2008.

The project, which will cost nearly 60 million euros, will be carried out in partnership with Air Liquide and in cooperation with the French Petroleum Institute (IFP), the French Bureau of Geological and Mining Research (BRGM) and others.

Over the past ten years, Total has participated in several CO2 sequestration projects, notably in saline aquifers at North Sea oil production sites. The capture and sequestration of CO2 provides yet another way of reducing greenhouse gas emissions alongside programs already deployed by the Group to develop renewable energy sources, reduce flaring of associated gas and make production facilities more energy efficient.

Are We Missing Economic Opportunities by Not Adopting a Carbon Cap-and-Trade System in the United States?

This story from MarketWatch reviews the economic opportunities that the United States will miss if we do not move toward a greenhouse gas cap-and-trade system as has been adopted in Europe using a market-based approach to solving air emissions issues that we in the United States invented.  In fact, my environmental professor at Harvard Law School was one of the early proponents of such a system for air pollutants in the United States.  We have had a market for emission reduction credits for sulfur dioxide, volatile organic compounds, nitrous oxides, and certain particulates in many areas of the country.  The U.S. representatives successfully added a cap-and-trade program to the Kyoto Protocol for controlling greenhouse gas emissions.

We should be careful not to let an idea "Made in the U.S.A." become a source of economic benefit for other countries, while we sit back and let it slip away.  The European Union Emission Trading Scheme has had its faults, and has gone through trial and error, but billions of dollars in credits have been traded and will be traded in the future.

The reality is  that companies are already forging strategies for addressing risks and benefits from a U.S. trading system.  California and many northeastern states have already adopted such trading systems and are attempting to set up an ability to trade with the EU ETS.  Most major emitters of greenhouse gases have concluded that it is not a question of if, but when, a national system will be put in place to control these emissions in the United States.

In fact, a variety of companies have come together and are calling for a national cap-and-trade system.  Duke Energy, DuPont, Alcoa, BP America and several other companies have created the United States Climate Action Partnership.  On the USCAP website the group "lays out a blueprint for a mandatory economy-wide, market-driven approach to climate protection."

The article below makes an arguement that for economic reasons the United States should adopt a system for the entire country, and enter the carbon credit business. 

By William L. Watts, MarketWatch

Last Update: 4:53 PM ET Feb 13, 2007

WASHINGTON (MarketWatch) -- Wall Street could miss its chance to be a global center for carbon trading if the United States fails to get in on efforts to set up global trading in carbon dioxide emissions as world leaders seek to limit greenhouse gases and curb global warming, a senior British lawmaker warned Tuesday.  "Wall Street could be the world center for carbon trading," said Stephen Byers, a member of parliament in the United Kingdom who also serves as a co-chair of the International Climate Change Taskforce and the chair of market mechanisms working group on climate change established by the Group of Eight industrialized nations.

London is already working to prepare for global emissions trading, and New York risks losing out "on what's going to be a huge money earner and an employer of tens of thousands of people," Byers said at a news briefing on the eve of a Capitol Hill summit that will bring together business executives, legislators and government officials from 20 countries.

Europe uses a cap-and-trade system designed to reduce emissions of greenhouse gases. Under the system, governments set limits on emissions. Companies then buy or sell credits against those limits. Critics have noted that European officials have wrestled with flaws in the system.  

But California and northeastern states have announced plans to put their own systems of caps in place. And lawmakers have also introduced bills that would implement federal caps on emissions.

Last month, a group of firms and environmental groups dubbed the United States Climate Action Partnership, called on Congress to enact mandatory caps on carbon emissions. Read about the new political climate around global warming.

Some climate-change experts view carbon taxes as a more efficient way to reduce emissions, arguing that such a levy can be spread equally across sectors and doesn't penalize firms that have already taken steps to cut their output of greenhouse gases.

The forum is expected to discuss a range of options. But Elliot Morley, a member of the U.K. parliament and the president of the global association of legislators that is co-hosing the conference, said that while different options maybe more appropriate for different countries, a trading system has held some clear advantages for the United Kingdom.

"It is a market-driven system ...taxes are always unpopular," said Morley, who also serves as British Prime Minister Tony Blair's special representative to the G-8's climate-change dialogue.

The United States is responsible for around a quarter of the world's carbon-dioxide emissions. The two-day conference comes amid increased warnings about the perils of global warming for the environment and the world economy.

German Chancellor Angela Merkel will keynote the conference in a speech delivered via video link, outlining Germany's priorities on climate change during its current term as president of the G-8. 

William L. Watts is a reporter for MarketWatch.