The New Carbon Cycle

First Auction of RGGI Carbon Allowances to Take Place in September

The Regional Greenhouse Gas Initiative (RGGI), the carbon cap-and-trade program in the Northeastern states, has scheduled its first auction of greenhouse gas emission allowances for September 1st of this year.  Prices for allowances at this point are at around $7.05.  The RGGI system addresses only carbon dioxide from coal-fired power plants--it is not an economy-wide program, such as the California program, or those of the Western and Midwestern states.  The number of allowances to be auctioned will be announced on August 14th.

Investors Purchase Half of Climate Change Capital

Reuters reports that investors have aquired one half of Climate Change Capital, one of the largest carbon credit investment firms based in London.  The investors are Alliance Trust PLC, a UK investment trust, the Universities Superannuation Scheme, a UK pension fund, SNS REAAL N.V., the Dutch-based banking and insurance business and Japanese trading house, Mitsui & Co Ltd.  The combined investment has been estimated at $ (US) 110.1 million.

The carbon investment firm has been a leader in investing in projects that produce carbon credits, known more specifically as Certified Emission Reductions, under the Kyoto Protocol.  The company has expaned their investments, with 250 million euros under management for investing in clean technology, clean fuels and renewable energy, much of which is invested in UK-based wind farms.

Climate Change Capital is reportedly the third largest owner of carbon credits in the world with an estimated 91 million tonnes of carbon dioxide (CO2) equivalent under ownership, behind the Paris-based chemical company Rhodia and the Italian utility ENEL.  If those credits trade at over 16 euros per tonne in a secondary market where delivery is guaranteed, the value would be over 1.4 billion euros.

Global Food Transportation May Be Pulled Into EU Emissions Trading System

In a New York Times article entitled The Environmenta Costs of Shipping Groceries Around the World, the issue of the greenhouse gas emissions from shipping fruit, vegetables, fish, and other food products is discussed.  The article describes the move by the European Union to add air transportation to the EU Emissions Trading System (ETS) would put a cost on air transportation of food and manufactured items.  The EU is reviewing the addition of shipping emissions to the ETS as well.  Many of the countries that produce these food items complain that the charging of a carbon tariff or requiring the purchase of offsets or allowances for these food items is a form of trade protectionism.  As the debate over the transportation in this article, and production (including use of electricity from coal-fired power plants) continues, countries will find themselves debating over the emissions and costs to compensate for the potential impact on climate change and global warming. 

Fortis Predicts $400 Billion Carbon Credit Market Between 2012 and 2015

Fortis NV, a Belgian-Dutch bank/financial firm and significant player in the international carbon market, predicts the EU carbon market to be $100 billion in 2009, and the international market to rise to $400 billion by 2012 to 2015, depending on the timing of the entry of the United States into the carbon market.  The US would join the market through domestic legislation and entry into an international treaty to follow the Kyto Protocol.

Guest Column on EnergyLaw360

I recently published a guest column on EnergyLaw360 entitled Laws Set Stage for Carbon Trading Opportunities.  The article discusses the new federal greenhouse gas emissions reporting law that was enacted and how EPA must publish final rules by September 2009.  These rules will serve as the foundation for coming climate change legislation that will create a cap-and-trade system for regulating greenhouse gas emissions, and create significant opportunities in developing greenhouse gas emission reductions that can be monetized in the form of carbon credits.

Could Carbon Trading Become the Largest Global Commodity Market?

Many carbon traders are convinced that carbon trading could become the world's largest commodity market.  Is this possible?  While this may be an exaggeration, it is clear that if the United States enters the market with new federal legilsation and agreeing to enter the post-Kyoto Protocol treaty on climate change, carbon trading could become a vast market.

As story last year in the International Herald Tribune called Carbon Trading: Where Greed is Green, two leading carbon traders made incredible predictions.  Managing emissions is one of the fastest-growing segments in financial services, and companies are scrambling for talent. Their goal: a slice of a market now worth about $30 billion, but which could grow to $1 trillion within a decade.

"Carbon will be the world's biggest commodity market, and it could become the world's biggest market overall," said Louis Redshaw, the head of environmental markets at Barclays Capital.

Carbon could become "one of the fasting-growing markets ever, with volumes comparable to credit derivatives inside of a decade," said Chris Leeds, head of emissions trading at Merrill Lynch in London.

Time will tell, but these predictions suggest a huge market in the next five years as the United States moves into the market.

Carbon Credit Company AgCert Delists from London Stock Exchange in Attempt to Save Company

AgCert International, a company that had amassed numerous agricultural projects to generate carbon credits under the Kyoto Protocol, announced that the examiner appointed in its insolvency proceeding in Ireland has initiated the process of preparing proposals that may see the Company resolve its obligations and maintain an ongoing business.  In the absence of these proposals being approved by all parties and being successfully implemented, the company announced that there is no reasonable prospect that the company will be able to continue to operate a viable business.  The examiner has concluded that the continued listing of AgCert on the London Stock Exchange could jeopardize the successful completion of the proposals, and the company has therefore requested that the listing be canceled.

Could Thin Film Solar Make Solar Electricity Cheaper Than Coal Produced Power?

New technology breakthroughs have been the hope of governments and the public for everything from climate change and global warming, energy security, domestic versus foreign production and jobs, to distributed power production that need not be purchased from large utilities.  Solar energy one of the hoped for solutions has been hampered by manufacturing costs.  The solar panels we have all seen are large and costly to produce because they rely on silicon that is also used for computer chips.

With the development of thin film solar, the ability to reduce the cost may be solved.  A story from Celsias describes how a company called Nanosolar is producing a solar film that is printed much like documents on your inkjet printer at home.  The new technology may reduce solar electricity costs from $3 a wat to 33  cents a watt--competitive with electricity from coal-fired power plants. The Nanosolar plant in San Jose, once in full production in 2008, will be capable of producing 430 megawatts per year. This is more than the combined total of every other solar manufacturer in the U.S.

This breakthrough technology has the ability to revolutionize power production. Keep an eye on Nanosolar and other companies in the thin film space.

An Economist with CIBC in Canada Predicts Carbon Tariffs Will Bring Jobs Back to North America from China and Other Developing Countries

An economist with CIBC World Markets Jeff Rubin has issued a report predicting that Canada will impose carbon taxes or carbon tariffs on imported goods from China and other developing countries that do not have restrictions on greenhouse gas emissions. He also predicts that this will cause jobs and manufacturing to come back to North America, because emissions and energy efficiency will be more important than labor costs. He states that non-metallic mineral products - cement, glass and lime - with energy intensity 130 per cent higher than the Chinese industrial average, are likely to return to North America, as well as the printing, primary metal manufacturing, and machinery industries.

Rubin believes the tariff, based on $45 per tonne of carbon dioxide or equivalent, would raise roughly $55 billion a year from Chinese exports to the United States, and raise U.S. consumer price inflation by more than 0.6 percentage points.

“What I'm suggesting is that the minute that we start putting a price on our own domestic emissions, then our tolerance of those who do not is going to fade very quickly," Rubin said. "What we're going to say is that if you don't play by the same carbon rules, that's an unfair trade subsidy that we're gong to countervail against."

This is an interesting prediction that may ignore the post-Kyoto treaty negotiations and the potential challenges that such carbon taxes or carbon tariffs may face in the World Trade Organization.  It is a continuing issue that I have posted on several times on this blog, and not one that will go away if China, India, and other developing countries with significant greenhouse gas emissions do not agree to some form of cap and then reductions in their emissions.

Professor Joshua Busby Issues Report Through Council on Foreign Relations on Climate Change and National Security

Joshua Busby, a professor at the LBJ School at the University of Texas has issued a report entitled Climate Change and National Security: An Agenda for Action through the Council on Foreign Relations.  In this report, Professor Busby moves beyond diagnosis of the threat to recommendations for action. Recognizing that some climate change is inevitable, he proposes a portfolio of feasible and affordable policy options to reduce the vulnerability of the United States and other countries to the predictable effects of climate change. He also draws attention to the strategic dimensions of reducing greenhouse gas emissions, arguing that sharp reductions in the long run are essential to avoid unmanageable security problems. He goes on to argue that participation in reducing emissions can help integrate China and India into the global rules–based order, as well as to help stabilize important countries such as Indonesia. He suggests bureaucratic reforms that would increase the likelihood that the  U.S. government will formulate effective domestic and foreign policies in this increasingly important realm.