The New Carbon Cycle

McKinsey Article Concludes Good News for Emissions: US and EU Emissions Down, Economies UP

McKinsey and Company director Scott Nyquist authored on article entitled Great News on Emissions. Really.  He concludes that the US and EU have cut emissions while growing their economies. 

His article provides an upbeat view.

So it’s very important that in both 2014 and 2015 the global economy grew—and energy-related emissions didn’t.  In the 40 years that the International Energy Agency has been tracking emissions, this is the first two times that year-on-year energy-related emissions have been flat or less, without an economic downturn.  And in 2013, emissions grew less than the global economy.  For perspective, energy accounts for more than two-thirds (68 percent) of global GHG emissions, and energy use increased more than 150 percent from 1971 to 2013.

So all that sounds pretty wonky.  Why does it matter?  Because it means that it is not only possible, but a reality that the link between emissions and growth can, in fact, be cut.  Indeed, in a number of developed countries, that is already happening.  In 2014, for example, the EU grew modestly—and cut emissions by more than 5 percent.  The United States saw power-related carbon emissions decline 10 percent from 2005 to 2014, due to greater efficiency—in effect, like Europe, it is creating more wealth using less energy—and  the displacement of coal with cleaner natural gas.

China and India have room to approve as most of us know.

But here, too, there are encouraging trends.  The rate of growth of emissions in China is slowing, as its economy becomes less energy intensive—services now account for more than half of GDP, the highest ever.  China has also begun to get serious about growing less filthily. In part because of pressure from a public literally sick of living in smog-choked cities, the country is investing in more efficient and cleaner energy use.  In 2014, Chinese emissions increased less than 1 percent compared to the previous year, even as it grew 7.3 percent.  In the previous decade, China’s emissions had grown an average of 6.7 percent a year.  So that’s a big change.  The big reason: China is depending less on coal, which accounts for more than 80 percent of its energy-related emissions.

 

The author concludes, and I agree, that technological innovation is the key to solving greenhouse gas emissions issues. While the emissions issues are far from solved, great steps have been made.  The investment in new technology, renewables, innovations in business models and financing approaches present one of the great business opportunities the world has ever seen.  Trillions of dollars will be invested over the next 10 years and beyond to address these issues as more energy is demanded, but more efficient use and alternative ways of generation energy and controlling emissions from traditional sources opens up an economic boom.

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What Do “Primordial Soup” and Climate Change Solutions Have in Common?

In my last blog, I mentioned the class I am teaching at in Climate Change Law at the University of Texas Law School.   One of my classes I mentioned consisted of inviting several companies and the leader of the UT Clean Energy Incubator to speak to my class and to people in the university community and local community.  The title of the program was Environmental Entrepreneurs: Local Companies Leading the Way to a Low-Carbon Economy. (Video) This program may seem odd, and some in the audience thought it was odd to have such speakers at a law school.  However, the crux of my class was that the concerns raised by the national academies of science and climate scientists and merely reported on by the International Panel on Climate Chance (IPCC) requires the invention of new technologies.  Current technology is not sufficient.  Thus, as we study law and policy, we have to think about how law and policy cannot only get out of the way of such invention, but actually promote the innovation and investment necessary to address climate concerns.

But why “Primordial Soup”?  First, let’s define the concept.  “Primordial Soup” is a concept that began with a Russian biologist Alexander Oparin, who, in 1924, proposed that life begin in a combination of organic chemicals in ocean water that somehow combined to form the earliest life forms.  The mixture of water and organic chemicals was thus this “primordial soup” that spawned life.  Later theories have been proposed, which come up with different explanations, but for purposes of our discussion, let’s focus on the primordial soup.

In studying ecology and evolution in my early days of education, I, as any student in this sphere became enthralled as to how nature through innovation and adaptation leads to new or modified species in response to changes in the environment.  The concept of primordial soup from which life emerges is a fascinating thought.  

In my own practice and study of energy and environmental law, I’ve read about and have known and worked with start up companies with many new and potentially transformational technologies.  Many of which can reduce energy use, significantly increase energy efficiency, or produce energy in new or more efficient ways.

Thus, the adaptation and evolution I studied in biology and ecology classes many years ago, is occurring now in an economic setting as opposed to an ecological setting as there is significant focus on clean energy, clean tech, and ways of doing other types of energy and industrial activities in ways that have much less impact on the environment.

Getting back to my class, we had several companies speak at our class that are engaged in new technologies, most seeking early stage capital to try to develop the technology and hopefully reach commercialization.  

The reason for this harks back to another class in which we reviewed the California or AB 32, by its original bill name in the California legislature.  California is seeking to reduce its greenhouse gas emissions by 85% by 2050.  A Berkley National Laboratories analysis concluded that without new technologies, the state could not achieve such reductions.  Thus, I wanted to introduce my students to some of the local companies that are working on technologies that may lead to reduced greenhouse gas emissions.  

The speakers and their companies were as follows:

Mitch Jacobson, UT Clean Energy Incubator

Barry McConachie, CEO, Incenergy

Lu Yan, CEO, Yan Engines, Inc.

F. Todd Davidson, CEO, nCarbon

Panos Adamopoulos, Founder, Seismos

Yetkin Yildirim, Co-Founder, Terra Pave International, Inc.

Video of Presentations.

These companies in many ways are working on low carbon technologies, and are a very small subset of companies across the United States, and the world for that matter, developing potentially commercial technologies that can in numerous ways lead to a lower carbon economy.

Just in Texas, in the Austin area, another company, Skyonic, is working on a technology to capture CO2 from smokestacks and use it to produce carbonates and other products, so pollution control becomes a for profit business. The first deployment is at a cement plant near San Antonio.

Several companies use captured CO2 for enhanced oil recovery, such as Denbury Resources in Plano, Texas and Chaparral Energy in Oklahoma City.

With the large installed base of fossil fuel power plants, our global fleet of fossil-fueled vehicles, pipelines, refineries, etc. we have to find technologies to use fossil fuels in way that reduce emissions. Too much infrastructure and investment in that infrastructure to expect it to go away any time soon. I don’t expect that to occur in my lifetime.

After the class and meeting, I had dinner with one of the company CEOs and several attendees.  We talked about many things and one of which was carbon trading law, as one of the people mentioned I had written a book on the subject.  In our discussion, I made the point that the exact nature of carbon trading programs was not to regulate the greenhouse gases out of existence or have a perfect system, but to have enough of a carbon price that substantial investment was made in hundreds if not thousands of technologies and services such that out of the “primordial soup” would emerge technologies that would transform our energy use.

So as I had thought about “cap and trade” it was not to solve the problem through the regulatory system as such, but to create the economy or market place that drives sufficient research and development and investment to come up with low cost innovative technologies.  I said this doe not comport with environmentalists, who simply want to phase out fossil fuels, with an idealistic view that this can be done without great economic loss and job loss, and frankly that it is even possible le with today’s technology.

The renewable energy they promote depends on natural gas plants to balance the grid so our lights will stay on—yes, renewable energy is dependant on fossil-fuel produced energy.

To ignore the issues is unrealistic as well as the overwhelming science on climate change and its causes will put pressure on governments and policy makers and publicly traded companies, particularly those that produce, use, or are otherwise dependent on fossil fuels, which are most of the publicly traded companies.

Thus, we need a policy and regulatory system that promotes the type of technological research and innovation and creates enough profit for angel and venture capitalists to invest in companies developing these technologies.  My point at the dinner was that a perfect system is not needed, or possible, but enough of a system that provides sufficient incentives to create the primordial soup.

Thus, perhaps a long winded way of answering the question posed.  To find the solutions you need the primordial soup of inventors, investors, and entrepreneurs to form the marketplace that will lead to climate change solutions.

 

The program was made possible through the University of Texas Law School

Arrogant or Accurate?: ExxonMobil’s Reports on Climate Change and Oil and Gas Reserves

Recently, ExxonMobil issued two reports Energy and Carbon--Managing the Risks and Energy and Climate  in response to a request by certain shareholders to disclose information related to climate change and potential constraints on the ability to produce its oil reserves.  In an editorial in The Guardian ExxonMobil’s response was called “consummate arrogance.”  But if we consider the predictions of fossil fuel use by the U.S. Energy Information Agency (EIA), the use of fossil fuel will continue apace through 2040.  So the question is, based on the EIA predictions, is ExxonMobil’s reporting arrogant, or is it accurate based on current information and regulatory regimes?

I am teaching a climate change law course this year at the University of Texas Law School, and one of the reports I discussed with my class is the Energy Outlook published annually by the U.S. Energy Information Administration.  The EIA in the  AEO 2014 Early Release Overview  predicts the use of large amounts of petroleum in the United States through 2040.

"Total U.S. consumption of petroleum and other liquids, which was 35.9 quadrillion Btu (18.5 MMbbl/d) in 2012, increases to 36.9 quadrillion Btu (19.5 MMbbl/d) in 2018, then declines to 35.4 quadrillion Btu (18.7 MMbbl/d) in 2034 and remains at that level through 2040."

The following graph shows primary energy consumption through 2040, based on current facts and circumstances.

Based on the projections of the well-respected EIA, there is no expected curtailment of the ability to produce oil and gas from existing reserves, but a continued use of fossil fuels in the United States at around current levels through 2040.  Prohibition of the use of fossil fuels does not appear likely at this time.

While this may not bode well for greenhouse gas emissions from the United States, not to mention China, India and other countries, it appears to be what is expected based on current information, at least as evaluated by the EIA. 

This of course is what the parties who requested the reports from ExxonMobl would like to avoid.  Ceres and As You Sow, among others, sought disclosures from the company.  However, disclosure does not affect change in current energy sources, infrastructure, and technology, or existing or reasonably likely restrictions on oil and gas use or on production of these resources.

As an attorney who has advised clients on environmental and climate risk disclosures, it would be difficult to expect a public company, based on current circumstances or reasonably foreseeable circumstances, to conclude in reports to shareholders that oil and gas reserves are likely to be restricted, and that the value of those reserves or the company shares are likely to be devalued. 

Much of this has to do with the current need for fossil fuels to power transportation and electricity generation.  Without replacements, fossil fuels will be used.

Key questions are:  What replacement do we have for transportation fuels?  What technology do we have to provide low cost and dispatchable electricity without use of fossil fuel?  What would be the impact if we ceased using fossil fuels today? In five years? Ten?  The reality has to be faced.

In discussing these issues with my class,  I provided the conclusions of the Berkley National Laboratory in California reviewed the capability of the State of California to reduce greenhouse gas emissions by 85% by 2050. 

 

California is on track to meet its state-mandated targets for reducing greenhouse gas emissions for 2020, but it will not be able to meet its 2050 target without bold new technologies and policies. This is the conclusion of the California Greenhouse Gas Inventory Spreadsheet (GHGIS), a new model developed by the U.S. Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) to look at how far existing policies and technologies can get us in emissions reductions.

 

"Bold new technologies" are necessary, in my view, to use fossil fuels in ways that reduce emissions. 

To provide an insight to new technologies under development, in another class, I invited the leader of the UT Clean Energy Incubator and he brought four of the companies in the incubator to discuss their developing technologies that if adopted would reduce greenhouse gas emissions.  One has developed a new piston for interanal combustion engines that reduces fuel use by as much as 50 percent.  The company is working with the U.S. Department of Defense to test the technology to see if the Army could replace  the pistons in their transportation trucks, and significantly reduce fuel use--a critical issue issue in warfare as seen in Iraq and Afghanistan.  

Another company I invited is able to reduce electricity use in small office buildings by 10 or 20 percent with energy management software in the cloud and smart thermostats.  I have a friend who is selling a fuel additive that can cut diesel use in large trucks from 10 to 30 percent.  Yet another local company is installing technology to capture CO2 from a cement plant near San Antonio and use it to make a product that can be sold in well established markets.  If it works, it could be used on other sources of CO2 emissions like power plants.

These and hundreds if not thousands of other companies, professors, or inventors are developing, testing, or seeking capital to try to commercialize numerous other potentially promising low carbon technologies in the United States and in other countries. 

This is where the real work has to be done.  Accurate disclosure is critical by public companies.  However, mandatory disclosure or voluntary disclosure may not be the best focus to resolving the climate challenges at hand. 

Climate change, greenhouse gas reductions, and fossil fuel use are very complex issues. Simple arguments or attempts to deal with them will not lead to solutions.

Private and governmental investment in research and development and new companies and technologies may be a better approach to reducing greenhouse gas emissions, particularly if the EIA and ExxonMobil are right about future use of fossil fuels.

Brattle Report Concludes Solar Power Would Save on Texas Electricity Rates

The Texas electricity market within the Electric Reliabibilty Council of Texas or ERCOT, which covers 80 percent of Texas, is suffering from a deficit of peak power.  Concerns are rising that the state will be short on power during the summer months.  The Brattle Group was engaged to prepare a report for ERCOT on how to manage or address the power shortage issue.  The Brattle Group also prepared a report entitled, The Impact on Solar PV on Electricity Markets in Texas, which discusses electricity cost savings Texas could produce if it built more solar farms--the price of solar power would be less than peak power plant prices.

The irony is that many believe that solar power is always more expensive than traditional power plants like natural gas plants.  But electricity markets are complicated.  Base load power is very inexpensive in Texas because of abundant natural gas that has arisen through the technology of horizontal drilling and hydraulic fracturing in the gas shales--which has unleashed a tremendous resource of cleaner burning fossil fuel.

However, peak power prices can be very expensive.  In Texas, ERCOT raised the cap price from $3000 per MW to $4500 per MW, and the cap is going to rise to $9000.  The hope is this will encourage more natural gas power plants to be built.

Solar can be one of the answers.  With rapidly declining prices for solar PV panels and the short time to build solar farms, 90 or 120 days in some instances, solar is much less than $3000 per MW.  A natural gas plant can take a couple of years to permit, finance, and build.  We still need these plants, but solar can be a contributing factor to managing peak power--the sun shines most when peak power is needed to cool homes and businesses in the hot summers in Texas.

Solar PV can contribute to energy savings, if applied in the right way, in the right market, and at the right price.  The Brattle Report shows how solar could contribute to enhancing the Texas electricity market.  Unfortunately, the politics in the Texas legislature is likely to prevent any renewable bills from passing.

While Texas has the largest installed wind power base, it is unfortunate that we could not work to be the leader in solar, so that Texas is the all-of-the-above leader--wind, solar, and oil and gas.  It would appear to all be good for the economy and good for the environment.  Creative and empirical thinking is at a disadvantage if politics gets in the way--Democrats and Republicans both need to realize that we need at this time fossil fuels and alternative energy.  Each has their own necessary role in today's economy and with today's technology.

Should Trees Be Industry's Best Friends in a New Climate Change Regime?

The suggestion that trees should be industry's best friends under a new climate change or cap and trade program being considered by Congress, seems absurd at first.  Forests do not initially appear to most people to be a source of the problem when it comes to anthropogenic greenhouse gas emissions.  We generally think of planting trees as a local, individualized step to attempt to remove emissions from the atmosphere.  Often we think of tree planting as a symbolic rather than a substantive or significant action to reduce climate change.  Forests, however, are in fact a significant storing house for carbon and when burned, release a large amount of carbon dioxide and other greenhouse gases into the atmosphere. 

Forests provide the low-cost approach for the first tranche in anthropogenic greenhouse gas reductions as we seek the "low hanging fruit" of these reductions.  Forest preservation and regrowth provide the potential for the larger-volume and lower-cost source of greenhouse gas reductions and offsets for greenhouse gas emissions.  As carbon capture and storage by which CO2 from coal-fired power plants and other sources is injected underground for long-term storage takes several years to bring on line, Reduced Emission from Deforestation and Degradation (REDD) can serve to make a significant step toward emissions to be achieved by 2020 being discussed in Congress for a US climate change and cap and trade program, and in terms of international negotiations for a tray to follow the Kyoto Protocol.

The size of the emissions from forest destruction usually is startling.  It is in gross and relative terms rather astounding.  The destruction of forests actually accounts for somewhere between 17 and 22 percent of human greenhouse gas emissions.    Thus, controlling the greenhouse gas emissions from deforestation is critical to any global plan to reduce climate change, particularly in the first few years as costlier reductions can be developed over the next decade, and perhaps ways to reduce those costs.

A second aspect of deforestation relates to the areas that have already been lost or significantly degraded.  For example, farmland that was previously what we call “primary forest” or forest that existed in its natural state prior to being deforested or degraded.   In these areas, opportunities exist for reforesting the land through tree planting.  Two types of reforestation are possible.  First, the forest can be replanted with native species that would have been present prior to the destruction of the forests.  The second involves the planting of non-native species or otherwise planting for the purpose of harvesting some or all of the trees.  The second approach has the goal of using trees to absorb or sequester CO2 , and then using the harvested wood in ways that maintain the carbon in building or other products for a long time.

In understanding the challenges of private development of forest carbon projects, it is important to comprehend the issues of these projects.  First let us consider avoided deforestation projects.  One of the first issues is simply measuring the amount of carbon in the forests that would be released if destroyed.  There are certain protocols that can be used now developed by the Voluntary Carbon Standard (VCS), which has become the main standard setting organization for forest-related offset projects. 

Another issue is the question of permanence.  For growing forests a significant risk is permanence, that is, to what extent will the forest will be preserved over a very long period, as opposed to short term preservation with destruction to follow.  If the forest is logged or it burns or dies from disease, then the carbon sequestered in the trees, plant life, and soil, will be largely emitted to the atmosphere and future sequestration of carbon dioxide will not occur.  The carbon credits that are generated would be without substance if after five years the forest is destroyed.  Forestry projects are largely long-term projects, lasting 20 to 100 years in most cases.  Parties must show the registration entity and the verifiers that review the Project Design Document that the forest will not be cut down, burned, or harvested within the relevant project period.  One approach used by the VCS to address permanence concerns is to hold back a percentage of the verified credits and to release them back over time, say the 30-year life of the project, to the project developer.

One of the other major concern for forest projects is leakage.  For forest projects, leakage involves the question of whether the reduction in deforestation or degradation in one are simply moves that activity to a nearby property or a significant distance away.  As an illustration, burning forests for soy bean farming, which is such a significant problem in Brazil, moves from one part of a state in a country where actions have been taken to stop such burning to another area in that state or to an altogether different state.  Measuring and addressing these issues is required by the VCS.

Though the real game right now for REDD and reforestation projects lies with the VCS and voluntary carbon credits, it appears fairly clear that forest carbon projects will play a role and be large part of future US federal legislation and already has been accepted as an offset mechanisms in the California climate change regulatory system and will likely be part of the three multi-state climate change regulatory programs that are evolving and will go into effect even if Congress does not act to pass climate change legislation.  The discussions at the international level appear to be moving toward accepting forest-based offset credits.

The greenhouse gas emissions from forest destruction are so massive, that we cannot avoid taking on the need to reduce this destruction dramatically.  More and more major greenhouse gas emitters in the United States are beginning to review this opportunity and to look at investing in project-based REDD opportunities.  The thinking is that investment in a project or entering into emission reduction purchase agreements that allow a company to have a right to purchase REDD credits once approved and verified, provides a good hedging mechanism for future offset prices.  More and more of our clients are looking at both domestic and international forest carbon projects either as project developers or as investors to ensure that they take advantage of the opportunities that forest carbon projects provide.  Ironically, utilities and oil and gas companies may find that trees are truly their best friends when it comes to addressing the first few years of a cap and trade system in the United States.

Article Published in Fuel Magazine Discusses How Carbon Credits Can Finance Use of Flared Gas

In the July 2008 edition of FUEL magazine I published an article discussing how carbon credits can serve to help finance local uses of natural gas that is otherwise flared or vented.  The article is entitled “Carbon Credits: New Uses for Financing Natural Gas.” 

In the article, it is explained that “The World Bank has formed a group that is working to reduce natural gas venting or flaring, based in part on its recent report estimating global vented or flared natural gas reaches about 14 billion cubic feet per day (Bcf/d). The burning of the natural gas reportedly produces 400 million tons a year of carbon dioxide, which GHG [greenhouse gases] scientists blame for contributing to climate change.”

The article also discusses the fact that  “one of the means by which natural gas is captured and moved to markets such as the United States is through liquid natural gas (LNG) projects.”  However, “often there is no perceived market for this gas, and no known way of financing the transport of it to market if identified.” The article explains how GHG emission reductions can produce carbon credits, which can then be sold and serve as a basis for helping finance more local markets for flared natural gas.  Deatherage discusses carbon trading, “pollution rights,” cap-and-trade systems, and other market aspects of climate change. I conclude that “emission markets encourage capital to reduce GHGs and provide economic benefit to developing countries to be invested in these projects as they find substantial return on their investments.  Carbon trading may prove to be a key element to many of these projects, including those to reduce the venting and flaring of natural gas.”

To view the full article, please visit www.hartfuel.com.

Programs at Upcoming World Petroleum Conference Show Importance of Climate Change, Carbon Trading, and Sustainable Development for Global Oil and Gas Industry

The World Petroleum Congress will get underway next week in Madrid, and will include many panels on climate change, carbon trading, and sustainable development. The official theme for the upcoming WPC is “A World in Transition: Delivering Energy for Sustainable Growth,” reflecting the ongoing concerns of the global industry.

I am fortunate to be speaking at the WPC with a distinguished panel on carbon trading issues. I will be speaking on Monetizing Reductions in Greenhouse Gas Emissions:  Opportunities in Carbon Credit Markets.  The other panelists and their topics are as follows:  Ignacio Bachiller, CDM Projects Portfolios: the Economics; Pat Concessi, The Benefits and Challenges of Linking GHG Emissions Trading Schemes; Paula Coussy, Implications on the European Union Emission Trading Scheme (EU-ETS) of Capture Transport and Geological Storage Projects: Dr. Jagdish P. N. Giri, Economic Modeling to identify Emissions? Reduction Opportunities at Carbon Energy Business During Fossil Energy Lead Time? Aligning the Value Chain of CDM & JI on Long Term Emissions' Trading and Carbon Energy Management in the Asian Context.

The potential for the generation and trading of carbon credits to become a significant part of certain oil and gas development projects is developing and will only increase as the opportunities for reducing greenhouse gas emissions from oil and gas exploration and production as well as transportation are identified and pursued. 

Carbon capture and sequestration or storage present significant opportunities.  A specific panel on carbon capture and storage will explore these issues at the WPC. 

A variety of other projects will address sustainable development and the role of this concept in international oil and gas development.

The trends of ever-growing expectations on oil and gas companies to address climate change, sustainable development , ecosystem and habitat preservations, and other environmental issues presents challenges to these companies.  Greenhouse gas reductions and monetizing those reductions in the form of carbon credits may actually prove to be a significant opportunity in the changing global market that is tending to evolve toward a carbon-constrained economy.

Dupont and Honeywell Projects Demonstrate Sustainable Biofuels Are Possible

Despite the controversy reflected in press reports, the biofuels industry is not going away and is not the root of all food price increases.  In demonstration of the future of the industry, two significant biofuels development projects were announced by major corporations.  First, DuPont and Danish group Danisco announced the creation of a global company to produce cellulosic ethanol, which is derived from non-food sources.  Second, Honeywell announced a partnership with Airbus, JetBlue Airways, and International Aero Engines to develop biofuels for commercial aircraft use.  Thus, the biofuels industry will continue to be a significant business based on development of new technologies and processes to develop biofuels with far more energy potential than is used to produce them and without using food crops as a raw material.

DuPont and Danisco division Genecor are forming a joint venture to create ethanol from corn stalks and sugarcane waste. Future sources may include wheat straw and other non-food crops or biomass. The new entity will receive an initial three-year investment of $140 million. The companies estimate the global market for the product at $75 billion. The new company, DuPont Danisco Cellulosic Ethanol, plans to construct and begin operating its first plant in the United States by 2009.

The Honeywell, Airbus, Jet Blue, and International Aero Engines venture will focus on developing commercial aviation fuels from algae and jatropha.  The venture aims to capitalize on existing technology being developed by Honeywell's subsidiary UOP that converts natural oils and greases into military jet fuel as part of a project funded by the U.S. Defense Advanced Research Projects Agency.

These ventures demonstrate that biofuels will likely produce a significant global industry.  The key to the business is developing a sustainable means of producing biofuels by focusing on use of raw material that is not used for food and processes that are able to generate fuels with sufficient net energy and environmental benefits.

Norway Gets Saudi Arabia and Seeks Other Countries Support of Carbon Capture and Storage as a Carbon Credit Project

Saudi Arabia and Norway have agreed to work together to obtain the approval of the Clean Development Mechanism(CDM) Executive Board for carbon capture and storage (CCS).   CCS is a process by which carbon dioxide (CO2) I captured from industrial processes, such as coal-fired powered plants or natural gas processing plants, and then injecting it far below the ground in oil and gas formations or in deep saline aquifers.  The technology for injecting CO2 in the ground has been used for 30 or more years for enhance oil and gas recovery.  The capture of CO2 from industrial processes requires technology still being developed.

Norway's goal is to have a baseline and monitoring methodology approved for CCS so that projects can be approved under the CDM of the Kyoto Protocol.  By allowing for these projects reduce greenhouse gas emissions in developing countries and to have carbon credits or Certified Emission Reductions to be issued by the Executive Board, capital could be mobilized to reduce greenhouse gas emissions.

A U.N. climate conference in Bali, Indonesia, in December postponed a decision on inclusion in the CDM scheme pending further talks this year to clarify safety, legal and commercial viability issues. 

Norway is trying to convince as many countries as possible to lobby for this effort.   Norway's oil and gas company StatoilHydro has been injecting CO2  from the natural gas stream below the seabed at its Sleipner field in the North Sea since 1996.  The Norwegian government is promoting CCS projects at gas-fired power plants at the Mongstad refinery and the Kaarstoe gas-processing and export plant on Norway's west coast.

If CCS were approved under the CDM, it would provide a means of contributing to the capital needed to implement this technology, but it would the sale of carbon credits probably would not be sufficient to meet the costs per ton of CO2 sequestered to pay for construction and operating CCS projects. 

Norwegian company Aker ASA and engineering group Aker Kvaerner believe that CCS projects could be a $1.5 trillion to $2.0 trillion per year business as important globally as the construction of oil platforms. 

The Aker prediction may be overly bullish, but the capture and storage of  CO2 will be a necessary part of any climate change solution.  Approving CCS as a technology or process that may generate carbon credits under the CDM would be a significant step to creating incentives to finance CCS.  The Lieberman-Warner Climate Security Act, that was voted out of the Senate Environment and Public Works Committee, contains provisions that would allow CCS projects to generate carbon credits under that bill’s proposed greenhouse gas cap-and-trade system.  In a prior blog, I had suggested the sale of  government “Carbon Bonds” to provide low interest loans to finance CCS projects to allow the use of coal to produce low polluting energy in the United States.  As we look to the future, finding ways to create sufficient incentives to generate sufficient capital to finance CCS will be critical as this process will be a necessary part of any future US climate change legislation and international program to significantly reduce greenhouse gas emissions.

New Carbon Finance Study Predicts One Trillion Dollar US Carbon Market

Various stories have arisen on the Internet regarding a study released on February 14, 2008 by New Carbon Finance, a division of New Energy Finance, a provider of information and analysis on renewable energy and low-carbon industries.  The study reportedly predicts that the USlegislation now being considered that limits carbon trading to the US market, would create a $1 trillion US carbon market by 2020. However, the exact nature of such market is not clear.  It is not clear whether the study predicts an annual market, which would seem overstated, or a cumulative market over 10 years, or on average $100 billion per year, which seems very possible.  The study predicts the US market would be twice the size of the EU market.

Major investments in the US would occur in clean technology, accoding to the study. These projects would include renewable energy, energy efficiency, and greenhouse gas mitigation projects.

At present there are about thirteen bills that have been filed in the Congress, in both the House of Representatives and the Senate.  Almost all are based on a cap-and-trade program.  Thus, it appears if any bill is actually passed, a market-based program to cap greenhouse gas emissions and to allow the selling of carbon allowances and offsets will be the system that is implemented in the US to reduce greenhouse gas emissions and to address climate change.

The study by New Carbon Finance reportedly concludes that an economy-wide cap-and-trade system will be implemented within four to five years.  An economy-wide greenhouse gas emissions reporting system has already been passed in the December Omnibus Spending bill and the President has signed it into law.  The US Environmental Protection Agency is already working on the implementing regulations.  The law requires EPA to propose draft reporting regulations by September 2008 and final regulations by September 2009.  The reporting regulations form the foundation of any future greenhouse gas emission law.

The three currently viable presidential candidates from both parties have committed to controlling greenhouse gases and to passing climate change legislation.  John McCain, the Republican candidate, co-authored a bill with Joe Lieberman restricting greenhouse gas emissions and creating a cap-and-trade system.

"Even if the current Bush administration rejects all of these bills, the next president will be less inclined to use a veto. All leading 2008 presidential candidates have endorsed the need for action and some have already supported significant emissions reductions," said Michael Liebreich, CEO of New Energy Finance.

The US legislation that has made it the farthest in the legislative process, the Lieberman-Warner Climate Security Act, which was passed out of the Senate Environment and Public Works Committee, would impose restrictions on the use of international credits under any post-Kyoto agreement, such as the Certified Emission Reductions generated through the Clean Development Mechanism.  The CDM program allows the use of cheaper offset credits generated through less expensive greenhouse gas reduction projects in developing countries.

"This will have two important consequences. For the US market, it will rule out a significant source of inexpensive abatement, pushing the carbon price to unnecessarily high levels. It will also remove most US demand for international credits, hampering the growth of projects and technology transfer to developing countries," said Milo Sjardin, who heads the North American division of New Carbon Finance.

The press release on New Carbon Finance’s website also states that the study predicts that, if US legislation does not allow domestic companies to purchase cheaper international carbon credits from projects in developing countries, the price of carbon will rise to $35 to $40 per metric tonne of carbon dioxide equivalent by 2015. At this price for carbon, the study predicts that the prices of electricity would rise by 20%, gasoline by 12%, and natural gas by 10%.  Other prices for goods in the economy would also increase as a result of power and fuel price increases. 

On the other hand, if the legislation allows the purchase of offsets from projects in the developing world, the price of carbon would be around $15 to $20.  At a $15 per ton of CO2 equivalent, the effect on the economy would be reduced.  The study predicts the price of electricity would rise by 7%, the price of gasoline 4% or about 13 cents a gallon, and natural gas would rise by 5%.  The resulting economy-wide price increases would be less as well.

The real focus of the study appears to be on the differential in the price of carbon and the impact on the economy if greenhouse gas emitters are not allowed to purchase international carbon credits to offset their emissions. Under this analysis, any US legislation should permit international carbon trading to offset US greenhouse emissions to lessen the impact of greenhouse gas limitations on the US economy.