Last week, the World Bank priced the first bond linked to prices of certified emissions reductions (CERs), known as the World CO2L Bond, with Japanese stock brokerage firm Daiwa Securities Group serving as lead manager. The Uridashi bonds will be offered to individual Japanese investors during the period June 9-24, with June 26 as the issue date, and will mature on September 30, 2013. The total amount of the bond issuance is US$25 million with a minimum denomination of US$100,000. After an initial 15-month period with a fixed coupon of 3%, the interest rate will be linked to the future performance of CER market prices, and specifically to the price of CERs from a hydroelectric power plant project in the Guizhou province in China.

The project has been registered with the United Nations’ Clean Development Mechanism (CDM) Executive Board in April 2008 and is being jointly implemented by China’s Guizhou Sanhe Hydro Power Development Co., Ltd. and Daiwa Securities SMBC Principal Investment Co., the investment arm of Daiwa Securities Group. The project is expected to reduce greenhouse gas emissions by over 23,000 tonnes CO2-equivalent per year.

Daiwa Securities Group expects that sales of the World CO2L Bond will help support demand for greenhouse gas emissions trading because investors will be indirectly participating in the market for greenhouse gas reductions. Trade in CERs more than doubled to $13 billion last year, according to a World Bank report published in May.

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In a speech on delivered this afternoon to the “the oil capital of America,” presidential candidate John McCain described his vision for promoting energy security in the U.S. His talk emphasized the need for independence from foreign oil sources, and identified opportunities for expanding domestic capacity, including:

• lifting the moratorium on off-shore drilling;
• expanding nuclear power options;
• advancing clean coal technologies while continuing to use coal as part of the US energy mix; and
• developing innovative clean technologies.

McCain characterized the energy policies of previous administrations as having more failure than success, underscoring the “errors and false assumptions that have marked the energy policies of nearly twenty Congresses and seven presidents” and describing energy security as “an alarming situation twenty years ago” and a “dangerous situation today.” McCain’s speech also sought to illuminate a moral imperative to work towards energy independence by emphasizing the vulnerability of US pipelines to “Al Qaeda terrorists” and describing the role of US “petrodollars” in “underwriting tyranny, anti-Semitism, the brutal repression of women in the Middle East, and dictators and criminal syndicates in our own hemisphere.”

McCain’s full remarks on energy security are available online.

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Although the Lieberman-Warner bill was pulled from consideration two weeks ago, the House and the Senate are still setting the groundwork for future attempts to legislate greenhouse gas reductions. Instead of floor debate, the action will be confined to hearings, appropriation bill mark-ups, and investigations of the Bush Administration. The work being undertaken this year will be used next year when legislation might just reach the desk of a President who is receptive to it.

The Senate Energy and Natural Resources Committee begins the work this week with a hearing Tuesday morning on the problems of energy transmission from remote renewable resources to users in urban areas. Since much of the United States’ renewable resources are in areas of sparse population, the transmission of that energy will be vitally important in reducing greenhouse gases. Scheduled to testify are Kevin Kolevar, assistant secretary for electricity delivery and energy reliability, DOE; T. Boone Pickens, principal, BP Capital; Rich Halvey, energy program director, Western Governors’ Association; Bryce Freeman, board member, Wyoming Infrastructure Authority; Stephen Wright, administrator, Bonneville Power Administration; Don Furman, senior vice president for development, transmission and policy, Iberdrola Renewables (representing the American Wind Energy Association); Gary Hanson, chairman, South Dakota Public Utilities Commission; and Will Kaul, vice president, Great River Energy.

On Wednesday and Thursday, the House and Senate Appropriations committees will each hold hearings on the annual funding levels for NOAA, the National Oceanic and Atmospheric Administration. The appropriations hearings could become a proxy battle for an array of climate issues ranging from the scarcity of funds devoted to ocean research to endangered species protection for arctic marine mammals. The Senate marks up their bill Wednesday, the House on Thursday.

Finally, on Thursday, the House Energy and Commerce Committee will hold a hearing examining the good and the bad of each of the major climate change bills - H.R. 1590 (authored by Rep. Henry Waxman), H.R. 6186 (authored by Rep. Ed Markey), and S. 3036 (the recently pulled Lieberman-Warner bill). {webcast @ 9:30 AM} For his part, Chairman Dingell recently told his hometown paper that the Lieberman-Warner legislation failed because it was poorly written and that he would produce a House bill by the end of the year. No witnesses have yet been noticed.

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The carbon market has more than doubled in the last year and is estimated at approximately $64 billion in 2007, up from $31 billion in 2006. The allowance-based system of the EU Emission Trading Scheme (EU ETS) generates the biggest share of the market, over $50 billion in 2007. The EU ETS requires large emitters of carbon dioxide to annually surrender to the government the number of EU Allowances (EUAs) equal to their annual emissions, but also accepts for compliance purposes a limited number of credits created pursuant to the Clean Development Mechanism (CDM) and Joint Implementation (JI) flexibility mechanisms of the Kyoto Protocol, accounting for $12.9 billion and $499 million of the market, respectively.

Prices for primary forward Certified Emission Reductions (CERs) and Emission Reduction Units (ERUs) have been increasing significantly over the past year, with CERs trading at more than 26% over 2006 levels and ERUs at more than 38% above 2006. This dynamic rise in ERU prices is in large part attributable to the emergence of private sector buyers for the first time in 2007, with Japan in particular making some significant purchases in Eastern Europe. This is compounded by the establishment of JI procedures in a number of countries that appear to have substantially reduced regulatory uncertainties. Prices in 2008 appear to be continuing this trend as reports from the first quarter of the year show primary CER prices increasing again.

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The regulation of coal-fired power plants’ greenhouse gas emissions is now the focus of a congressional investigation. House Committee on Oversight and Government Reform Chairman Henry A. Waxman, (D-CA) sent a letter early this week to EPA Administrator Stephen Johnson requesting information on the EPA’s proposed rule for regulation of new and modified sources of air pollution under the Clean Air Act.

Waxman charges that the rule will “allow old, very dirty power plants to increase the amount of time they operate each year without installing pollution controls,” which will result in increased greenhouse gas emissions. The letter requests that the agency provide information on its consideration of climate change in development of the rule, including modeling and technical analyses, by June 30. The information requested by the Committee will not likely yield any new insights into EPA’s rulemaking, but it will provide another potential avenue to spotlight the Administration’s unwillingness to regulate greenhouse gas emissions.

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Just weeks after the G8 Energy Ministers called for “20 large-scale CCS demonstration projects…to be launched globally by 2010,” the US Department of Energy (DOE) formally withdrew from a 5-year partnership with the FutureGen Alliance to develop a model clean-coal energy facility in the United States. While DOE claims it will continue to support a “restructured” FutureGen project (or group of projects), policymakers are rightly concerned with DOE’s decision. With oil and gas prices at record highs, growing calls for the US to reduce its carbon emissions, and abundant domestic coal reserves that could prove impractical in a carbon constrained economy, the US needs to be on the forefront of developing new clean-coal technologies rather than ceding leadership to Europe or China.

The Original FutureGen

In February 2003, President Bush announced a new public-private partnership project to develop a single 275-megawatt coal-fired electric and hydrogen production plant that would utilize and showcase the latest in clean-coal, carbon capture, and coal-to-hydrogen technologies. With an initial price tag of 1 billion dollars, a five-year schedule for construction, and a goal of 90 percent sequestration, the FutureGen program was an ambitious project intended to boost US efforts to find coal-based solutions to US energy needs and climate concerns.

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The Port of Long Beach, the second largest container port in the United States, has proposed a 10-year, $750 million redevelopment project to increase the efficiency and environmental performance of its Middle Harbor container shipping terminals.  The proposed improvements could double the operations of these terminals to 3.3 million twenty-foot-equivalent containers a year.  However, consistent with the Port’s Green Port Policy and Clean Air Action Plan, the project would implement aggressive environmental measures to cut air pollution by 50 percent from existing conditions.  Among other measures, the project would require the use of shore-to-ship electrical power (also known as “cold-ironing”), lower-emission switching locomotives, alternative-fuel powered cargo equipment, compliance with a vessel speed reduction program, cleaner tugboats and barges, and LEED “gold” building standards for the main terminal building.

Despite these aggressive measures, the Port’s recently released environmental documents estimate that the project’s greenhouse gas emissions would more than quadruple, from 208,107 to 920,858 CO₂ equivalent emissions by the year 2030, causing a “significant” environmental impact.  Thus, before approving the project, the Board of Harbor Commissioners must find that there are no additional feasible mitigation measures that could be implemented to reduce the significant environmental impact and, if the impact cannot be reduced or avoided, that the project’s benefits outweigh the environmental harm.  Interested parties have until at least July 11, 2008 to submit their comments.  The final measures that are adopted by the Board will likely be seen as model for ports throughout the country as increased pressure is applied on ports nationwide to respond to climate change concerns.

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A week after beginning a historic debate concerning climate change, renewable energy, and the difficult choices that need to be made to bring about a low-carbon energy sector, the Congress returns to a more measured pace on the issue this week. As you will recall, the Climate Security Act was pulled from consideration last week after it became clear that comprehensive climate change legislation would not get the 60 votes needed in order to cut off debate and move to votes on specific amendments. There is little encore, with only a single hearing (on biofuels) in the Senate and a smattering of hearings in the House.

The Senate Energy and Natural Resources Committee will consider biofuels on Thursday with a hearing entitled “Renewable Fuels and Food Prices.” Scheduled to appear are Any Karsner, the Assistant Secretary of Energy for efficiency and renewables; Joseph Glauber, the chief economist at the Department of Agriculture; Joe Outlaw, the director of the Food Policy Center at Texas A&M; and Jason Pyle, the CEO of Saphire Energy of San Diego.

There are three hearings in the House of interest:

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In a letter to Senate Majority Leader Harry Reid and Sen. Barbara Boxer, ten moderate Democrats who either voted against moving forward with the Climate Security Act this morning or who abstained from the vote presented a position statement critiquing the the Act as revised by Sen. Boxer and expressing concerns about its impacts to the economy.

The letter, signed by Sens. Stabenow (D-MI), Levin (D-MI), Lincoln (D-AR), Pryor (D-AR), Rockefeller IV (D-WV), Webb (D-VA), Bayh (D-IN), McCaskill (D-MO), Brown (D-OH), and Nelson (D-NE), identifies eight requirements for any future climate legislation:

1. Contain Costs and Prevent Harm to the U.S. Economy
2. Invest Aggressively in New Technologies and Deployment of Existing Technologies
3. Treat States Equitably
4. Protect America’s Working Families
5. Protect U.S. Manufacturing Jobs and Strengthen International Competitiveness
6. Fully Recognize Agriculture and Forestry’s Role
7. Clarify Federal/State Authority
8. Provide Accountability for Consumer Dollars

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In an effort to halt delays and proceed to debating amendments to the Climate Security Act (S.3036), 48 Senators today voted “yes” and six additional Senators not present - including both Senator Obama and Senator McCain - submitted written statements of support.

While not sufficient to invoke “cloture,” the only procedure by which the Senate can vote to place a time limit on consideration of a bill or other matter and thereby overcome a filibuster, the 54 Senators who supported moving forward exceeded the expectations of supporters of the legislation. Seven Republicans joined the 39 Democrats and 2 Independents voting in favor of cloture. Only 36 Senators, including four Democrats, voted to reject cloture.

Attention on climate change now moves to the House of Representatives. John Dingell, Chairman of the House Committee on Energy and Commerce, announced yesterday that the subcommittee chaired by Rick Boucher, would begin hearings on climate legislation, including the Climate Security Act that had been the subject of Senate debate.

The fall presidential campaign will serve as a forum for debating climate policy and energy security and for setting parameters for action in the new Congress next year.

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