ClimateIntel.com

While the Obama administration’s legislative agenda in regards to climate change is still in its infancy, the administration has already moved to reconcile the differences between its views and the current position of government in important environmental litigation. The first of those moves came today, when Solicitor General Elena Kagan moved to dismiss the Environmental Protection Agency (EPA) ’s position in EPA v. State of New Jersey. The Solicitor General’s move in this case, which will affect the implementation of the Clean Air Mercury Rule, represents a fairly dramatic change in policy for the EPA, and likely means that the case will not be granted certiorari and recieve Supreme Court review.

Read a more complete discussion of this issue at SCOTUSblog.com.

On February 4, 2009, Chairman Collin Peterson (D-MN) convened a second hearing to examine The Derivatives Markets Transparency and Accountability Act, draft legislation to create greater transparency in the future markets and increase oversight in the over-the-counter market for swaps and other credit derivatives.

In a brief opening statement before taking the testimony of 15 witnesses, Chairman Peterson welcomed the debate on the bill, observing that there seemed to be a consensus that greater transparency and accountability should be adopted for derivatives transactions.  He  stated his intention to mark-up the bill perhaps as early as next week.

Carbon Offsets and Emissions Allowances

Industrial Energy Consumers of America President Paul Cicio objected to enacting a provision of the bill that would require carbon offsets and emissions allowances to be traded on a designated contract market under CFTC oversight, expressing his concern that its adoption would prejudice the outcome of the debate on how to control greenhouse gas emissions.  He recommended that Congress consider regulatory options beyond a cap-and-trade scheme.  He warned that existing carbon trading has lacked transparency and is easily subject to the kind of manipulation that can lead to financial collapse.

Testifying on behalf of the Securities Industry and Financial Market Association, Edward Rosen stated that the provision would establish an exchange monopoly for the trading of futures on carbon and criminalize off-exchange trading in these products.  He concluded that the prohibition on off-exchange trading would impair market efficiency and innovation as well as the development of the product, undermining the important policy objective of reducing carbon emission.

See witness testimony from Wednesday’s hearing, as well as Tuesday’s hearing on the same subject here.

Spurred by a variety of incentive programs, homeowners, businesses, and local governments installed 158 MW of grid-tied solar photovoltaic projects in the investor-owned utility (IOU) service areas of California in 2008, more than doubling the 78 MW installed in 2007.  Despite the economic downturn, the California Public Utilities Commission reported that the rate of installations is expected to remain strong in 2009.  According to the Commission, demand to participate in the largest incentive program, the California Solar Initiative (CSI), surged in the fourth quarter of 2008, breaking the previous records for most applications in a single quarter.

The CSI program, launched in 2007, provides upfront incentives for solar systems installed on existing residential homes, as well as existing and new commercial, industrial, government, non-profit and agricultural properties within the IOU service areas.  The program has a budget of $2.17 billion with the goal of reaching 1,940 MW of installed solar capacity by the end of 2016.  Combined with other statewide programs, $3.3 billion in incentives are available.

As a bright spot in the California economy, the CSI program has generated more than $5 billion worth of investment in solar projects in California.  According to the Commission, for every $1 in incentive committed by the CSI program, an additional $6 in private funds is invested in solar technology in California.  Considering the current demand to participate in the CSI program, and the availability of solar investment tax credits, this level of investment should continue in 2009.

Last week the California Air Resources Board (CARB) held a public workshop providing an implementation timeline and identifying rulemaking issues for the Assembly Bill 32 (AB 32) Scoping Plan, approved in December 2008.   AB 32, the California Global Warming Solutions Act, sets a target to reduce statewide emissions to 1990 levels by 2020.  The Scoping Plan recommended a mix of strategies to achieve emissions reductions, in particular a greenhouse gas cap-and-trade, as well as other market mechanisms, new energy regulations, voluntary measures, energy efficiency measures, and fees. CARB’s cap-and-trade rulemaking will determine all elements of the program design, including the scope and threshold of source eligibility, the level of emissions cap, the manner of allowance distribution, offsets, reporting requirements, and enforcement.  CARB will seek to establish transparent emissions trading rules, including possible restrictions on market participation.  Regulations for the cap-and-trade will be adopted by November 2010 and the cap-and-trade will begin on January 1, 2012 for the electricity generation sector and large industrial sources.  Additional sectors, such as commercial and residential natural gas use and transportation fuels, will be phased into the system in 2015.

CARB intends that its rulemaking harmonize as much as possible with that of Western Climate Initiative (WCI) member jurisdictions.   Under the Scoping Plan, CARB has committed to certain elements in the design of the cap-and-trade: the program will have a three-year compliance period, minimum 10 percent auction of emissions, and will limit offsets to no more than 49 percent.  However, CARB will participate with the WCI to ensure that critical elements of the rulemaking are harmonized between the partner jurisdictions. CARB anticipates that WCI members will share a standard auction design, coordinate auctions, and have consistent rulemaking provisions on offset and reporting protocols.  It is CARB’s position that participating in a regional program will reduce emissions leakage, support jobs retention, and give the WCI member states increased leverage on framing federal climate policy.  Adopting standard WCI elements will help ensure that emission allowances have comparable value across jurisdictions.

In crafting the California cap-and trade regulations, CARB will use a formal rulemaking process with extensive opportunity for public input in the regulatory process.  CARB will invite participation by US EPA and other federal lead agencies to participate in the rulemaking with the intention that CARB’s discussions of and recommendations on policy issues will influence national legislation and regulatory development.

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The Russian leadership has begun to task the Ministry of Energy and regional authorities with creating conditions for the greater use of renewable energy in electricity generation by Russian utility companies.

Overview of the Executive Directive

On January 8, 2009, Prime Minister Vladimir Putin signed an executive directive which calls for an increase in the energy efficiency of the Russian electric power sector on the basis of renewable energy sources.  The directive sets several specific targets for expanding the share of renewable energy in electricity generation from less than the current 1 percent to 1.5 percent in 2010, 2.5 percent in 2015, and 4.5 percent by 2020.

Hydropower plants with a capacity of more than 25 megawatts (MW) are not included in these figures, but the targets do include small hydro power plants, as well as tidal, geothermal, wind, solar, and biomass sources, according to a RusHydro presentation in the fall of 2008.  For example, Russia’s wind-power capacity (estimated at 12 MW in 2005) is projected to increase tenfold to 120 MW in 2010, 1,500 MW in 2015, and 7,000 MW (or 7GW) by 2020.  (For comparison, Canada’s installed wind energy capacity reached about 2.3 GW in 2008, supplying about 1 percent of the country’s electricity demand.  United States wind energy capacity grew by 50 percent in 2008 to 25.1 GW.)

To meet the targets set in the directive, the Russian Ministry of Energy is tasked with taking a large number of measures, including deciding on pricing for electricity produced from renewables; attracting private investment for new and existing projects; engaging domestic industrial sectors and services; improving statistical reporting on the use of renewables in electricity generation; and raising public awareness about renewable energy sources.

The federal policy on the use of renewables in electricity generation through 2020 is, however, more than declarative.  On the basis of the directive, the Ministry of Energy is to engage federal agencies and utilities and seek their input and cooperation in order to fulfill the tasks outlined in the directive.  The directive should also spur regional governments “to make provisions in their development programs” for measures that foster the implementation of the new government policy.

Implications of the Directive

RusHydro, a Russian state-controlled company and the world’s second largest producer of hydro-based electricity after Canada’s Hydro-Quebec, already produces approximately 15 percent of the country’s electricity.  The company has ambitious investment plans for new large and small hydro power projects and a vision for the development of the domestic wind power sector.  However, the company’s 2009 investment commitment (417 million rubles or about $13 million at the dollar exchange rate of 32 rubles) for small hydro, wind, and tidal power projects is conditional on the allocation of federal budget subsidies.  RusHydro relies on legislative and executive support for the expanded use of renewable energy sources.  If Putin’s directive is followed up with more executive orders (as RusHydro expects it will be in 2009), then this will in all likelihood influence domestic utilities and manufacturers.

There could also be greater use of renewables in future years if foreign and domestic investors in Russian utilities see cost-effective opportunities for generating additional income from renewables and remain committed to expanding the use of clean energy sources.  Likewise, Russian industrial manufacturers will produce and supply equipment if there is growing demand for their services.  Foreign suppliers of equipment and engineering services may come to see this as an area where partnerships and even joint ventures would be welcome.

Over the long-term, renewable energy initiatives can potentially create “green” jobs for blue collar workers and professionals.  However, before this happens, legal and regulatory issues would have to be addressed.

Challenges to Implementation

The presidential directive cites numerous hurdles to the growth of electricity generation based on renewable energy sources, but also outlines comprehensive measures to address these concerns.  If federal and regional authorities choose to cooperate with interested parties, domestic and/or foreign, more investment in small hydro, wind and solar power projects is likely to follow.  These projects will be limited by geographical factors, of course, and, to some extent, by competition for the attention of Russian authorities preoccupied with the present difficult financial and economic situation.  Success stories of foreign companies engaged in renewable energy business can encourage more Russians to think “green,” not only in terms of how these projects impact the environment, but also in terms of potential profit-making opportunities.

This morning, Senate Environment and Public Works Chairman Barbra Boxer (D-CA), along with the Democratic members of her Committee, rolled out a long awaited set of principles that will shape an upcoming climate change bill.  These principles are very general and offer little guidance for those attempting to predict the future of emissions control programs. Senator Boxer’s response to reporters’ questions were somewhat more illuminating. Sen. Boxer outlined three major points in her answers:

First was the tacit admission by Senator Boxer that last year’s bill was too complicated and too prescriptive to pass and that this year’s effort will leave more room for the executive branch to design and implement a cap and trade system.  She left it open whether the Securities and Exchange Commission or the Commodity Future Trading Commission would have the primary regulatory oversight responsibility for carbon trading.  This appears to have foreclosed talk of establishing a new federal bureaucracy to establish rules and monitor the market—a key criticism of the previous bill.  It also creates questions regarding the role of the Environmental Protection Agency in implementing the carbon cap and trade system.

Second, Senator Boxer seemed to dismiss the idea of a carbon tax as an alternative to a cap-and-trade system.  While she said she was open to all ideas on curbing greenhouse gas emissions, she seemed skeptical of claims by some economists that a carbon tax would be more effective than a cap and trade system. She failed, however, to cite reasons for her skepticism.

Finally she noted that nuclear, while not an answer in and of itself, must be part of the solution.  This is a big concession and one that could bring crucial Republican votes in passing a bill.  There have been indications that there are a substantial number of Republican votes waiting for some sign that nuclear will be part of a national energy strategy.  This is crucial to many southern Republicans whose home state utilities and rate payers (i.e. voters) cannot depend on renewable energy in a meaningful way and are opposed to renewable portfolio standards.

See a video of the press conference here.

This week on Capitol Hill, the Senate begins its consideration of the economic stimulus, known as the American Reinvestment and Recovery Act, while the House examines derivatives, carbon offset markets, and the challenges confronting international climate negotiations.

On Tuesday, the House Agriculture Committee begins a series of hearings on the role of the Commodity Futures Trading Commission (CFTC) in oversight of energy futures, derivatives and carbon offsets. A continuation of legislation considered by the House in the summer of 2008, when oil prices reached $150 a barrel and accusations of market manipulation were rampant, the bill would give the CFTC a role in regulating all of these markets. The first hearing begins Tuesday at 1:00PM. (Watch a live webcast here.) The second hearing will be Wednesday at 10:30AM.

Also on Wednesday, the Select Committee on Energy Independence and Global Warming examines the path from last December’s Poznan climate change conference, and the Copenhagen conference coming in December 2009—the deadline for the world to update its approach to battling climate change. Witnesses include the European Commission’s ambassador to the US, and officials from the Pew Center on Global Climate Change and the World Resources Institute. The hearing begins at 10:00AM. Read more here.