In our final installment examining the issues surrounding the creation of a Russian biofuels market, we examine the “green shoots” of a nascent industry-domestic production for export and domestic interest in development of an industry.

The Russian National Biofuels Association, which monitors biofuel developments in the country, held the IV International Conference “Fuel Bioethanol 2009″ in mid-April 2009 in Moscow.  Aleksey Ablayev, president of the Association, noted on the sidelines of the conference that there is still strong opposition to the creation of a grain-based ethanol market in the country and that much of the discussion today has shifted to cellulosic biofuel.  Projects in this area do exist, though funding difficulties in particular have affected their ongoing pace  in various parts of Russia.

The most recent and ambitious biofuel initiative was launched by OJSC Biotechnologies Corporation, which is controlled by the state corporation Russian Technologies (Rostekh).  Having acquired the Tulun Hydrolytic Plant in Irkutsk (Eastern Siberia), the corporation last September produced and tested experimental butanol as a fuel additive in cars.  No information has been provided on the total cost of the butanol as compared to the cost of gasoline sold locally, nor is it clear whether the chosen method of producing butanol is cost efficient.

Titan, an Omsk Group of Companies, reportedly completed the construction of a grain-based ethanol plant in Omsk. This export-oriented project was launched in 2006, with an initial plan to build a production capacity of 150,000 metric tons of ethanol per year.  (A Czech company, Alta, was chosen as an equipment supplier for the plant.)

Funding Difficulties Slow Biofuel Projects 

A  plan to produce about 30,000 tons of butanol at the Tulun plant (in addition to other products) reportedly had difficulty last year obtaining the funds needed for the purchase and installation of equipment.  Biotechnologies Corporation also announced plans to set up butanol production at other sites, including at existing hydrolytic plants, by 2017.  The corporation’s long-term plan is to attract about $1.5 billion for its biofuel initiative.  If implemented as planned, this initiative would produce about 2 million tons of butanol annually.  The corporation reportedly has asked the authorities for subsidies, including reductions in future profit and property taxes during the initial investment period.

Bioethanol Ltd, a daughter company of the agricultural firm “Vinogradov,” launched a project in 2007 to construct a bioethanol plant in the Lipetsk Special Economic Zone, but halted construction in 2008, reportedly due to funding difficulties.  The initial plan was to produce wheat and/or corn-based ethanol as a biofuel additive.  The Moscow Oblast-based engineering company NPK Ekologia announced in April 2009 that it had an order to do the planning for a project with a production capacity of 250,000 tons of bioethanol per year in Tambov Oblast (in the Western part of Russia), and another order for a project with a capacity of 200,000 tons in Stavropol in Southern Russia.  The country’s financial crisis may put a hold on these projects as well.

Non-Food Based Biofuels

Several Russian companies have expressed interest in biodiesel.  For example, in May 2008, the Konti Group of Companies said that it was interested in producing rapeseed-based diesel in Ivanovo Oblast.  The plan was to construct a plant with an annual production capacity of up to 200,000 tons of biofuel.   In June 2008, the Masloprodukt Group of Companies signed a memorandum of cooperation with the National Reserve Bank (NRB), with the goal of increasing production of sunflower-seed oil at an existing plant in Voronezh Oblast.  The Masloprodukt-Bio initiative envisioned an annual production capacity of 100,000 tons of biodiesel and 10,000 tons of raw glycerin.

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In this, our second post on the issues surrounding a biofuels industry in Russia, we examine the attempts by the Russian political class to overcome the various policy barriers we outlined in our last installment.

For several years, the Russian political leadership has given rhetorical support to the idea of developing the domestic biofuel sector, but this has not followed that rhetoric with the new laws required to jump-start growth. While cabinet members made promising announcements on renewable energy and parliamentarians submitted drafts of biofuel laws, few results ensued.

The Agriculture Ministry under Aleksey Gordeev was a strong advocate of biofuel legislation.  In 2007, the Ministry made projections for biodiesel demand in Russia linked to the growth in rapeseed production and listed twelve cities as sites for future biofuel production.  Several Russian regions, including Tatarstan, announced pilot biofuel projects and called attention to the need for legislation that would open the door to biofuel businesses.  In late November 2007, President Vladimir Putin told Gordeev that business conditions to produce biofuel in Russia needed to be created.

In February 2008, the federal government approved the technical requirements for gasoline and diesel that allow the use of bioethanol as an additive for up to five percent.  (Russian law does not mandate the use of biofuel as an additive.)

In early March 2008, Chairman of the State Duma Boris Gryzlov said at a meeting with President Vladimir Putin and Duma faction leaders that 20 million hectares [about 49.4 million acres] of agricultural land were not currently being used, and that almost half of this land “could be used to produce biofuel, such as biodiesel and bioethanol.”  Following Gryzlov’s speech, the President called on the government to make use of the country’s comparative advantage in arable land.

The following day, Prime Minister Viktor Zubkov (currently first Deputy Prime Minister) announced that there was a proposal to finance the construction of 30 new bioethanol plants to eventually increase the country’s ethanol production to 2 million tons per year.  (By early 2009, production of industrial-grade and food-grade ethanol stood at about 0.6 million tons[1])  Mr. Zubkov did not anounce a time period for completing this program.  It is not clear whether such a federal biofuel funding program exists today or if it was ever been approved by the Cabinet.

Nikolai Ryzhkov, Chairman of the Federation Council Committee on Natural Monopolies, wrote in a December 2008 article that his Committee would “pay special attention to expanding the range of alternative energy sources.”  He praised the first results of experimental production, including the use of wood-based butanol produced at a biotechnology plant in the city of Tulun (Irkutsk Oblast).  The legislator also emphasized the urgent need “to prepare the legislative base for a biofuel industry.”

Despite such high-level support for biofuel initiatives, efforts to pass legislation based on a draft bill “About Alternative Motor Fuels” (#130858-4) introduced in January 2005 did not succeed.  The Government put the bill on hold on the grounds that it did not clearly address, among other issues, issues of jurisdiction and responsibilities of regional and/or federal authorities.  Subsequently, the Duma Energy Committee called upon the authors of the 2005 bill to amend the text in line with previous criticism by the State Duma’s Legal Department.

State Duma deputies and Federation Council members with the backing of the Ministry of Agriculture prepared another draft bill, “About the Bases for the Development of Bioenergy in the Russian Federation.”   This bill, submitted to the State Duma in Spring 2007, was scheduled for review by the Duma Agrarian Committee in 2008.  According to the Deputy Chairman of the Committee, work on the draft bill will continue in 2009.

Legislative and ministerial work has gone very slowly in part because of the regulatory and technical issues that must be addressed.  There are also broader reasons for the lack of progress.  First, renewable energy sources, including biofuel derived from grain or bio-waste, are a low priority on the legislative agenda, especially compared to the regulation of the gas and oil sectors.  Given the heavy dependence of the country on revenues from hydrocarbon production, this is quite understandable.  Second, there is limited interest in alternative energy in general and no desire on the part of business to jump into risky projects.  Third, the financial crisis has shrunk the pool of available investment for all types of energy projects.

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A global financial crisis and the subsequent economic slowdown in Russia have dampened Russian companies’ investment and plans to invest in the biofuel business.  Unlike in the West, Russia is not pushing to get on the biofuels bandwagon.  Yet, despite the many existing constraints on the development of the country’s infant biofuel sector, opportunities to develop this sector do exist.  In this series of posts, we examine the factors constraining a Russian biofuels industry, and the possibilities for overcoming those obstacles and developing a nascent market. In this first post, we examine the production and policy constraints on the industry.

Supply & Demand

On the supply side, Russian agriculture, as well as the forestry and the chemical industry could provide necessary inputs and labor under favorable conditions (such as subsidies in the form of production and blending tax credits).  The potential of the country’s idle distilleries could also be utilized. Grain-based ethanol (which can be produced from non-food grade grain), cellulosic ethanol (using wood waste, straw, etc.), or biobutanol (often called “a second-generation fuel” produced from the same feedstocks as ethanol) can be mixed with conventional gasoline. 

A 10-percent biofuel additive would work for most new cars.  Russian experts’ proposals have ranged from a 5 percent to 10-percent blend of ethanol.  The issue of how much biofuel should be blended with conventional gasoline has caused a debate even in the United States. In 2008, about 9 billion gallons of bioethanol were blended into U.S. transportation fuels in compliance with EPA’s mandated volume/RFS requirement. The output of about 90 billion gallons of E10 is about 70% of all gasoline sold in the United States in 2008.

There is currently no commercial, large-scale production of bioethanol or biodiesel for transportation purposes in Russia.  One of the main obstacles is production cost.  Factors that influence production cost include the choice of input and technology, the location of production facilities, and climatic factors.  A second important obstacle is an existing excise tax on ethanol makes production of a bioethanol additive for domestic transportation purposes cost prohibitive.  Third, Russian energy companies, which own the oil refineries and gas stations, see biofuel as a prospective additive to gasoline sometime in the future, but they are not eager to invest now in biofuel R&D projects.  Oil companies cite a number of impediments to the development of the biofuel business, such as biofuel production costs, the amount of arable land required, and the Russian climate. 

On the demand side, private individuals and businesses may see the benefits to the environment (in terms of GHG emissions on a full fuel cycle basis), but they are unlikely to push for more expensive biofuel blended fuel. 

Domestic Concerns and Challenges

In addition to the many commercial and business issues that have not yet been addressed, there are policy and legislative reasons why the biofuel sector has not developed. 

First, it will be challenging to develop a subsidy policy that would encourage both the use of non-food grade grain and bio-waste for biofuel production (thus benefiting farmers and chemists) and the use of a biofuel additive by oil refineries and fuel blenders (thus creating positive incentives for these businesses).  Over time, large-scale projects will have to become less dependent on subsidies and justified on the basis of economic efficiency and technological advances.  R&D funding is particularly needed to develop more cost-effective technologies for producing advanced biofuels.  Such technologies and equipment, however, can be acquired abroad and applied domestically.  The Russian federal government classifies “technologies for production of fuel and power from organic raw material” as “critical.”  The government considers these technologies “important from the socio-economic standpoint or for the defense of the country and state security,” but funding to develop them is still lacking.  The use of government subsidies is also being debated.  As the state begins to bail out faltering private businesses, critics are complaining that the last thing Russia needs is another heavily subsidized sector—one where the government, rather than business, chooses where investment should go, and favors certain recipients with financial incentives. 

Second, it will be necessary to remove the currently prohibitive excise tax on bioethanol used as a gasoline additive. 

Third, the traditional inertia against producing something new will have to be overcome.  Regulation and production standards for fuel bioethanol and biodiesel will have to be put in place.  Russian consumers continue to complain about poor quality gasoline, and even the best quality bio additive will perform poorly if mixed with low quality fuel.

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An international debate has recently intensified to determine the role, if any, that the transfer of intellectual property rights and technologies may play in current and future international climate change treaties.  Specifically, the transfer of intellectual property rights—patents, copyrights, etc.—directed to low-carbon technologies that can be utilized by countries to meet their greenhouse gas (GHG) reduction targets is an increasingly significant, and contentious, consideration for developed and developing countries. Delegates at the United Nations Framework Convention on Climate Change (UNFCCC) conference in Bonn earlier this year discussed the transfer of intellectual property rights, such as by compulsory licensing.  These issues are expected to be subject to intense negotiation this December at the UNFCCC meeting in Copenhagen. The UNFCCC has begun to formulate and express its long-term visions and goals for clean technology transfer mechanisms. The transfer of intellectual property rights and technologies to combat the effects of climate change necessarily implicates U.S. foreign policy, U.S. climate change policy, and U.S. intellectual property policy.  In recognition of the importance of the technology transfer issues, the U.S. Congress escalated this issue among its legislative priorities and intends to set forth its positions in advance of the Copenhagen meeting. 

On June 10, the House of Representatives passed H.R. 2410, the “Foreign Relations Authorization Act, Fiscal Years 2010 and 2011.”  Section 329 of this legislation is directed to the “Protection of Intellectual Property Rights.”  Its title alone alludes to the stance that the U.S. is expected to take in Copenhagen.  

While not limited exclusively by its language to climate change issues, Section 329 requires the Secretary of State to ensure that the protection in foreign countries of intellectual property rights owned by U.S. persons and U.S. companies is a “significant component” of U.S. foreign policy.  In countries that have been identified as denying adequate protection or market access for intellectual property rights, the Secretary also must ensure that the U.S. diplomatic presence will have sufficient resources:

1. to support enforcement actions in that country against violations of intellectual property rights owned by U.S. persons or companies; and
2. to cooperate with the host country to reform its laws, regulations, practices, and agencies to enable that country to fulfill its obligations with respect to the protection of intellectual property rights. 

The Secretary of State is further authorized to appoint ten intellectual property attachés to serve in U.S. embassies, prioritizing these appointments based on the greatest potential benefit to reduce counterfeit or pirated goods entering into the U.S. market, to protect the intellectual property rights of U.S. owners and their licensees, and to protect the interest of those in the U.S. who are otherwise harmed by intellectual property violations in those countries.  The intellectual property attachés will have other duties and responsibilities, as well, including engaging in public education efforts against counterfeiting and piracy. 

Rep. Rick Larsen (D-WA) sponsored an amendment to H.R. 2410 that was approved unanimously.  Referred to as the “Statement of Policy Regarding Climate Change,” the amendment asserts that “[t]o protect American jobs, spur economic growth and promote a ‘Green Economy,’ it shall be the policy of the United States that, with respect to the [UNFCCC], the President, the Secretary of State and the Permanent Representative of the United States to the United Nations should prevent any weakening of, and ensure robust compliance with and enforcement of, existing international legal requirements [] for the protection of intellectual property rights related to energy or environmental technology,” and lists a variety of technologies, including wind, solar, biomass, clean coal, energy efficiency-related technologies, and others.

Thus, the legislation passed by the House intends to protect the overseas intellectual property rights of U.S.-based owners.  With the UNFCCC investigating means for technology transfer that may be seriously discussed as early as December 2009, the U.S. has made it known that it will ensure that U.S. owners of relevant intellectual property rights will be protected, and, in all likelihood, compensated for any such transfer of rights or technologies. 

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The World Bank and the International Emissions Trading Association convened their annual Carbon Expo with upwards of 1500 delegates all focused on the continued development of the global carbon market.  Questions and comments throughout the conference relate to the “change in tone” from the United States since the election of President Obama and what the US’s cap and trade system will look like.The political reality that has yet to penetrate global carbon market participants is whether the US will have a cap and trade system at all.  Carbon Expo keynote speaker, Ricardo Lagos Escobar, Special Envoy on Climate Change for the United Nations and former President of Chile, spoke optimistically of an agreement being reached at Copenhagen in December 2009 with the US as a full participant.  Even those speakers aware of the political challenges in the US focused not on the fundamental questions that remain before any cap and trade system can be enacted, but on such details as how Clean Development Mechanism offset credits will be accepted in the US.

Experienced carbon market participants, particularly those actively involved in the European Union Emissions Trading System, appear convinced that a cap and trade system can both achieve environmental objectives and do so in an economically efficient manner.  That case has not been made yet in the US and—at least for the moment—is not being made.  Cap and trade supporters in the US seem to assume that these concepts are entrenched and understood not only by the public at large, but also by policymakers in Congress and the Executive.

In the meantime, opponents are busily rebranding cap and trade as “cap and tax,” an effective ploy at a time of great financial uncertainty and an audience with little apparent appetite to raise taxes.  Cap and trade proponents need to join the debate at the most fundamental level if they hope to see such a system enacted in the US.

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The Australian Government announced yesterday a AUD$4.5 billion Clean Energy Initiative as part of its commitment to ensure 20% of Australia’s electricity comes from renewable sources by 2020.  (All dollars figures referenced in this post are Australian Dollars.)  Under the plan (which includes $1 billion in existing funds), the Government is proposing to spend:

1. $465 million to establish Renewables Australia to support leading-edge technology research and capacity building;
2. $2.4 billion in low emissions coal technologies, including new funding of $2 billion in industrial-scale Carbon Capture and Storage (CCS) projects under the CCS Flagships program.  This program will support the demonstration of industrial-scale projects in Australia, potentially including a carbon dioxide storage hub;
3. $1.6 million in solar technologies, including $1.365 billion in a Solar Flagships Program to help position Australia as a world leader in this technology.  This program will aim to create an additional 1,000 MW of solar generation capacity, which is triple the size of the largest project of its kind currently operating anywhere in the world; and
4. $14.9 million over three years, added to the Government’s Clean Energy Trade and Investment Strategy, to attract productive investment into Australia’s clean energy sector and assist Australian clean energy companies to access international markets through export and investment.

The Government’s announcement follows upon the “Carbon Capture and Storage Initiatives in Australia” event at the Australian Embassy in Washington, DC.  Speakers James McGregor, Energy Systems Manager, CSIRO; Mark Taylor, Senior Associate, New Energy Finance and a representative from the newly-created Global Carbon Capture and Storage Institute (GCCSI), an Australian organization developed to accelerate the deployment of CCS technology globally, discussed CCS projects both in Australia and worldwide.

The Australian experience with CCS research and development is particularly pertinent to the United States because both countries depend heavily on coal-fired generation of electricity. Eighty percent of Australia’s energy comes from coal-fired power stations, accounting for one-third of Australia’s GHG emissions.  While there are 238 CCS projects, excluding lab-scale initiatives, at various stages in twenty-seven countries, both Australia and the United States are likely to require successful CCS technologies to attain the GHG emissions reduction targets contemplated.

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Part 1 of this two-part series discussed provisions of the American Clean Energy and Security Act of 2009 (ACESA) introduced by Representatives Waxman and Markey that would require U.S. importers of fossil fuels to hold emissions allowances for downstream greenhouse gas emissions resulting from combustion of the imported fuels. This post addresses Title IV of ACESA, which would potentially impose a second layer of compliance obligations and costs on U.S. importers. Title IV is intended to safeguard the competitiveness of U.S. manufacturing industries vulnerable to “carbon leakage;” i.e., the potential shift of emissions-intensive manufacturing from the U.S. to foreign jurisdictions with no or less onerous emissions restrictions.

Title IV would establish two mechanisms to safeguard the competitiveness of greenhouse gas emissions-intensive U.S. manufacturing industries in light of carbon leakage. First, Title IV would allocate some emissions allowances to greenhouse gas emissions-intensive and trade-exposed domestic manufacturing industries at no cost. In this way, qualifying U.S. manufacturers would, in principle, maintain their competitive balance vis-à-vis foreign manufacturers even as they are subjected to declining emissions caps. This first mechanism would not impose specific obligations on U.S. importers.

Title IV also provides, however, for a fall-back mechanism, laid out in Sections 411-16, that could restrict imports in the event the free allowance mechanism is found not to adequately safeguard domestic manufacturing industries from carbon leakage. These provisions call for the establishment, after 2017, of an “International Reserve Allowance Program” pursuant to which importers of “covered goods” would be required to surrender, upon importation, “international reserve allowances” in an amount covering the greenhouse gas emissions associated with the manufacture of the imported goods. International reserve allowances would be drawn from an independent allowance pool and could not be used by domestic entities to comply with their domestic cap-and-trade obligations arising under Title III.

As set forth in Section 411, covered goods would include “primary products” such as iron, steel, aluminum, cement, glass, pulp, paper, chemicals, and industrial ceramics, as well as products that generate “a substantial quantity of direct greenhouse gas emissions or indirect greenhouse gas emissions” in the course of their manufacture. Thus, a potentially vast range of imports could be covered by the International Reserve Allowance Program. Under Section 416(a)(1), however, imports originating in least developed countries or in countries accounting for less than 0.5 percent of total greenhouse gas emissions would be exempted from international reserve allowance requirements. Section 415 would prohibit imports unless accompanied by the required number of international reserve allowances. While not specified, U.S. Customs and Border Protection (CBP) would likely have a significant role in the administration of these provisions.

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U.S. import tariffs have gradually declined in recent decades as a result of international tariff-cutting agreements under the General Agreement on Tariffs and Trade and a succession of bilateral and multilateral preferential trade agreements.  At the same time, however, the United States has increasingly imposed conditions or restrictions on importation to further U.S. policy objectives, including on environmental issues.  The American Clean Energy and Security Act of 2009 (ACESA), introduced by Representatives Waxman and Markey, would further this trend by requiring U.S. importers of certain fossil fuels to hold emissions allowances accounting for downstream greenhouse gas emissions.

As discussed previously on ClimateIntel, Title III of ACESA would amend the Clean Air Act to provide for a national greenhouse gas emissions cap-and-trade scheme covering a wide range of emitting industries and activities.  Under Section 722(a)(2) of Title III, U.S. importers of specified fossil fuels would, for each calendar year starting in 2013, be required to hold emissions allowances in an amount covering the downstream greenhouse gas emissions resulting from the combustion of the imported fossil fuels.  The requirement applies to “covered entities,” defined in relevant part at Section 700(12)(B) as “any entity that imports, for sale or distribution in interstate commerce in 2009 or any subsequent year, petroleum-based or coal-based liquid fuel, petroleum coke, or national gas liquid, the combustion of which would emit more than 25,000 tons of carbon dioxide equivalent…”

In a related recent development also discussed on ClimateIntel, the U.S. Environmental Protection Agency on April 10, 2009, opened a 60-day public comment period on its Proposed Mandatory Greenhouse Gas Reporting Rule (Proposed Rule), pursuant to which various entities, including U.S. importers and exporters of petroleum products, would be required to report on the carbon dioxide emissions associated with the combustion of the imported products.  While ACESA does not expressly draw this link, it seems that the Proposed Rule could facilitate implementation of the bill’s emissions allowance requirements for importers.  It also seems that U.S. Customs Border Protection (CBP) would likely play a significant role in the implementation of ACESA’s importer provisions, but this role is nowhere specified in the draft legislation.

Under Section 722(a)(2) of ACESA, each covered importer would be required to hold one emissions allowance for each ton of greenhouse gases, expressed on a carbon dioxide-equivalent basis, that would be emitted from the combustion of the imported fossil fuels.  As detailed in Section 722(c), affected importers would be able, on a limited basis, to satisfy emissions allowance requirements through other means, which include offset credits, emissions allowances issued in foreign jurisdictions, and compensatory allowances.  Under the proposed statutory scheme, downstream industrial users of imported fossil fuels would be excluded from emissions allowance requirements covering use or combustion of the imported fuels.  Thus, the bill places the responsibility for U.S. emissions of imported fossil fuels - and the associated costs - in the first instance on the importers.

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In a move that could presage the increasingly uphill battle for climate legislation around the globe, Australian Prime Minister Kevin Rudd announced yesterday that his country would delay the start of its emissions reduction scheme—the Carbon Pollution Reduction Scheme (CPRS)—by a year, until 2011. Citing the difficult global economic environment, as well as the need “to provide business certainty and investment certainty” to the sectors affected by the CPRS bill, the Prime Minister announced a number of additional measures to support jobs and businesses. A one-year fixed price phase will apply between July 1 2011 and June 30 2012, when carbon would be priced at $10/ton. A new “Global Recession Buffer” will offer greater protection, of approximately $2.2 billion, to emissions-intensive trade exposed industries. The expanded Renewable Energy Target (of 20% by 2020) will be in place as planned by 2010, and increased funding will be available for eligible businesses to undertake energy efficiency measures in 2009-10 as part of a $200 million tranche of the Climate Change Action Fund. Prime Minister Rudd also hinted at the potential of stricter emissions reductions commitments-up to 25% below 2000 levels by 2020—should international negotiations lead to an “ambitious global deal to stabilize levels of CO2 equivalent in the atmosphere.”

The center-left Labor Government will introduce these proposed changes into the Senate, but it seems unlikely to garner the support needed to pass through the Houses needed from the Greens and Liberal Party, who have each voiced strong opposition to the proposed scheme. The Greens, who want deeper cuts of around 25% by 2020, have already criticized the Government for what they characterize as further subsidizing “big polluters,” while the Liberal Party has advocated that the Senate defer consideration of the bill until next year after the Productivity Commission had studied alternative carbon market schemes.

This announcement by the Australian government shows the extent to which the global economic crisis has slowed the momentum toward adoption of a post-Kyoto climate regime.  Australia, in a possible preview of outcomes in the U.S. Congress, came down on the side of caution so as “to ensure we have a phase-in of the scheme to support jobs, [and] to enable the economy to recover.”

A similar fight has already commenced over the Waxman-Markey American Climate and Energy Security Act (ACESA), now being debated in the U.S. House of Representatives. Committee Democrats are sharply divided over how to prioritize the various major legislative initiatives they are interested in undertaking—and with support in the Senate considerably more precarious than support in the House, some sort of compromise measure seems likely.  One option currently receiving strong consideration would be to strip the energy and efficiency provisions from ACESA and pass those as a seperate initiative. Those provisions could mesh better with Senate priorities, as Senator Jeff Bingaman, chairman of the Energy and Natural Resources Committee, has been developing a comprehensive energy efficiency program of his own. Similar debates about the design of an emissions trading scheme will soon be heard around the globe, as countries try to enact comprehensive and rigorous climate change legislation in a challenging economic and political environment.

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While new facility emission standards in the Waxman-Markey draft bill would impose a de-facto obligation on newly permitted coal-fired facilities to be capable of installing and ultimately operating carbon capture and sequestration (CCS) equipment, the United Kingdom’s Secretary of State for Energy and Climate Change has proposed legislation that mandates the use of CCS technology on any newly-constructed large-scale coal-fired energy facility.

In a statement to the House of Commons on April 23, 2009, Secretary Ed Miliband explained the proposal:

I propose a requirement to demonstrate CCS on a substantial proportion of any new coal-fired power station. We will propose for consultation a requirement to demonstrate at least 300 MW of net capacity or around 400 MW of gross output as a condition of any consent. The demonstration condition would mean that henceforth unabated coal-fired power stations would not get Government consent. Secondly, alongside that, we must secure not just a commitment to demonstrate, but, when the technology is proven, a commitment that CCS will be fitted on the entire plant.

Miliband’s proposal builds on an existing UK requirement that all new coal-fired units be sited with the capacity to accommodate the addition of retrofitted carbon-capture technology when such technology becomes commercially available (the UK’s Department of Climate Change, as of April 23, 2009, is currently accepting comments through June 22, 2009, on draft guidance for operators seeking to prove their sites will meet the new “carbon-capture-ready” requirement).  The Secretary’s new proposal, however, suggests that some in the UK government now believe the technology is already commercially available-at least for the purpose of a commercial-scale demonstration project at a new facility.

The UK has styled itself as the international leader in developing aggressive policies to promote rapid adoption of clean coal technologies.  It has also established a comprehensive and transparent consultation process to develop new CCS and other climate-related policies.  Therefore, the UK’s progress and experience in implementing its CCS policies, and the ongoing comments and reaction of its many stakeholders, may prove useful references for US stakeholders looking to shape and predict the future of US policy. 

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