In its annual report to the UN Framework Convention on Climate Change Secretariat, the European Environment Agency (EEA) highlights Member States’ progress greenhouse gas (GHG) emissions reductions. The report reveals that emissions within the EU-27 were reduced by 0.3% in 2006, the most current year for which data is available. EEA estimates that, overall, emissions have fallen 7.7% below 1990 levels.

The report found that the EU-15 Member States cut emissions by 0.8 % in 2006 — 81 % of the total EU reductions — but that some Eastern European countries reported emissions increases over the 2005-2006 time frame. In a press statement, EU’s Environment Commissioner Stavros Dimas noted that “a continuous effort will be required by all Member States to achieve [GHG targets].” The 12 newer EU countries “cannot rely on the successes of the past,” he said.

The report seems to point to the need for significant further work for the EU to achieve its proposed “20% by 2020″ target, since much of the reductions originated from incidental shifts in demand. The report revealed that the main contributor to the emissions decrease in the EU-27 was lower consumption of gas and oil in households and services, due to a warmer weather between 2005 and 2006. Other greenhouse gas reductions came from a decreased rate of nitric acid production, mainly in Germany, and from decreased CO2 emissions from manufacturing mainly due to depressions in France’s and Hungary’s chemical industries.

Sectors with substantial increases in GHG emissions in the EU-27 included CO2 from public electricity and heat production, CO2 from road transportation, and CO2 from iron and steel production. These findings suggest that there may be a future increase in regulation of vehicle and truck emissions and building efficiency standards, similar to Germany’s decision this week to “increase truck tolls and raise energy standards for buildings,” as reported by the AP.

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A group of over 100 business leaders issued a call for broad international action to reduce greenhouse gas (GHG) emissions. The CEO Climate Policy Recommendations to G8 Leaders was delivered to Japanese Prime Minister Yasuo Fukuda in anticipation of next month’s G8 meetings in Japan.

The CEO group recognizes the threat posed by climate change and calls for immediate action to mitigate the risks posed to both the physical and business environments. These leaders request action from “all major economies . . . including the United States, China and India.” They pledge to work with governments under the Bali Action Plan to negotiate, over the next 18 months, a successor agreement to the Kyoto Protocol.

The group recognizes that “the rapid shift to a low-carbon economy that lies ahead has the potential to drive forward the next chapter of technological innovation.” Developing economies have the most to gain by engaging in the international process because - if designed properly - it “enables the emergence of an international market for carbon [that] can help catalyse the required flows of private capital and clean energy technology to developing nations in the most innovative, entrepreneurial and cost-effective way.”

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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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The Lieberman-Warner Climate Security Act has emerged as the leading legislative vehicle for the creation of a national cap-and-trade system for greenhouse gas (GHG) emissions. Recently described by the Wall Street Journal as “the most extensive government reorganization of the American economy since the 1930s,” the Climate Security Act would, among many other things, require U.S. importers of a wide range of manufactured goods to purchase and surrender emissions allowances representing the GHGs associated with manufacture of the imported goods.

This requirement, intended to ensure that U.S. emissions caps do not diminish the competitiveness of domestic manufacturing industries vis-à-vis their foreign rivals, would only be excused for goods produced in countries that have adopted GHG emissions requirements as stringent as those in effect in the United States. In this way, the Climate Security Act would use U.S. market access to compel foreign exporting nations to limit GHG emissions, and could significantly affect trade flows.

In anticipation of the floor debate scheduled to begin in the Senate next week, Senator Boxer issued a substitute bill (S. 3036) that significantly alters the regulation of imports. One of the principal trade-related changes in the substitute bill is that it would create an International Climate Change Commission (ICCC) that would determine which foreign countries have taken “comparable action” to the United States in curbing GHG emissions. A negative determination would trigger the requirement for importers to provide emissions allowances pursuant to an International Reserve Allowance Program. The ICCC’s duties would also extend to determining the scope of manufactured goods falling under the import provisions, as well as modifying the import emissions allowance requirements as warranted.

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The Environmental Law Institute convened a panel discussion last week covering international competitiveness concerns raised by cap-and-trade programs for greenhouse gas (GHG) emissions. Much of the program focused on a proposal by the utility company American Electric Power and labor unions such as the IBEW and the AFL-CIO that addresses concerns over the potential loss of jobs in the United States due to higher energy costs.

The proposal adds provisions to the Lieberman-Warner bill that would authorize an independent commission to determine if other countries are adequately regulating carbon. If a country is not regulating GHG emissions, energy-intensive goods manufactured there would be significantly less expensive than similar goods made in countries with emissions limits. Once it is determined that a country is not taking “comparable action” it will be subject to certain requirements. In order to import specific goods, the foreign manufacturers will have to purchase a special type of international emissions allowance - which is separate from the allowances issued to domestic facilities - and surrender it at the border with the goods being imported. This ensures that imported energy-intensive goods will not be able to unfairly undercut the prices of domestic-produced goods that are required to incorporate a price for GHG emissions.

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Paul Gutermann and Kenneth Markowitz presented at Carbon Expo 2008 in Cologne, Germany. Mr. Gutermann discussed the ongoing battle in the United States between state and federal authorities over climate change initiatives. Mr. Markowitz presented on the challenges associated with ensuring compliance across market-based systems.

Mr. Gutermann’s presentation explored how states like California and the members of regional initiatives in New England, the West, and the Midwest run the risk of conflicting with federal programs or entering areas of exclusive federal power. Regional cap and trade programs are most susceptible to challenges under the Commerce, Compacts, and Supremacy Clauses of the U.S. Constitution.

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With numerous exchanges now trading various carbon-related financial instruments (CERs, EUAs, futures, etc.), carbon investors face new questions regarding where, when, and how to get involved in the carbon trading market.

ClimateIntel prepared a table to help market participants track and evaluate these choices.

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China’s wind power generation rose 95.2% to 5.6 billion kw hours in 2007, from a year ago, reported the Xinhua News Agency. A report released by the government said that China had wind power facilities with a combined installed capacity of 6.05 gigawatts at the end of 2007, up from 2.67 gigawatts in 2006. The country achieved the goal set for the 2010 three years ahead of schedule. Wind power projects under development will make up for a combined installed capacity of 4.2 gigawatts.

According to the Medium and Long-Term Development Plan for Renewable Energy in China published by the National Development and Reform Commission (”National Development Plan”), China will generate 15% of its energy from renewable sources such as wind by 2020. To achieve the goal, the government plans to increase its wind power equipment to a combined installed capacity of 10 gigawatts by 2015, and to 30 gigawatts by 2020. Shanghai Daily reported that the 2020 target is likely to be increased by the government to as much as 100 gigawatts, which, according to WSJ Environment Capital, would be greater than the total global current installed wind capacity.

The rapid increasing utilization of wind power for electricity generation has been driven by the following factors:

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Further demonstrating its leadership on climate change response, California’s Secretary for Environmental Protection signed an agreement with the United Nations Development Programme (UNDP) to support China’s efforts to address climate change. Pursuant to the agreement, California will share valuable information, such as academic research, effective policy initiatives, lessons learned and technological innovations, with the Chinese provincial governments to support their efforts to develop strategies and actions to mitigate global climate change. California is currently developing its own program to cut greenhouse gas emissions by 30% by the year 2020.

Governor Schwarzenegger issued the following statement about the agreement: “California alone cannot solve climate change - this is a global problem that requires a global solution. America has to lead, and we are doing so even with or without Washington. California is not waiting for the federal government to take action but instead we are forming agreements and building relationships with countries like China to fight climate change.”

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The UNFCCC Compliance Committee recently suspended Greece from trading carbon credits under the Kyoto Protocol. The Committee determined that Greece does not reliably observe and measure greenhouse gas (GHG) emissions, as required by Kyoto. This marks the first time that a country has been sanctioned under the UN system for inadequate GHG reporting.

Greece is now ineligible to participate in the Kyoto Protocol’s flexibility mechanisms, meaning it cannot buy credits to meet its own emissions targets or sell credits from domestic projects that generate excess emissions allowances.

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