Energy Efficiency & Climate Change Law : Energy Law Insights & Commentary : David R. Frenkil : Climate Policy, Carbon Intensity

The following interview was originally published in the Black & Veatch Pathfinder publication in March 2010.  

Pathfinder: What do you see as the principal business risks associated with climate change?

Frenkil: Since climate change is widely believed to result in the increasing levels of weather-related fiscal losses in the United States, which are rising significantly faster than insurance premiums, population and economic growth, businesses face numerous climate-related risks such as the disruption of operations. As we saw with the advent of Superfund in the early 1980s, the insurance industry is reducing coverage to businesses it deems susceptible to the impacts of climate change until it determines how best to grapple with these relatively new risks. Meanwhile, as litigation mounts against large emitters of greenhouse gases, recent court decisions indicate a shift in judicial policy in favor of plaintiffs in climate-related suits. For example, the United States Court of Appeals for the Second Circuit recently reinstated Connecticut v. American Electric Power, a suit against six of the nation’s largest electric utilities, which would allow common law nuisance suits to proceed against owners of electric generation facilities alleged to be harming the environment through emitting greenhouse gases.

Pathfinder: How are companies responding to these risks?

Frenkil: Companies are increasingly taking a bifurcated response to climate change through considering 1) the ways in which climate change affects their business while 2) determining how their own business practices can be changed to mitigate greenhouse gas emissions. Such responses can affect a company’s ability to attract talent, as well as to market its products. In fact, greater transparency in environmental reporting, such as sustainability performance, has been shown to enhance a company’s access to capital. Recent regulatory uncertainty, however, stemming from the lack of a climate deal at both the international level and in the U.S. Congress complicates investment strategies for companies across the entire global economy.

Pathfinder: Some of those risks are significant. You seem to be suggesting, however, that the government has been less than insistent about getting them into the public eye. Is that correct?

Frenkil: Until recently, the Federal Government generally encouraged entities to report on their climate risks on a voluntary basis. During the Obama Administration’s first year in office, however, the Environmental Protection Agency (EPA) implemented a rule requiring entities that emit 25,000 metric tons or more per year of greenhouse gases to annually disclose their emissions. This rule is expected to cover 85% of the nation’s greenhouse gas emissions and much of the information collected under the rule is scheduled to become public in 2011. Another significant recent development is the interpretive guidance issued by the Securities and Exchange Commission (SEC) in early 2010, which clarifies what publicly-traded companies need to disclose to investors in terms of climate risks.

Pathfinder: What is the argument against full disclosure of climate risks?

Frenkil: Opponents of climate risk disclosure assert that attempts to forecast the impact of climate change on companies may be highly uncertain at best and, perhaps, even impossible, since a line cannot necessarily be drawn between the effects of what are believed to be human-induced climate change and events that would have occurred anyway. Therefore, corporate officers and directors have indicated a reluctance to favor the reporting of these risks out of concern that inaccuracies in the disclosure statement may wind up as a potential liability.

Pathfinder: How might mandating climate risk disclosure have an impact on the role of corporate officers and directors? What are its implications on corporations in general?

Frenkil: During the 2010 proxy season, investors filed a record 95 shareholder resolutions related to climate change, some of which mandating that the corporation disclose its climate risks. This 40% increase in shareholder climate resolutions from the previous year underscores that, now, more than ever, corporate officers and directors have a fiduciary duty to cost-effectively reduce their company’s exposure to climate risks and also to mitigate its carbon footprint.

The disclosure of climate risks will require companies to strengthen their environmental management. Their improved tools for climate risk assessments will help them identify the “low-hanging fruit” and other opportunities for cutting costs while reducing greenhouse gas emissions. Considering the unique and far-reaching influence of corporations within society, this new perspective has the potential to create a ripple effect throughout the communities, regions and even countries where these corporations are located -- and among their suppliers, customers and employees.

• Email This
• Print
• Trackbacks
• Share Link

The European Union announced today that carbon emissions under its Emissions Trading Scheme (EU ETS) -- a mandatory private entity, market-based trading program through which EU member states reduce their carbon dioxide emissions while attempting to minimize adverse effects on economic development and employment -- fell by about 11.2 percent in 2009; thus resulting in a higher supply of carbon permits on the $140 billion EU ETS market.  

Because an increase in the supply of permits will likely further reduce the already low cost of compliance for businesses covered under the carbon trading program, this data suggests that the EU ETS is falling short of its aim to encourage major polluters of greenhouse gases (GHGs) to reduce their emissions through financial pressure.  At current prices of less than €13 ($17.60) per tonne, the cost of carbon is far too low to result in a significant change in the way companies generate and use energy.  

Also, since companies can "bank" carbon permits into the future, the surpluses from 2009 will adversely impact the price of EU ETS carbon permits in the long-term since these inventories will make it easier for businesses to offset future emissions once the economy recovers.  This results in a windfall for certain companies.  For example, Lafarge, a European cement company, earned €142 million ($192.7 million) by selling extra permits in 2009, nearly twice as much as it earned from selling permits in the previous year.  

Similarly, the iron and steel industries, which posted the largest declines in emissions, enjoyed a surplus of 84.6 million carbon permits last year.  As a whole, the industrial sector covered by the EU ETS saw emissions decline by about 23 percent, leaving it with 180 million excess permits worth about €2.3 billion ($3.1 billion).

Light At the End of the Tunnel

Despite the current surplus in carbon permits, prices will likely rise in the future to levels that would encourage companies to reduce their own GHGs and shift investment to low-carbon technologies.  First, later this decade (perhaps at the beginning of Phase 3 of the EU ETS, which begins January 2013), EU leaders should be expected to reduce the level of carbon permits made available to industries that benefitted from 2009's 11.2 percent reduction in carbon emissions and, thus, correcting the €2.3 billion windfall in the long term.  Also, the cost of carbon permits will likely rise as emissions increase in the EU due to (i) economic recovery and (ii) the EU's implementation of the Fuel Quality Directive, which would allow imports of tar sands and other carbon-intensive fuels. 

• Email This
• Print
• Trackbacks
• Share Link

In 2009, federal climate legislation stalled in the wake of economic downturn, health care reform, and the failure to reach an internationally binding agreement in Copenhagen. The unexpected loss of a Democratic Senate seat in January further weakened the prospects of enacting federal legislation this year. Recognizing that significant compromises in the content and scope of climate legislation will likely be required to pass a bill in 2010, proponents of climate legislation in the Senate have begun to explore alternatives to the economy-wide cap-and-trade model. These proposals include a cap-and-dividend scheme, a stand-alone energy bill, or a hybrid scheme combining one or more alternatives. Details on the policy shift, including recent Senate activity, are provided below.

Comprehensive Cap-and-Trade Climate Legislation: Still Viable but Unlikely

Economy-wide cap-and-trade is the centerpiece of the House-approved American Clean Energy and Security Act of 2009 (H.R. 2454, also known as the Waxman-Markey bill). The bill would initially target large stationary sources (> 25,000 mtCO2e), with smaller sources gradually phased-in as EPA lowers the emissions threshold. Uncapped sources would be subject to potential EPA regulation under Clean Air Act (CAA) Section 111 (New Source Performance Standards), but the bill would prohibit EPA from regulating GHGs under other key CAA programs (e.g., PSD and Title V). The bill would also require the development of industrial energy efficiency standards.

Although Waxman-Markey has been superseded by negotiations in the Senate, it has served, and will likely continue to serve, as a point of reference for future Senate work. For example, the Clean Energy Jobs and American Power Act (S. 1733, also known as the Kerry-Boxer bill) was modeled on the provisions of Waxman-Markey with several key modifications, including a slightly more stringent cap and the retention of EPA’s authority to regulate GHGs under the PSD and Title V programs. Strong opposition to EPA’s use of revised modeling in its economic impact analysis led Republicans to boycott the mark-up while it was in Committee, preventing formal debate and the consideration of amendments. As a result, the bill was generally considered dead on arrival in the Senate.

Despite these setbacks and the recent policy shift toward alternative climate measures (see below), a core group of industry and environmental groups continue to support economy-wide cap-and-trade. Edison Electric Institute and several of its member companies, for example, are advocating for an economy-wide approach.

Patchwork of Emerging Climate Policy Alternatives

In Fall 2009, Senators Kerry, Graham, and Lieberman initiated “dual track” negotiations involving industry groups and the White House in the development of bipartisan climate legislation. The Senators have thus far declined to release a framework for the legislation, a desire to “keep everything on the table.” Although the Senators initially appeared in favor of an economy-wide cap-and-trade system, recent statements indicate they may abandon cap-and-trade in favor of a hybrid approach that combines cap-and-dividend (see discussion of CLEAR below) with cap-and-trade for certain sectors. In order to garner the necessary 60 votes in the Senate, the bill is expected to feature significant compromises on incentives for nuclear power and expanded oil and gas drilling. The effort has already earned the support of the U.S. Chamber of Commerce, which is widely perceived as a leading critic of climate legislation.

A second bipartisan initiative in the Senate, the Carbon Limits and Energy for America’s Renewal (CLEAR) Act, is receiving an unexpected amount of support for its “cap and dividend” proposal. Under this approach, fossil fuel refineries and importers would be required to purchase “carbon shares” for each ton of carbon sold. 75% of the revenues would be refunded directly to U.S. residents through tax-exempt monthly dividends. The remaining 25% would fund energy technology research and development, adaptation, and assistance for energy-intensive and trade-sensitive sectors. Notably, only covered entities would be authorized to participate in trading (i.e., there would be no external market). According to Senators Cantwell and Collins, this feature is designed to avoid the creation of a new speculative commodity market that may cause volatile price spikes and harm to consumers and the economy. Over 40 companies and organizations have announced plans to lobby on the bill.

It is also possible that the Senate will pass an energy bill in lieu of, or perhaps in combination with, comprehensive climate legislation. Senator Graham recently circulated a draft stand-alone energy bill that would mandate “clean energy” production targets over the next 15 years. New nuclear facilities and coal-fired power plants that sequester a minimum of 65% of GHG emissions, as well as traditional renewable power sources such as wind and solar, would qualify as clean energy under the bill. Although Kerry and Lieberman have reviewed Graham’s draft bill, they have not yet agreed to include it in the comprehensive package. Others Senators are considering whether to revive the American Clean Energy Leadership Act (S. 1462, also known as the Bingaman Energy Bill), which passed the House Energy and Natural Resources Committee in June 2009.

Other alternatives under consideration include an electric utility sector cap on GHG emissions (Voinovich and Lugar), a carbon tax (Dorgan, Murkowski, and Corker), and a bill that would reduce emissions by doubling nuclear power production and promoting development of carbon capture and storage, biofuels, and solar technologies (Alexander and Webb). While these alternatives are not likely to be politically viable on their own, Senators Kerry, Graham and Lieberman may incorporate certain elements into the bipartisan bill they ultimately introduce. The Senators have also initiated discussions with Senators Cantwell and Collins, reflecting the possibility of a merger of the CLEAR Act and the bipartisan bill.

• Email This
• Print
• Trackbacks
• Share Link

Although the U.S. House of Representatives passed the Waxman-Markey climate bill (H.R. 2454) by a narrow margin over seven months ago, the U.S. Senate continues to consider its own version of the climate bill - a process which politicians from both sides of the aisle indicate might not happen in 2010.  However, even in the absence of federal legislation, the Obama Administration has taken unprecedented strides to address climate change during its first year in the White House. 

While numerous agencies within the Obama Administration have helped make the shift toward low-carbon policies in the United States, the bulk of greenhouse gas (GHG) regulation has been handed down by the U.S. Environmental Protection Agency (EPA).  Since EPA Administrator Lisa Jackson was appointed by President Obama in early 2009, the EPA has picked up the ball which had been punted by the Bush Administration in regards to GHG regulation following the Supreme Court's landmark Massachusetts v. EPA decision in 2007.  

The following discussion provides an overview of Mass v. EPA and explains how the subsequent climate-related regulations tie in with one another.  

• Email This
• Print
• Trackbacks
• Share Link

In the 1920s, geologists in South Texas, an unlikely spot for earthquakes, noted faulting near the Goose Creek oil field.  Since then, University of Texas researchers showed that earthquakes in some parts of Texas may be induced by the pumping of fluids at oil and gas fields, or by the injection of fluids to dispose of chemical wastes.  For example, the earthquakes in the Fashing-Pleasanton area southeast of San Antonio and in the Texas Panhandle near Snyder, Texas, are almost certainly triggered by pumping.

Like Texas, Haiti infrequently experiences earthquakes.  This has prompted numerous stories in the blogosphere "exposing" a link between the devastating 7.0 magnitude earthquake that hit Haiti on January 12th, and oil exploration off its coast.   While the devastation caused by the earthquake and its aftershocks is horrifying, as the following analysis shows, the relationship between oil interests and the earthquake is simply a spurious association.  

History of Earthquakes in Haiti

Since 1835, Haiti has experienced less than a handful of serious earthquakes.  A magnitude 7.7 earthquake in 1842, which destroyed Cap-Haïtien, also ruined the San-Souci Palace (completed in 1813), the so-called Caribbean equivalent of the Palace of Versailles.  Earthquakes followed in 1857 and 1870.  Also, in 1946, an earthquake off the coast of Haiti reportedly "knocked pedestrians off their feet" and in 2004 a magnitude-4 earthquake struck Haiti following a week of deadly floods.  

Due to the infrequency of earthquakes, Haitians were ill-prepared to respond to to the magnitude-7 shock on January 7th.   Instead of running away from their homes and buildings, as would most residents of earthquake-prone areas like San Francisco, Haitians ran for cover during the earthquake as if it were a Hurricane.  Since structural weaknesses were reported in the country's schools and buildings as recently as 2008 even in the absence of tremors, over 200,000 Haitians were killed in the destruction that ensued from the 7.0 magnitude earthquake centered just ten miles southwest of the capital of Port-au-Prince, at a shallow depth of 6.2 miles.

Between that initial earthquake on January 12th and the time of writing on February 7th, Haiti has experienced more than 60 additional earthquakes of at least 4.0 magnitude.

How the Quake Unfolded

Earthquakes typically occur near faults or fractures in the Earth's crust where rock formations, driven by the movements of the crustal or tectonic plates that make up the Earth's surface, grind slowly past each other or collide, building up stress.  At some point, stress overcomes friction and the rocks slip suddenly, releasing seismic energy in the form of an earthquake, which drops the stress in one area but raises the stress elsewhere along the fault line.  Eighty percent of earthquakes on Earth occur on the sea floor and most of them occur along the plate boundaries.

According to the U.S. Geological Survey, the initial earthquake on January 12th occurred in the boundary region separating the Caribbean plate and the North American plate, which slide past each other at a rate of about 0.8 inches (20 mm) per year, with the Caribbean plate moving eastward with respect to the North American plate.  The quake stretched between 50 and 60 km (approximately 35 miles) along the Enriquillo-Plaintain Garden fault system, which measures 500 km (310 miles) in length and last produced a major earthquake in 1860.  This fault system runs generally east-west through Haiti, to the Dominican Republic to the east and Jamaica to the west.

Although the magnitude of the quake was significant yet smaller than previous earthquakes in Haiti, three factors made it particularly devastating:

(i) it was centered just ten miles southwest of the capital city, Port au Prince;

(ii) the quake was shallow:  only about ten to fifteen km (approximately six to nine miles) below the land's surface;

(iii) many homes and buildings in the economically poor country were not built to withstand such a force and collapsed or crumbled.

Alleged Role of Oil Drilling

As the price of oil approached $140 per barrel in the summer of 2008, the prospect of black gold located beneath Haitian territory sparked interest in oil exploration off the country's coast for the first time since 1979.

Four companies participated in the drilling of eleven wells at depths of up to 2,944 meters (nearly 2 miles) located on the mainland of Haiti and Île de la Gonâve, an island off Haiti located to the northwest of Port-au-Prince in the Gulf of Gonâve.

Oil generally is found in permeable sediments that are soft, not in hard rock.  When this soft sediment moves, it releases a small amount of energy, which can lead to a "mini-seismic event" that is generally undetected on the Richter scale.  Thus, it is highly unlikely that oil drilling would cause a magnitude-7 earthquake, such as the one that occurred on January 12th.  

In fact, in 2008, geologists predicted that such a quake would eventually occur.  During the 18th Caribbean Geological Conference in March 2008 in Santo Domingo, five scientists presented a paper stating that a fault zone on the south side of Haiti posed "a major seismic hazard."  They predicted that a magnitude-7.2 earthquake would result if all of the strain along the fault were "released in a single event today."  However, the occurrence of the earthquake was difficult to predict since fault systems like the Enriquillo-Plaintain Garden fault can remain dormant for hundreds of years and the last earthquake in the Port-au-Prince area was in 1770.

american.redcross.org/supporthaiti

• Email This
• Print
• Trackbacks
• Share Link

In an article about healthcare earlier this month, Hendrik Hertzberg wrote in the New Yorker,

On May 20, 1962, at Madison Square Garden, John F. Kennedy spoke to some twenty thousand people at a rally in support of a bill to provide hospital care for the aged [Medicare], one of forty-five such rallies around the country. In his speech, President Kennedy acknowledged that his bill would fall short of meeting every need. “We’ve got great unfinished business in this country,” he said, “and while this bill does not solve our problems in this area, I do not believe it is a valid argument to say, ‘This bill isn’t going to do the job.’ It will not, but it will do part of it.”

Somehow, the validity of climate change - an issue which will impact conservatives and liberals, developed and developing nations, alike -  has become a divisive left vs. right issue.  And so a failure to pass a climate bill prior to the 2010 elections when the Democrats will probably lose seats in the U.S. Congress, means that a robust cap and trade bill - with a target of more than 17 percent reductions in greenhouse gases below 2005 levels by 2020 - is unlikely.  

While 17 percent seems like a respectable number at first glance, the Intergovernmental Panel on Climate Change (IPCC) reported in 2007 that catastrophic climate change would result unless developed countries, including the United States, reduced greenhouse gas (GHG) emissions by 25- 40 percent below 1990 levels by 2020, and 80-95 percent below 1990 levels by 2050.   However, the goal of 17 percent below 2005 levels by 2020 translates to just a 4 percent reduction below 1990 levels.

A cap-and-trade program would be a crucial part of any federal climate bill because history shows that industry can cost-effectively adapt to market-based systems that help to mitigate emissions of harmful pollutants in the atmosphere.  For example, when Congress passed the Clean Air Act Amendments in 1990 - which provided the Environmental Protection Agency (EPA) with authority to set a national cap-and-trade scheme for emissions of sulfur and nitrogen oxides (that result in in acid rain) - the Congressional Budget Office (CBO) estimated that the program would cost U.S. industry $6 billion each year.  However, the annual cost was a fraction of that estimate - $1.1 to $1.8 billion "because the program enabled emitters to choose their own solutions to the problem."

Since a Republican carried the U.S. Senate election in Massachusetts last week, thus spoiling the Democratic party's ability to use their 60 seats to vote by party lines and break a filibuster in the Senate, commentators and Congressmen alike have projected a certain death for the cap-and-trade provision in the Senate's climate bill.

This argument, which assumes that a super-majority is necessary to pass major, economy-wide legislation in the Senate, fails to recognize that some of the most important legislation in U.S. history passed the Senate without the controlling party enjoying a super-majority.  For example, the Federal Reserve Act passed the Senate in 1913 with the Democrats 8 seats shy of the ability to break a filibuster.

Two other major issues might stand in the way of senators hoping to pass a climate bill that includes a cap-and-trade program.  First, the Democrats might exhaust whatever political capital remains in their arsenal in an attempt to pass health care reform.  Second, the cost of the climate bill is viewed as prohibitively expensive.  However, to quote an editorial in the New York Times from earlier this week, the first hurdle "is defeatist, the second greatly exaggerated" because numerous government studies have shown that the cost of the bill will be minimal for U.S. households and, although cliché to state at this point, it is nonetheless true that studies have shown time and again that the climate bill will create more jobs than it will send overseas.  

An administration that often paraphrases Voltaire, "let not the perfect be the enemy of the good" - and that showed a willingness to compromise in order to achieve some semblance of progress in Copenhagen -  perhaps might also lead Congress to reach a bi-partisan compromise on a climate bill that "isn’t going to do the job" but that will "do part of it.”  

• Email This
• Print
• Trackbacks
• Share Link

Although Indian Prime Minister Manmohan Singh said that his country would not commit to a greenhouse gas (GHG) mitigation plan by the deadline of January 31st, as set in last month's Copenhagen Accord, Delhi, India's second largest city, has announced plans to switch its three coal-generated power plants to a cleaner fuel: natural gas.

With a population of over 12 million inhabitants, which increased by a third this past decade, the city of Delhi's energy needs continues to rise.  Therefore, Delhi's leaders decided to substitute natural gas for coal over the next four years because a failure to mitigate the rapid increase in GHGs from the city's coal-fired power plants would only further exacerbate the city's air pollution problem.   

Currently, consumers in Delhi pay 2 rupees per unit cost of power ($0.04) generated by coal, but  that figure will increase to 3.5 rupees ($0.07) when their energy is generated using natural gas.  While this move will make energy nearly two-times more expensive for consumers, Rakesh Mehta, Delhi's Chief Secretary, explained that his constituents "would be willing to pay more for [a] cleaner atmosphere."

It is certainly encouraging that leaders from the world's 4th largest city (which is 50% larger than New York City) prioritize a clean atmosphere over the cost of energy.  Perhaps leaders in the United States should take note, considering that progress on the proposed U.S. climate bill has been slow, at best, since the summer when the Congressional Budget Office released a study showing that the cost of the plan to mitigate U.S. GHGs would increase the price of energy for U.S. households by $175 in 2020, which translates to the cost of a stamp per day.

According to the U.S. Environmental Protection Agency, power plants using natural gas produce half as much carbon dioxide, less than a third of the nitrogen oxides, and one percent of the sulphur oxides as coal-fired power plants.  Even if the four-year timeline for switching all power plants from coal to natural gas is unrealistic due to the legal and economic hurdles associated with building the natural gas pipelines necessary to support the plan, the rapidly growing city will significantly reduce its GHGs by the end of this new decade.

It is important now, more than ever, for cities, states and regions to follow Delhi's lead, considering that a new international climate deal remains uncertain and members of the U.S. Congress continue to hold-up both legislative and executive efforts to mitigate GHGs.

• Email This
• Print
• Trackbacks
• Share Link

Last month's United Nations climate meetings in Copenhagen yielded an agreement referred to as the "Copenhagen Accord," which included a pledge by developing countries (listed in Annex I of the Kyoto Protocol) such as the United States to outline a range of emission reductions targets up to 2020 by January 31, 2010.  Developing countries also promised to submit action plans to mitigate greenhouse gas (GHG) emissions by this date. 

Although U.S. Climate Envoy Todd Stern explained earlier this month the importance of meeting this deadline, Yvo De Boer, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), stated in a January 20th webcast that “I think you could describe it as a soft deadline."

The deadline's downgrade from "hard" to "soft," which comes less than two weeks before the target date of January 31st that has thus far been met by only nine out of 192 countries, is a critical misstep by the lead climate change official at the UN.  Given the nature of the Accord (not a legally-binding document) and the disastrous negotiating process in which it was created, it is crucial that world leaders encourage the fulfillment of deadlines set out in the agreement because a "soft" deadline can amount to no action at all. 

The so-called "BASIC" developing countries - Brazil, India, China and South Africa - initially indicated that they would jointly release their mitigation plans by the deadline.  However, following Mr. de Boer's comments, Indian Prime Minister Manmohan Singh recanted on that position, saying that he would wait to release his country's mitigation plans until receiving clarification on the legal status of "certain issues" in the Copenhagen Accord.

On December 29, 2009, Brazilian President Luiz Inacio Lula da Silva signed a law requiring Brazil to cut GHG emissions by 39 percent by 2020.  Although the law is subject to several decrees setting out responsibilities and regulations for the farming, industrial, energy, and environmental sectors, President Lula vetoed three of the bill's provisions, including a reference to “promoting the development of clean energy sources and the gradual phasing out of energy from fossil fuels.”  The release of Brazil's mitigation plan - hopefully by the January 31st deadline - will provide a much clearer picture of how the developing nation will fulfill its goal of reducing GHG emissions by 39 percent before the end of this new decade.

• Email This
• Print
• Trackbacks
• Share Link

Today, Ceres, a national network of investors, environmental organizations and other public interest groups, hosted the fourth Investor Summit on Climate Risk at the United Nations headquarters in New York City. Participants at the Summit - which was attended by hundreds of global institutional investors and asset managers - discussed ways to leverage private investment in the transition to a low-carbon economy.

Former Vice President Al Gore was the featured speaker at the Summit's luncheon, which was closed to the press.   U.N. Secretary-General Ban Ki-Moon opened the luncheon, addressing both the climate change challenge following the Copenhagen Accord and the U.N.'s concern for victims of the earthquake in Haiti. Ted Turner, Chairman of the United Nations Foundation, introduced Vice-President Gore, who discussed the importance for institutional investors to provide the marketplace with information on their sustainable activities and climate risks.   Mr. Gore also stressed that institutional investors take various measures (i.e. long-term fee structures) to promote better environmental governance within the financial sector.

Prior to the luncheon, Mindy S. Lubber, President of Ceres and Director of the Investor Network on Climate Risk, announced that investors representing $13 trillion in assets agreed to implement aggressive policies that would serve as an impetus for stimulating investment in low-carbon technologies and mitigating greenhouse gas emissions. The "2010 Investor Statement on Catalyzing Investment in a Low-Carbon Economy" can be found here.

Other highlights from today's Summit include remarks by George Soros and:

• Jeremy Oppenheim, Director of the Climate Change Special Initiative at McKinsey & Company, provided a very impressive presentation regarding the role of energy efficiency in the global economy.   A highlight from the detailed presentation was the projection that carbon prices will not reach the $30 price range within the next decade - which is significant because this means that the cost of compliance in an emissions trading regime would be lower than originally-expected by leaders and investors in the climate community.   On the other hand, the relatively low price of carbon projected over the next ten years weakens the argument furthered by climate change detractors that carbon trading will be a cash cow for investors who are pushing the global warming agenda.

• Todd Stern, U.S. Special Envoy on Climate Change, gave his first speech since the lamentable conclusion in Copenhagen. He explained that the alliance between Democratic U.S. Senator John Kerry (D-MA) and Republican Sen. Lindsey Graham (R-SC) "is tremendously important" for moving a climate bill through the Senate. However, Mr. Stern spent the better part of his 25 minute speech explaining (i) how the Copenhagen meeting unfolded, (ii) its positive and negative take-aways and (iii) what must be done going forward. [Todd Stern's speech can be viewed by clicking here, or please feel free to send an e-mail to dfrenkil@law.gwu.edu to request a "Cliffs Notes" version.] Most importantly, Mr. Stern stressed that countries that signed on to the Copenhagen Accord must meet the January 31, 2010 deadline for providing an action plan to mitigate their greenhouse gas emissions (see Copenhagen Accord, paragraph 4).

• Kevin Parker, Global Head of Asset Management at Deutsche Asset Management, explained that, despite the worst economic downturn since the Great Depression, progress in mitigating climate change has continued unabated, with over 300 climate bills passing various legislatures globally over the past 18 months.   He asserted that a new era has commenced post-Copenhagen in the investment community, which requires investors to "understand, recognize and take advantage of" this new market-place.

• Abby Joseph Cohen, President of the Global Markets Institute and Senior Investment Strategist at Goldman Sachs described "seven wedges" for addressing global climate change and the role of the investor in the climate change arena. She explained that there is certainly an incentive for companies to disclose their climate risks and sustainability data to investors because "companies that pay attention to good governance, including environmental governance, have outperformed other companies by ten percentage points - not just ten percent."

• Email This
• Print
• Trackbacks
• Share Link

CLEAN TECHNOLOGY INVESTMENT

In a year marked by a recession and false hopes for a deal in Copenhagen, venture capital investment in clean technology companies fell in 2009 to $5.6 billion from $8.5 billion the previous year.  This 33 percent drop set the clean technology industry back to 2007 investment levels, but the industry outperformed all other sectors in venture capital spending.  

The $787 billion American Recovery and Reinvestment Act of 2009 ("Stimulus Bill") provided $36.7 billion for energy funding, which certainly mitigated the decrease in clean technology investment.  Nevertheless, North America's share of venture capital spending dropped 42 percent to $3.5 billion, while China's level of investment in clean technologies remained steady - although relatively low - at $331 million.

The largest shares of clean technology venture funding was closely split between solar ($1.2 billion), transportation ($1.1 billion) and energy efficiency ($1 billion).

CARBON TRADING

The global carbon market, which is expected to reach $395 billion by 2014, was valued at $136 billion in 2009, up from $133 billion in 2008 and $58 billion in 2007.  

Although the trading volume of the global carbon markets increased by 68%, average carbon prices dropped nearly 40% from $27.15 in 2008 to $16.40.

• Email This
• Print
• Trackbacks
• Share Link

On January 14th, the United Nations Headquarters in New York City will host the fourth Investor Summit on Climate Risk.  Participants at the previous summits, held in 2003, 2005 and 2008, included institutional investors, fund managers, financial advisors and others from around the globe, representing trillions of dollars in assets.

The agenda includes speakers such as U.N. Secretary-General Ban Ki-moon, Former Vice-President Al Gore, U.S. Climate Envoy Todd Stern and Media Executive/Philanthropist Ted Turner.  

The list of investors expected at the Summit underscores how climate change, an environmental issue, is increasingly gaining traction as a business issue.  For example, Texas Instruments, a microchip maker, is poised to profit from the shift to a low-carbon economy due to increased demand for its microchips, which are used in low-carbon technologies, such as photovoltaic solar panels, smart meters and energy efficient appliances.  However, climate change also poses various risks for the company - a leading emitter of greenhouse gases (GHGs) - since it will likely be required to comply with potential regulation of GHG emissions in the near future.  (Source: EENews - subscription required)

Sound business judgment requires a bifurcated response to climate change – companies must consider not only how climate change impacts its business; companies must also take into account how its own business practices contribute to climate change. Thus, climate change impacts corporate strategy, risk, opportunity, financial performance and shareholder value.

Please check back on January 14th for coverage from the floor of the 2010 Investor Summit on Climate Risk where these important issues will be discussed among leaders in the global economy.

• Email This
• Print
• Trackbacks
• Share Link

"Mr. Premier, are you ready to see me? Are you ready?" In a dramatic moment, President Barack Obama entered the room uninvited, where a secret meeting was underway, organized by Chinese Premier Wen Jiabao without notifying U.S. officials.   At the meeting along with Premier Jiabao, were Indian Prime Minister Manmohan Singh, Brazilian President Luiz Inacio Lula da Silva and South African President Jacob Zuma.  

Prior to this meeting, in order to continue working on a deal with fellow world leaders, President Obama extended his trip in Copenhagen, at the risk of flying back to Washington, DC in the middle of a blizzard.  The Chinese Premier twice sent representatives on his behalf to meet with President Obama.  In the second meeting, the Chinese representative was an even lower-level official than during the first, thus prompting a typically calm President Obama to reveal his frustration to aides, “I don’t want to mess around with this anymore. I want to talk to Wen.” 

And so went 12 days in Copenhagen, which were marked by chaos and dissent.  Dubbed a "wild roller coaster ride" by a leading U.N. official, negotiators from 192 countries met to discuss a successor treaty to the Kyoto Protocol.  Ultimately, this process came to an end after most countries voted in favor of a non-binding, three-page document called the "Copenhagen Accord," created at the secret meeting hosted by Chinese Premier Jiabao.

The Copenhagen Accord has been referred to as a "new beginning," a "modest step forward," and “grossly insufficient.” Although the meaning of Copenhagen is not yet clear, it is certain that the Accord, and the process leading up to it, were unprecedented both substantively and procedurally.

• Email This
• Print
• Trackbacks
• Share Link

The Copenhagen Accord is a legally non-binding agreement made at the U.N. climate meetings in Copenhagen on December 19th.  

The text of the Copenhagen Accord, which can be downloaded by clicking here, is also copied below.

The Copenhagen Accord is referred to in the text as the "decision x/CP.15 on the Ad hoc Working Group on Long-term Cooperative Action and decision x/CMP.5."

• Email This
• Print
• Trackbacks
• Share Link

The White House initially announced that President Obama would be traveling to the U.N. climate meetings in Copenhagen on December 9th, the day before he accepts his Nobel Peace Prize in Oslo, Norway.  However, this evening, the President changed his plans to travel to Copenhagen not until December 18th - the last day of the negotiations.  

In a statement, the White House asserted, "continued U.S. leadership can be most productive through his participation at the end of the Copenhagen conference on December 18 rather than on December 9."  Danish Prime Minister Lars Løkke Rasmussen called President Obama's decision to attend the conference on December 18th, which is when other world leaders will also be in attendance, "an expression of the growing political momentum toward sealing an ambitious climate deal in Copenhagen."  

While President Obama's attendance on the last day of the conference may raise expectations for an agreement in Copenhagen, the change to his itinerary, and the rationale volunteered by the White House, is disappointing.  

Although the United States will be represented throughout the entirety of the meetings in Copenhagen by an impressive array of talented and proven leaders, as argued in a previous post, significant progress in Copenhagen would require the very diplomatic skills for which President Obama will be awarded the Nobel Peace Prize.  Given the significant risks at stake in forming a global agreement to address climate change, coupled with President Obama's great talents and celebrity status, by waiting to travel to Copenhagen until the final moments of the 12-day conference he will squander the opportunity to actively help broker a deal.

• Email This
• Print
• Trackbacks
• Share Link

More than 400 negotiators, business leaders, environmental activists and journalists will board the carbon-free "Climate Express" train on December 5th to join approximately 15,000 attendees from 192 countries at the U.N. conference in Copenhagen, beginning December 7th, where leaders will discuss proposals for a successor treaty to the Kyoto Protocol.  The Copenhagen meetings, which are expected to establish a framework that should lead to a global climate deal in 2010, is the culmination of months of negotiations between countries to reduce greenhouse gas (GHG) emissions.

As the Copenhagen meetings approached in recent weeks, and media attention began to focus on the Danish capital, it appeared that deniers of human-induced climate change were losing ground. However, on November 19th, a computer hacker allowed these nay-sayers to die another day.  The anonymous hacker breached a server used by the Climatic Research Unit (CRU) of the University of East Anglia (UEA) in Norwich, England.  The CRU, one of the world's leading research bodies on natural and human-induced climate change, played a key role in the Intergovernmental Panel on Climate Change's (IPCC) Fourth Assessment Report, which is considered to be the most authoritative report on the science of climate change.

The hacker disseminated a number of e-mails obtained in the breach, which include, among other things, discussion of how data was truncated to stop an apparent cooling trend that showed up in a report and encouragement to delete other information.  A poll released December 3rd, conducted less than two weeks after reports of the CRU e-mails first surfaced, shows that a majority of Americans now question climate science.  Two of these Americans, who are also conservative members of the Academy of Motion Picture Arts and Sciences, asked the Academy to rescind Al Gore's Oscar, which he won for “An Inconvenient Truth,” a movie about climate change.  

The scandal has also offered Comedian Jon Stewart a chance to quip on The Daily Show, "Poor Al Gore, global warming completely debunked via the very internet you invented."  While "Climategate" has offered such material to comedians, it is no laughing matter because this scandal of sorts has grabbed the spotlight away from the build-up to the Copenhagen meetings - a pivotal moment in the brief history of efforts to mitigate climate change.  

The e-mails that were unveiled during this scandal show that a select few scientists chose to deviate from what was right.  Perhaps it might even warrant new analysis regarding the reliability, and oversight, of climate science in general.  However eager one might be to deny that climate change is human-induced in order to maintain the status quo, the fact remains that the last time carbon dioxide in the Earth’s atmosphere were today's levels of 387 parts per million (up from around 280 parts per million just 200 years ago), was 15 million years ago.

• Email This
• Print
• Trackbacks
• Share Link

On the day before Thanksgiving, President Obama announced the U.S. target for reducing greenhouse gas (GHG) emissions: 17 percent below 2005 levels by 2020.  The announcement also calls for a 30 percent reduction by 2025, 42 percent by 2030 and 83 percent by 2050.  These targets are in-line with recent proposals in the Congress and, as reported earlier this week, provide a specific negotiating position for U.S. representatives at the the United Nations climate meetings in Copenhagen, which are scheduled for December 7-18, 2009.

The 17 percent figure is within the parameters set by the International Energy Agency (IEA) to limit the long-term concentration of GHGs in the atmosphere to 450 parts per million of CO2 equivalent (GHG emissions) and keeping the global temperature rise to two degrees Celsius.

Three other climate-related announcements provide reason to give thanks this holiday weekend:

(i) China pledges to reduce GHG emissions

One day after President Obama announced the 17 percent target, China announced plans to cut its carbon intensity (carbon dioxide emissions per unit of gross domestic product) by 40 to 45 percent by 2020, compared with 2005 levels.  Implementation of this plan is estimated to cost the Chinese approximately $30 billion annually.

Although the goal does not mean that China will cut its total carbon emissions by 2020 - in fact, China's GHG emissions are expected to grow along with its economy over the next decade - China's emissions will increase at a much slower rate as a result of this pledge.  In other words, this provides the global community with a promise by the leading developing nation, and carbon emitter, to rein-in its GHG emissions as its economy continues to grow.

Like the United States' 17 percent target, China's plan to cut its carbon intensity by 40 to 45 percent below 2005 levels by 2020 is also consistent with the IEA's goal to limit GHG emissions to 450 parts per million. 

(ii) The White House announces that President Obama will be in the "right place" [Copenhagen] at the "right time" [December 9th]

As reported in a previous post, "President Obama Should Take On A More Active Role In Copenhagen," when the U.S. President traveled to Copenhagen in October to make the case for Chicago's bid as the host city of the 2016 Summer Olympic Games, he was greeted by protestors in the Danish capital with signs that read, "Right Place, Wrong Time."  

President Obama had previously told reporters that he would return to Copenhagen later this year to attend the negotiations for a successor treaty to the Kyoto Protocol (which is set to expire in 2012) only if he could be useful to help "clinch" a deal.  

However, with a change in expectations for the Copenhagen meeting, the White House announced this week that President Obama will travel to the Danish capital on December 9th to "work with the international community to drive progress toward a comprehensive and operational Copenhagen accord."

Also making the trip from Washington, D.C. will be Special Envoy for Climate Change Todd Stern, Interior Secretary Ken Salazar, Agriculture Secretary Tom Vilsack, Commerce Secretary Gary Locke, Energy Secretary Steven Chu, Environmental Protection Agency Administrator Lisa P. Jackson, Council on Environmental Quality Chair Nancy Sutley, Office of Science and Technology Policy Director John Holdren, and Assistant to the President for Energy and Climate Change Carol Browner.  These participants will be among 15,000 attendees from 192 nations.

(iii) U.S. and India Agree to Clean Technology Alliance

On November 24th, President Obama and Indian Prime Minister Dr. Manmohan Singh announced a bilateral "Green Partnership" to address energy security, food security and climate change. The partnership includes a Clean Energy and Climate Change Initiative, which will promote cooperation between the two nations in wind and solar energy, second generation bio-fuels, unconventional gas, energy efficiency, and clean coal technologies including carbon capture and storage. 

Specifically, the U.S. National Renewable Energy Lab will partner with India's Solar Energy Centre and Centre for Wind Energy Technology to develop technology and aid in its deployment.  This is expected to provide rural Indians with distributed solar energy, which can be generated on, or near, the site where the energy is consumed, thus reducing the need for costly transmission lines.  

This announcement with India comes just one week after the U.S. and China agreed to a similar clean technology partnership.  By negotiating directly with the two largest developing nations, President Obama has addressed over half of the global GHG emissions, which helps clear the way for an international consensus on a post-Kyoto treaty.

• Email This
• Print
• Trackbacks
• Share Link

Within the week, President Obama is expected to announce a target for reducing greenhouse gas (GHG) emissions in the United States by 2020. This announcement will come just weeks before the climate negotiations in Copenhagen, which begin December 7th. Given the recent delay in Congress in passing a climate bill, instead of a single figure, President Obama may present a range within which the U.S. will seek to reduce its GHG emissions.

In the hopes of agreeing to a target in Copenhagen commensurate with political realities on Capitol Hill,  President Obama is expected to announce a target within the 17% - 20% range, as provided in the most recent climate bills before Congress.  

The U.S. House of Representatives passed the Waxman-Markey bill (H.R. 2454) in June, which called for an emissions reduction of 17 percent below 2005 levels by 2020.   This translates to a 4 percent reduction below 1990 levels.  Similarly, the most recent version of the U.S. Senate's climate bill (S. 1733) set a target of 20 percent below 2005 levels by 2020, which is just 5 percent below 1990 levels. However, the European Union has asked that developed countries commit to at least a 20 percent reduction below 1990 levels.  

The U.S. would be remiss in entering the meetings in Copenhagen without a ballpark target on GHG emissions reductions because many of its leading trade partners have already announced their reduction goals. Although it has not yet revealed its position, China is expected to specify President Hu Jintao's promise of a "notable" decrease in emissions.

• Email This
• Print
• Trackbacks
• Share Link

The text at the bottom reads:

"This giant glacier has remained unmelted for centuries. Yet, the petroleum energy Humble supplies – if converted into heat – could melt it at the rate of 80 tons each second! To meet the nation’s growing needs for energy, Humble has supplied science to nature’s resources to become America’s Leading Energy Company. Working wonders with oil through research, Humble provides energy in many forms – to help heat our homes, power our transportation, and to furnish industry with a great variety of versatile chemicals. Stop at a Humble station for new Enco Extra gasoline, and see why the “Happy Motoring” Sign is the World’s First Choice!"

• Email This
• Print
• Trackbacks
• Share Link

Agreements aimed at reducing greenhouse gas (GHG) emissions have been delayed in the international arena and the U.S. Congress.  The timing of the international climate deal is particularly important given both:

(i) the cost of delay in mitigating climate change ($500 billion will be added to the $10.5 trillion needed between 2010 and 2030 to reduce GHG emissions such that the global temperature increase will be limited to 2 degrees Celsius); and

(ii) the lead time required to ratify and implement a successor treaty to the Kyoto Protocol, which is set to expire in 2012.  

The following actions suggest that agreements to mitigate climate change are on the horizon:

INTERNATIONAL

(1) Post-Kyoto Treaty

As noted in the previous post, world leaders announced this past weekend that the meetings in Copenhagen, which were originally intended to produce a climate treaty to succeed the Kyoto Protocol, will serve merely as the first of a two-stage process in forming a global agreement designed to mitigate climate change.

This new plan provides more time for the 192 countries involved in the global climate negotiations to come to agreement on key issues, including emissions reduction targets, financing and technology transfer.  These negotiations are more complex than those that established the Kyoto Protocol in 1997 because only 47 countries were involved in that process.  

The two-stage plan will also allow more time for the U.S. Congress to pass legislation that would establish a national GHG emissions trading scheme, thus allowing the Obama administration to bring both a GHG emissions reduction target and financing pledges to the table at the second-stage negotiations, which may occur at the next scheduled U.N. climate meeting in Mexico City, which is scheduled for November 8-19, 2010.  The timing of this meeting is such that the negotiations will not be disturbed by the November 2nd U.S. congressional mid-term elections.

(2) U.S.-China Clean Technology Agreement

An amicable chapter was added this week to the storyline of the emerging CleanTech "Arms Race" between the U.S. and China when U.S. President Barack Obama and Chinese President Hu Jintao laid out a comprehensive program to address the clean technology challenge facing both nations.  The agreement includes:

• A joint clean energy research center with each country pledging $75 million in funding over the next five years. This center's research priorities include: energy efficiency in buildings; low-carbon vehicles; and clean coal.  The use of coal is the most significant challenge in achieving GHG emissions reductions in both countries because it generates half of all power in the U.S. and 80 percent in China.  
• Electric vehicle demonstration projects and the development of joint standards for the new technology;
• Joint building efficiency standards, including inspector and auditor training;
• Renewable energy development roadmaps for both countries, including grid modernization;
• Corporate and government cooperation on "21st Century Coal," such as developing carbon capture and storage at the GreenGen plant in China and gasification of coal to help remove pollution before combustion.
• U.S. assessment of Chinese shale gas potential as well as help with development of this lower carbon fuel; and
• 22 U.S. companies to help develop clean energy projects in China, including alternative energy, a "smart" grid and greater energy efficiency.

Because this agreement could go a long way toward reducing GHG emissions in both countries, it is an important step in the international effort to mitigate climate change since the U.S. and China are collectively responsible for 40 percent of global GHG emissions.  

UNITED STATES

The "climate triumvirate" of Sen. John Kerry (D-MA), Sen. Lindsey Graham (R-SC) and Joe Lieberman (I-CT) are expected to produce a legislative outline that will provide a blueprint to U.S. negotiators at the U.N climate meetings in Copenhagen, which begin December 7th. They are also reportedly working with senators on both sides of the aisle to design a new climate bill in the hopes that it will garner the 60 votes necessary to break a filibuster in the Senate.  The bill will serve as a more agreeable alternative to the current climate bill, S.1733, the Clean Energy Jobs and American Power Act (also referred to as the "Kerry-Boxer Climate Bill"), which has been marked by controversy and dissent.  

The cost of the Kerry-Boxer bill was the most contentious issue in recent weeks.  In fact, Republican members of the Senate Environment and Public Works (EPW) Committee decided to boycott all hearings related to the bill until the U.S. Environmental Protection Agency (EPA) would provide additional analysis of the bill's economic impact.  Committee Chairwoman Sen. Barbara Boxer (D-CA) called for a vote on the bill anyway, meaning that S.1733 passed the EPW Committee without any Republican members in attendance.  In order to avoid similar controversy by providing clarity on the question of the bill's cost, the Climate Triumvirate plans to send the draft of their new climate bill to both the EPA and Congressional Budget Office (CBO) for analysis.  

The EPA and CBO are likely to take up to five weeks to study the new climate bill, which is why the three senators want to draft the bill as soon as possible in order to be ready for a floor debate by the end of March 2010.  This timeframe will be crucial due to next November's mid-term elections.  Sen. Ben Cardin (D-MD) explains that, in an election year, "[c]onventional wisdom is that you have until the spring to get controversial issues moving."  Further, waiting until the spring will allow members of Congress to see the result of this December's Copenhagen meetings, which will provide a better idea of  what major developing countries (such as China, India, Brazil and Russia) are willing to do to reduce GHG emissions.  

Passing a U.S. climate bill through Congress by the spring will increase the likelihood of success in achieving an international climate deal at the second stage of the U.N. climate negotiations next November. 

• Email This
• Print
• Trackbacks
• Share Link

With just 22 days remaining and important issues still unresolved, world leaders announced today that only a politically-binding framework will be developed in Copenhagen where the 15th meeting of the Conference of the Parties (COP-15) of the United Nations Framework Convention on Climate Change (UNFCCC) are scheduled to meet from December 7-18. Representatives from 192 countries were originally expected to negotiate on a legally-binding successor treaty to the Kyoto Protocol (commonly referred to as the “post-Kyoto treaty”) at the Copenhagen meetings.

While this “framework” will not include all the details of a legally-binding treaty, it is expected to provide specifics regarding the commitments that countries will make for mitigating climate change and related financing. Danish Prime Minister Lars Lokke Rasmussen said that the result of the Copenhagen meetings should be a five-to-eight page text with "precise language" committing developed countries to reductions of greenhouse gas (GHG) emissions, with provisions on adapting to warmer temperatures, financing adaptation and combating climate change in poor countries, and technological development and diffusion.

The World Wildlife Fund (WWF), an environmental group, criticized the announcement as a "missed opportunity." The WWF may be right because international climate negotiations can end with unexpected results, particularly when the extreme pressure of an approaching deadline persuades countries to make concessions in order to reach a deal. For example, at the 2007 UNFCCC meeting in Bali, all signs pointed to failure until key players worked through the final night of the meetings to reach an agreement which launched the process leading to Copenhagen.

On the other hand, while today's announcement was disappointing, the decision to slow the negotiating process was also practical.  Had the meetings commenced on December 7th with the expectation that a post-Kyoto treaty would be signed, a failure to reach consensus by December 18th would have left the negotiation process at a standstill.

Such a delay would be catastrophic.  According to the International Energy Agency (IEA), each year that the world delays implementing a global climate agreement, $500 billion will be added to the $10.5 trillion needed between 2010 and 2030 to reduce GHG emissions such that the global temperature increase will be limited to 2 degrees Celsius.   Further, failure to reach agreement on a post-Kyoto treaty could result in the need for sea-walls to defend coastal cities, additional suffering of drought, floods and famine for the world's poor and increasingly volatile weather conditions.

Given recent reports that a deal in Copenhagen was unlikely, perhaps treating a preliminary agreement in Copenhagen as a stepping-stone to a future agreement within the next year or two would provide world leaders with the chance to realistically reach a fair, ambitious and legally-binding post-Kyoto treaty.  

• Email This
• Print
• Trackbacks
• Share Link

When President Obama traveled to Copenhagen last month to persuade the International Olympic Committee (IOC) to support his hometown of Chicago as the host city for the 2016 Summer Olympic Games, the American President was greeted in the Danish capital with signs that read, "Right Place, Wrong Time." The IOC instead chose Rio de Janeiro.

• Email This
• Print
• Trackbacks
• Share Link

Various studies have recently attempted to predict how much the climate bill will cost and who bears this cost.

Unfortunately, the answer to the former has been varied among reports, while the answer to the latter depends on how the emissions trading scheme will be structured. It remains to be seen how Congress will design the climate bill; and, if it should ever become law, how the Federal agencies would regulate the legislation and how the market would respond.  

The following seeks to answer the "Cost Questions" by providing an overview of the predictions of the climate bill's impact on:

1. The U.S. economy
2. American households
3. U.S. industry

Impact of the Climate Bill on the U.S. Economy

A U.S. Congressional Budget Office report from September 2009 estimates that, by 2020, climate legislation will reduce the United States’ GDP by 0.2% to 0.7%.  Further, a report by the American Council for Capital Formation and the National Association of Manufacturers predicts that the legislation could cost U.S. workers up to 2.4 million jobs by 2030.  However, various researchers assert that investment in clean energy and energy efficiency will actually boost economic growth ("a $150 billion investment in clean energy could create a net increase of 1.7 million American jobs and significantly lower the national unemployment rate.") 

Impact of the Climate Bill on U.S. Households

Much of the debate surrounding the climate bill has centered on this issue.  If public opinion is an indicator, then the impact of the climate bill on U.S. households will continue to gain traction as a salient issue in the U.S. climate bill debate.  An NBC/WSJ poll conducted last week found that 48% of respondents said they would approve "of a proposal that would require companies to reduce greenhouse gases that cause global warming, even if it would mean higher utility bills for consumers to pay for the changes.”  That is a considerable drop from 53% of respondents that said they would approve when asked the same question in April's NBC/WSJ poll.

While certain studies have predicted that climate legislation would add between $1100 and $3,000 per year to the average U.S. household's energy costs, the CBO reported in June that the net annual cost of H.R. 2454 - the House climate bill - would be approximately $175 per household in 2020, which translates to the cost of a stamp each day.  Similarly, on October 23, 2009, the U.S. Environmental Protection Agency (EPA) issued a report estimating that S.1733 - the Senate climate bill - would cost a U.S. household only 22 to 30 cents per day.

Impact of the Climate Bill on U.S. Industry

Various U.S. industries, including refiners, coal and carbon-intensive manufacturing, are expecting to suffer heavy economic burdens if the climate bill becomes law.  The September 2009 CBO report (referenced above) acknowledges that, in the short term, more jobs are likely to be lost in energy-intensive sectors than are created in clean energy.  However, history shows that CBO predictions can over-estimate the costs of programs because markets tend to adapt to government regulation.  

For example, when Congress passed the Clean Air Act Amendments in 1990 - which provided the EPA with authority to set a national cap-and-trade scheme for emissions of sulfur and nitrogen oxides (that result in in acid rain) - the CBO estimated that the program would cost U.S. industry $6 billion each year.  However, the annual cost was a fraction of that estimate - $1.1 to $1.8 billion "because the program enabled emitters to choose their own solutions to the problem."  (Source: Joel Kurtzman, "The Low-Carbon Diet: How the Market Can Curb Climate Change," published in Foreign Affairs, Aug. 25, 2009).  It is important to note, however, that the reduction of greenhouse gases is a more complex issue than that of sulfur and nitrogen oxides.

• Email This
• Print
• Trackbacks
• Share Link

S.1733, the Clean Energy Jobs and American Power Act (also referred to as the "Kerry-Boxer Climate Bill" after its co-sponsors) is the Senate's version of H.R. 2454 (the American Clean Energy and Security Act of 2009), the climate bill that was passed in the House of Representatives in June.  

While the first draft of the Kerry-Boxer Climate Bill is 821 pages long and covers a wide array of issues, some of the following provisions included in the bill are likely to be among the most heavily debated in the Senate along with the question of the bill's cost.

• Email This
• Print
• Trackbacks
• Share Link