Cap & trade overview:

Bill passed House. If Senate passes then will go to committe.

REGI - Regional GreenHouse Gas Initiative. Cap & trade system among north east states only affecting power generation sector. Enabled by state level legislation by each state implementing "the model rule"

Kyoto agreement, that US didn't join. Copenhagen will pick up where Kyoto left off.
Europe has extended their treaty from 2013 to 2020.
Big question is whether US will have a problem.

Expect Senate vote to be very close - 1 or 2 vote majority in the Senate. 50:50 chance.


Three options:
- see it as regulation to be endured
- see it as a business opportunity. How can business see Cap&Trade as an opportunity not a threat. It is a market-based approach that should spur innovation in the market place.
- stick head in the sand/complain

Hardest hit will be:
- coal-fired power plants
- mines that supply coal
- oil refineries

Coal-fired power plants get the largest set of allowances allocated in bills. Oil refineries only get 3% of allocations.
Oil will be charged for every refined barrel of petroleum that you sell, but not bio fuels.
Hard for new coal plants to be built. Existing plants will look for new fuels (e.g., bio chard).
Coal mines are the biggest lobby against. Business option - lock up assets and sell again in 30 to 40 years. Defer mining.

In Europe, gave away 90% of allowances at the time that economy dipped and coal plants sold excess allowances. windfall profits disallowed under Waxman.

only a few thousand facilities will be regulated industries. but other businesses, that can document carbon reductions may be able to sell the reduction as an offset. Offsets are only for non-regulated entities.

Key to monetizing:

• frameworks have been setup in voluntary markets
• choose a project type with a protocol
  
• offsets have to be meaningful. doesn't count if it would have happened anyway
• needs to be verified by a 3rd party to look at actual emissions reductions
• offsets have a vintage year and is only valid during that year
• e.g. waste water treatment reducing methane reduction - by flaring instead of releasing
• offset purchasers are saving money by buying the offsets. the atmosphere doesn't care where the emissions come from.
• you have to be in the US jurisdiction with some provisions for int'l offsets

Everyone emits to some degree. Cap & Trade strives for efficient allocation of capital.

Cap drops every year so that by 2050 the cap is 80% less than base year.
EPA model expects price to start at $12/ton and then move to $200/ton by 2050

is there a bias in favor of existing businesses? There is a provision in the act for new entrants for new emitters.
Banking of allowances runs out in 2030

Shouldn't I wait to implement projects that reduce carbon until 2012? For offsets, it can take a long time to plan and implement a project.

Can motivate new protocols as new project types are defined. There is some risk in implementing a project under voluntary standards but in general voluntary standards will guide development of the new ones.
Chicago Climate Exchange is the leader in the voluntary market in the US. Expect that much of what will be adopted will come from CCE.

USCAP (which includes EDF) pushed for large amounts of allowances. 2 billion credits/year (credit is 1 metric ton of emissions) of available offset market. Total emissions is currently 7 Bil. but far fewer than 2 bil in credits will be available at the beginning.

Waxman-Markey is weak but better than nothing. Alternative of regulatory approach not appealing. Need business+environmentalist partnerships.

US has already lost opportunities by not being involved in Kyoto. CDM, verification companies are all outside the US. Opportunity is to get ahead of competitors in the new, clean-energy, economy

Types of emissions - Scope 1, 2, & 3
direct - you produce
purchased - you buy from producer
indirect - your employees and other activities produce


Sample Programs: Climate Registery, GreenE

Biochar has less emissions than coal because the emissions in the chain were already going to be released when the tree decayed. Wood is carbon neutral.





References:
Voluntary Carbon Markets: An international Business Guide to What They Are and How They Work, Ricardo Bayon, Amanda Hawn, Katherine Hamilton, 2007

Carbon Reduction: Policies, Strategies & Technologies, Stephen A. Roosa, Arun G. Jhaveri, 2009