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Chinese Launch Voluntary Carbon Standard

We have blogged a number of times that if the world is going to make meaningful inroads to the global reduction of emissions, the discussions at Copenhagen in December will have to include real contribution from developing nations, specifically India and China.

China had an interesting announcement today. The Chinese government announced that China will launch a framework for voluntary emissions trading in the global voluntary carbon market. The China-Bejing Environmental Exchange will be a government backed platform for trading carbon in the Chinese voluntary carbon market.

China is the world's top producer of greenhouse gas emissions, in terms of total emissions, although its per capita emissions are far below that of the United States. In previous months, China has been pretty steadfast in its opposition to a global cap on greenhouse gas emissions, excusing itself in the name of opportunity and advancement, much like India has done. Nevertheless, voluntary carbon standards are a step in the right general direction.

According to Reuters, "[t]rade in the global voluntary market, mostly driven by companies looking to reduce their carbon footprints ahead of expected emissions rules, more than doubled last year to more than $700 million". Voluntary carbon standards provide a framework for polluters to get emissions cuts verified and for the creation of credits that can be sold in voluntary carbon markets.

The announcement today comes on the heels of China's assertion on September 22 that it would tie emisions reductions to economic growth. Given these recent announcements and the fact that China seems to be ramping UP to Copenhagen and not down, we'll have to keep a close eye on Chinese climate change policy in the coming months to see how their policy might drive how Copenhagen discussions unfold. More importantly, are these Chinese announcements the real thing or is the Great Wall really just a Great Hype? More tomorrow.

The U.S. Climate Bill - Flexibility on Cap and Trade and the Canadian Response

We blogged last week about a proposed U.S. cap and trade system and questioned whether or not the American President was backing down in his support for it. There is more evidence this week of a shift in White House backing of cap and trade. While President Obama seems to remain committed to the basic idea of a cap and trade system, it is becoming increasingly clear that he is going to be flexible on how that will be accomplished.

Henry Waxman, a Democratic Congressman from California and a proponent of economic measures such as cap and trade to lessen climate change, introduced a climate change bill last week to Congress. The Waxman-Markey bill, officially named the American Clean Energy and Security Act, is comprised of four titles: a "clean energy" section, promoting the use of renewable sources of energy; an "energy efficiency" section, promoting across the board increases in energy efficiency; a "global warming" section, providing limitations on heat-trapped pollutant emissions; and a "transitioning" section, promoting green jobs and protecting U.S. industry and consumers for the duration of the transition to clean energy.

The bill requires that, using the 2005 output of CO2 equivalent emissions as a base, emissions be reduced down by 3% in 2012, to a reduction of 20% in 2020. As well, the bill requires that, by 2050, carbon dioxide and methane emissions be reduced by nearly 80%. In regard to electricity, the bill requires that by 2025, a quarter of the electricity production of every region within the United States be derived from renewable resources (i.e. solar, wind and geothermal). Also included within the bill is the requirement that the electrical grid be modernized, that more electric vehicles be produced and that increases be made in the efficiency of appliances, buildings and the generation of electricity.

Perhaps the most controversial aspect of the bill is with respect to plans for cap and trade. The bill would cover about 85% of the U.S. economy requiring businesses to obtain permits to cover their emissions. What is missing from the bill is how the permits would be distributed. The President originally favoured a "100% auction to create incentives for companies to reduce their greenhouse-gas emissions". This is not a popular option among lawmakers from states whose industry is coal based. Another option is that the permits be given away for free, but this method also has critics.

The 648-page draft bill is expected to become the blueprint for congressional and administration policy efforts with respect to climate change. Consideration of the bill by the Energy and Commerce Committee, of which Mr. Waxman is the Chair, is scheduled to be completed by Memorial Day. Congressional debate would begin thereafter.

The Wall Street Journal reported today that "[m]any lawmakers have warned that passing a climate bill will be difficult if the administration sticks to a position that all of the greenhouse-gas emissions allowances under a so-called cap-and-trade system would have to be purchased at auction. Recent Senate votes have indicated that proponents of an economy-wide cap and trade proposal don't yet have the 60 votes needed in the Senate to overcome a filibuster".

In light of the opposition to the bill, the President's office has indicated that the White House may have to be flexible. The WSJ reported today that the "President's science adviser said in an interview with the Washington Post Wednesday that a climate bill didn't necessarily have to start with 100% auction, but could work its way there over time".

So while they might not be backing away from cap and trade entirely, these recent comments seem to suggest that the President and his administration may have to be adaptable to a different system than they had originally envisioned.

Meanwhile, north of the 49th, Environment Minister, Jim Prentice, confirmed that as a result of the proposed U.S. legislation, Canada may have to align itself with the American form of cap and trade system. Minister Prentice remarked "[t]here are clearly measures [being planned in the United States] that would have trade-related consequences for Canada if we don't have equivalent environmental legislation in place" and acknowledged that "Canada would have to adopt regulations and enforcement standards 'comparable' to whatever the Obama administration...passes".

Minister Prentice also confirmed what we've outlined above - that the Americans are "talking about a system of flexibility". Canada has not yet released detailed regulations, expected to come into force in 2010, which would outline reduction targets for industry. Environmental groups are impatient and insistent that these regulations be unveiled sooner than later. But if Canada will be aligning itself with the U.S., then perhaps it is premature expect the federal government tell us what our emissions regime is going to look like, when it is not yet clear what the end result south of the border is going to be.

Canadian Climate Change Themes

The Clean Energy Dialogue between Canada and the United States was sparked in February after the Prime Minister met with President Obama. The President's Climate Change advisor, Carole Browner, met with the Minister of Environment to discuss Canada's approach to climate change during those meetings. A couple of weeks later, Canadian Ministers, including the Minister of Environment, traveled to Washington to meet with their American Counterparts. Since then, Jim Prentice has been busy speaking about Canada's response to climate change. A number of themes are emerging from the Minister's remarks:

1. Environment Policies are Instruments of Economic Renewal and Security : The Minister confirmed in a speech to the Institute of Corporate Directors on March 6, that Canada's environmental approach is to "make our national environmental policies positive instruments of economic renew and of national development". Environment policy and energy policy are inexorably linked. Canada has a history of environmental stewardship and has a responsibility to maintain that what at the same time creating wealth and building industry. Maintaining environmental integrity while enhancing our North American energy security is going to be a priority for the Federal government. We will start to see more overlap between Energy policy and Environmental policy.

2. Canada/U.S. Co-operation on Climate Change: This is no surprise. Since the President's visit in February, both the Prime Minister and the Environment Minister have said that Canada and the U.S. need to work together closely to address climate change. Minister Prentice has confirmed that Canada and the U.S. must work closely to build a new carbon economy and to ensure that "our policy and regulatory frameworks are coherent and supportive" and has called the relationship with the United States crucial in the context of the transformation to clean energy. There are a number of subthemes:

(a) Cap and trade: In a speech on February 27, Minister Prentice confirmed that Canada has committed to pursue a North-America-wide cap and trade system and that we will "work closely with the new U.S. administration to build the North American low-carbon economy". He is optimistic that Canada and the United States will arrive at a workable solution that defines "common or similar carbon reduction targets, that creates similar mechanisms to allocation emissions and...provides for the trading of credits on a North American basis".

(b) Fuel efficiency: Minister Prentice told the CBC on March 1 that Canada is prepared to go in the same direction as the United States and that he supports one fuel efficiency standard for the two countries.

(c) New technologies: The Minister remarked that Canada and the United States have a strong and shared interest in promoting the development and deployment of clean energy technologies. The Clean Energy Dialogue will include discussions about Carbon Capture and Storage, an interconnected electricity grid, nuclear energy, wind, solar, hydro and other "more remote renewable sources of energy". Canada's action plan has Canada "on course to reduce domestic greenhouse gas emissions by 20% by 2020 and by 60 to 70% by 2050". In order to achieve these goals, Canada must invest in new technologies.

3. Canada Must be a Leader : Canada is one of the top ten energy consumers in the world. Our challenge is to "stand among the world's elite as a clean energy superpower" and to demonstrate that Canada is a user of clean energy. The Minister told his March 6 audience that the government is "committed to ensure that Canada is actively and constructively engaged in the [Clean Energy Dialogue]" and that it "intends to be a leader and a responsible partner in defining the way forward".

4. International Agreement : both the United States and Canada seem to be setting their sights on Copenhagen in December and both countries believe that in order for climate change policies to be effective domestically, international co-operation is required. Canada's climate change policy is "based on a clear desire to include all of the major emitters in the world". Major emitters would include China and India and other developing nations.

5. Climate Change is Everyone's Responsibility : Although the impetus for climate change has to come from government with active participation and engagement of industry, the responsibility extends to all citizens "from all walks of life". Canada's climate change strategy will involve "how we consume and conserve energy in our homes and in our offices". In his February 27 speech, Minister Prentice remarked:

Thirty years ago, drunk driving was tolerable. It's not anymore. Twenty years ago, it was acceptable to drive without a seatbelt. It's not anymore. Up until a few years ago, Canadians could smoke anywhere in public. They can't anymore. Attitudes shifted. Behaviours changed. The same needs to happen with the environment.

Watch for these themes to start emerging in other departments of the federal government. Climate change is one of the most important issues facing governments today. We'll keep you posted on new developments in Canada. Stay tuned.