US supporters of domestic efforts to limit greenhouse gas emissions have been encouraged recently by three events: (1) the success of international negotiations under the Framework Convention on Climate Change and specifically the Kyoto Protocol, which proposes a binding limitation on the emissions of greenhouse gases for industrialized countries which has now been implemented in the European Union and (2) an April 2007 US Supreme Court ruling in the case Massachusetts vs EPA where the court found in a 5-4 decision that carbon dioxide and other heat-trapping emissions are “air pollutants” under the Clean Air Act, and that as such the U.S. government (EPA) already has the authority to start curbing them via regulation as they deem appropriate and (3) the formation of the Climate Action Partnership. This initial group of 10 influential US companies is calling for immediate action by the President and Congress to address CO2 emissions. This group that includes companies such as GE, BP, FP&L, Alcoa, Caterpillar and others calls for the use of a cap and trade CO2 program to address Climate Change in the US.
The Bush Administration to-date has not supported U.S. ratification of the Kyoto Protocol or other mandatory carbon dioxide reduction legislation; however, in 2002, it did announce a goal to reduce the greenhouse gas intensity of the U.S. economy, the ratio of greenhouse gas emissions to the value of U.S. economic output, by 18 percent by 2012.
In the most recent report of the United Nations’ Intergovernmental Panel on climate Change or IPCC, the findings pointed to greater evidence of man-made impact upon our climate from the emissions of CO2 and other greenhouse gases and hence more pressure for the US to develop a nationwide CO2 program.
Since the US does not currently have a mandatory CO2 program in place, the outgrowth has been the development of individual state Renewable Portfolio Standards or RPS (discussed in this overview section); Regional CO2 programs such as RGGI or the Regional Greenhouse Gas Initiative in the northeast; California’s AB32 legislation to address greenhouse gas emissions in that state and an initiative by the western governors to form a “RGGI” type program in the west. In addition to state and regional efforts to control CO2 emissions various “membership exchanges” have developed such as the Chicago Climate Exchange or CCX have developed to address reductions in CO2 emissions by its membership.
Voluntary reduction efforts are also in place and being developed where VER credits (voluntary CO2 emission reductions) are being created and certified by the project developers from projects that result in net lower overall CO2 emissions. These VER credits are being sold to entities that desire to lower their overall “carbon footprint” in advance of any mandatory US program. These voluntary credits are being sold and traded on both an over-the-counter and counterparty to counterparty basis.
The current 110th Congress is now in the control of the Democratic Party and as such House and Senate Committee Chairmanship’s are now being presided over by members of that party who appear to be more amenable to mandatory regulation of CO2 and other GHG emissions in the US. With the upcoming Presidential campaign looming in 2008, CO2 and Climate Change are predicted to play a major role in the political debates. Many believe that with the election of a new administration, mandatory US Climate Change legislation will be pass in late 2008 or early 2009 and implementation by 2011 or 2012. Currently there are 5 major Climate Change Bills pending in committees in the US Senate. These bills address allowance allocations, auctions, implementation timing, use of offsets, sector coverage and many other issues that must be addressed to implement a mandatory CO2 program in the US.
In the interim before any mandatory program is implemented in the US, there will continue to be trading in the REC and VER markets and in the regional and membership exchange markets for CO2. Once a mandatory program is in place in the US, many market observers speculate as to the continued existence of these interim markets and if their allowances or offsets will be “grandfathered” into any future mandatory US program.
ICAP Energy will continue to update this market overview as events warrant and ICAP will also continue to post significant CO2 news events and CO2 updates to the Emission News section of this website.