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The Private Sector Could Help Tackle Climate Change. What A Pity It’s Left Out In The Cold
ASSAAD W RAZZOUK Tuesday 14 May 2013 The private sector could help tackle climate change. What a pity it’s left out in the cold A functioning carbon market is vital to reducing emissions. But ours is broken In a stark reminder of our failure to bring man-made greenhouse gases under control, scientists reported last week that the amount of carbon dioxide in the atmosphere surpassed a level we think we haven’t seen for 3 million years. A week earlier, I attended the latest round of climate talks in Bonn, Germany. Some 200 nations were represented and continued to negotiate some form of a binding climate change agreement due in 2015, to cover the post-2020 period. The Bonn talks concluded on 3rd May and were true to style: nothing happened. I wouldn’t put my money on anything substantive happening, on current trends, by 2015 either. In a race to the bottom, nations seemed to compete on who could commit to less in terms of mitigation and adaptation, while the blame game continued unabated (“You caused the emissions”, “but yours are growing faster”, “ah yes but I am a developing nation”, etc.). Everyone in Bonn knew that any forceful road map to limit, then reduce emissions will require a comprehensive application of taxes and subsidies; performance standards; bi-lateral investments; legislation; emissions trading; and international treaties. Two of these instruments place a price on carbon, an essential component of any decisive action. According to the Brookings Institution, a Washington D.C. think tank, “there is nearly universal agreement among economists that a price on carbon is a highly desirable step for reducing the risk of climatic disruption.” Yet negotiators preferred to bicker about the possible implementation of initiatives on a voluntary “bottom-up” basis versus agreeing binding “top-down” carbon caps for countries, while ignoring both the private sector and carbon pricing. This is irresponsible, for three reasons. First, public purses are stretched; no one (other than Norway) talked as if they had any money for tackling climate change. The private sector on the other hand is flush with cash, with several stock markets at all-time highs and permissive liquidity policies worldwide. Yet there were no private sector representatives to speak of in these meetings. Instead, “pretend” stakeholder consultations took place at side meetings hijacked by two or three NGOs, some of which are anti-private sector in their DNA. Second, there was no focus on improving what we have. Indeed, left completely unspoken was the impact of the failure of the Clean Development Mechanism (CDM) on private sector appetite for cross-border climate finance. For the past 10 years global carbon markets have been synonymous with the CDM, which enables emission reduction projects in developing nations to sell carbon securities to developed country polluters. Buyers use the carbon credits to offset their emissions while sellers receive new investments, technologies and jobs. According to a recent report co-authored by the Center for American Progress and Climate Advisers, the CDM succeeded beyond expectations , unleashing more than $356 billion in green investments. The CDM was on track to deliver $1 trillion in financing but is currently delivering none at all because the carbon price signal it is sending is zero: negotiators in Bonn are negotiating agreements and frameworks, while sending – via their own CDM system – a signal that pollution has no cost. The private sector relied on developed world governments to create sustained demand for the carbon offsets generated from clean energy projects. Governments did not deliver what they committed to and the CDM collapsed. While efforts to create a post-2015 mechanism are to be lauded, these will not bring about the needed private sector investment unless credibility is restored to the CDM and investors see a return on their already invested capital. Third, as the report argues, a carbon price catalyses climate action in developing countries with most of the world’s population: China, South Korea, Mexico and Brazil are establishing domestic carbon markets in substantial part as a result of their positive experiences with the CDM. In addition, South Africa, India, Vietnam, Malaysia, Indonesia, Thailand and Chile have implemented renewable energy and energy-efficiency incentives, are designing emissions trading systems or are implementing carbon taxes. In addition to helping change how these nations think about climate policy, the CDM has helped these countries build the governance and private sector capacities needed to go after green initiatives. As Professor Wei Zhihong, a climate policy expert at Tsinghua University told me: “China’s good practice and positive experience with global carbon markets have helped create the confidence to try carbon markets at home. CDM has given us confidence that well-crafted climate policies can be good for China.” But a carbon price of close to zero (the price today) may fatally undermine this progress. If negotiators at UN climate change talks must insist on continuing to use such a flawed forum, they should at the very least significantly enhance dialogue with the private sector – as well as stand behind the international carbon markets they created. Continue reading
Ethanol: Logic Of Circular Biofuel Trade Comes Into Question
http://www.ft.com/cms/s/0/e4baefbe-b0d6-11e2-9f24-00144feabdc0.html#ixzz2TSTQBQ4m By Greg Meyer Despite having the world’s biggest ethanol industry, the US imported 9.6m barrels of the biofuel from Brazil last year. Brazil, the ethanol pioneer, imported 2m barrels from the US. The US and Brazil, the giants of the market, together produce 87 per cent of the world’s output, according to analysts FO Licht. The US product is largely distilled from corn, while Brazil makes ethanol from its sugar cane crop. For the engine of a car, the two vintages are virtually identical. Yet in the eyes of the law they are quite distinct. This helps explain why the US and Brazil are shipping one another ethanol at great expense rather than simply using it at home. Washington is weaning its domestic ethanol industry off subsidies. In 2011 a tax credit for ethanol blenders expired, as did a corresponding import tariff. But the industry still has the support of a government mandate requiring domestic ethanol consumption to grow each year. The mandate is indirectly helping to drive imports from Brazil. The mandate, known as the renewable fuel standard, is split between volumes for traditional corn-based ethanol and “advanced biofuels” whose production releases less greenhouse gas impacts than ploughing fields for grain. Corn ethanol has the biggest share, but the advanced biofuel requirement is growing more rapidly. US production of advanced biofuels has not matched government expectations. To meet the mandate, fuel companies are allowed to import sugar cane ethanol, mainly from Brazil. The US Environmental Protection Agency estimates about 15.9m barrels of sugar ethanol imports will be needed this year. “As the mandate grows, ethanol imports rise accordingly,” say economists at the University of Missouri’s Food and Agricultural Policy Research Institute. Another US policy encouraging Brazil to export ethanol is set by California. The state, known for standard-setting vehicular pollution controls, welcomes the use of sugar cane ethanol to satisfy its low carbon fuel standard programme. In the reverse direction, US ethanol exports to Brazil are well below a peak of 9.4m barrels reached in 2011 when the South American country suffered poor sugar harvests. The Brazilian ethanol industry has also been hurt by domestic government policies that have kept petrol prices artificially low to fight inflation. This year, Brasilia raised the required ethanol blending rate to 25 per cent from 20 per cent of motor fuel in a bid to help the domestic biofuel industry. But imports from the US are expected to continue nonetheless. The US corn-based ethanol industry has more capacity than needed for a domestic fuel market where demand is weak and most fuel companies refuse to blend more than 10 per cent ethanol with petrol. Brazilian imports arriving under the advanced biofuels mandate further add to supplies. So a portion of the relatively cheap, unwanted corn ethanol barrels flows back to Brazil. The Energy Information Administration, in a note last year, called it a “complex environment” where blenders and ethanol producers “not only have to produce enough corn ethanol to meet the overall renewable fuels mandate, but … must also import significant volumes of sugar cane ethanol to meet the advanced biofuel mandate, all in the face of demand constraints”. The American and Brazilian ethanol industries are squaring off as regulators consider how to apportion this year’s US ethanol mandate. The Renewable Fuels Association, the main US corn-based ethanol lobby, argues the EPA should lower the advanced biofuels mandate to insure against unreliable supplies from Brazil. Furthermore, tight corn stocks and slowing output suggest the US may not be able to export as much ethanol as in years past, the association says. The circular trade between the companies is “economically absurd”, the RFA added. Unica, the Brazilian sugar cane industry group, contends that the US should uphold its advanced biofuel targets, which would support ethanol imports from Brazil. “The fact that there is two-way trade in ethanol between the US and Brazil demonstrates both the complexity and success of government intervention into fuel markets,” Unica wrote to the EPA in April. There is nonetheless an irony in the fact that biofuels promoted to reduce greenhouse gases are being ferried between the US and Brazil in ships belching petroleum exhaust. As the EPA notes: “This two-way trade of ethanol engenders additional transport-related emissions.” Continue reading
Carbon Credit Trading – A Boon Or A Bane
BY: SHIVANI KHANWILKAR MAY 16, 2013 13:58 Carbon credit generating a $1 billion business in 2012 for India has thrown up huge business opportunities for the developing economy from which emerging business can hugely benefit but tribal societies across the globe are in a dilemma over its market driven mechanisms. India will continue to benefit more and more out of the sale and utilization of Carbon Credits / Certified Emission Reductions (CER), should it be given more clarity from regulatory authorities and incentives by way of more tax subsidies. It was also expected from the 2013 union budget that Section 10 of the Income Tax Act, 1961 be broadened to specifically include exemptions for incomes arising from sale of carbon credit entitlements. Carbon Credits Proposed tax implications on sale of carbon credit / CERs under Direct Tax Code needs to be replaced with a single provision of adequate disclosure on sale or utilization of carbon credit, which will indeed motivate industrial undertakings to contribute more towards corporate social responsibilities and help to protect the environment and natural resources. Recently, Himachal Pradesh became the first state in India to sign an agreement with the World Bank to secure carbon credits under the Clean Development Mechanism (CDM) project for 11 watershed divisions under the Mid-Himalayan Watershed Development Project. The project aim is reforestation in watershed areas, improving livelihoods, and generating carbon revenue for the community. The CDM agreement is estimated to fetch a carbon revenue of at least Rs 20 crore for the first crediting period of 20 years. “The carbon revenue will primarily go to the village community and provide an incentive to protect watershed and forests,” says Rajan Samantraray, World Bank team task leader for the project. The benefit accruing to the community and private landholders is projected to be about Rs 2,500 per hectare, depending on tree growth and other factors. However, there are some people, especially tribal communities, who are opposed to such schemes. Tribal societies around the world are concerned that such schemes, especially its market based driving mechanism, would end up dictating terms to countries on forest management and bypass the poor who depend on forests for a livelihood. Instead of aggressively changing behaviors that emit CO2 and other emissions in the first place, people and companies achieve a feel-good-green state simply by buying carbon offsets. No doubt, the purchase of these offsets funds does help to “reduce, avoid, destroy or sequester” carbon dioxide so that it cannot enter the atmosphere but it defeats the purpose when the offset purchasers are emitting back at home in excessive of what is traded and the emissions go unchecked. Another criticism is that the voluntary market is highly unregulated and offers much scope for corruption and illegal deals. Unchecked prices are the biggest drawback of these markets. One of the largest emitters of Greenhouse gases happens to be USA, but ironically, till date it has not ratified the Kyoto Protocol, implying that it is not bound by any carbon regulations. Its unregulated emissions only hamper the carbon reduction efforts in other parts of the world. Carbon trading is a system whereby companies that produce carbon emissions, first purchase credits, allowing them to emit a specified amount of carbon into the atmosphere. In effect, this exchange of credits is a trade, in which a firm which has successfully curbed its emissions below the emission quota is in a position to sell some of its carbon credits to a firm which has exceeded its quota or predicts that it will do so in the future. So the earning that a firm makes from selling its credits is like a reward to it for reducing its emissions. On the other hand, the cost of buying credits acts as a penalty for a firm for its inability to limit its emissions to the assigned quota. Carbon credits are increasingly becoming a key component of national and international emissions trading scheme. Continue reading
