The latest news on carbon credits

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Photo courtesy of Azure Bleu at Flickr.com.

The Kyoto treaty is in the news again as the Obama administration considers implementing a cap and trade system for carbon dioxide. It turns out that a lot of participating countries have fallen short of their Kyoto commitments, and are now required to purchase approximately $46 Billion of carbon credits to make-up for surplus CO2 production. This could mean that the price of carbon credits is about to spike upwards from their current low levels.

So, what exactly is a cap-and-trade system?
Cap and trade is a regulatory framework for controlling the emission of carbon dioxide and other pollutants that affect the climate. It is one of several proposed systems, with the largest alternative being a carbon tax. The cap in cap-and-trade refers to a limit set on the level of emissions. This cap can be company specific, region specific, national, or international. When participants spend more than their allotment, they can trade credit with other participants who haven’t produced as much as their allowed.

What are carbon credits?
Carbon credits are warrants that represent carbon neutralizing behavior (ie; maintaining a forest, sequestering carbon underground, or breaking down greenhouse gases). In some countries, factories and power plants are required to purchase carbon credits that offset their pollution. These vouchers are used to fund the development of clean technology and conservation, and they also make green business practices more competitive by putting a price tag on externalities. A cap and trade system promotes land conservation by placing a value on pristine wilderness areas. In turn, this reduces carbon emissions by deterring development.

Many different companies offer carbon credits and carbon offsets. If you’re interested in purchasing some for your personal use, there are plans that you can use to neutralize the impact of a plane trip, counterbalance your home’s expenditures, or to offset your daily commute. Here’s a price survey of various companies that offer carbon credits.

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Photo courtesy of Dianne Pike at Flickr.com.

There are concerns with how carbon credits are computed. Critics argue that carbon credits are often miscalculated, that they’re rewarded for projects that were going to be built anyway, or that the expense is not justified by the results. A recent report by the US General Accounting Office offers some support to these criticisms. Projects that have applied for carbon accreditation under the UN Clean Development Mechanism (CDM) were found to have serious problems. Several of these projects involved displacing Chinese farmers to build hydroelectric dams, and construction on some of the dams had even been underway before the project managers asked for carbon credits.

The end users of carbon credits are increasingly demanding third-party validation. In order for carbon credits to be more than modern-day indulgences, there are some important stipulations that need to be met. The carbon savings must be measurable, unique, and independently verifiable. This prevents unscrupulous carbon dealers from selling non-existent credits or selling the same credits over and over again. In the terminology of the Clean Development Mechanism, only actions that provide “additionality” are eligible for carbon credits:

If I buy carbon offsets, I make the implicit claim that I forgo reducing my own emissions (i.e. I still fly) but in exchange I pay someone to reduce their emission in my stead. If I buy carbon offsets to “neutralize” the emissions I caused during air travel from someone who would have reduced their emissions anyway, regardless of my payment, I, in effect, have not only wasted my money, but I also have not neutralized my emissions.

Currently, the majority of projects applying for CDM accreditation involve hydroelectricity. There are only a finite number of suitable rivers in the world though, so future savings will have to come from new techniques and green technologies. Microturbines fueled by waste are one of the largest areas of potential growth, and US companies are spearheading development in that area.

San Antonio recently became the first city to deploy a power plant that uses methane from sewage to generate power. Burning this renewable resource is a clean solution, because methane has more than 20 times the impact on climate change that carbon dioxide does. There’s no word yet on whether San Antonio is applying for carbon credits on this project, but it’s certainly more useful than methane flare projects that are already cashing in.

Several states are pursuing a different tactic to reduce their carbon footprint; they’re attempting to reduce overall power use. A California law is now in effect that requires all state facilities to reduce their energy use by 20%. There have been some unexpected results. In addition to new systems at government offices and service centers, Corrections facilities around the state have also been forced to go green. California’s not alone; many prison facilities nationwide are adapting energy saving technology. From prison gardens that use compost to water boilers that burn wood waste, cleantech is saving thousands of dollars and introducing prison populations to some innovations that were originally developed for the Hollywood elite. With state budgets feeling a pinch, how long do you think it will be before San Quentin starts selling carbon offsets?

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Photo courtesy of MrGluSniffer at Flickr.com.

US states are moving towards a cap and trade system for CO2 emissions

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Photo courtesy of AtomicShark at Flickr.com.

The Regional Greenhouse Gas Initiative held its second auction for carbon credits in December. This was the first auction where all 10 states in the initiative took part, and the sale price rose about 10 percent from the previous auction in September, 2008.

These carbon credits have some bite to them; the auction wasn’t just a public relations affair for the local utilities. The northeast is attempting to achieve a major shift in carbon dioxide emissions. Greenhouse gasses from power plants in these 10 Northeastern states are capped at current levels from January 1, 2009 until 2014. Then, the cap will drop 2.5% a year until 10% reductions are hit in 2018.

Now that the carbon cap is in effect, utilities that use coal or natural gas to generate electricity will have to buy carbon credits to offset their pollution. They are likely to pass along the cost to consumers, which will drive up the price of dirty electricity and help make alternative energy sources more competitive. Regional cap and trade systems have already proven effective at reducing Nitrogen Oxide emissions, and policy makers hope to have similar success with reducing carbon. Funds raised from the carbon auction are earmarked for efficiency improvements, building alternative power sources on government buildings, and eliminating emissions from non-powerplant sources.

The RGGI isn’t the only regional group working on a cap and trade system. In the middle of the country, the Midwestern Greenhouse Gas Reduction Accord is developing a system that will cover Minnesota, Michigan, Wisconsin, Iowa, Illinois, Kansas, and the Canadian Province of Manitoba. Other western states and Canadian Provinces formed their own group, the Western Climate Initiative. WCI membership includes Arizona, British Columbia, California, Manitoba, Montana, New Mexico, Ontario, Oregon, Quebec, Utah, and Washington State.

Some states are tackling emissions on their own. California passed laws in 2006 to reduce CO2 emissions by 20%, and is considering ways to extend the reach of those laws into neighboring states. California plans to roll out a Cap and Trade system by 2012, and the state budget crisis may accelerate the process. A carbon credit auction would raise desperately needed revenue for California, but there’s concern that the money would be squandered instead of spent on reducing emissions.

Federal action is also expected in the near future. The President-Elect, Speaker of the House, and other national leaders have publicly spoken in favor of a cap and trade system. In addition, the Environmental Protection Agency is facing pressure to treat CO2 as a pollutant. The EPA recently published an Advanced Notice of Proposed Rulemaking to regulate agricultural emissions of greenhouse gas.

Some surprising voices have also spoken out against cap and trade carbon systems. A small number of utilities and businesses who use large volumes of electricity have raised concerns about the costs, but some environmentalists are also skeptical of the concept. There’s a concern that carbon credits don’t actually reduce total emissions, and that flaws in the systems can allow polluters to play a shell game with their emissions. Another concern is that the system wont achieve it’s goals of reducing emissions. The cap and trade system in Europe has been plagued by politics and lobbying, and emissions have risen since it was introduced.

Even with these concerns, the US looks likely to move ahead on efforts to reduce carbon production. Many changes are on their way, and some will arrive sooner than others.

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Photo courtesy of bytepusher at Flickr.com.

The first auction of US carbon credits

Photo courtesy of Karen Eliot at Flickr.com.

Last week, the Regional Greenhouse Gas Initiative held the first auction for US Carbon credits. This was an important milestone because the auction may set the pattern for a federal carbon tax. Funds raised at the RGGI auction will benefit six northeast states: Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont. The states plan to spend this money (slightly more than $38 Million) to invest in energy efficiency, developing new technology, and other “programs to benefit electrical consumers”.

Hopefully, most of the money will be spent on the first two uses. If carbon taxes are used to subsidize the price of electricity, then that could actually accelerate climate change. In countries where the price of electricity is artificially reduced, demand is rising faster than production. This is causing some extremely dirty power plants to be built to meet short term need. Power outages and brownouts are also common.

Some people argue that revenue from carbon taxes is best used to implement programs that reduce the use of fossil fuel generated power. Possibilities include offering rebates on high-efficiency air conditioners, providing low cost loans for businesses that eliminate wasteful machinery, and building alternative power sources such as wind farms, geothermal generators, and solar arrays. When used in this way, carbon taxes can stimulate local businesses and encourage green consumption. In the long term, the economy will also benefit from energy self sufficiency.

Other states in the RGGI include New Hampshire, New York, New Jersey, and Delaware. These states didn’t participate in the first auction, but they may participate in the next auction, on December 17, 2008. Registration begins in October.

So, who bought these carbon credits? Mostly, the buyers were power utilities that operate in New England. Several environmental groups also participated, bidding on credits with the intent of retiring them from circulation. Brokers and individuals were also allowed to participate, but the RGGI hasn’t released a list of buyers yet.

Bidders had the option of concealing their identity during the sign up process. This anonymous bidding is a bit troubling, since most companies would be happy to garner free publicity from buying carbon credits. It leaves the door open for companies to make false claims and makes it hard to independently verify which utilities are responsible stewards of the environment. Hopefully, the lack of disclosure is only a temporary situation, and future carbon auctions will be more transparent than the emissions they offset.

Photo courtesy of _Krystian PHOTOSynthesis (wild-thriving) _ at Flickr.com.