IETA Fall 2009 Symposium

International Emissions Trading Association (IETA) is a decade-old trade organization in the carbon trading space. You may find their limited access IETA Fall 2009 Symposium proceedings useful. Their final report has a defensive tone in part as a response to recent attacks on their system (price crash, cyberattacks etc.).

Whats IETA?

The International Emissions Trading Association (IETA) is a nonprofit business organization created in June 1999 to establish a functional international framework for trading in greenhouse gas emission reductions.

Our membership includes leading international companies from across the carbon trading cycle. IETA members seek to develop an emissions trading regime that results in real and verifiable greenhouse gas emission reductions, while balancing economic efficiency with environmental integrity and social equity.

As of March 2009, IETA comprises more than 160 international companies from OECD and non-OECD countries. IETA has formed several partnerships such as with, among others, the World Bank, Eurelectric, the World Business Council for Sustainable Development (WBCSD) and the California Climate Action Registry.

Carbon War Room

Yet another initiative coming from Richard Branson et al. Interesting and amusing metaphor. The website has a military site look and feel. They have initiatives like this one on energy efficiency of buildings. I see a bunch of sponsors, links to other organizations and photos but nothing jumps out as an original initiative. I will comb through the site some more.

Carbon War Room

The Carbon War Room harnesses the power of entrepreneurs to implement market-driven solutions to climate change. The world needs entrepreneurial leadership to create a post-carbon economy.

The War Room’s unique approach focuses on bringing together successful entrepreneurs, business leaders, policy experts, researchers, and thought leaders to focus on market-driven solutions.

Our approach is to identify the barriers that are preventing market-based scale up of climate change solutions and thereby perpetuating the status quo. In addition to technology and policy gaps, these barriers include principal-agent problems, information gaps, and lack of common standards or metrics.

The War Room operates across 25 battles in 7 theaters and has three core functions:

* The Research & Intelligence team compiles a reliable, independent source of global research on the current carbon-industrial complex and leading market-driven innovations.
* The Communications team convenes successful entrepreneurs, experts, and leaders to ensure solutions are strategically sound, fast acting, and well presented.
* The Operations team plans the path to victory in each area using appropriate tools and partners to achieve the overwhelming force necessary. After determining partners, budgets, and leaders to execute the battle; funding is raised and milestones created; then the operation is closely monitored as each operation proceeds.

Emerging Business Model for Algae

Interesting. Algae can be used to reduce pollution-related costs in addition to providing energy. Given the multi-dimensional value, algae-driven energy doesnt have to be competitive w.r.t. energy sources alone but rather with a combination of existing inputs and costs (compliance, waste/pollution management, legal, and energy).

Co-location could make algae biofuels affordable

The answer? Turn the waste from other industries into a resource for this new one, helping to solve the waste problem at the same time. With or without realizing it, various scientists speaking at the American Association for the Advancement of Science annual conference, which wraps up here today, were promoting the notion that algae operations should be located next to industries that can supply one or more of the nutrient streams.

For example, algae production facilities could be located next to coal-fired power plants, which happen to be under increasing pressure and regulation to reduce CO2 emissions. Instead of spending money to sequester that carbon, say, underground, why not sell it, cheap, to an adjacent algae facility? Indeed, the Seambiotic algae plant in Tel Aviv, Israel, is tapping the flue gas of a coal plant next door.

Similarly, algae producers could locate near municipal wastewater treatment plants. "Cleansed" water that is usually deposited in rivers or other water bodies is generally safe for the environment, but still usually contains too much nitrogen or phosphorus for human consumption. Algae, however, thrive on those very compounds, and the alternative of purchasing them as fertilizer leaves a large environment footprint. Of course, the water itself is needed for algae production. A pilot plant run by Sunrise Ridge Algae in Austin, Tex., is piping in this resource from the Hornsby Bend wastewater plant there. Sunrise was hoping that enough CO2 could also be extracted from the wastewater, but the flow coming from Hornsby's anaerobic digesters was inconsistent, not a big surprise since the system was not built to supply CO2, per se.

Public Scrutiny of Fracking

Fracking or hydraulic fracturing is used to extract gas from rock formations (e.g., shale gas). The problem is that you have to pump toxic chemicals such as benzene into the ground, and you cant really prevent them from polluting into the ground water. The number of wells is large (15000) and are spread out over large geographic area. The potential social cost is huge. The 2005 energy act exempted the gas companies from disclosing any of the details of chemicals and/or be regulated by EPA. But there is real impact on the ground (captured in the documentary Gas Land; see the youtube videos below). Looks like a social movement is developing as a reaction to the negative impact of fracking. Congress has launched an investigation in this. This has natural gas industry worried.

Links for Feb 23, 2010

Fate and viability of carbon markets does not lie in UK hands alone - PwC

PwC comment on Environmental Audit Committee Report on Carbon Markets

* Uncertainty over EU and international targets impacting market confidence
* Traders and market theorists will argue against price floors
* Reserve prices would be needed across Europe, not just UK
* London markets and skills are dominant in £75bn EU and Global emissions trading

A new look at carbon offsets - McKinsey Quarterly

Carbon markets will continue to play a role in pricing—and limiting—emissions, but the opportunity in developing markets may be less promising than once expected.

The article identifies the combination of reasons that sound like people are still figuring out the parameters of the market

Two factors hamper price equalization among the offset market, domestic carbon markets, and the global market as envisioned by the assigned amount units (AAU) established in the 1997 Kyoto Protocol on climate change.

* On the one hand, countries have limited the amount of offsets that can be imported into domestic carbon markets. For instance, the European Union will allow only 1.6 metric gigatons2 (GT) of offset credits to be imported into its market from 2008 to 2020, or on average 0.1–0.2 GT per annum. As this quota will probably be exhausted by 2015, prices on the European carbon market might start to deviate from offset market prices.
* On the other hand, the demand for offsets from Annex I countries is less certain, as the global market is oversupplied with “hot air,”3 which limits the need to buy offset credits. Therefore, national demand for offset credits is typically seen as “soft.”

Time to clean up: UN study reveals environmental cost of world trade - The Guardian

Political pressure is mounting to make businesses pay for the damage they cause to the environment, and the latest UN study assessing the impact of the world's biggest companies is almost certainly the first stage in a concerted campaign to calculate how much damage is caused, what it is worth and ultimately how it can be stopped.

Another report due later this year, The Economics of Ecosystems and Biodiversity, led by the economist and UN special adviser Pavan Sukhdev, will be another significant step towards this goal.

Sukhdev has already warned that damage to the environment will cause the global economy to decline by 7% by the middle of the century if it is not stopped.
...
By far the most "damaging" were the utilities, where the $400bn total "cost" was dominated by carbon dioxide and other greenhouse gases blamed for global warming, nuclear waste, acid rain and smog precursors, and metal pollution in water.

The four sectors with the lowest impact – telecommunications, healthcare, technology and financial services – all caused environmental damage totalling less than $25bn each.

After the utilities, the two sectors with the biggest impacts were "basic materials" such as mining, forestry and chemical companies, with costs put at just over $300bn, and consumer goods such as cars, food, drink and toys, at just under $300bn. The breakdown of their activities is very different however.
..

Look for the report that Mercer is going to deliver in Oct 2010.

Excluding climate change breaches fiduciary care - Natixis

The integration of climate change into portfolio management remains a difficult task but not doing so is a failure of fiduciary care by asset managers, an institutional investor has claimed.

Carlos Joly, chairman of the Climate Change Scientific Committee of Natixis Asset Management, told IPE the integration of climate change into portfolio management is still in its early stages.

“One way is to take the narrow thematic approach such as investing in alternative energy funds,” he said. “However, that is unsatisfactory for us because it does not address the breadth of climate change impacts throughout the economy. It is also a niche approach, which all investors tend to enter and exit at the same time. Carbon footprinting on an index is a step forward from the thematic approach, but ultimately does not reflect the solutions to the problems,” argued Joly.
...
global consultancy Mercer has launched a research project to assess the implications of climate change on strategic asset allocation decisions made last October.

The two-part report– expected to be published in October this year – will consist of a public report in which the broad findings will be shared with the industry, as well as a tailored report for each asset owner that commits to the project, and they in turn will be benchmarked against other project partners.

The study will produce a qualitative framework to outline risks and opportunities by region and asset class, as well as considering the sector effects, which can then be used as an overlay to strategic asset allocation decisions.

Global Investments in Clean Energy Fell Less than Expected in 2009

Climate change: Agri experts paint grim future

India is confronted by a confluence of crises,” he explained. “Increasing energy demand, drought, deforestation, skyrocketing food prices and a population explosion threaten the very fabric of Indian society.” The dry tropics are home to over two billion people, 675 million of which comprise the poorest of the poor. According to Dar, the importance of rain-fed agriculture cannot be overstated. Rain-fed areas contribute over 40 per cent of all food grains and a majority of pulses and vegetables. Dar also accused the Indian government of showing “bias in grain price support and research subsides.” He claimed that “rain-fed agriculture is struggling against policies biased towards more favoured, generally irrigated land”.

Google gets go-ahead to buy, sell energy

Google has expressed a desire for access to larger amounts of renewable energy to help produce the electricity it consumes as part of its vast search-engine empire. Google has long maintained that its goal is to become a carbon-neutral company. As a side note, it's not unusual for large companies to be granted the authority to trade in the wholesale electricity market for the purpose of managing their own energy costs.

As recently as January--after Google Energy made its request to FERC--the company maintained that its expressed immediate wish was for more control over electricity pricing to more effectively gain access to affordable renewable energy.

"Right now, we can't buy affordable, utility-scale, renewable energy in our markets. We want to buy the highest quality, most affordable renewable energy wherever we can and use the green credits," Google representative Niki Fenwick told CNET News at the time.

But it seems that Google may actually enter the energy business. The search giant formed the Delaware-based subsidiary called Google Energy in December and when asked about it, hinted at a future in energy.

"We don't have any concrete plans. We want the ability to buy and sell electricity in case it becomes part of our portfolio," Fenwick told CNET News in January.

Looming Oil Crunch

A couple of things caught my attention. First, peak oil is mentioned very casually. Even Richard Branson has apparently made a statement about how he believes that the peak is in the next five years. I have been paying attention to peak oil discussion for the past several years. The peak oil group has been fighting this battle for attention for many years now. I dont know at what point the idea of peak oil went from being a fringe notion to a mainstream idea. Second, Ambrose and other economists seem to forecast a high oil price-driven economic crisis. Jeff Rubin, former chief economist, CIBC World Markets believes that the high oil price of 2007 triggered the current economic crisis. He points to declines in the export economies of Germany and China that occurred before the subprime crisis hit. In the next iteration, we will know which other non-CDO financial instrument emperors have no clothes.

Aside, I am a fan of Ambrose Evans-Pritchard. His logic is consistent, and his articles reflect an attention to details. I always learn something new in each of his columns.

Barclays and Bank of America see looming oil crunch

For oil markets, it as if the Great Recession never happened. Surging demand in China, India and the Middle East is making up for decline in the debt-crippled West, ensuring another global crunch within three or four years.

Bank of America and Barclays Capital, two leading oil traders, have told clients to brace for crude above $100 (£64) a barrel by next year, before it pushes relentlessly higher over the decade. This is a stark contrast from recessions in the 1980s and 1990s, when it took years to work off excess drilling capacity built in the boom.

"Oil has the potential to flirt with $100 this year. We forecast an average price of $137 by 2015," said Amrita Sen, an oil expert at BarCap. The price has doubled to $78 in the last year.

"The groundwork for the next sustained step up in oil prices is now almost complete. Global spare capacity is likely to be reduced to low levels within a relatively short time. The global economic crisis has postponed, but not cancelled, a crunch which would otherwise be starting to bite now," said Barclays.

...
Supply is scarce. Sir Richard Branson warned this month that the world faces 'peak oil' within five years. "Don't let the oil crunch catch us out in the way that the credit crunch did," he said.

CDP Backing Continues to Grow

Climate Risk Disclosure is starting to look inevitable with this level of SEC and institutional backing.

Record number of investors support CDP’s 2010 request for climate change information

The Carbon Disclosure Project (CDP) today announced its eighth annual request for information on greenhouse gas emissions and climate change strategies to over 4,500 companies globally. Companies this year will report to CDP through an upgraded system, developed with Accenture, Microsoft and SAP, that will for the first time utilize the full power of online analysis tools to drive improved carbon management.

A global, independent, not-for-profit organization, CDP is the world’s largest institutional investor collaboration working to inform the global market place on investment risk and commercial opportunity. The number of institutional investors that signed CDP’s annual request for climate change information this year has risen from 475 in 2009, to a record 534 with a combined US$64 trillion of assets under management. New signatory investors include Wells Fargo, BNY Mellon, Generali and the Industrial Bank of Korea.

CDP continues to act on investor interest in emerging markets with requests for information going to companies in the S&P/IFCI Carbon Efficient Index. This year CDP is, for the first time, writing to companies in Turkey, Peru, Morocco, Egypt and Israel as well as continuing to expand its coverage in areas such as Asia, Poland, Chile and Mexico.

CDP gives companies the tools they need to identify and report material risk and opportunity to their business from climate change. This is an increasingly important skill for US corporations to master, following the recent publication of climate change risk disclosure guidance by the Securities and Exchange Commission (SEC).