WHAT’S ALL THE FUSS ABOUT CARBON?

Explaining the climate policy debate

What are some of the hottest issues in the climate change debate now before the Senate?

Border Adjustments

Subprime Carbon Covered sites Auction vs.

Allocation Offsets Fraud

Timeline for Climate Policy Even if the Democrats

get the 51 votes they need, there will still be large changes needed to consolidate the Upper and Lower house plans

EPA must have an active greenhouse gas registry within six months of enactment.

USDA offset protocols completed within 12 months of bill passage.

Reporting would begin in 2011 for the years 2007-2010; with quarterly reporting in 2011.

US Government’s own standards

30% reduction in vehicle fleet use by 2020

50% recycling by 2015

Responsible purchasing

500,000 buildings 600,000 vehicles 22,000

employees

What is a Carbon Tariff?

Why NOT Have a Carbon Tariff?

It would damage efforts for a multi-lateral agreement that is critical for overall progress.

Industrialized countries are responsible for the climate change we are experiencing.

CO2 currently in atmosphere

US – 27% Europe – 20%China – 8% India – 3%

Auctioning vs. Allocation of Allowances

“(a 100% free allocation) would represent the largest corporate welfare program that has ever been enacted in the history of the United States.”

- Peter Orszag

Point Carbon, a market analysis firm, estimates the current House bill earmarks $254 billion in allowances

-- one sixth of the estimated total value of allowancesfrom 2012 through 2030.

Auctioning vs. Allocation It doesn’t really matter how

many of the allowances you auction. It matters how many allowances are allocated…how large the cap is.

Example – European cap was 1.9 billion tonnes in 2008. If passed, the US cap would be ~ 4.6 billion tonnes.

HR2454 gives away a large portion of the allowances to allow US carbon-intensive industries an opportunity to develop and deploy low carbon technologies.

This is to soften impact to

American consumers. There are numerous provisions in the bill to protect consumers against windfall profiting by industry.

ACES / HR2454 / Waxman-Markey

Distribution Distribution by

Watt/Hours CO2e

This breaks down to coal/rural areas being affected less than nuclear/urban areas.

Emission vs. Generation

Is this 1980 or 2010?

Energy

ACES / HR2454 / Waxman-Markey

Gives away > 65% of the allowances until 2020 to allow carbon intensive industries 12 years to develop & implement strategies to

level the playing field.

This is far from the 100% auction proposed by many environmental organizations, the

president, and RGGI.

Clean Energy Jobs & American Power Act

Passed from committee in late September.

Expected to pass sometime after the new year.

Something to Think About…… 7400 facilities

covered under proposed cap & trade.

~5000 electrical generation stations

143 oil refineries

Carbon Exposed Industries

Aluminum Steel Paper Cement Chemicals Iron Ore

Lime Livestock Electronic

s? Cement Chemicals Iron Ore

Offsets – Domestic and International

Offsets, cont. Sets up a "strategic

reserve" of 2.5 billion metric tons of emission allowances in the event carbon prices rise faster than expected or reach unexpectedly high levels at auction Example - $28 price trigger

in 2012 After 2015 trigger price is

60% above 36 month average

The EPA would determine eligible offset projects based on recommendations from an Offsets Integrity Advisory Board

If there are not enough offsets available on the U.S. market, up to three-quarters could come from international sources

Establishes a $11 per ton price floor

What About Early Actors? Offsets created

before January 1, 2009 will receive the average value of those offsets between:

1/1/06-1/1/09

Differences between House & Senate Bills

17% reduction 20% reduction Methane

containment

Will this bill create another financial derivatives mess like the one we just went through?

How can we keep this kind of speculation

from creating artificial price signals in the carbon market?

“Subprime Carbon”

In HR2454 allowance, offset, and REC derivatives are regulated by the CFTC.

The FERC would have “cease & desist” authority over those holding positions which are artificially effecting price outside of supply & demand.

In the OTC market, 35% of the credits traded were for investment instead of retirement (29%).

Voluntary purchasing from NGOs and individuals lowered from 2% to 1% between 2007 to 2008.

Who can trade in this market? Non-regulated entities

(banks, nonprofits, people like you) can also buy and sell permits

Cash market trading of allowance, offset, and REC derivatives are permitted.

OTC trading of these derivatives are not. Citizens of Venus cannot trade on spot or OTC market

Carbon Limits and Energy for America’s Renewal - CLEAR

The contrasting bill in the Senate to the Kerry/Boxer

Cap & Dividend No secondary

markets

The Role of the USDA in HR2454

In a concession to Blue Dog Democrats congress released control of agricultural offsets from the EPA to the USDA.

This is viewed as a move that will be more forgiving for America’s farmers.

The EPA has traditionally been considered out-of-touch with standards achievable by the agricultural community.

USDA cont…

The USDA is keenly aware of the historical effects of energy prices on farming.

They would be well suited to help farmers deal with the increasing costs of energy, which typically account for

Energy costs as a share of operating expenses2005-2008 average

Energy use per unit of total farm

Carbon Sequestration Potential by Region

Winners in HR 2454

Nuclear Wind Solar Biomass Geothermal

Energy Efficiency is a big winner Sec. 201 of HR 2454 calls for

national building code energy reduction targets of:

• 30% below the baseline energy code in 2010

• 50% below the baseline energy code in 2014-2015

• 5% additional reduction every three years to 2029-2030.

Section 782g direct 9.5% of allowances in 2012 (decreasing amounts thereafter) go to a SEED account used by state and local governments for efficiency and renewables projects.

RGGI – Regional GHG Initiative

Only generation sites

25MW capacity

Fossil Fuels

Questions?

“We never have 100% certainty.If you wait until you have 100% certainty, Something bad is going to happen on the battlefield.”

That’s something we know. —GEN Sullivan

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