Lowering Expectations for Cancun - Why Am I Not Surprised

Large developed and developing companies met this past week in New York City at the Major Economies Forum to discuss the components and prospects of a successful climate deal. Some are blaming the US’s inability to pass domestic climate legislation, but few are hopeful, including US climate envoy Todd Stern, that “in any way [there will be] a legal treaty to be done in Cancun this year” at the December meetings. However, Stern is standing by the US’s pledge to cut GHG emissions by 17% by 2020 compared to 2005 levels.

In the most recent attempt to yield US legislative progress, Senators Bingaman (D-NM) and Brownback (R-KS) have proposed the Renewable Energy Promotion Act, which includes a 15% renewable generation standard (including efficiency), in the hopes of passing such during the lame duck session post the November elections.

Elsewhere in NYC at the launch of the Carbon Disclosure Project’s Global 500 and S&P 500 report results, UN climate chief, Christiana Figueres, suggested that strong support for a climate treaty from businesses lobbying their governments is essential to progress. She cited the huge appeal of certainty and business opportunities for corporations the world over. An article from the Huffington Post warns about allowing business to lead on climate change regulation.

• George Soros calls for trillions in private financing to combat climate change rather than relying on government supp
• China and India should have legally binding emissions targets, suggests US envoy Stern.

The Slow Plod to Cancun - Will Business Lead Government?

Here are the latest carbon soundbytes of the last few weeks:

· Leaders of global energy companies convened at a conference in Montreal to discuss the state of current carbon / climate negotiations. Former chief UN climate negotiator, Yvo de Boer, was a keynote for the event. He encouraged the industry to support a binding global treaty, including market-based mechanisms. Of no surprise, energy companies desire an environment with certainty in order to make long term investment decisions.

· Leaders from 17 major economies will meet this Monday & Tuesday in New York City to discuss climate change and clean energy. The meeting is part of Obama’s The Major Economies Forum, which facilitates dialogue between the most influential developed and developing economies.

· The UN climate negotiator, Christiana Figueres, supports a shift in emphasis to CDM projects promoting renewable energy, energy efficiency and transportation, rather than industrial projects cutting hydrofluorocarbons, which have accounted for half of CDM emission reductions to date.

· Australia’s prime minister, Julia Gillard, was pleased by BHP Biliton’s proposal of a domestic carbon tax. This renewed interest in carbon legislation comes after the former PM fell out of favor as he attempted to pass a cap-and-trade scheme.

Most Agree on Need for Climate Finance, But from Where?

Since Copenhagen, there has been little constructive movement in negotiations regarding emission reductions by developed and developing nations. If anything, some developing economies are “backtracking” by demanding more “new” money while others are suggesting carbon reduction requirements only apply to developed nations, says US lead climate negotiator, John Pershing.

The tone of meetings in Geneva, Switzerland, this week has been of productivity on the climate finance front. To refresh, wealthy nations agreed in Copenhagen to fast-track $10B a year between 2010 and 2012. This appears to be “found” money already, but potentially not “new” since Japan had already committed $15B to the cause prior to Copenhagen. The bigger challenge and focus is on achieving $100B of climate aid annually by 2020. While a mix of private and public funding sources is expected, the method of accumulated such substantial amounts is very much in debate as is the identity of the administering body for the funds. Developing countries are adamantly opposed to the World Bank allocating the monies; rather, they support an entity such as the UNFCC.

Negotiators and pundits have suggested potential funding source such as a carbon tax, airplane fare levies and fees on carbon credit trading. Unfortunately, private investment in carbon reduction projects producing carbon credits declined 54% in 2009 because of uncertainty about the existence and value of carbon reductions post-Kyoto. Therefore, it will be difficult to agree on and identity financing sources, if carbon credit fees are utilized, without the specter of a ratifiable global carbon accord.

Other Carbon News:

· Infamous "skeptical environmentalist” Bjorn Lomborg alters his stance on climate change in a new book, suggesting climate change is “undoubtedly one of the chief concerns facing the world today" and a "challenge humanity must confront." Lomborg also supports substantial funds to secure climate solutions, including geo-engineering, as long as these funds are spent wisely.

· Senator Harry Reid (D) hopes to find some Republican votes for an energy bill after the November elections.

Sell [Carbon Agreements] in May and Go Away

Since our last column, the future for global carbon unfortunately has not turned a corner. Negotiations on the international level are slow leading up to the year-end Copenhagen repeat in Cancun. A recent session in Bonn proposed optimism for country specific commitments on financing, technology transfer and capacity building and adaptation plans for the poorest countries.

In the US, any hope for federal legislation involving cap-and-trade have all but vanished as Obama’s and sympathetic democrats’ political capital seems to have been fully utilized on issues of health care, financial reform and even immigration. Chances of legislation passing with any carbon cutting teeth before, or even after, the November elections appear unlikely, due to or despite of Sen. Kerry’s beltway compromises.

Meanwhile, several European governments are reducing renewable energy investment incentives in the coming year. These subsidies have successfully impacted the carbon content of the generation mix in the already lower-carbon intensity region, as well as aiding the growth and maturation of the renewable energy industry.

In our country, state-enacted renewable portfolio standards may prospectively contribute to a lower carbon future (see largest utility generator of renewable energy, NextEra Energy) in lieu of federal mandates.

Wheels Fall Off US Climate & Energy Bill

The long awaited Senate proposal on US climate change legislation was derailed this week by partisan posturing. Sen. Kerry announced he is placing the bill on hold until the Senate can address immigration reform, and Republican Sen. Graham says he is withdrawing his support and involvement in the bill. Republicans view the hasty prioritization of immigration as a ploy to secure Hispanic votes leading into the midterm elections. There has been little bipartisan groundwork or compromises reached on immigration. Lobbying groups are pushing to save and maintain the urgency of climate legislation. Elsewhere in congress, proposals for financial reform of derivatives calls for a study of carbon markets "to ensure an efficient, secure, and transparent carbon market, including oversight of spot markets and derivative markets." In Australia, the once promising carbon regime legislation is likely to be delayed several years.

The UN’s Advisory Group on Energy and Climate Change (AGECC) put forth suggested proposals for climate finance, suggesting that $35-$45 billion of annual investment will be needed to both bring electrification to all and reduce CO2 emissions. Funding sources would include grants from developed nations, multi-national development banks, carbon credit proceeds from charcoal substitution programs and other sources. On a related note, Spain became the first country to contribute ($45m Euros) to the UN’s Adaption Fund, which was established under the Kyoto Protocol and is funded in part by proceeds from fees on Certified Emissions Reductions.

Relevant Articles

• Q&A with UN climate chief candidate, Christiana Figueres, from Costa Rica.
• A group of South Asian countries are establishing an Inter-governmental Expert Group on Climate Change to develop a clear policy direction and guidance for regional cooperation.
• UN report pushes for energy access and efficiency to fight poverty and climate change.
• · BASIC’s meet in Cape Town; they see a prolonged stalemate, but desire a 2011 accord.

US State Dept. - Climate Change is Real; US Congress, Not Sure What To Do About It

Ministers from large western economies were supposed to meet in DC this past week. Many participated by video conference because of European flight cancellations. Inside the meetings, parties discussed preparations for the December meetings in Cancun and short-term financing options for climate aid to developing nations. To the media, representatives praised the progress made in the Copenhagen Accord and attempted to manage expectations for Cancun outcomes.

The US State Department released its 5^th US Climate Action Report, which is intended for submission to the United Nations. The report says, "Global warming is unequivocal and primarily human-induced” and “the effects of climate change are already evident.” The report was released just days before the Senate-led climate bill is set to be formally proposed on Monday April 26^th. Authors of the bill were backing away from suggestions that the legislation would include any sort of vehicle fuel tax, oil sector “fee” or transportation “linked-fee.” The Obama administration has prioritized the energy and climate bill to follow the passage of financial regulatory reform. Neither of which are “quick hits.”

Other Relevant Articles:

· The rogue People’s Climate Summit in Bolivia attracted 142 nations and called for halving carbon emissions by 2020 (more aggressive than anything proposed by signatories to Copenhagen Accord), limiting earth’s warming to 1.5 degrees (compared to 2 degrees per Copenhagen Accord) and creating of an international climate tribunal to judge countries on global warming.

· BASIC nations to debate Kyoto Protocol extension alternatives. South Africa proposes solutions as basis for talks.

· Potential discord looming over state autonomy within federal climate bill.

Tensions Quelled at Bonn; Senate Bill Seemingly Always Around the Corner

After a tumultuous start to the climate meetings in Bonn, the negotiations process leading up to Cancun in December 2010 is back on track. The Bonn meetings were considered a “healing process” where participants regained comfort that the UNFCC is the central venue for global climate talks and negotiations will occur in a transparent and democratic manner. Three more meetings have been planned leading up to Cancun, pressed by developing nations ironically, who were the less motivated contingent last year. Developed countries are feeling paralyzed by the gridlock in the US congress over a climate bill.

Senators Kerry, Lindsey and Lieberman intend to unveil climate legislation on April 26^th. The bill is rumored to include the Obama and House endorsed 17% emission reduction targets (from 2005), support for nuclear power and offshore drilling, a motor fuel tax, the shutting of regional cap-and-trade regimes in favor of a “national carbon reduction policy” and a blockade to carbon regulation by the EPA.

Other Relevant Climate Articles:

· The supposed U.S.’s media and PR strategy leading up to Cancun meetings leaked.

· U.S. to host clean energy summit for the Americas this week in D.C.

· Bolivia claims 7,500 to attend its splinter climate conference this week.