Energy & Technology
Over the past several decades, the scientific community has arrived at a consensus that the earth’s climate is being changed by human influences, most importantly the release of carbon dioxide (CO2) and other “greenhouse gases” (GHGs) into the atmosphere. The most recent estimates by the Intergovernmental Panel on Climate Change (IPCC) indicate that, under a “business as usual” scenario, the average global temperature will rise 2.5 to 10.4 degrees Fahrenheit by the end of the 21st century.1" This is a significant change: the high end of this range is equal to the change in the average global temperature associated with the end of the planet’s last ice age, 10,000 years ago. But, during that ice age, it took thousands of years to reach this level of warming — not just one century.
The virtual certainty that human influences are causing these significant changes in our climate naturally leads to the questions of what actions to take and when to take them. A previous Pew Center domestic policy brief, entitled The U.S. Domestic Response to Climate Change: Key Elements of a Prospective Program, evaluates possible policy approaches.
This “In Brief” addresses the timing of action to reduce GHG emissions. In October 2001, the Pew Center on Global Climate Change held a workshop inviting leading scientists, economists, and other analysts to discuss this question.2 The Workshop on the Timing of Climate Change Policies revealed a consensus that action to address global climate change must begin now if it is to be effective. An immediate signal that initiates action is required in order to provide a smooth and cost-effective transition to a stable concentration of GHGs in the atmosphere — a challenge that will take decades, if not generations, to meet. Workshop participants identified many compelling reasons to begin taking action now, including:
- The reality that current atmospheric concentrations of CO2 have not been exceeded during the past 420,000 years (the period for which ice core data are available) and will soon exceed a doubling of pre-industrial levels resulting in a situation unprecedented in human history with unknown consequences;
- The potential for catastrophes that defy the assumption that damages resulting from climate change will be incremental, smooth, and linear;
- The risk of irreversible environmental impacts (as compared to the lesser risk of unnecessary investment in GHG reduction or mitigation);
- The need to learn about the pace at which society can begin a transition to a climate-stable economy;
- The likelihood of imposing unconscionable burdens and impossible tasks on future generations;
- The need to create incentives to accelerate technological development that will allow us to address the climate change problem; and
- The ready availability of “no regrets” policies that have very low or even no costs to the economy.
This In Brief explores the points outlined above.
The Emerging International Greenhouse Gas Market
Prepared for the Pew Center on Global Climate Change
Richard Rosenzweig, Matthew Varilek, Ben Feldman, and Radha Kuppalli of Natsource, LLC
Josef Janssen, University of St. Gallen
Eileen Claussen, President, Pew Center on Global Climate Change
As businesses, policy-makers, and other stakeholders around the world have become familiar with greenhouse gas emissions trading, it has emerged as the policy of choice to address climate change. Now—with the recent agreements in Bonn and Marrakech, with new carbon trading systems in Europe, and with private sector interest and activity across many economic sectors both here and abroad—we are beginning to see the outlines of a genuine greenhouse gas market.
In this Pew Center report, authors Richard Rosenzweig, Matthew Varilek, Josef Janssen et al. describe the various public and private programs under which many early trades have occurred, the characteristics of the emerging market including the key features of early transactions, and the potential evolution of the market given the concurrent development of domestic and international climate change policy. Case studies of actual trades between four power companies—TransAlta and HEW, and PG&E and Ontario Power Generation—help illustrate leading companies’ motivations for engaging in trading, as well as the challenges they have faced in the absence of clear guidelines in the nascent market.
Despite the impressive interest in greenhouse gas trading, the market that has developed thus far remains fragmented. For example, as originally proposed, the trading regimes put forth by the United Kingdom and the European Union differ in important respects: the former is voluntary and the latter is not; the former covers the full basket of six greenhouse gases while the latter is restricted to carbon dioxide. This results in higher transaction costs just as the market is getting off the ground. The challenge ahead, for business, policy-makers, and others, is to work together to help forge linkages between the emerging regimes, and ultimately to achieve convergence.
I am optimistic that we can meet this challenge. We are beginning to see the first glimmers of interest in the U.S. Congress, although the debate is expected to be long and difficult. Perhaps more encouraging are private sector efforts to build a greenhouse gas trading system, such as the Chicago Climate Exchange. Also, many companies have set up their own internal trading systems to “learn by doing,” and have been eager to participate in early trades. The need for certainty, for consistency, and for a level playing field all will work to encourage a merging of regimes. Policy-makers must do their best to ensure that all systems are compatible.
The authors and the Pew Center would like to thank the companies featured in this report for sharing their experiences and perspectives, and acknowledge the members of the Center’s Business Environmental Leadership Council, as well as Aldyen Donnelly of GEMCo; Erik Haites of Margaree Consultants; Richard Sandor of Environmental Financial Products, L.L.C.; and Tom Wilson of EPRI for their review and advice on a previous draft of this report.
A market for greenhouse gas (GHG) emissions has begun to emerge over the past five years. This market is driven in large part by ongoing negotiations of an international global climate change treaty, which will likely impose limitations on GHG emissions. The market has been shaped by successful emissions trading programs established over the past decade, such as the sulfur dioxide (SO2) trading program incorporated in the U.S. Clean Air Act Amendments (CAAA) of 1990.
This paper describes: (1) programs and initiatives that have provided a framework for early trades and policy development; (2) characteristics of the emerging GHG market and key features of early transactions; (3) potential evolution of the market due to ongoing concurrent domestic and international climate change policy development; and (4) potential scenarios regarding the U.S. response to climate change.
Greenhouse gas trading has its origins in the United Nations Framework Convention on Climate Change (UNFCCC). Adopted in Rio de Janeiro, Brazil, in 1992, the UNFCCC established the goal for industrialized countries to return to their 1990 GHG emissions levels by the year 2000 and a long-term objective of stabilizing atmospheric concentrations of greenhouse gases “at a level that would prevent dangerous anthropogenic interference with the climate system.” In 1995, the Parties reviewed their progress and concluded that the non-binding goal would not lead to the achievement of the Convention’s objective of atmospheric stabilization. In response, Parties agreed to pursue a complementary agreement that would establish quantified emissions limitations and reduction obligations for developed countries. This culminated in the negotiation of the Kyoto Protocol in December of 1997.
The process to develop rules, mechanisms, and institutions necessary to bring the Protocol into force is ongoing, including the seventh Conference of Parties (COP-7), held in Marrakech, Morocco, during November of 2001. Though significant progress was achieved there and in previous negotiations, the Protocol has not yet entered into force, and few national governments have imposed limitations on domestic GHG emissions or established trading rules. Thus, the GHG market is evolving under a loosely constructed, ad hoc framework. To date, it has evolved from a variety of mostly project-based emissions trading programs, which have been voluntary in nature and which collectively serve as precursors to formal GHG regulation. More recently, the United Kingdom and Denmark have developed national regulatory programs.
The UNFCCC allows industrialized countries to meet their emissions reduction commitments “jointly with other Parties” through a form of project-based emissions trading. This program became known as Joint Implementation (JI). Subsequent programs have provided practical experience with key aspects of project-based emissions trading. These programs and initiatives include the U.S. government’s Initiative on Joint Implementation (USIJI); the pilot phase of international project-based emissions trading known as Activities Implemented Jointly (AIJ); Ontario, Canada’s multi-stakeholder Pilot Emissions Reduction Trading program (PERT); Oregon’s Climate Trust; the Dutch government’s Emission Reduction Unit Procurement Tender (ERUPT); and the World Bank’s Prototype Carbon Fund (PCF), among others.
Each of these programs is governed by a unique set of rules. However, they exhibit some common elements that constitute a de facto (though non-binding) set of minimum quality criteria that govern the creation of credible emissions reductions. These common elements include: (1) establishment of a credible counterfactual emissions baseline; (2) proof of environmental additionality; (3) evidence that the reductions are surplus to existing regulatory requirements; (4) proof of permanence or durability of the reductions; (5) demonstration that the emissions-reducing project will not cause emissions to increase beyond the project’s boundaries (referred to as “leakage”); (6) establishment of credible monitoring and verification procedures; and (7) proof of ownership of the reductions.
Even though few sources of GHG emissions presently confront binding emissions limitations, a growing number of companies and governments have begun to purchase reductions generated in most part by the programs described above. Few trades of GHG emissions to date have involved an exchange of emissions permits such as “allowances” or “credits,” since these terms refer to government-issued commodities that only exist within the context of formal trading systems. Most GHG trades have taken place under a voluntary ad hoc framework involving a commodity defined by the trade’s participants and known commonly as verified emissions reductions (VERs). These carry only the possibility, but not a guarantee, that governments will allow them to be applied against future emissions reduction requirements.
The authors estimate that approximately 65 GHG trades for quantities above 1,000 metric tons of carbon dioxide equivalent (CO2e)1 have occurred worldwide since 1996. This figure includes trades of reductions as well as financial derivatives based on reductions. However, the figure probably understates actual market activity because not all trades are made public, and internal corporate trades and small trades are excluded. It is important to note also that this figure refers to purchases of emissions-related commodities and excludes countless investments in projects that either purposely or incidentally reduce GHG emissions. Prices for VERs have ranged between $.60 and $3.50 per metric ton of CO2e. Some of the price differentials between trades can be explained by differences in the features of the reductions such as their type and vintage, geographical location, and the rigor of the monitoring and verification procedures. Other factors that affect reductions’ commercial value include contractual liability provisions, seller creditworthiness, and demonstration of host country approval of the emissions-reducing project.
Two case studies provide a detailed look at actual GHG trades in this market, illustrating some of the challenges and benefits of early GHG trading as described by market participants. The first case study reviews a purchase of VERs by TransAlta, a Canadian electric utility, from HEW, a German utility. HEW generated reductions by displacing some of its fossil fuel-based generation with electricity generated by wind. The second case study examines a purchase of VERs by Ontario Power Generation, a Canadian utility, from US Gen, a subsidiary of the U.S.-based PG&E National Energy Group. US Gen created reductions by capturing and destroying methane produced at a landfill. Both case studies demonstrate that while participants benefited from these early GHG trades, the lack of clear trading rules has increased transaction costs and been a significant impediment to the development of a more robust GHG market.
National Trading Programs
Several governments have moved forward in designing domestic trading systems while international trading rules remain under development. At the national level, the United Kingdom and Denmark have each established domestic emissions trading programs. Some trading in these programs has already begun. The European Union (EU) and other countries are in various stages of domestic policy development. At the sub-national level, the state of Massachusetts, for example, will require reductions of carbon dioxide (CO2) emissions from power plants and will allow sources to use trading as a means of compliance.
The development of these and other trading programs demonstrates that emissions trading has gained acceptance as a preferred policy instrument in the world’s efforts to reduce GHG emissions. These programs will boost GHG trading activity and motivate more rapid emissions abatement than if governments had waited for the international community to conclude negotiation of the Kyoto Protocol. Already, the initiation of these programs is producing a shift in the commodity that market participants prefer to trade. Some buyers’ interest is starting to shift away from VERs, whose eligibility for use as a hedge against binding emissions limitations is uncertain. Interest is beginning to shift towards government-issued permits created by the programs, which are by definition eligible for use against an emissions limitation in their jurisdiction of origin. Permits also stand a superior chance of being transferable into foreign jurisdictions for purposes of compliance.
Significant benefits have and will result from the current development of domestic trading systems. However, some adverse impacts have also resulted from the concurrent development of international and domestic climate change policy. Emissions trading systems currently in operation or under development exhibit unique features that may render them incompatible with each other. For example, the Danish and United Kingdom (UK) systems allow for trading of different gases, cover different economic sectors, and utilize different mixes of allowance and credit-based trading. To date, they have not developed rules governing interchange and mutual recognition of their tradable units with each other, which could impede or preclude beneficial cross-border transactions. There are also significant differences between each of these systems and the one being developed in the European Union. Already, the European Commission has warned that the differences in the UK and the EU systems “could create market distortions in the future.”2 Had the treaty been concluded more rapidly, the international framework would have made it easier for Parties to conform their systems leading to increased trading. Several private-sector and nongovernmental organizations (NGOs) also have developed initiatives to help build the market and to create and take advantage of trading opportunities. They include the Partnership for Climate Action (PCA), the Emissions Market Development Group (EMDG), and the Chicago Climate Exchange (CCX).
Recent international agreements negotiated at Bonn and Marrakech resolve many details concerning implementation of the Kyoto Protocol, providing greater clarity to Parties developing domestic trading programs. These agreements will increase the likelihood that future domestic climate change policy measures will be consistent with the rules of the Protocol. However, several issues still must be resolved, and, although likely, the treaty’s entry into force is not yet assured. Thus, in the near future, international and domestic GHG policy will continue to develop concurrently, with the risk that incompatibilities between regional, national, and sub-national climate change policies will lead to market fragmentation and sub-optimal economic and environmental outcomes. Such fragmentation does not mean that market participants will not trade across systems. Indeed, market participants will likely devise methods of trading across jurisdictions. However, devising such structures and mechanisms will increase costs.
Prospects for a well-functioning international GHG market have greatly improved as a result of the agreements reached in international climate change negotiations during 2001. However, significant barriers remain, including the unwillingness of the United States, the world’s largest emitter, to ratify the Kyoto Protocol. A qualitative analysis of several scenarios related to the United States’ future climate policy response reveals that, while in the near term the lack of an emissions constraint may provide an advantage to U.S. firms against foreign competitors confronting such constraints, continued policy uncertainty may be detrimental in the longer term.
In order for the market to achieve its intended environmental and economic results, much work remains to be done. The international community must make an ultimate decision on the legal nature of Parties’ compliance obligations with the Kyoto Protocol’s provisions and must resolve several other key issues. Institutions governing the treaty’s mechanisms must move forward expeditiously to implement the details of the Protocol. Such action will provide Parties with clear policy guidance allowing them to conform their domestic programs to international rules and to enjoy the full economic and environmental benefits of GHG emissions trading.
About the Authors
Richard Rosenzweig provides consulting services to private firms, governments, international financial institutions, and associations on all aspects of the climate change issue, including risk management, market entry strategies, international climate change negotiations, and domestic policy development. He joined Natsource from the Washington law firm of Van Ness Feldman, where he was Principal. Mr. Rosenzweig counseled clients on Clean Air Act matters and provided strategic government affairs counsel on global climate change and energy matters. Mr. Rosenzweig has extensive experience in all aspects of emissions trading and risk management. He represented several companies in the design of the U.S. Acid Rain Program and the Nox SIP Call. Mr. Rosenzweig was involved in the first transactions of UK and Danish greenhouse gas allowances. He also assists companies to determine their risk to the climate issue and develop appropriate risk management strategies. Mr. Rosenzweig served as Chief of Staff to the U.S. Secretary of Energy from 1993-96. His national policy responsibilities included key roles in the development of the first U.S. Climate Change Action Plan. He also helped to negotiate voluntary agreements between the Department of Energy and more than 600 electric utilities in the "Climate Challenge" program.
Matthew Varilek is an emissions markets analyst in Natsource's Strategic Services unit. Since joining Natsource in 1999, he has led projects for clients including the World Bank, the European Commission, the U.S. Agency for International Development, the Dutch Ministry of Economic Affairs, the Government of Uganda, and several multinational companies. Previously, Mr. Varilek lectured for Columbia University on international environmental agreements as an environmental policy teaching assistant at Biosphere 2 Center in southern Arizona. Mr. Varilek has a Masters degree with distinction in Economic Development from the University of Glasgow, Scotland, and a B.A. with distinction in Philosophy and Environmental Policy from Carleton College, Minnesota.
Dr Josef Janssen
University of St. Gallen
Josef Janssen is an expert in financial and economic aspects of greenhouse gas emissions trading and the Kyoto Mechanisms. He is head of Emissions Trading and Climate Policy at the Institute for Economy and the Environment (IWOe) at the University of St. Gallen (HSG) in Switzerland (www.iwoe.unisg.ch/kyoto). He is also scientific coordinator of the European R&D project entitled "Implementing the Kyoto Mechanisms - Contributions by Financial Institutions." In early 2001, he completed his PhD in economics at the University of St. Gallen. In his PhD thesis (Risk Management of Investments in Joint Implementation and Clean Development Mechanism Projects) he focuses on carbon portfolio risk diversification and insurance.
Dr. Janssen has advised several firms and organizations on the Kyoto Mechanisms, including UBS, Swiss Re, Sanpaolo IMI, Landesbank Baden-Württemberg, and the World Bank. In 1998 he was a member of the Italian delegation to the international climate policy negotiations at the EU and UN level. Dr. Janssen frequently speaks on greenhouse gas emissions trading at international commercial and academic conferences, and has published a number of articles on this subject.
Technology and Climate Change: Sparking a New Industrial Revolution
Remarks by Eileen Claussen, President
Pew Center on Global Climate Change
American Institute of Chemical Engineers
New Orleans, Louisiana
March 10, 2002
Thank you very much. I want to thank the American Institute of Chemical Engineers for inviting me here today and for pulling together a very impressive roster of speakers. You are to be commended for taking on such a critical topic, and for having the good sense to do it at such a critical moment, as both the United States and the global community struggle to come to grips with the challenge of global climate change.
It's especially fitting, I think, that we are gathered for this meeting in New Orleans, which of all the major cities in America, is perhaps the one most vulnerable to the effects of global warming. As I am sure all of you are aware, scientists project that climate change could raise sea levels by as much as three feet by the end of this century. And since much of this city already sits well below sea level, this is no idle concern to the good people of New Orleans.
Nor is it a joking matter. But let's imagine for a moment what the future may hold for New Orleans if global warming continues unabated: Imagine, for example, all of the watering holes along Bourbon Street filled up with, you guessed it, water. Imagine the Lake Pontchartrain Causeway, the longest over-water bridge in the world, becoming, yes, the longest underwater bridge in the world. Imagine the city identified for generations as The Big Easy becoming The Big Sloppy. You like gumbo? Well, stick around long enough and you'll be up to your ankles in crawfish.
In all seriousness, global climate change is a profound challenge. Indeed, I believe it is one of the most profound challenges of our time. Meeting it will not be easy. In fact, I'd like to suggest to you today that meeting the challenge of global climate change will require nothing short of a new industrial revolution. But unlike past industrial revolutions, we can't afford to wait for this one to happen all on its own. We must make it happen. We must look to governments to help launch this revolution. We must look to the marketplace to mobilize the resources needed to carry out this revolution. And we must look to the creative minds of people like yourselves for the expertise and ingenuity needed to make this revolution a success. Because in the final analysis, our success will rest on our ability to devise new, cleaner, more efficient technologies - new technologies that can power our global economy without endangering our global environment.
Climate Change: Where We Stand Today
A little later, I'll have more to say about the kinds of technologies we will need and the kinds of policies that can help bring them about. But first let me spend a few minutes looking at where we stand today in our efforts to address climate change, both here in the United States and abroad.
The best place to start, I think, is with the science. And here, I believe, the consensus that has emerged is quite clear. Both the Intergovernmental Panel on Climate Change and the report prepared last year by a panel of the National Academy of Sciences are agreed on three main points: 1) the earth is warming; 2) human activity is largely to blame; and 3) the warming trend is likely to accelerate in the years ahead. And the implications for the United States alone are profound, affecting everything from farming and tourism to the reliability of the water supply and the livability of our coasts.
Of course, there are uncertainties, and there always will be. But these uncertainties cut both ways. Certainly it is possible that the effects of climate change could be less than we currently project. But it is just as likely that the effects will be greater. And so I believe that uncertainty is a reason for action, rather than a reason for inaction.
How are governments responding? Let's look first at the international picture. Over the last year, we saw both the greatest success and the greatest setback since the international effort to address climate change was launched a decade ago. The success was that after years of wrangling, nations finally agreed on a set of rules for implementing the Kyoto Protocol, which sets the first binding international limits on greenhouse gas emissions. European nations are well on track to ratifying the Protocol. Vigorous debates are underway in Japan, Canada and other industrialized countries that face some serious challenges in meeting their targets, but the prognosis is for the treaty to enter into force either this year or next.
The setback, of course, was President Bush's outright rejection of Kyoto. I do not intend to spend any time here debating the merits of the Protocol. It's true, Kyoto is at best a modest first step on a long journey. But from my perspective, the basic architecture of the treaty is sound. In fact, it is an architecture largely designed in the United States. It uses emissions trading, a concept born and bred here in America, to ensure that emissions are cut as cost-effectively as possible. I happen to believe that the emissions target for the U.S. negotiated by the previous Administration was unrealistic. It couldn't be met. But there were ways to deal with this problem short of a unilateral withdrawal.
And what has President Bush offered as his alternative? The President has offered a promise - a promise that the United States will do really no better than it's doing right now. When you do the math, the President's goal of an 18-percent reduction in greenhouse gas intensity by 2012 amounts to a 12-percent increase in actual emissions. It essentially continues the same trends we've seen over the last two decades. In other words, the target is nothing more than business as usual. On the positive side, the President has said that companies reducing their emissions should not be penalized in the event that there is a future regulatory regime requiring reductions. A first step, perhaps, but a very modest one.
Fortunately, that's not the end of the story. There are people in Washington who think climate change is a serious issue that warrants serious action. It may come as a surprise to you, but despite the Administration's lackluster efforts - or, perhaps more correctly, inspired by the Administration's lackluster efforts - there is growing bipartisan interest in Congress in doing something about climate change. Nearly twice as many climate change bills were introduced in the past year as in the previous four years combined.
These bills cover everything from regulating carbon dioxide emissions from power plants to raising fuel economy standards for cars and trucks, boosting research and development on alternative fuels, and encouraging farmers to adopt practices that suck carbon out of the atmosphere. Several bills would establish a national system for tracking and reporting greenhouse gas emissions - an important first step. And, of course, Senators Lieberman and McCain plan to introduce legislation later this year to establish a comprehensive nationwide emissions trading system. That's a bold idea - one that frankly I can't see being enacted for some time, probably years. Still, for the first time, serious debate about how the United States should meet its responsibilities on climate change is now underway.
But what we really need, of course, is action, not debate. And I'm pleased to be able to tell you that real action is indeed taking place. To find it, though, you have to look beyond the Beltway--first, to the boardrooms and factories of major corporations that are taking it upon themselves to tackle their greenhouse gas emissions; and second, you have to look to the states and local communities that, instead of waiting for leadership from Washington, are taking up this challenge on their own.
On the corporate front, let me talk very briefly about some of the activities that are being undertaken by the membership of the Pew Center's Business Environmental Leadership Council. This is a group that now includes 37 major companies that accept the need for action on this issue and that are taking concrete steps to protect the climate. These are primarily Fortune 500 firms such as Weyerhaeuser, Intel, Boeing, Dupont, Shell and Alcoa. Together they employ more than 2 million people and generate annual revenues of nearly $900 billion.
What are these companies doing? Many are adopting voluntary targets for reducing their greenhouse gas emissions. Consider Dupont, which is working to reduce its emissions by a stunning 65 percent below 1990 levels before 2010. Alcoa's target, to cite another example, is a 25-percent reduction over the same period. Some companies are looking beyond their industrial processes. They're setting targets for reducing emissions from their products as well. Major automakers, for example, will reduce greenhouse gas emissions from their European fleets by 25 percent by 2005; and IBM is working to make sure that 90 to 100 percent of its computers are Energy Star-compliant. Still other companies are setting targets for their purchases of clean energy. Dupont anticipates getting 10 percent of its electricity from renewable sources by 2010; and Interface is aiming for 10 percent by 2005.
We recently completed a report taking a close look at six companies - why they've taken on targets, and what their experiences have been. The companies cited several motivations: They believe that the science of climate change is compelling, and that over the long term, their climate-friendly investments will pay off. They also believe that by taking the initiative, they can help the government create climate change policies that work well for business. But each of the companies cited one other important motivation for taking on a target - to improve their competitive position in the marketplace. And that, in fact, has been the result. Each is on track to meeting or exceeding its greenhouse gas goal. Together, they've delivered reductions equal to the annual emissions of 3 million cars. And all of the companies are finding that their efforts are helping to reduce production costs and enhance product sales today.
Equally impressive efforts are taking shape at the state level as well. Over the past year, the Pew Center has worked with the National Association of State Energy Officials to gather information on state programs that reduce greenhouse gas emissions. Earlier this month, we officially unveiled the results: a searchable database on our website describing 21 state programs that have delivered real emissions reductions. Here are just a few examples: Oregon requires that all new power plants limit or offset their carbon dioxide emissions, making it the first state in the nation to enact mandatory carbon controls. Texas requires that all its electricity providers generate about 3 percent of their power using renewable sources. New Hampshire is cutting emissions and saving $4 million a year through energy-saving retrofits on state-owned buildings. The state of Washington is battling emissions and traffic congestion by giving commuters alternatives to the single-occupancy auto. And finally, one of my favorite examples: High school students in Pattonville, Missouri, teamed up with state officials to fuel their school's boilers with methane captured from a neighboring landfill.
So what do all these examples from companies and from the states show us? First, that despite the lack of leadership in Washington, there are significant efforts underway across America to address climate change, and the momentum is growing. These efforts are delivering real reductions in greenhouse gas emissions-and, better yet, they are doing it cost-effectively. A second important lesson is that these efforts pay multiple dividends. In the case of the companies, they deliver operational efficiencies, reduced energy costs, and increased market share - all things that contribute to a healthier bottom line. In the case of the states, they deliver cleaner air, smarter growth, new energy sources, and real savings for taxpayers. A third important lesson is the sheer diversity of approaches being taken. Climate change is an enormous challenge. It has to be tackled on many fronts. If ever there were an issue that defied one-size-fits-all solutions, this is it.
New Technologies Needed
So, yes, these efforts represent a good start. But let's step back and ask ourselves, What is really needed if we are going to effectively address climate change? In the long run, I believe, the answer is clear: The only solution to climate change is a fundamental transformation in the way we power our global economy.
To keep our planet from overheating, we must dramatically reduce emissions of carbon dioxide and other greenhouse gases. The primary source of these gases is the combustion of fossil fuels. So our goal over time must be to steadily reduce our reliance on coal and oil and to develop new sources of energy that, as I said earlier, can power our economy without endangering our climate. Yes, it is a tall order. It implies technological and economic transformation on an unprecedented scale. As I said at the outset, it demands nothing short of a new industrial revolution.
Because there are so many sources of greenhouse gas emissions, and because energy is what powers our entire global economy, there is no silver bullet technology that will solve this problem alone. The ultimate success of a climate change strategy-whether at the national or international level-will hinge on the development and deployment over time of a vast array of technologies that dramatically reduce the carbon intensity of the overall economy. That includes changes in how we produce electricity, how we get from one place to another, how we farm and manage our forests, how we manufacture products, and even how we build and manage our buildings.
Granted, none of these changes will happen overnight. Some of the necessary technologies will take years or even decades to develop and to deploy on a sufficient scale to make a difference. By the same token, however, some technologies are already showing they can make a difference and contribute to climate solutions.
What sorts of technologies am I speaking of? I think the best way to look at them is sector by sector. And, as I prepared my remarks, I tried to come up with catchy phrases to describe the fundamental challenges we face in each of the four critical sectors - electricity, transportation, buildings, and industry.
In the electricity sector, for example, I'd boil it down this way: "Here's the Fix: A Better Mix." As all of you know, we now have a moderately diversified fuel mix. I say moderately because coal still supplies 55 percent of U.S. electricity. That said, we do have a significant and growing amount of power supplied by natural gas, a significant and stable amount of nuclear energy, some hydroelectric power, a small but growing share of wind power, and a very small share of renewables. And so the challenge over time is fairly obvious: we need to shift the supply mix--not necessarily to wean ourselves entirely from fossil fuels (at least not in the near future) but to place ever-increasing emphasis on the lowest carbon fossil fuel (natural gas) while increasing our reliance on renewables.
Next up is transportation, and here my catchphrase would be: "And to Oil a Goodnight." Initially, of course, we must focus on using oil more efficiently. As the National Academy of Sciences has made clear, there are huge cost-effective efficiency gains that could be made in the near term. Ultimately, however, we face a far more fundamental challenge. We must make the transition to entirely new fuel sources, and we must build the infrastructure needed to produce and deliver them. We'll have to think big - the new hydrogen fuel cell initiative launched by the Bush Administration is a step in the right direction. But we must be careful not to pick winners too early in the race. We must explore every viable option.
In the building sector, where we use one-third of our energy, the name of the game is efficiency. And my slogan? "Smart is beautiful." Efficiency doesn't mean we all sit in the dark wearing wool cardigans. Smart technology and smart building design can deliver enormous energy savings without sacrificing comfort or quality of life. In the near term, there is much we can do to save energy - things as simple as replacing conventional light bulbs with compact fluorescents, or shutting off computers when we go home at night. Over the longer term, new designs, new materials, new equipment, and new information technologies promise remarkable gains. In design, for example, we can take much better advantage of natural shading and sunlight to enhance heating, cooling and lighting. And, in the information technology area, new sensors that monitor the use of equipment and lighting will allow us to overcome ordinary humans' failure to "just shut it off."
Finally, there is industry, which accounts for about a third of our energy consumption. And here my slogan, with apologies to Descartes, is "I rethink therefore I am." Rethinking in this case means looking at the entire life cycle of products. It means doing four things: changing inputs, redesigning production processes, reworking the product mix, and, wherever possible, reusing and recycling products so they don't have to be produced again.
Consider the life cycle of one product, aluminum, as a case in point. Alcoa has reduced the electricity required to produce a ton of aluminum by 20 percent over the past 20 years-that's from redesigning production. The company also sponsors life cycle analysis on a number of products including automotive components, beverage cans, and more, to determine how product designs and the product mix can be improved. Andit encourages recycling by supporting research alloy separation and purchasing large amounts of scrap. As for changing inputs, let's stick with aluminum but look at another industry: automobile manufacturing. A recent study showed that every ton of aluminum substituted for steel in automobile construction reduces greenhouse gas emissions by 20 tons over the life of the vehicle. For automakers-and, indeed, for all of society-that should be an important incentive to rethink what goes into our cars.
Getting to Tomorrow
So there you have a sampling of some of the technologies that can help us meet the challenge of global climate change. The question is: How do we get them? What must we do now to ensure that the right technologies are in place in the years ahead?
As I said earlier, we must look to the marketplace to be the primary engine driving technology development. First, most of the changes needed to reduce greenhouse gas emissions - whether they be new products, new processes, or new sources of energy - must come from the private sector. Second, only the marketplace can redirect resources and mobilize investment on the scale needed to create a climate-friendly future. What's more, only the magic of the marketplace can ensure that the necessary goods are delivered at the least possible cost. So we must count principally on the private sector to generate, and to deliver, the broad array of technologies that will make possible this new industrial revolution.
But the market will only deliver if it perceives a demand. And for that, I am convinced, we must look to government. We must look to government, first, to set the goal - to send a clear signal to the marketplace that this is the direction we must go. We must look to government, second, to prime the pump - to provide strategic assistance that will help spawn new technologies and then move them from the laboratory to the marketplace. And we must look to government, third, to keep us all on track - to make sure we not only keep our eye on the goal, but meet it, or face clear consequences.
Let me be clear: I am not advocating a draconian command-and-control system that says do it, and do it this way, or else. We've had enough experience with such approaches to know they won't work here. Rather, I am suggesting a comprehensive but careful mix of measures that provides the private sector with the necessary incentives - and the necessary flexibility - to ensure that we get to where we need to go, and that we do it cost-effectively.
Let me be a little more specific. On the incentive side, there are a host of policy tools available: targeted tax credits or low-interest loans to encourage the development and use of energy-efficient technologies and alternative fuels; government investment in basic research and public-private partnerships that can lead to breakthrough technologies; incentives to builders and landlords to encourage the use of energy-saving materials, appliances and building methods; and incentives to farmers and other landowners to adopt innovative methods to capture carbon in soils and forests.
But incentives alone will not be enough, just as voluntary efforts will not be enough. We must also establish clear, enforceable expectations. At some point, we must resolve as a society that the risks posed by climate change are too great, and that government must mandate action to avert them. This could take the form of emissions targets or efficiency standards. In either case, we should use market-based strategies to reward those who exceed the norm - for instance, by awarding tradeable credits to those who exceed their targets or standards. But government's expectations - society's expectations - must be clear and they must be binding.
This, I would suggest, is how you launch a revolution. I won't tell you the revolution is just around the corner. But I believe in time it will come. And I believe there will be enormous opportunity for those who help lead the way. Over the past century, the chemical engineering field has made tremendous contributions to the protection of our environment. Catalytic converters, smokestack scrubbers, reformulated gasoline, and new recycling technologies are just a few of the environmental advances that owe their existence in one way or another to you and your peers. Time and again, this distinguished profession has answered the call to make the world a better place.
And today, I ask you to do so once again. As individuals who apply scientific and technical knowledge to solve problems, you have the power and the ability to help the world respond to one of the greatest challenges of the 21st century. You also have the knowledge and the understanding to inform the development of forward-looking climate policies for the United States-the types of policies that will make the second industrial revolution real.
In closing, let me say once again that climate change is a problem that calls for new thinking and new approaches. And, as we gather here in a city that could be profoundly affected by this problem in the coming years, I hope we will vow together to solve it so we can leave behind a safer, more prosperous world for generations yet to come.
Thank you very much.
Transportation in Developing Countries: Greenhouse Gas Scenarios for South Africa
Prepared for the Pew Center on Global Climate Change
Jolanda Pretorius Prozzi, Cambridge Systematics
Clifford Naudé, Council for Scientific and Industrial Research: Transportek, South Africa
Daniel Sperling and Mark Delucchi, University of California, Davis
Eileen Claussen, President, Pew Center on Global Climate Change
South Africa has relatively high aggregate and per capita greenhouse gas (GHG) emissions compared to other developing countries, and to world averages. Transportation sector emissions are increasing, but climate change competes with urgent economic, social, and public health concerns for government attention. As a party to the UN Framework Convention on Climate Change and an active participant in the Kyoto Protocol negotiations, South Africa may be able to address transportation emissions through projects under the Protocol's Clean Development Mechanism.
The two major forces affecting South Africa's transportation sector are the country's legacy of apartheid and privatization. Apartheid-era policies cause high greenhouse gas emissions in two ways: (1) Blacks lived in separate townships and homelands, forcing them to travel long distances to jobs in commercial or white residential areas; and (2) anti-apartheid sanctions resulted in South Africa using high-carbon synthetic fuels based on domestic coal and boosting the local vehicle manufacturing industry. Privatization in the 1980s resulted in freight transportation shifting from rail to more energy-intensive trucks. Intense competition within the trucking industry has resulted in poor maintenance and extended use of inefficient vehicles by small entrepreneurial companies. This problem is more widespread in the minibus 'jitney' sector, which evolved to serve the unmet travel needs of black South Africans.
This report creates two scenarios of greenhouse gas emissions in 2020. In the high business as usual scenario, residual land use policies continue to aggravate transportation problems. Personal car use accelerates as car prices drop and consumer credit becomes more widely available. In the low GHG scenario, mobility, accessibility, and safety concerns drive the government to play an active role in land use and transportation policies. More efficient use of urban land and energy resources improves the quality of life and reduces GHG emissions. Low-emissions scenario strategies are not necessarily costly but require strong political commitment.
Some key results are:
- GHG emissions increase 82 percent in the high scenario; but decrease 12 percent in the low scenario.
- Coordinating land use, housing, and passenger transportation policies would promote more efficient urban land use patterns that reduce travel distances and correct spatial imbalances.
- Both (1) restructuring commuter services so that rail serves the densest population centers, buses serve secondary routes, and minibus jitneys provide feeder or local services; and (2) dedicated taxes on vehicle purchases and use, would improve and help sustain public transportation.
- Changing technology, such as cleaner feedstock for synthetic fuel, would reduce GHG emissions.
- Providing incentives to domestic auto manufacturers to produce buses and minibuses instead of cars would reduce the car orientation of the transportation system.
Transportation in Developing Countries: Greenhouse Gas Scenarios for South Africa is the third report in a five-part series examining transportation sector GHG emissions in developing countries. The findings are based on a Lifecycle Energy Use and Emissions Model developed by the Institute of Transportation Studies at the University of California at Davis, which estimates GHG emissions from the transportation sector. The Pew Center gratefully acknowledges Ogunlade Davidson of the University of Cape Town, Ralph Gakenheimer of MIT, Talia McCray of the Université de Laval, and Michael Walsh, an independent transportation consultant, for their review of earlier drafts.
The performance and structure of South Africas transportation system is largely explained by two phenomena: the legacy of apartheid and privatization. Apartheid had far-reaching impacts, even extending deep into the country's transportation and energy system. Largely as a result of these policies, the country's contributions to global greenhouse gas (GHG) emissions are high compared to those of other African nations, both in aggregate and per capita terms. Some of the transportation and energy effects of apartheid include the following:
- Land use policies were based on race and ethnicity, in which black residential areas were moved to the outskirts of growing urban areas and beyond, creating long commuting distances for most of the black poor.
- Energy investments in innovative coal-based synthetic fuel processes were greatly expanded following international sanctions during the 1970s and 1980s.
- Import substitution economic policies promoted the domestic motor vehicle manufacturing industry.
- Generous company car allowances and subsidized vehicle schemes nurtured a market for private cars to support the domestic auto industry.
- Public transportation services designed to serve long-distance commuters with low levels of service inspired black entrepreneurs to create informal services by minibus jitneys - van-type vehicles - for the many unserved travel needs. These services tend to be provided with inefficient vehicles resulting in higher energy consumption and emissions.
The good news is that South Africa has emerged from decades of apartheid policies with a functioning economy and extensive social and physical infrastructure. The bad news is that besides creating pervasive economic and social problems, apartheid polices led to a set of travel behaviors and transportation-related investments that increased energy use and GHG emissions.
Privatization is a second major phenomenon shaping South Africa's transportation system and its energy and environmental performance. The country is steadily privatizing both its passenger and freight transportation systems, largely because of shrinking government funds and an inability to manage urban sprawl. The effects of privatization in the transportation sector have been positive in many ways - including expanded transit service and lower freight costs. But dwindling government subsidies and rapid growth in minibus jitney services have led to sharp ridership losses on the extensive rail and bus systems. This change has resulted in more energy use, GHG emissions, pollution, road deaths, and, paradoxically, continuing urban sprawl.
Minibus jitneys have come to dominate the provision of passenger transportation services. They are almost totally owned by black South Africans. In only two decades, jitneys have expanded to account for two-thirds of all public transportation services and over one-third of total passenger travel in South Africa. They are expensive relative to bus and rail transit, but ubiquitous, providing service to many poor travelers. Financial problems in the minibus jitney industry have led to increasingly old, dilapidated, uncomfortable, and unsafe vehicles, resulting in higher energy consumption and GHG emissions. The government is now attempting to organize and regulate the minibus jitney sector.
Privatization in the freight sector has also propelled large modal shifts from rail to truck. Until 1988, trucks were not allowed to compete with the government-owned railroad. When the freight sector was deregulated in 1988, truck use rapidly expanded, resulting in lower freight tariffs, and a large drop-off in rail use.
Overall, the combined effect of privatization and the apartheid legacy is inflated travel demand, growing use of motor vehicles and trucks, and use of high-carbon fuels. The challenge is to devise policies and strategies to redirect these behaviors and investments to create a more economical, environmental, and socially beneficial transportation system.
Numerous policy options exist to reduce GHG emissions from the transportation sector. These policies affect when, how, where, and why people travel. Options range from adopting efficient advanced vehicle technologies to various administrative controls (including parking controls and car restriction zones) and economic measures (including additional vehicle and fuel taxes).
Environmental quality is not a high priority in South Africa, one of the few countries that does not regulate motor vehicle emissions of air pollutants. However, leaders are motivated to improve mobility, accessibility, and road safety, and reduce traffic congestion. Many of the strategies targeted at those goals will restrain GHG emissions:
- Improve accessibility and mobility. Due to racial segregation, most South Africans live far away from employment centers and economic services. Improved public transportation is the most efficient means of enhancing mobility and accessibility. Enhanced public transportation would restrain growth in the use of personal vehicles, with associated reductions in the growth of GHG emissions.
- Improve road safety. Road safety is a serious concern in South Africa. Policies that improve road safety, such as enforcing speed limits, scrapping older vehicles, and improving vehicle maintenance could help reduce GHG emissions.
- Reduce traffic congestion. Congestion is increasing in all major areas and is expected to become a major problem shortly. Since South Africa does not have the funding to build many more roads, an improved public transportation system will be vital to ensure mobility for the vast majority of its people.
- Increase tax revenue. Increasing fuel and vehicle taxes - an important source of government revenue - would help pay for social expenditures and raise the cost of private vehicle use.
- Respond to international pressure. By ratifying the United Nations Framework Convention on Climate Change, South Africa has become part of the global community that is committed to taking responsibility for its GHG emissions.
Two transportation scenarios were designed for South Africa - one that yielded higher GHG emissions by 2020, and one that yielded lower emissions. These scenarios draw upon extensive interviews with decision-makers and experts in South Africa.
The higher GHG scenario assumes a continuation of observable and emerging trends. In this 'business-as-usual' scenario, the government remains entangled in crisis management. It focuses on health, education and social unrest related to skewed income distributions, and ignores transportation concerns. Residual land use policies from apartheid continue to aggravate transportation problems. Cities remain divided and land developers give little consideration to the implications of long commuting distances. The automotive industry remains a pillar of economic development. Personal car use accelerates as car prices drop and consumer credit becomes more widely available.
In this scenario, private cars and minibuses increase their share of total passenger-kilometers from 51 percent in 2000 to 59 percent in 2020, while public transits share decreases from 49 to 41 percent. Minibus jitneys retain 60 percent of the public transit modal share. The effect on greenhouse gases is significant: South African emissions increase by 82 percent from 2000 to 2020.
In the lower GHG scenario, the motivation for change and government action are driven by mobility, accessibility, and safety concerns. The government plays an active role in land use policies and surface passenger transportation. Land use and housing policies are adopted that promote more efficient urban land use patterns, gradually correcting spatial imbalances and reducing travel distances. The government promotes public transportation, restructuring the minibus jitney, bus, and commuter rail sectors. Under the new structure, trains serve the routes with the densest population, buses serve the secondary routes and minibus jitneys provide feeder or local services. The sustainability of the public transportation system is ensured through revenues raised from dedicated taxes on vehicle buyers and users. South African auto manufacturers are provided with incentives to design and build buses and minibuses appropriate to the local market. Sasol, the large industrial company in South Africa that produces synthetic oil from coal, starts to use natural gas as feedstock in the production of synthetic fuel. This change would avoid the high costs of impending capital investments in coal mining, while harnessing the environmental benefits associated with the use of a cleaner feedstock.
This low-emissions scenario leads to enhanced quality of life and more efficient use of resources - urban land and energy - and decreased GHG emissions. The modal share of private cars and public transit remains approximately constant at 48 and 52 percent, respectively, but minibus jitneys suffer a significant decline in public transit modal share, from 65 percent in 2000 to 56 percent in 2020. Bus and rail transportation account for the remaining share of public transit mode share at 19 and 25 percent respectively. The result is a 12-percent decrease in GHG emissions despite the fact that passenger-kilometers increase by about 54 percent. The strategies in the low-emissions scenario are not necessarily costly, but they do require strong political will and a commitment that has yet to be demonstrated by South African leaders.
About the Author
Jolanda Pretorius Prozzi
Ms. Jolanda Prozzi holds a Master of Science in Transportation Technology and Policy from the University of California (Davis) and a Master of Commercial Sciences from the University of Stellenbosch (South Africa), with specialization in transport economics. Ms. Prozzi has almost nine years of professional and research experience in transportation economics and policy analysis, including a number of environmental policy studies. Prior to joining the Center for Transportation Research at the University of Texas, Austin, Ms. Prozzi was a Transportation Analyst at Cambridge Systematics, Inc., a Consultant Transport Economist for the World Bank and a Researcher at the Council for Scientific and Industrial Research (CSIR): Division of Roads and Transport Technology in Pretoria, South Africa.
Community Adjustment to Climate Change Policy
Prepared for the Pew Center on Global Climate Change
Judith M. Greenwald, Pew Center on Global Climate Change
Brandon Roberts, Brandon Roberts & Associates
Andrew D. Reamer, Andrew Reamer & Associates
Eileen Claussen, President, Pew Center on Global Climate Change
A Pew Center report series on the economics of climate change has identified many ways in which economic modeling can be improved to more reliably project the costs of greenhouse gas reduction policies. These studies show that better model design – for instance, more realistically portraying technological progress and flexibility in the economy – can yield substantially lower projections for the costs of addressing climate change. They provide strong evidence that a rational climate policy that sets realistic short-, medium-, and long-term goals can achieve significant environmental gains while minimizing economic costs.
At the same time, it is important to recognize that the costs of addressing climate change are likely to fall disproportionately on certain industries, communities, and workers, and to explore ways to minimize these adverse impacts. This report is one of three focusing of these critical transition issues. It draws from past community assistance efforts to recommend ways the government can best assist communities that may suffer economic disruption as a result of climate change policies. A report released simultaneously looks at potential impacts on American workers and a future Pew Center report will evaluate competitiveness issues.
In the case of community assistance, the government has considerable experience assisting communities adversely affected by policies such as trade agreements, defense downsizing, and forest protection. For this report, authors Judith Greenwald, Brandon Roberts, and Andrew Reamer apply lessons learned from previous adjustment programs to the challenges posed by addressing climate change. Specifically, the report examines the risks faced by communities whose economies rely heavily on energy production and energy-intensive industries. The authors conclude that a new federal adjustment program for at-risk communities should be part of U.S. climate change policy. The report recommends that the U.S. government take the following actions:
- Designate and fund the Economic Development Administration (E.D.A.) of the U.S. Department of Commerce to design and implement an economic adjustment program for communities;
- Identify and assist communities that are particularly dependent on energy-producing and energy-intensive sectors before dislocations occur;
- Leverage and integrate additional resources by involving multiple federal agencies and state and local governments through federal and regional task forces; and
- Be flexible in addressing community needs by supporting locally determined, comprehensive strategies for five to seven years after the implementation of new climate policies.
C learly, some steps recommended in these reports will require funding. As policies to address climate change are developed, revenue streams from related fees (e.g., from permit fees or auction revenues) could be used to assist with these programs. Addressing climate change through sound policy will make it possible to achieve our environmental objectives while shielding workers and communities from potential economic harm. The authors and the Pew Center are indebted to Robert Atkinson, Ev Ehrlich, and Phil Singerman for their comments on previous drafts of this report.
The world is becoming increasingly concerned about the risks of global warming from the buildup of greenhouse gases in the atmosphere, but many American decision-makers are worried about the economic impacts of policies that may be needed to reduce U.S. greenhouse gas emissions. The overall size and distribution of the impacts of such policies are uncertain, and depend greatly upon how governments, businesses, consumers, and workers respond to the challenge. Efforts to avert global warming would put some American businesses, workers, and communities at risk of economic dislocation. This paper focuses on how the federal government can best assist at-risk communities. Since the burning of fossil fuels such as coal, oil, and natural gas to produce energy is a major source of greenhouse gas emissions, such communities include those with high reliance on jobs in energy production — say, coal mining in Wyoming, or oil and gas production in Louisiana — and in energy-intensive industries such as steel manufacturing in Pennsylvania.
This is not the first time that important national policies have forced economic change on particular communities. The same story has been told for trade agreements, defense downsizing, and forest protection, for example. In each case, the U.S. government helped affected communities through various forms of economic adjustment assistance. In addition, in the last 20 years, numerous U.S. communities have sought to adapt to wrenching economic change brought about by global competition and recession, both with and without federal assistance.
The United States has substantial infrastructure and experience at the federal, state, and local levels in community economic adjustment. Thus, a foundation is in place for creating a new government program to help communities adversely affected by global climate change policy. Experience in the United States and elsewhere suggests that, although economic adjustment programs do not usually remove the pain of economic disruption, appropriately designed programs can lessen that pain considerably. At the same time, there is substantial room for improvement in existing adjustment efforts.
This paper recommends a new federal adjustment program for communities as part of global climate change policy. Specifically, the United States should do the following: (1) commit to address the problem by designating a single agency, the Economic Development Administration (EDA) of the U.S. Department of Commerce, and authorizing about $550 million dedicated dollars, to design and implement an economic adjustment program; (2) be proactive by identifying communities that are particularly dependent on energy-producing and energy-intensive sectors, and by helping communities to take action before dislocations occur; (3) leverage and integrate additional resources by involving multiple federal agencies and state and local governments through federal and regional task forces; and (4) be flexible in addressing community needs by supporting locally determined, comprehensive strategies for five to seven years.
Such a program would take advantage of available experience and expertise at all levels of government, and would take into account the wide variability in local circumstances and opportunities. By doing so, it would minimize economic dislocation and maximize opportunities to create jobs and protect the environment.
About the Authors
Judith M. Greenwald
Pew Center on Global Climate Change
Brandon Roberts & Associates
Brandon Roberts, president of Brandon Roberts & Associates since 1990, is a public policy consultant specializing in economic and workforce development matters. He works primarily with state- and local-level organizations to develop and implement effective policies and program activities, and to evaluate the benefits of past efforts. He has worked in California, Delaware, Florida, Massachusetts, Michigan, Minnesota, Iowa, Ohio, Oregon, and Washington; in large cities such as Baltimore, Cincinnati, Cleveland, Miami, and Portland; and on a number of projects involving community-based organizations.
Before starting his own consulting firm, Mr. Roberts served as Deputy Director of the Council of State Community Development Agencies in Washington, D.C., where he worked extensively with state economic and community development agencies and helped develop policies and strategies to address the employment needs of low-income individuals. He also has held positions in the U.S. Economic Development Administration and the Executive Office of the President. Mr. Roberts has a BS in government (1975) and a MSP in urban and regional planning (1977) from Florida State University.
Andrew D. Reamer
Andrew Reamer & Associates
Andrew Reamer, Ph.D., is Principal of Andrew Reamer & Associates, a Boston-based consulting firm specializing in economic development and public policy. Dr. Reamer received a Ph.D. in Economic Development and Public Policy (1987) and a Masters in City Planning (1981) from the Department of Urban Studies and Planning, Massachusetts Institute of Technology.
Human activities are increasing atmospheric greenhouse gas (GHG) concentrations. Evidence is growing that higher global temperatures, higher sea levels, and increased climatic variability, including changes in precipitation patterns and magnitudes, will result. These changes will affect agriculture by making some crop and animal production operations difficult or infeasible in their current locations. Slowing the rate of increase of atmospheric GHG concentrations will require efforts in every sector of the economy. Agriculture can make important contributions to these efforts, and can benefit by doing so. Agricultural practices that reduce or offset GHG emissions can increase farmer income, improve soil productivity and water quality, and enhance wildlife habitat.
Agriculture contributes approximately 7 percent of total U.S. GHG emissions, with nitrous oxide (N2O) accounting for 66 percent and methane (CH4) 34 percent of agricultural emissions.1 In addition to reducing these emissions, agriculture has opportunities to assist in offsetting emissions from other sectors. The agricultural sector can:
- Store carbon in soils and plants;
- Produce fuels and energy from biomass and animal waste to replace fossil fuels; and
- Reduce CH4 and N2O emissions from livestock operations and agricultural lands.
This paper describes how the U.S. agricultural sector could take advantage of these opportunities.2
Source: U.S. EPA. Inventory of Greenhouse Gas Emissions and Sinks: 1990-1999.
Note: Emissions from electricity produced by industries but sold to the grid are included in the “Industrial” category. Emissions due to other industrial, residential and commercial use of electricity are included under “Electric Utilities.” Excludes emissions from U.S. territories. 1CO2E means carbon dioxide equivalents.
Opportunities for U.S. Agriculture
Storage of Carbon in Plants and Agricultural Soils. Photosynthesis removes carbon dioxide (CO2) from the atmosphere and stores the carbon in plant materials and soils. U.S. cropland soils currently sequester 20 million metric tons of carbon per year (MMTC/yr), and have an estimated biophysical potential to sequester 60-150 MMTC/yr more; grazing lands could sequester up to another 50 MMTC/yr.3 To put this in context, 60-200 MMTC is about 12–40 percent of the reduction that would be needed to return expected 2010 U.S. GHG emissions to their 1990 level.
Carbon sequestration can be accomplished through the following measures:
Soils have natural carbon-carrying capacities, and it may be difficult or impossible to increase their carbon content beyond these limits. Most soil carbon gains from conservation tillage are achieved within approximately 20 years, and the carbon stored can be released later—for example, if farmers revert to traditional farming practices. Reversion to traditional practices will result in most of the carbon being released back into the atmosphere within a few years. However, temporary storage of carbon may offer significant benefits by reducing the rate of increase of atmospheric CO2 until more permanent solutions are found.
Production of Fuels and Electricity. Fossil fuel combustion is the major source of U.S. GHG emissions. The agricultural sector can help reduce reliance on fossil fuels in several ways. Agricultural lands can be used as sites for generation of electricity via wind power, reducing the need to generate electricity from fossil fuels. In addition, use of plant materials and animal waste as an energy source can help reduce reliance on fossil fuels. Plant materials can be used either to generate electricity or to produce transportation fuels. Unlike the release of CO2 from fossil fuel combustion, CO2 released during combustion of plant materials and animal wastes is counterbalanced by the CO2 that plants remove from the atmosphere during photosynthesis. However, the overall net GHG benefits of ethanol are uncertain due to GHG emissions from the farming, transportation, and conversion methods currently used in the U.S.
Where large amounts of animal wastes are available in a concentrated location, as in large confined animal feeding operations (CAFOs), CH4 can be captured and used to generate electricity. The most significant constraints to utilization of animal wastes for power generation are: the rates offered by utilities to medium-scale independent power producers; lack of access to capital; lack of appropriate farm-scale technologies; lack of standardized connection requirements; and lack of “net metering” requirements.4
Options for Biofuels and Bioenergy — i.e., use of plant materials and animals wastes to produce energy — include:
Reducing CH4 and N2O Emissions from Agricultural Lands and Livestock Operations. As shown in Figure 2, N2O from agriculture soils constitutes the bulk of agricultural GHG emissions. Agricultural lands contribute to N2O emissions through the breakdown of nitrogen fertilizers, manure decomposition in soils, and releases from legumes. Emissions can be reduced by increasing efficiency of fertilizer use, including more precise fertilizer placement and timing, immediate incorporation of fertilizers into soils, and improved matching of manure application rates to crop utilization rates. Efficient fertilizer management will also improve water quality by reducing nutrient runoff into waters.
Source: U.S. EPA. Inventory of Greenhouse Gas Emissions and Sinks: 1990-1999.
Whereas most N2O emissions come from cropland, over 95 percent of CH4 emissions are due to livestock,5 both from the digestion process and from manure. Digestive processes of beef cattle account for 40 percent of these emissions. Further reduction of these emissions through more efficient feed rations is somewhat limited given the large feed efficiency gains over the last 20 years. However, digestive process CH4 emissions can be further reduced through improvements in grazing-plant quality. Improved herd management — particularly improved nutrition and increasing the percent of cows producing calves — can reduce CH4 emissions per unit of beef produced. It is estimated that widespread adoption of these measures could reduce CH4 emissions from beef cattle by 20 percent.6
Manure management options to reduce CH4 emissions include:
Tradeoffs and Complementarities. Agricultural practices may affect more than one greenhouse gas as well as other environmental goods and services. Consequently, optimizing the net GHG or environmental effects of an agricultural practice requires a comprehensive evaluation of a complex set of environmental interactions. For example, while irrigation can increase soil carbon, the increased CO2 emissions due to energy used in pumping and the increased N2O emissions due to increased fertilizer use may negate much of the gain.
U.S. Policy Options – The Farm Bill
Reducing net U.S. GHG emissions through changes in agricultural practices and land uses will require new agricultural policies. It is useful to classify such policies as those that could be adopted as part of the conservation title of the Farm Bill and those that go beyond the Farm Bill.
The Farm Bill. At present, there are a large number of narrowly focused conservation programs. Responsibility for implementing these programs is divided between the Natural Resources Conservation Service (NRCS) and the Farm Services Agency (FSA), both agencies of the U.S. Department of Agriculture (USDA). The large number of programs and the disparities in eligibility requirements are major barriers to farmer participation. Major conservation programs and the environmental benefits they now encourage are shown below:
1- Implemented by the FSA 2 -Implemented by the NRCS CRP: Conservation Reserve Program; CREP: Conservation Reserve Enhancement Program; WHIP: Wildlife Habitat Incentive Program; FPP: Farmland Protection Program; EQIP: Environmental Quality Incentive Program; SWP: Small Watershed Program; CC: Conservation Compliance; CTA: Conservation Technical Assistance.
Participation in environmental programs such as the CRP, WRP, and EQIP has been voluntary. These programs provide payments to farmers for taking environmentally friendly actions. The Conservation Compliance program required farmers who opted to receive government subsidies to control erosion and protect wetlands. In recent years, however, the trend has been to make fewer demands on farmers, and eligibility for crop insurance payments has been delinked from wetland (Swampbuster) and erosion control (Sodbuster) provisions.
Effectiveness of present programs in addressing environmental goals is also hampered by the restricted geographic spread (see Figure 3), limited sizes and types of farm operations participating, and limited funding. Thus conservation programs could be more effective if they were more fully funded, simplified, broadened, and harmonized.
Source: Center for Agricultural and Rural Development, Iowa State University, 2001.
Note: Ratio shown is the percent of total commodity payments received by a state divided by the state’s share of total U.S. value of agricultural production.
New Approaches. Reform of farm programs is under consideration for a variety of reasons, including international trade rules that constrain production subsidies. Guaranteed commodity prices and crop insurance subsidies encourage more acreage under cultivation than would occur without the programs. Reforming these subsidies might be one of the most cost-effective means of reducing net GHG emissions from agriculture and providing other soil, water quality, and wildlife habitat benefits.
A number of proposed new conservation programs are intended to provide payments for a wide range of conservation practices and environmental services, including soil, water quality, wildlife habitat, and GHG benefits across a wider variety of land use and management categories. These programs would offer higher payments as more conservation practices are adopted or services provided.
Important program design considerations include:
- Whether all who use a practice or only new adopters can participate;
- Potential loss of environmental benefits – e.g., buffer strips reverting to cropland; and
- Benefits being offset by other changes – e.g., conservation tillage offset by additional lands brought into production, or increased pesticide use that may accompany no-till.
S ome have formally expressed concern that “good actors” (i.e., those who adopted practices before program implementation) should not be excluded from program benefits. Including all who use an eligible practice addresses this concern, avoids problems of early adopters of desired practices reverting to detrimental ones in order to become eligible to participate, and would be easier to implement as it eliminates the need to differentiate between current adopters and farmers who adopt because of the program.
Research has shown that targeting programs to induce adoption of conservation tillage could cut program costs by more than 50 percent depending on the scale of the program. Approximately 36 percent of U.S. cropland was under some form of conservation tillage last year, and the effect of policies that encourage adoption of conservation tillage should be measured relative to this baseline adoption rate. Furthermore, the environmental benefits of many practices vary widely depending on soils, topology, climate, and location. Consequently, linking program criteria to the level of environmental benefits could help maximize environmental gains.
Programs that encourage environmentally friendly practices may be easier to implement if they do not require measurement, verification, or monitoring of specific environmental benefits. However, a policy that does include measuring, monitoring, and verification might generate more real environmental benefits, encourage innovation in measurement methods, and facilitate GHG emissions trading. Short of measuring specific GHG reductions, regional, practice-based benchmarks or baselines can be used. The approach of offering an incentive for adopting a practice could be coupled with additional incentives if measurement, monitoring, and verification are undertaken.
Pilot Programs. A pilot program would be a relatively low-cost way to demonstrate the feasibility of encouraging a large proportion of farmers to adopt climate-friendly practices. Pilot projects in a range of geographic areas, cropping and animal husbandry systems, and farm sizes could be selected to provide critical information on how many, and what types of, farmers will adopt practices at various subsidy levels, and whether demonstration sites, technical assistance, or other outreach efforts are effective. Pilot programs could also serve to test methods for measurement, monitoring, and verification.
Beyond the Farm Bill
Emissions Trading. Emissions trading has the potential to bring income into the agricultural sector from external sources. Electricity generators and other industries with relatively high marginal GHG emission reduction costs are already experimenting with purchasing GHG reductions from farmers who increase soil carbon or reduce animal waste emissions. Emissions trading could increase total income flowing into agriculture and decrease the need for government subsidies.
Emissions trading can be a cost-effective way to meet a national emission goal. The key to keeping costs low is to include in the market all potential sources of emission reductions, particularly those that can achieve reductions at low costs. Most evidence points to agriculture as being a low-cost provider of GHG reductions. The costs of sequestering soil carbon and reducing agricultural CH4 and N2O emissions are likely low relative to the costs of emission reductions from fossil fuel combustion.
Emissions trading would increase the need for more elaborate baseline information and measurement, monitoring, and verification systems because buyers of GHG reductions need to document, and be confident, that the reductions have taken place. Although there is substantial U.S. experience in point source emissions trading, there is very limited experience with trading programs that allow trades to take place between point and non-point source emitters, and most agricultural emission reduction options are non-point. In addition, in an emissions trading program that includes the agricultural sector, contracts would have to be designed: (a) to address possible post-contract losses in the case of stored carbon; and (b) to prevent current users of climate-friendly practices from abandoning these practices in a quest for reductions to sell. Trading arrangements limited to GHG reductions may be less effective than trading approaches that also include other environmental benefits such as water quality improvements.
Biofuels and Bioenergy Legislation. Policies that encourage biofuel and bioenergy research and use could improve their competitive position, provide environmental co-benefits, and enable these fuels to play a significant role in GHG mitigation. For example, to improve the net GHG benefits of ethanol, technological advances are needed in feedstock production and conversion processes. Biofuel use can be encouraged by equalizing the price of biofuels and fossil fuels. The current market for ethanol exists only because a gallon of ethanol is taxed at a lower rate than a gallon of gasoline at the federal level and in some states.
Increased use of fuels and energy from biomass could also be accomplished through new laws. For example, Minnesota mandates that only ethanol blends be sold instead of pure gasoline and is considering a similar mandate for biodiesel. In the Midwest, Environmental Protection Agency summer air pollution reduction mandates are achieved through use of ethanol. Vermont has explicitly included farming operations in its net metering rules, thus removing a key barrier to the use of biomass for generation of electricity. A number of states have established renewable portfolio standards, under which a set fraction of electricity must be generated using renewable resources, including biomass.
Water Quality Initiatives. Initiatives designed to meet water quality goals can induce changes in agricultural practices that also contribute to GHG reduction goals. For example, water quality can be improved by practices that increase carbon storage and reduce CH4 and N2O emissions. Such practices include conservation tillage, use of buffer strips, conversion of cropland into grass or forestland, efficient use of fertilizers, and improved management of animal wastes.
Benefits and Costs to U.S. Agriculture
Depending upon the form of the policy implemented, U.S. agricultural producers stand to gain financially from programs that effectively promote GHG reductions. For many farmers, climate-friendly practices and land use make good financial sense, independent of policies to promote them. Providing more and better information might lead more of these farmers to adopt such practices. Other farmers find that climate-friendly practices do not make financial sense for them, and would only increase their use of climate-friendly practices if financial inducements were available. These farmers would adopt new practices if the payments were large enough to cover all costs associated with switching practices, including:
- Direct costs. These include the cost of new equipment, lower crop yields, or loss in profits caused by crop-switching.
- Indirect costs. For example, experience indicates that six years may be needed to successfully switch from conventional tillage to no-till, a period during which farmers may experience increased risks and workloads.
Even though agriculture may be a low-cost provider of GHG emission reductions, a full cost analysis needs to include the costs of monitoring and verifying those reductions, regardless of who bears those costs.
Agriculture could play a significant role in addressing climate change. In doing so, agriculture may be able to tap additional revenue sources. Farmers will likely reap economic benefits, emitters could reduce their GHG reduction costs, and the public could receive greater environmental benefits from farm payments. The magnitude of environmental benefits will depend on what policy is adopted, the care with which trade-offs inherent in agricultural practice changes are weighed, and how the policy is implemented.
1 Source: U.S. EPA. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-1999. Historically, agricultural practices caused losses of soil carbon resulting in carbon dioxide (CO2) emissions. As of 1990 U.S. agricultural soils are estimated to be either losing or gaining small amounts of carbon (between a loss of 2 million metric tons carbon (MMTC)/yr to a gain of 10 MMTC/yr).
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2 This Brief describes major reduction opportunities. Other more limited and emerging opportunities will be examined in future Pew reports.
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3 This potential is a result of soils’ capacity to regain the carbon lost due to previous management practices. Sources: Bruce, J.P., et al. Carbon Sequestration in Soils. Journal of Soil and Water Conservation. 54:382-389. Lal, R., et al. Managing U.S. Cropland to Sequester Carbon in Soil. Journal of Soil and Water Conservation. 54:374-381. Sperow, M, et al. Potential Soil C Sequestration on U.S. Agricultural Soils. Unpublished Paper.
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4 At least 18 states now allow customers with their own electric generating systems (such as rooftop solar photovoltaic panels) to sell unused electricity back to their local electric utility. To accomplish this, these states have established “net metering” to measure electricity sent into the power grid from customers as well as electricity drawn from the grid.
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5 Rice production contributes approximately 6% to U.S. agricultural CH4 emissions. Improved water, residue and fertilizer management offer opportunities to reduce these emissions, as do changes in types or mixes of rice grown and fertilizers used.
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6 Source: U.S. EPA. Methane Emissions 1990-2020: Inventories, Projections and Opportunities for Reductions. EPA 430-R-99-013, September 1999.
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An Overview of Greenhouse Gas Emissions Verification Issues
Prepared for the Pew Center on Global Climate Change
Christopher P. Loreti, Scot A. Foster, and Jane E. Obbagy
Arthur D. Little, Inc., Cambridge, Massachusetts
Foreword Eileen Claussen, President, Pew Center on Global Climate Change
The need for information on how to count, track, and verify greenhouse gas emissions has never been greater. Many of the world’s nations are working toward international, national, and subnational regimes for reducing emissions. These efforts have been accompanied by a growing number of corporate targets to reduce greenhouse gas emissions, as well as the emergence of a greenhouse gas trading market. To ensure that the numbers on which governments determine compliance, and on which companies stake their finances and reputations, are real, greenhouse gas emissions verification is critical.
In this Pew Center report, authors Christopher Loreti, Scot Foster, and Jane Obbagy of Arthur D. Little, Inc. describe the evolving approaches to corporate greenhouse gas emissions verification. They identify factors that drive verification activities and suggest a number of principles that organizations should consider when verifying greenhouse gas emissions, with an eye toward the experiences of the firms, governments, and non-governmental organizations that have been involved in verification activities.
This report builds on An Overview of Greenhouse Gas Emissions Inventory Issues which the Pew Center released last year, and which offered a set of principles for conducting greenhouse gas inventories. Both of these reports are part of the Solutions series, which is aimed at providing individuals and organizations with tools to evaluate and reduce their contributions to climate change.
The authors and the Pew Center would like to thank the companies featured in this report for sharing their experiences and perspectives, and acknowledge the members of the Center’s Business Environmental Leadership Council, as well as Jean-Bernard Carrasco of the Australian Greenhouse Office, Nick Hughes of BP, and Janet Ranganathan of the World Resources Institute for their review and advice on a previous draft of this report.
The growing number of companies that inventory greenhouse gas (GHG) emissions, implement emissions reductions projects and targets, and trade GHG emissions reductions has generated increasing interest in emissions verification. Stakeholders in the corporate, governmental, and non-governmental sectors recognize the need for complete, credible, and accurate information about GHG emissions and emissions reductions. To address this issue, some government bodies have developed standards for verifying GHG emissions for specific programs. More general approaches to verifying emissions are just beginning to evolve, however, as uniform approaches to inventorying and reporting GHG emissions are not yet fully established.
This paper describes the evolving approaches to corporate GHG emissions verification. The authors discuss the experiences of leading firms that inventory and verify GHG emissions, the approaches to verification embodied in various GHG programs sponsored by governments and non-governmental organizations, and the factors that drive verification. They also review general verification issues, including who should verify, what should be verified, and when verification should occur.
This paper builds on an earlier publication of the Pew Center on Global Climate Change, An Overview of Greenhouse Gas Emissions Inventory Issues (Loreti et al., 2000). Much of the content is the result of discussions with the Pew Center’s Business Environmental Leadership Council, a survey of leading corporations on approaches to GHG emissions verification, a review of the current literature on corporate GHG emissions verification, discussions with representatives from governmental and non-governmental organizations involved in GHG emissions issues, and prior experience of Arthur D. Little, Inc. in environmental auditing and GHG verification.
Just as there are multiple purposes and methods for performing emissions inventories, there are a variety of reasons for verifying emissions inventories and a range of approaches to verification. However, the authors’ review of the work to date on GHG emissions verification suggests several principles for any firm that conducts a GHG emissions inventory:
1. Conduct your inventory as if it is going to be verified, regardless of whether your organization is planning to verify it. Rigorous reporting, emissions estimation, and data management systems will facilitate any future verification. Indeed, these systems will make it possible to conduct third-party verification of today’s emissions in the future should it become necessary, for example, to establish a baseline or obtain credit for early emissions reductions.
2. Be clear on the purpose of verification. Verification can be conducted for many reasons and the results of verification performed for one purpose may not be applicable to another. Be sure that all stakeholders who rely on the verification result will be satisfied with the scope and methods of the verification.
3. Choose your verifiers carefully. Be sure the individuals conducting the verification understand your organization, its type of business, and its emissions. The verifiers’ knowledge and experience are more important than the type of organization they are from. If the verification is performed as part of an established GHG reporting or reduction program, be sure the verifiers you choose have the qualifications that that program requires.
4. Learn from your verification experience. Organizations will maximize the value of the verification if they use it to improve their inventory process, improve the reliability of reported information, and facilitate future verification. When hiring third-party verifiers, be sure that they provide specific recommendations for improving your organization’s GHG inventory.
About the Author
Christopher P. Loreti
Arthur D. Little, Inc., Cambridge, MA
Christopher P. Loreti is a Senior Manager in the Global Environment and Risk practice of Arthur D. Little, Inc., and the author of two Center reports, An Overview of Greenhouse Gas Emissions Inventory Issues, and An Overview of Greenhouse Gas Emissions Verification Issues. Since joining Arthur D. Little in 1985, his work has focused on the assessment of the release, fate, and transport of pollutants in the environment. He has conducted numerous air pollutant emission inventories for conventional and toxic air pollutants and greenhouse gases. He has co-authored reports examining trends in Canadian emissions of selected greenhouse gases and technologies to reduce these emissions, economic instruments for reducing U.S. emissions of carbon dioxide, and the potential for electric vehicles to reduce emissions of greenhouse gases and conventional air pollutants in Hong Kong. Mr. Loreti holds an M.S. in Technology and Human Affairs from the Department of Engineering and Policy at Washington University and B.S. degrees in Chemical Engineering and Environmental Engineering from Northwestern University.
Pew Center Workshop on the Timing of Climate Change Policies
The Westin Grand Hotel, Washington, DC
On October 10-12, 2001, The Pew Center on Global Climate Change held a Workshop on the Timing of Climate Change Policies in Washington, D.C. This workshop brought together leading economists, scientists, policy-makers, business leaders, and others interested in climate change science and policy. The purpose of the workshop was to investigate the appropriate timing of the world's policy response to the challenge of global climate change. The workshop produced a consensus that action on climate change needs to begin now to satisfy a variety of concerns. This volume includes a summary of the workshop proceedings, final texts of peer-reviewed papers commissioned for the workshop, and other presentation materials.
July 2001 | Download the PDF
- Tracking and Reporting Greenhouse Gas Emissions
- Promoting Clean Technologies and Practices
- Securing Emissions Reductions
The United States is the world’s largest emitter of greenhouse gases (GHGs), accounting for roughly 25 percent of global emissions. No strategy to address global climate change can ultimately succeed without substantial and permanent reductions in U.S. emissions. Voluntary efforts in a number of sectors over the past several years have failed to curb the overall growth in U.S. GHG emissions. A number of policy options are available to secure additional emissions reductions. However, to be effective and affordable, a long-term emissions reduction program must couple mandatory GHG reductions with technology development and market mechanisms.
To date, efforts to reduce U.S. GHG emissions have been limited almost exclusively to voluntary activities at the federal, state, local, and corporate level. Many of these efforts were spurred by the United Nations Framework Convention on Climate Change, which set a non-binding target of reducing emissions from industrialized countries to 1990 levels by 2000. Though some voluntary efforts have resulted in significant emissions reductions – some companies, for instance, have cut emissions 10 percent or more – in the aggregate, they have not succeeded in curbing the overall growth in U.S. emissions.1 While technology has improved the energy intensity of products and processes over the last 50 years, this greater efficiency has been outpaced by increased demand driven by economic expansion, population growth, and changing consumer preferences. U.S. emissions rose roughly 12 percent over the past decade, and are projected to continue rising for the foreseeable future.2
Source: U.S. EPA. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-1999. 2010 projections for CO2 are from: U.S. DOE. Annual Energy Outlook 2000. 2010 projections for non-COs gases are from: U.S. EPA. Annual Energy Review (2000).
(See Figure 1.) Voluntary programs can make an important contribution to a domestic climate change program, and can provide valuable experience for designing future efforts, but they cannot stimulate the broad engagement that will be necessary to achieve the level of emissions reductions that will ultimately be required.
Climate change is a long-term challenge that will require sustained global action and investment over many decades. Ideally, a national strategy would be guided by a specific long-term emissions goal. It would also couple short- and long-term measures – and both supply and demand elements – to signal markets to begin the transition toward that ultimate objective. More specifically, short-term measures are needed to improve energy efficiency and encourage the use of lower-carbon fuels; long-term measures are needed to encourage sustained investment in development of the technology and infrastructure needed to facilitate the transition to a low-carbon economy. Further, because energy consumption is an important component of GHG emissions, any domestic energy policy program must be geared toward long-term GHG emissions reductions. (See Figure 2 for chart of emissions by sector in carbon dioxide equivalents [CO2E].)
A domestic strategy ultimately must reflect any international commitments by the United States. However, its design and implementation should proceed now even if the United States is not yet prepared to enter into an international agreement. As domestic and international programs evolve, close coordination between them is critical. This is especially important for companies that operate and compete both domestically and abroad, and for U.S.-based companies that sell products abroad, as they will be subject to rules dealing with climate change in other countries. In addition, coordination is necessary to maximize the effectiveness of emissions trading and other flexibility mechanisms now being developed at the international level.
The cost of meeting a given emissions target can vary by orders of magnitude depending on the approach taken. In general, the most cost-effective approaches allow emitters flexibility in deciding how to meet a target or performance level; provide early direction so targets can be anticipated and factored into major capital and investment decisions; and employ market-based mechanisms such as emissions trading to achieve reductions where they cost the least. To ease the transition and enlist the broadest possible participation, early targets should be realistic and achievable without stranding major capital investments or imposing undue economic hardships. These could be followed over time by more stringent constraints that allow for the turnover of existing capital stock and the development of new breakthrough technologies and innovative measures for reducing GHG emissions. This paper outlines possible elements of a comprehensive domestic strategy that couples short- and long-term measures. The proposed elements – some voluntary, others mandatory – aim to:
- improve the tracking and reporting of greenhouse gas emissions;
- promote new technologies and practices; and,
- provide a foundation upon which to secure long-term emissions reductions.
Source: U.S. EPA. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-1999.
Note: Emissions from electricity produced by industries but sold to the grid is included in the "Industrial" category. Emissions due to other industrial activities as well as residential and commercial use of electricity are included under "Electric Utilities." Excludes emissions from U.S. territories.
While each of these objectives can be pursued in a number of different ways (several options for securing emissions reductions are proposed), an effective strategy must address all three.
No effort to reduce greenhouse gas emissions can succeed without the accurate measuring and tracking of emissions. Improved tracking and reporting of emissions reductions could provide the basis for government assurances that companies will not be penalized for their early reductions under a future climate policy. Public disclosure of emissions data can also serve as a powerful incentive for reductions.
A first step is establishment of a registration program to more accurately and reliably measure, report, and track GHG emissions. This could be done through legislation that builds on current efforts such as the Department of Energy’s 1605(b) program. The current program has limited value because its reporting standards lack rigor, there are no verification requirements, and many companies choose not to report. In an improved registry program, a company would establish a baseline consisting of current aggregate emissions from all major GHG sources under its control in the United States. Gross emissions on an annual basis could be compared to this established baseline. In addition to accounting for emissions from a company’s core operations, an improved registry should over time develop the means to measure, report, and track GHG emissions resulting from: the use of products manufactured by that company; offsets achieved through sequestration projects designed to store carbon in forests, soils, oceans, or underground; and offsets achieved through increased energy efficiency.
A reliable registry would make it possible to provide “baseline protection” for companies taking action now to reduce their emissions. These entities could be assured that – in the event of future controls involving the allocation of emissions allowances or requiring emissions reductions – they would not be penalized for reductions already achieved voluntarily. The improved registry program could also provide a mechanism to recognize the emissions reductions resulting from companies manufacturing more efficient or carbon-saving products. Finally, it could ensure that GHG reductions and sequestration offsets are of sufficient integrity that they can be traded and sustain their value in future years. This registry would include reductions and offsets achieved outside of the United States, in both developed and developing countries. In this manner, both gross and net (reductions and offsets) emissions would be recorded.
An additional step would be to require public disclosure of GHG emissions data for all facilities or companies whose emissions exceed a given threshold. At present, only electric generating sources must report their CO2 emissions and, although publicly available, emissions data are not tabulated and disclosed in a manner that encourages companies to reduce their emissions voluntarily. To address these shortcomings, a mandatory GHG reporting program should apply to all major source categories of GHG emissions and require public disclosure as is now required under the federal Toxics Release Inventory (TRI) program. Disclosure reports would be subject to verification and reporting entities would face enforcement action if emissions were misrepresented. As with the TRI program, reported data would be aggregated and made available on facility-specific, company-wide, and source-category bases. Under the TRI program, such disclosures have encouraged companies to assess potential mitigation opportunities and reduce emissions voluntarily, and the same is likely with a GHG reporting program. Gross emissions from an entity’s U.S. sources as well as net emissions (after considering sequestration activities and trading) would be reported to encourage comprehensive mitigation strategies.
A mandatory GHG reporting obligation (and an improved registry) could be linked to a voluntary program for mitigating GHG emissions. Such linkage would likely increase the effectiveness of each initiative, judging by the success of the voluntary pollution prevention programs that were coordinated with mandatory TRI reporting.3 Following the model used in EPA’s 33/50 (Industrial Toxics) Project, the voluntary program could establish clear performance targets to be achieved by each sector within specified time frames. Although voluntary, participation in the program could be limited to only those companies willing to make corporate-wide commitments to achieve minimum reduction levels from their core business operations or prescribed performance levels for products sold in the United States. Setting minimum standards would likely increase the pressure for companies to step forward with voluntary commitments achieving substantial emissions reductions. The minimum standard approach could also be combined with a graduated scale of incentives for those who make voluntary commitments, rewarding those who exceed their emissions goals with greater financial or other incentives like tax credits.
Finally, improved registries coupled with reporting requirements would also serve as an important foundation for mandatory approaches to reducing GHGs.
The ultimate success of a climate change strategy will hinge on the timely development and deployment of technologies that over time can substantially reduce the carbon intensity of the overall U.S. economy – including industry, the transportation sector, and residential/commercial activity. (See Figure 3 for historic energy use of these sectors.) In the short term, improved technologies can significantly enhance energy efficiency, provide opportunities to store – or sequester – carbon, and expand use of lower-carbon fuels (such as natural gas). In the long term, new technologies will be needed to develop non-fossil energy sources such as biofuels, wind, hydrogen, and solar, and provide opportunities for more permanent forms of sequestration.
Source: U.S. DOE. Energy in the United States: A Brief History and Current Trends (1999).
A successful technology strategy demands sustained, coordinated investments at a very high level from all stakeholders. A variety of incentives and direct investment tools can be used to promote technological innovation, from basic research to deployment:
- Targeted tax credits or low-interest loans can encourage the development and adoption of energy-efficient technologies (such as combined heat and power, and state-of-the-art lighting); clean fuel technologies (including advanced fossil fuel technology, hydrogen, fuel cells, and biofuels); and carbon storage in forests and agricultural soils, using innovative management techniques.
- Investment in basic research may be especially critical in inventing breakthrough technologies that will facilitate the transition to a low-carbon economy.
- Public-private partnerships, such as Industries for the Future and the Partnership for a New Generation of Vehicles, can team government and corporate researchers to accelerate technology gains.
- Basic research and tax credits could accelerate the development and diffusion of climate-friendly alternatives to non-CO2 greenhouse gases or technologies and practices that reduce their emissions.
- Investment in training to improve agricultural practices can decrease the release of methane (CH4) and nitrous oxide (N2O).
- Public education through the use of required labeling and other means can help consumers reduce their contribution to climate change.
- Incentives to builders and landlords can encourage the use of energy-efficient materials and appliances in new construction and rental units.
Finally, improved product efficiency standards – coupled with incentives to exceed minimum requirements – can achieve significant emissions reductions. Under the traditional command-and-control approach, the incentive is to meet, but not exceed, a government-set standard. A combined hybrid standard/incentive approach (e.g., one that combines a minimum efficiency standard with a sliding tax or emissions credit for those who go beyond the standard) would provide incentive to exceed minimum regulatory requirements. This approach should be added to existing product standards as they come up for review and employed for new products for which standards have not yet been set.
An especially critical element of a domestic climate change program will be the design of a market-based GHG emissions management framework to ensure significant long-term reductions in emissions. Also, an effective program ultimately will entail some form of mandatory requirements. The approaches that follow include voluntary activities that could be implemented in advance of, or alongside, mandatory emissions reductions:
Enter into agreements with companies willing to make significant, enforceable commitments to achieve net GHG emissions reductions in lieu of future GHG control requirements.
Securing regulatory certainty may be a powerful incentive for those willing to undertake substantial GHG reduction commitments. By committing to take action yielding specified reductions over an established period of time, a firm could receive a commitment from the government that (as long as its contractual obligations are met) it would not be bound by subsequently developed GHG controls over the same time period. For example, if a company were to commit to significant reductions over a 20-year period (e.g., a 20 percent reduction achieved either through steady declines of 1 percent per year or through a major capital investment at some point during this timeframe), the company could avoid additional mandatory GHG control obligations during the same 20-year period.4 This approach would allow companies to move forward with substantial capital investments that will secure significant emissions reductions.
Under this approach, reductions below company baseline levels (e.g., 1990 GHG emissions) could be achieved through meeting either rate-based or specified net targets. These commitments would provide baseline protection, and shelter firms from additional requirements developed during the term, in exchange for legally binding agreements containing measurement, verification, and reporting requirements. Such an approach would require enabling legislation authorizing the Executive Branch to enter into these agreements. This legislation should include provisions for public notice and comment. Companies also could be allowed to enter into similar agreements with respect to their services or products manufactured and sold in the United States.5
|Ultimately, the ability of the United States to achieve significant long-term GHG reductions depends on our success in the design and implementation of a mandatory program to reduce emissions.|
Additional features could include allowing program participants to trade emissions credits and allowing credit for reductions achieved through sequestration and offsets. In other words, companies that reduce their emissions beyond the levels specified in the agreement would be able to trade these additional emissions reductions with firms that were unable to meet their reduction targets under a future regulatory program. Similarly, credit for real, quantifiable, and verifiable sequestration activities could be granted towards the obligations and, when in excess of specified targets, could be sold in an emissions trading market.
Set voluntary emissions reduction targets for major industry sectors with a trigger mechanism for imposing mandatory requirements if a sector falls short of its targets.
A second approach would establish initial rate-based or specified reduction targets for major industry sectors, but impose stricter controls for sectors that do not meet their initial targets. The program, for example, could call for a sector to stabilize its emissions at year 2000 levels over the 2005-to-2010 period, while providing federal authority to impose stricter mandatory control requirements by a later date if the sector as a whole fails to achieve its reduction target. Similar performance targets could be set for products, such as automobiles and appliances. Companies would receive shelter from the stricter requirements so long as they achieve their proportionate share of the reduction target.
One advantage of this approach is that it would promote immediate action towards the reduction target, even while the details of the mandatory control program are being developed. Another advantage is that it would enable companies to coordinate their emissions control strategies for conventional air pollutants with their carbon dioxide reductions. This would be especially important for those sectors whose near-term control obligations for conventional air pollutants (involving major capital investments) may conflict with a long-term GHG control strategy for that sector.
New legislation would be required to either establish general criteria that apply economy wide or set out design elements specific to individual sectors. In the latter case, for example, the legislation could specify for the power generation sector: (a) the initial and “backstop” reduction levels, (b) the reduction timeframes, (c) allocation of emissions allowances through a generation performance standard, (d) the ability of participants to trade emissions credits, and (e) the flexibility to “bank” allowances for future use.
In addition, if a sector that makes products fails to meet its target, those companies not doing a proportionate share could have tighter efficiency standards imposed.
Allow an opt-in for coverage of carbon dioxide emissions in conjunction with air regulatory programs.
Many companies – particularly utilities – are interested in addressing their CO2 emissions in conjunction with new reduction obligations likely to be enacted for other pollutants. Many studies have documented substantial environmental and economic benefits of harmonizing the timing and reduction levels of multiple air pollutants.6 An “opt-in” approach would permit these companies to consider reduction obligations and goals comprehensively, thereby minimizing the chance of stranding pollution control investments aimed at conventional pollutants without regard for CO2. By providing an opt-in strategy, overall emissions (including GHGs) could be considered simultaneously – avoiding the now-common scenario that control strategies devised for reductions in traditional pollutants have little or no beneficial impact on GHG emissions. (Post-combustion controls aimed at reducing conventional pollutants, in fact, often increase GHG emissions. In contrast, all GHG reduction strategies that reduce fuel consumption – the largest GHG emissions source – also reduce conventional air pollutants.) Harmonizing time frames for achieving reductions could avoid piecemeal and uncoordinated implementation of conventional and GHG emissions.
At the same time, streamlining the existing New Source Review (NSR) program for changes in facilities could enable power plants, refineries, and other major stationary sources to improve their production efficiencies more easily. Such efficiency improvements directly translate into lower CO2 emissions. Companies participating in this “opt-in” could be allowed to implement environmentally beneficial projects without triggering the NSR requirements.
Design and implement an economy-wide domestic emissions program to meet a mandated cap.
Ultimately, the ability of the United States to achieve significant long-term GHG reductions depends on our success in the design and implementation of a mandatory program to reduce emissions. Since such a program will take time to design and administer, the near-term approaches discussed above should be developed in such a way that they are consistent with important design elements of a future mandatory program. The most cost-effective method of obtaining such reductions is likely to come in the form of a domestic emissions trading program that could be integrated with an international trading regime.
Elements of an effective domestic trading program could include:
- allocation of permits to existing and new sources based on historic emissions, output levels, auction, or – preferably – some combination thereof;
- creation of an independent authority to oversee the GHG registry and trading activity;
- providing for a declining cap in permitted GHG levels over time;
- including credit for other GHG emissions on a CO2-equivalent basis;
- establishing a multi-year compliance period for meeting any GHG emissions reduction obligation; and,
- recycling revenues from auctioned permits to reduce other tax burdens, increase R&D, and provide transition assistance to affected workers and communities.
Ideally, a domestic program should be compatible with trading programs in other countries to allow credit for reductions undertaken abroad. Also, with improved confidence in measuring and monitoring sequestration-related activities (both domestically and abroad), credit for carbon storage should be included.
To address global climate change effectively, the United States must actively pursue real reductions in GHG emissions at home and abroad. The steps outlined here chart a course for a sound, credible, and cost-effective domestic program. Starting now on a path to reduce these emissions is necessary both to meet the environmental objective of moderating human interference with the climate system and to avoid the need for more costly measures in the future.
1 A significant investment has been made in a variety of federal programs to encourage voluntary reductions. Such programs include: the U.S. DOE’s Climate Challenge Program for electric utilities; and U.S. EPA programs such as Climate Wise, the Landfill Methane Outreach Program, the Coalbed Methane Outreach Program, Energy Star, and the Green Lights Program, as well as the U.S. Initiative on Joint Implementation. In addition, DOE’s Voluntary Reporting of Greenhouse Gas Program required by Section 1605(b) of the Energy Policy Act of 1992 records the results of voluntary measures to reduce, avoid, or sequester carbon. During 1999, a total of 201 U.S. companies and other organizations reported on 1,715 projects that achieved reductions and sequestration equivalent to 226 million metric tons of carbon dioxide, or about 3.4 percent of total 1999 greenhouse gas emissions. (Voluntary Reporting of Greenhouse Gases, 1999, DOE/EIA – 0608(99), February 2001.)
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2 In the United States, the transportation, industry, and combined residential/commercial sectors are each responsible for roughly one third of overall emissions.
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3 EPA enjoyed considerable success in encouraging substantial voluntary reductions of 17 toxic chemicals by linking the TRI reporting program with a voluntary pollution prevention program. Entitled the 33/50 (Industrial Toxics) Project, this entirely voluntary program established an interim goal of a 33 percent reduction by 1992 and an ultimate goal of a 50 percent reduction by 1995 in aggregate emissions of 17 high-priority toxic chemicals. Individual companies entered into voluntary, non-binding commitments to achieve specific reductions on a company or facility basis. In addition to achieving the ultimate goal in 1994 (one year ahead of schedule), the 33/50 Program enhanced the effectiveness of the TRI reporting program. Most importantly, participating facilities reported substantially more reductions of the 33/50 targeted chemicals than of other TRI chemicals.
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4 Similar relief has been provided for voluntary early reductions in other regulatory contexts. For example, section 112(i)(5) of the Clean Air Act provides a 6-year compliance extension from air toxic control standards set under section 112(d) for achieving early reductions of hazardous air pollutants (HAPs). The 6-year extension applies to those facilities achieving a 90 percent reduction in listed HAPs (95 percent reduction in the case of HAP particulates) before the proposal of the applicable HAP emissions standard(s). The reduction obligation must be federally enforceable and incorporated into the facility’s permit issued under Title V of the Clean Air Act.
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5 In such cases, companies would make binding commitments to improve the performance of their products sold by specified amounts over the term of the agreement. Auto manufacturers, for example, could agree to meet declining GHG emissions budgets reflecting improvements in fuel efficiency of vehicle fleets sold for each model year during the agreement. Appliance manufacturers could commit to improving efficiency of their products by set amounts over a fixed period of time.
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6 See, for example, STAPPA/ALAPCO, Reducing Greenhouse Gases and Air Pollution: A Menu of Harmonized Options (October 1999); and EIA, Analysis of Strategies for Reducing Multiple Emissions from Power Plants: Sulfur Dioxide, Nitrogen Oxides, and Carbon Dioxide (December 2000).
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Oil & Gas Markets and
Climate Change Policy
August 9-10, 2001 - Snowmass, Colorado
On August 9 and 10, 2001, The Pew Center hosted a workshop in conjunction with the Energy Modeling Forum of Stanford University to bring together experts from around the world to discuss the manner in which economic models portray fuel use. Determining future supply and demand of natural gas (NG) is important in determining climate policies since natural gas is a relatively cleaner fuel – in terms of carbon emissions – than are coal and oil. A climate policy based on reducing the carbon content in fuels would presumably favor gas, along with other less carbon-intensive energy sources, thus accelerating its demand.
But economic models that examine the climate change issue show mixed results on this score: many models show the demand for gas increasing relative to more carbon-intensive fuels while others show its demand decreasing at a rate faster than oil (which is explained by gas demand being more responsive to a tax). Without clear information on the true path of natural gas, policy-makers will not be fully informed on how to address the climate change problem. The modelers took first steps towards investigating this problem by determining common definitions for various oil and gas categories and expect to be able to compare results of their various models regarding oil and gas consumption early next year.
Other topics discussed in this workshop included the anticipated supply of various fuels, primarily oil and gas, and the factors that determine the ultimate level of global reserves, the potential for developing a world market in natural gas through liquefaction, and advances in technology which influence the cost of production of oil and gas.