Climate Compass Blog

Using Climate Revenues and Allowances for the Right Purpose

The series of hearings on climate change before the Senate Energy and Natural Resources Committee continued on Wednesday, with a panel examining climate policy options.  Panelists spoke about cap-and-trade regimes, carbon taxes, performance standards, sectoral approaches, and research and development as potential ways to reduce emissions.  While Chairman Bingaman noted that emission-reduction policies are not necessarily mutually exclusive, a lot of attention was paid to the differences between carbon taxes and cap-and-trade programs during the hearing.

The panelists agreed that revenues are raised in both cap-and-trade and carbon tax regimes.  But not all uses of revenues are equal.  While Dr. Ted Gayer suggested that tax revenues raised be used to offset payroll taxes or for deficit reduction, such a plan ignores the real world consequences of implementing climate policy.  A comprehensive climate policy will need to transform our economy, support development and deployment of clean energy technologies, modernize infrastructure, assist consumers, help the nation adapt to the impacts of climate change, and support international climate efforts – and all of these things will require significant resources.  Using a carbon tax to send revenues to the Treasury for general use or to Congress for unrelated earmarking is not the way to ensure resources are dedicated to these purposes.

A responsible cap-and-trade program has the ability to direct a portion of allowance value (either directly by allocating allowances or indirectly by use of auction revenue) to a variety of economic, infrastructure, consumer, and adaptation needs.   The legislative process has the ability to tailor assistance sectorally or geographically in a way that would be far more difficult to accomplish in tax policy.  This redirection of revenues eases the transition to a clean energy economy and makes climate legislation more practically feasible and politically viable.

As Senator Byrd stated this week, the transition to a clean energy economy will not necessarily be easy, but it is one that is unavoidable.  Congress needs to pass cap-and-trade legislation that makes the transition as smooth as possible.

Dorgan Delves Deeper into CCS

Not surprisingly, Senator Byron Dorgan (D-ND) is interested in carbon capture and storage (CCS) and its application to coal-fueled electricity generation. North Dakota gets almost 90 percent of its electricity from coal, and the state is the 10th largest producer of coal in the United States.

In mid-2008, Senator Dorgan convened a group of stakeholders with interest in CCS under the banner of a “Clean Coal and Carbon Capture and Sequestration Technology Development Pathways Initiative” (CCS Initiative) and asked them to provide input related to a number of key questions regarding CCS. Participants included representatives from the electric power industry, coal industry, manufacturing, labor, academics, and NGOs. The questions posed by the Senator focused on such issues as how much funding for CCS is required to ensure the technology is ready for broad deployment and how the United States can expand its cooperation with other key coal-producing and coal-consuming nations to accelerate international deployment of CCS.

On December 1, Senator Dorgan released a report prepared by the National Energy Technology Laboratory (NETL) that summarized input provided by the CCS Initiative participants.

The Midwest is the Leading Edge on Oil Sands

Can we reconcile our climate change and energy security goals with respect to oil sands? The Midwest is on the leading edge of U.S. attempts to answer this question.  The region is especially dependent on oil sands imports and is seeking solutions to this resource’s climate change challenges. 79% of Midwest petroleum imports come from Canada (see figure 1), and 22% of those imports come from oil sands, which are naturally occurring mixtures of sand, water and a form of petroleum called bitumen. Canada has at least 85% of the world’s reserves of natural bitumen and is the largest foreign supplier of oil to the United States (ahead of Saudi Arabia, Mexico and Venezuela). More than 60% of oil from the Province of Alberta is exported to the U.S., and well over half of the province’s oil production comes from oil sands.  Albertan oil sands currently produce 1.3 million barrels per day (bbl/d) of crude oil equivalent, more than the state of Texas produces daily (1.09 million bbl/d). 

It is clear that Canadian oil, and specifically oil from the Albertan oil sands, will be a critical source of liquid fuel supply into the future.  How can the Midwestern states balance their competing goals of reducing greenhouse gas emissions with ensuring a secure, cost-effective source of fuel?

fig1

Source: EIA http://tonto.eia.doe.gov/dnav/pet/pet_move_impcp_a2_r20_ep00_ip0_mbbl_a.htm

The Midwest Governor’s Association (MGA) is beginning the process of answering that question.  MGA’s Low Carbon Fuel Standard (LCFS) Advisory Group is tasked with providing a set of recommendations on how to craft an LCFS policy.  An LCFS is a standard for the greenhouse gas (GHG) content of the transportation fuel mix that declines over time, and allows producers to determine how to go about meeting the standard in the most cost-effective way.  The Advisory Group’s first meeting included a tour of three oil sands facilities in the boreal forest northeast of Edmonton in northern Alberta.   The appointees and advisors (including this blogger) were able to see, firsthand, the technology used and the many issues associated with this massive resource.  Finding the right policy and technology tools to balance competing climate and energy security objectives in the Midwest is emerging as the most important challenge for the Advisory Group to tackle.  

There are two major technologies for extracting oil sands from the ground.  Most crude bitumen has historically been produced from surface mining and extraction.  This is the image most people associate with oil sands production (see photos below).  More than 80 percent of remaining established reserves are estimated to be recoverable from newer in situ techniques, whereby bitumen is extracted from the sand in the reservoir by injecting steam into the formation to heat the bitumen, which is then pumped to the surface.  Bitumen from either process is then upgraded into synthetic crude oil (SCO). These production and upgrading processes are energy (and carbon) intensive.

surface mine
tailings pond
Surface mine (above) and a tailings (waste) pond in Fort McMurray, Alberta.

Estimates of just how GHG-intensive oil sands production is vary due to different approaches to life-cycle emissions accounting.  The majority of lifecycle emissions (60-85%) come from combustion of the final product (liquid transportation fuels), which is the same no matter what the original source is.  However, when measured on a well-to-wheels basis (which includes the extraction, processing, distribution, and combustion of the refined products), total GHG emissions from oil sands are approximately 5 to 15 percent higher than the average crude oil consumed in the U.S.  This difference arises from the energy-intensive production and upgrading processes.  As a result, in a policy scenario that favors fuels with lower lifecycle carbon emissions, Albertan oil sands are likely to feel the pinch. 

There are several possible solutions to this emerging dilemma.  Opportunities exist to improve efficiency and reduce the total amount of fuel input required in both types of mining and in upgrading. It is also possible to switch to lower carbon fuel sources, such as biodiesel or bioethanol, for oil sands operations.  Generating the most interest, however, is the potential application of carbon capture and storage (CCS) technologies at various stages of the production process.  CCS, or a combination of these three options, has the potential to make oil sands no more carbon intensive than an average crude.  The LCFS Advisory Group is well positioned to encourage the adoption of these solutions at oil sands facilities and move us toward reconciliation of our energy security and climate goals.

Jessica Shipley is a Solutions Fellow

Where's the U.S. on Verification and Compliance?

“Verifiable.”  That is arguably the most important word in the Bali Action Plan, the agreement two years ago that launched the global climate negotiations about to culminate in Copenhagen.  Our future climate commitments and actions, governments agreed, must be “measurable, reportable and verifiable.”

This construct is critical because, done right, “MRV” offers the promise of a global climate agreement in which countries can confidently ascertain whether others are doing what they promised.

Yet many governments now seem decidedly uncomfortable with the concept.  Developing countries say MRV shouldn’t apply to any actions they take on their own, only those receiving international support (a point underscored last week by China when it announced its new carbon intensity target).  In the case of a country like China, that means virtually none of its actions would be subject to international verification.

The United States, for its part, has offered up an MRV proposal that avoids the term verification altogether.  This is a worrisome omission, one that underscores perhaps the most glaring weakness in the U.S. position going into Copenhagen – its absolute silence on the question of compliance.

This Thanksgiving, I’m thankful we base policy decisions on peer-reviewed science instead of emails!

The kerfuffle over email correspondence hacked from a server at the University of East Anglia’s Climatic Research Unit is making climate change deniers giddy. But just like all the other non-smoking guns they’ve waived around over the years, this “mushroom cloud” will soon blow away. Nothing has come to light that undermines scientific assessments of the climate system, which are firmly anchored in peer-reviewed scientific publications, not emails.

Some of the past “smoking guns” that were supposed to put the theory of human-induced climate change in an early grave are among the hot topics flying around in the hacked emails. One was a paper by Soon and Baliunas published in a peer-reviewed journal called Climate Research in 2003. That paper was supposed to put to rest the conclusion of the 2001 IPCC report that the late 20th century was warmer than any previous period in the past millennium, but it was quickly and thoroughly refuted in the peer-reviewed literature (not in emails). Another was a 2005 paper by McIntyre and McKitrick in an often-not-peer-reviewed journal called Energy & Environment. This paper had the same goal as the first one, but it too was rebutted in the peer-reviewed literature and in a report by the National Academy of Sciences (not in emails). In the emails, climate scientists complained about these papers and expressed frustration that they were published in spite of serious flaws. However, policymakers did not use these emails to help them determine America’s policy actions on climate change.

Much of the bickering in the emails boils down to scientists’ irritation over serious breaches of the normal peer review system to get denialist papers published (see here, here and here). The publisher of Climate Research (CR) admitted that the major conclusions of the paper by Soon and Baliunas “cannot be concluded convincingly from the evidence provided in the paper. CR should have requested appropriate revisions of the manuscript prior to publication.” The paper was so bad that three editors resigned in protest over its publication. The paper by McIntyre and McKitrick (2005) wasn’t peer reviewed at all and the editor of Energy & Environment openly stated, “I'm following my political agenda – a bit, anyway. But isn't that the right of the editor?” Scientists value the peer review process and they find it unfair and objectionable when they subject their own work to potential rejection while others circumvent this critical step in the scientific process to force low-quality research into the debate.

Luckily, none of this matters since the scientific assessments produced to inform policymakers about the science of climate change are based on peer-reviewed science publications, not on the opinions of individuals expressed in email correspondence. As happens in the normal scientific process, when the occasional bad paper slips through the peer review cracks it gets refuted through subsequent scrutiny in the peer-review literature. In the end, what may be said in emails doesn’t matter; the scientific peer-review process will prevail.

Read more here.

Jay Gulledge is Senior Scientist and Program Manager for Science & Impacts