Carbon cap and trade is coming to California! Despite some legal troubles faced by the state over the past six months, the central message of a recent workshop was that progress continues to be made on the design and implementation of the economy-wide cap & trade program for greenhouse gas (GHG) emissions. The carbon trading scheme is a core mechanism of the Global Warming Solutions Act of 2006 referred to as Assembly Bill 32 (AB32) which requires the state to reduce its climate change causing emissions back to 1990 levels by 2020. Despite the recent decision to move the start date of the program back to January of 2013, the California carbon market is really starting to take shape and will continue to do so especially over the next four weeks as the Air Resources Board (ARB) receives comments back on its final draft regulations. And, given the varied state of evolution of carbon markets around the world, all eyes are on California to see if an effective, efficient and controlled market-based system can be put in place that drives real reduction in GHG emissions.
I attended a workshop on California’s Cap & Trade Program hosted by the Climate Action Reserve (CAR) at the New York Stock Exchange. NYSE Blue, a subsidiary of NYSE Euronext that provides infrastructure to various environmental markets, provided the space as a co-sponsor of the gathering. Attending this event on Wall Street was a very real reminder that carbon still has the potential to become the largest globally traded commodity in the world. With a number of very competent market stakeholders in attendance including brokers, lawyers and project developers, the workshop provided a detailed overview and keen insight into the latest developments of the emerging GHG emissions market being spearheaded by the Golden State.
David Nussbaum, a Director at Evolution Markets, one of the leading carbon brokerage firms in the world, gave a detailed presentation on the dynamics of the California market. While the first compliance period for cap & trade will not officially go into effect until 2013, there are a number of environmental commodities associated with the program currently being traded on the market; namely California Carbon Allowances (CCAs), California Carbon Offsets (CCOs), Early Action Credits, and Potential Action Credits. Once the program is enforced, companies covered by the cap that discharge more than 25,000 metric tons of carbon dioxide equivalent (tCO2e) must obtain tradable permits or allowances equal to the amount of pollution they put into the atmosphere. However, as Mr. Nussbaum described, there is already market activity. As of July 21st, CCAs for example were being bid at $16.75/tCO2e which is significantly higher than the floor price of $10/tCO2e that will be enforced by ARB. The other main asset class in California’s cap & trade program are offset credits. As Joel Levin, the Vice President of Business Development at CAR, described at the workshop, carbon offsets are financial instruments that essentially certify “the absence of an odorless, colorless gas,” that contribute to climate change through the greenhouse effect outside of the sectors covered by the cap. As determined by ARB, companies will be allowed to meet up to 8% of their compliance obligation by purchasing these less expensive offset credits. The three other buckets of carbon products mentioned above are offsets sold at various prices depending on the likelihood of them being accepted for compliance in the California market.
As a key stakeholder in the California offset market, CAR is taking an active role in facilitating industry dialogues such as this past workshop. Their role is to develop high quality offset standards, manage offset verification and operate a transparent registry system. At this point, CAR is the only registry to have offset protocols permitted under ARB’s carbon market regulations. The project types that are currently approved and eligible for compliance are U.S. forestry, urban forestry, ozone depleting substances, and livestock methane. Case studies for three of the four of these project types were presented by developers at the workshop, including Scott Nissenbaum of Finite Carbon, who gave the attendees a clear sense for what is involved in developing forestry offset projects and how the associated emission reductions can be monetized.
There are a number of key factors to look out for in the coming months related to California’s cap & trade program which were highlighted at the workshop. Most notably, additional regulatory changes could come into play as well as the possibility of additional legal challenges. For Example, the fact that out-of-state power generators will be required to obtain carbon permits is still a contentious issue, and a few of the speakers mentioned the possibility lawsuits could be filed under the inter-state commerce clause. AB32 has already faced a number of life-threatening attacks such as last year’s Proposition 23 and the recent lawsuit by the Association of Irritated Residents, and it is unclear how successful future objections to the program’s implementation schedule would be. Politically, there is currently substantial support of cap & trade by both citizens and politicians, including the Governor of California Jerry Brown. For the participants at this workshop, and indeed most market participants, the strong belief is that it’s not a matter of ‘if’ but rather ‘when’ the market will really take root. CARB is expected to approve its final cap & trade regulations by October of this year, which should be a critical tipping point for companies to really start taking the emerging carbon price signal to heart.
Leaving New York City, I came across the infamous carbon counter put up by Deutsche Bank Climate Change Advisors. It was an apt reminder that humanity is racing against the clock to stabilize the amount of greenhouse gases in the atmosphere to approximately 450 parts per million to prevent a 2 degree Celsius rise in global average temperatures. With the amount of carbon dioxide in the atmosphere rapidly increasing as shown on the sign, the fact that California is moving forward with its market-based system to reduce GHG emissions is a promising sign that climate action is being taken in the United States despite it being put on the backburner on a national scale for the time being.
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The economists define wealth and justice in terms of access to the market. Politicians echo the economists because the more dependent that people become upon the market, the more securely they can be roped into the fiscal and political hierarchy. Access to land is not simply a threat to landowning élites — it is a threat to the religion of unlimited economic growth and the power structure that depends upon it.
The market (however attractive it may appear) is built on promises: the only source of wealth is the earth. Anyone who has land has access to energy, water, nourishment, shelter, healing, wisdom, ancestors and a grave. Ivan Illich spoke of “a society of convivial tools that allows men to achieve purposes with energy fully under their control”. The ultimate convivial tool, the mother of all the others, is the earth.
Although the earth gives, it dictates its terms; and its terms alter from place to place. So it is that agriculture begets human culture; and cultural diversity, like biological diversity, flowers in obedience to the conditions that the earth imposes. The first and inevitable effect of the global market is to uproot and destroy land-based human cultures. The final and inevitable achievement of a rootless global market will be to destroy itself.
In a shrunken world, taxed to keep the wheels of industry accelerating, land and its resources are increasingly contested. Six billion people compete to acquire land for a variety of conflicting uses: land for food, for water, for energy, for timber, for carbon sinks, for housing, for wildlife, for recreation, for investment. The politics of land — who owns it, who controls it and who has access to it — is more important than ever, though you might not think so from a superficial reading of government policy and the media. The purpose of this magazine is to focus attention back onto the politics of land.
Rome fell; the Soviet Empire collapsed; the stars and stripes are fading in the west. Nothing is forever in history, except geography. Capitalism is a confidence trick, a dazzling edifice built on paper promises. It may stand longer than some of us anticipate, but when it crumbles, the land will remain.