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Energy Prices on Both Sides of the Atlantic Still Not Responsible

Earlier today at the Center for Global Development, IMF Director Christine Legarde gave a talk promoting ‘responsible’ energy pricing, defined as pricing reflects the environmental costs of fossil fuels, by way of launching the IMF’s new publication, Getting Energy Prices Right, From Principle to PracticesMeanwhile, developed countries on both sides of the Atlantic were busy demonstrating how put into practice climate policies that that get energy prices dead wrong.

Last week, the EU decided on targets of increasing energy efficiency by 30% by 2030, a percentage that is well below the 40% targets that many environmental groups were hoping for. The debate around energy efficiency targets in Europe has been fraught with accusations that the Commission is using opaque modeling to justify efficiency targets kept deliberately low in order to prop up the carbon price in the ETS. Brook Riley of Friends of the Earth has called the debate ‘bizarre’.

It would indeed be bizarre if the E.U. were keeping efficiency targets low to protect the carbon price. Efficiency and carbon pricing should be complementary, not competing policies. Energy efficiency targets are designed to mandate action on the negative end of the cost curve that is entirely insensitive to carbon pricing. If an economy is so energy inefficient that mandatory targets significantly reduce the demand for fossil fuels, then the logical implication is that there is plenty of room to increase reduction targets without causing the carbon price to spike. In essence, the best way to protect the carbon price is to reduce the cap. And energy efficiency policy should have no ambitions beyond efficiency. It is a pity that the EU-ETS cannot manage to solve its oversupply problem through a steeper or permanent set-aside, but treating efficiency as a back door to the carbon price is the wrong way to rectify the problem.

As the EPA closes out the Washington, D.C. public comments period for its Clean Power Plan, it is worth asking what the total global impact of the Obama Administration’s climate policies will be. The administration is mandating national emissions targets of just over 1100 lbs per MWh of generation by 2029. The size of this target is synonymous with locking in natural gas as the fuel of choice for the U.S. power sector.  The Obama Administration has made no secret its intention to use natural gas as a bridge fuel for emission reductions. The appeal of this strategy is easy enough to see—having let cheap natural gas set up the ‘bridge’, the administration need not bother itself about how to get to the other side—a question the Clean Power Plan certainly doesn’t address.

A recent report by Rhodium Group and CSIS shows that the Clean Power Plan will cause a 15% increase in natural gas generation over the reference scenario by 2030 versus a 1% increase in renewable generation. Environmental groups lauding the Climate Action Plan tend to focus on its impact on coal, which will indeed decrease. To what end? More exports for China, evidently. The developed world has a long history of exporting its pollution to poorer countries, but the act takes on unusual perversity when the pollutant is carbon dioxide, which doesn’t stay out of the proverbial back yard if one chooses to burn it there.

But can the government be blamed that the coal is going to China? It can be. As the above article from Vox highlights, 40% of U.S. coal comes from public lands, and the Obama administration has presided over the leasing of 2.2 billion tons of coal to private companies in non-competitive auctions. That is to say, it is practically giving away the coal to allow private companies to profit by selling environmental destruction to China. A real climate policy would put a price on the carbon dioxide in coal at the mine mouth to close the export loophole. Some may protest that such a policy is out of reach of the Obama Administration, but setting a higher reserve price for the auction, which would have the same effect, is far from politically impossible. And yet the U.S. government continues to ask for plaudits for reducing coal, and all the while it is giving it away.

Whether in coal or carbon pricing, if the U.S. and Europe want credit for strong climate policy, they should put their money where their mouths are.

This article was also posted on The Energy Collective.

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Model Governance and Emissions Models, Transparency and Climate Policy in China and the EU

Last week Reuters published a brief article updating the public on the status of Beijing’s emissions trading system, with its thinly traded volumes and largely opaque transactions. The crux of the article comes in the last paragraph, Without transparent data, it is hard for investors to position themselves,” said another trader, who asked not to be identified because he is not authorized to speak to the media. It doesn’t bode well for the strength of China’s emissions trading system that the person willing to speak out about its core problem, lacking the State’s imprimatur to open his or her mouth, prefers to remain anonymous. This is not the kind of environment in which strong climate policy can prosper.

But opaque climate policy is not just the purview of post-communist oligarchies.  Earlier this month at a meeting on modeling for climate policy at Breugel, a Brussels-based economic policy think tank, attendees were privy to the spectacle of Peter Zapfel, Assistant to the European Commission’s Director General for Climate Action, telling the crowd that they should ask themselves how much transparency the public really needed. The issue in question was the closed-source PRIMES model, the partial equilibrium model used by the European Commission to determine the impacts of different climate policies and to justify the policies selected by the Commission for the achievement of their own 2030 targets for climate clean energy. Attendees representing environmental NGOs in the room, including Friends of the Earth, WWF, and Greenpeace were demanding that that the basic assumptions of the model be made public.

Zapfel’s response, in essence, was that the top line outputs of the model were all that mattered; civil society didn’t need to worry its little head about the inputs. To illustrate his point, Zapfel added that he used to want to know all of the technical specifications of his camera or computer, but then he realized that that was too much information, and all he really needed to know was whether the camera or computer was good or not.

It was a strange analogy from a technocrat, given that revelations about unbounded reach of the United States NSA have recently left the whole world to learn the hard way the dual perils both of not fully understanding the capabilities of their own high technology and of taking a government that says, “just trust us, it’s for your own good” at its word.

Complex systems create the possibility for magnification of small error; therefore, as societies increasingly rest on complex systems, they have a greater, not lesser need for transparency and for civil society organizations to observe and translate the importance of the small details to the public. Whether those details are the discount rates or technology assumptions used in a model, or the quality of continuous emissions monitors used to measure the integrity of an emissions trading system, they have the potential to create consequences of national and even global significance when climate change is what is at stake.

The European Commission has listed “new governance systems” as one of the key elements of the policy framework for its 2030 climate and energy goals. As the Commission sorts out exactly what this means, it would do well to remember just how foundational transparency is to good governance. Both China and the European Union are making real attempts to find the best solutions—both in policy formation and implementation—for the reforming their energy systems, but gagging or blinding their best watchdogs is the wrong way to be spending their efforts.

This article was also posted on The Energy Collective.

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Short Commentaries 5/31/14

China, EU launched three-year cooperation on “Carbon Emissions Trading Scheme” from English People’s Daily. Cooperation will include exchange of experts and sharing of experiences and best practices. One wonders what the EU, plagued with endemic oversupply, can offer the Chinese system. Chinese regional schemes are still young, but a major problem seems to have been lack of price clarity and transparency. On the surface, price problems in China come from a different are different to those in the EU, but the problems have a common root—lack of will to create real reductions. In the idealized world of global emissions trading, cooperation and harmonization should begin early, but as yet there is no indication that ambition or leadership on either side is enough for this cooperation to amount to anything more than trading around the margins.

U.S. eases risks for $134 million forest protection fund from Reuters. USAID moves way from direct payments to projects to a model that, on its face, is more private sector oriented—using its money to leverage investments rather than to directly fund them. The press release gives very little indication of the kind of activities that will be funded or how loan recipients will repay the loans—either traditionally through business activities, or through the sale of voluntary forest credits. It also does not indicate the terms on which Althelia is offering the credit, or the price at which it is buying this insurance from USAID. All of these things would be useful in knowing if Althelia is engaging in actual commercial-style transaction or, or merely giving out donor money with commercial attributes. There is nothing wrong with the latter per se, but there is a question of what it will be proving to the private sector if it is successful. If the transaction is successful under terms that the private sector could not accept or replicate, then leverage effect of the USAID guarantee will have no effect beyond it’s immediate disbursement. This would be a missed opportunity because forest protection needs more money than the public sector can currently offer. While USAID has called Althelia the first private sector fund of its kind, its backers are all development banks. This is, in fact, USAID insuring the European Investment Bank. But if the projects are successful on terms attractive to the pure private sector, perhaps it will follow.

Wonks Collide as Obama Climate Plan Prompts New Ideas from Bloomberg. Great River Power proposes a carbon price that is set according to a level of desired abatement and collected by regional ISOs, who then refund to the fee to the load serving entity on a pro-rata basis per hours of generation. Set up in this way, the price acts directly on the dispatch order of electricity, pushing coal, which would have the highest carbon price, further down the queue. Authors of the study claim that cost relief for consumers will be provided through refunding the revenues to the load serving entity. But in deregulated markets,  load serving entities, will be likely both keep the refund and pass through the price increase anyway. That said, this is not a bad way to arrange a carbon price for power. It would be a step forward for the EPA if, under the carbon regulations for existing power plants to be that will be announced this Monday, it allows for states to creatively implement their carbon limits through use of this pricing plan, or another one link it.

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Between Drilling and the Deep Blue Sea

““Unlike most of the planet, the Arctic still contains uncharted mysteries,” Bloomberg yesterday quoted Scott Minerd of Guggenheim Partners LLC as saying.

The statement is no doubt true. The Arctic is among the last pristine wildernesses on the planet. There are elements of the global influence of its climate and the local details of its ecosystems and geology that science has not yet attempted to record, let alone understand. But Minerd was being loose with the language—by ‘uncharted’ he meant ‘unexploited’, and by ‘mysteries’ he meant ‘resources’. His investment management fund is looking at investing in heavy industry in the Arctic region.

Guggenheim Capital Partners is not the only investor interested in exploiting the Arctic. A 2012 report from Lloyd’s of London identifies around $US 400 billion of committed and projected funds for the development of potential Arctic oil and gas projects. Four hundred billion dollars is not a spectacular sum when it comes to the oil and gas investment—Ernst & Young reports that 75 non-national oil companies representing only 9% of oil and gas reserves worldwide invested $US 540 billion in 2012 alone.  Investment numbers for national oil companies, which hold 90% of reserves, were omitted. Lloyd’s numbers are quotes of preliminary estimates and crude approximations as such. The U.S. Geological Survey estimates that around 22 percent of the world’s untapped oil and gas reserves are in the Arctic. If a sizable fraction of reserve prospects for Arctic development proved exploitable, total investment would well exceed $US 400 billion.

What else could be done with this money? A timely transition to renewable energy will require at least US$ 1 trillion in investment a year. But total renewable energy investment was down by 11 percent last year to $254 billion dollars—some considerable change shy of the trillion-dollar mark. Even if $1 trillion isn’t an exact figure, it’s beyond dispute that more money is needed.

Investment in Arctic Ocean oil is an interesting analog to renewable energy investment. In the logic of the last decade, risk-adverse financial investors would flock to fossil fuels over renewable energy because with fossil fuels, they were confident of a steady return due to its low risk profile and steady returns.

But Arctic Ocean oil turns that argument on its head. Early this year, after spending $US 6 billion dollars and not drilling a single well, Shell announced that it was suspending its operations for drilling in the Arctic for fear that the investments were damaging its bottom line.

Shell’s $US 6 billion dollar loss was buried in a portfolio of higher return projects so their shareholders, while affected by the loss, did not feel the bite in the way they might have were they taking a stake in an Arctic-only private equity fund as Guggenheim Partners is considering doing. Renewable projects, due to uncertain regulation and comparatively newer technology, are considered a risk. But average returns on renewables, in the low single digits, are better than Shell’s Arctic Ocean prospect that on account of regulatory issues, legal hang-ups and technology immaturity has until now offered only negative yields. When risk capital is the rasion d’etre for investment, it is worth asking why, when given a choice, one would invested in destroying the environment rather than preserving it?

But returns are not the end of the story, even though it is easy to get lulled into thinking of them that way. Yesterday evening, Harvard students blockaded the office of the University President Drew Faust in protest of the University’s decision not to withdraw the endowment’s investments in fossil fuels. This morning, a number of them were arrested. In a statement to the Harvard Community written last October, Faust stated that, ‘The endowment is a resource, not a tool to impel social or political change.” In so writing, Faust perhaps unwittingly, invoked the backward view of finance that recently resulted in the Great Recession by way of robbing a line from Machiavelli’s playbook— In actions of all men, especially princes, where there is no recourse to justice, the end is all that counts.

The purpose of debt and equity finance is to facilitate capital accumulation, which in turn defines the structure of the society in which it exists. Returns are fees, the project is the purpose. In a healthy financial system, financers are mere middlemen. The great disasters of modern finance, including the 2008 financial crisis, were a symptom of a financial sector that came to conceive of returns as the purpose and, in the most recent crises, deliberately created ways of divorcing those returns from the projects that they intermediated with catastrophic consequences. While it is true that investors evaluate projects on the basis of returns, it simply incorrect to imply that the decision to stop or go ahead with projects will not have social or political consequences. The ends are a resource, but the means of getting them shapes the world.

Those who say that divestment can’t strangle the fossil fuel industry ignore the fact that it can crowd much-needed capital away from the renewable sector. And why not shape a world of renewable resources that provides us with power while leaving the climate and the Arctic intact?

This article was also posted on The Energy Collective.

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Why Richard Tol is Wrong about the Upside of Climate Change

“It’s pretty damn obvious there are positive impacts of climate change,” Reuters reports Professor Richard Tol saying on his way to disassociating himself from the Fifth Assessment Report for the Intergovernmental Panel on Climate Change that he helped to author. The report is the international, comprehensive assessment of the state of human caused climate change and its impacts, which was released last week. The report, in summary, says that the rate at which the climate is changing will be very, very bad for life on Earth.

Tol doesn’t think so, but Tol is an economist, not a scientist. His expression of risk is reflective of the flaws in economic thinking. He appears to conceive of climate risks as linear and additive, basing his climatic unconcern on the outcome of a cost-benefit style of economic analysis where you count up the pros and cons and then consider if you have broken even, are ahead, or are in the red.

He points out that in the much-discounted positive side of the climate change equation, some regions will be able to grow new crops. Potatoes in the tundra! Booyah! So why all the frowny faces about impending disaster? “They will adapt.” Tol is quoted as saying, “Farmers aren’t stupid.”

No, they are not. But unfortunately for Tol’s argument, neither is climate risk linear and additive. It tends towards discontinuous and geometric. If you happen to be a farmer in India who can no longer produce food for lack of water, no amount of non-stupidity will help you think up a way to make rain. If you happen to be a farmer in Africa, you might find weather conditions forcing you to switch from farming agriculture and raising livestock to raising livestock alone. Which would be fine until you discovered you had nowhere to feed your livestock but a wider and wider range of degraded land, creating further erosion and irrigation problems for your already-stressed environment.

Of course the picture is complicated. Some crops will thrive where they didn’t before. But the known unknowns should keep us from running out and celebrating just yet. Pests will also thrive where they didn’t before. The mere existence of a substitute for a failed crop doesn’t imply that even the clever farmer will have access to the seed, or the experience to grow it, or insight into how to keep it growing in the rapidly changing and more erratic weather patterns that we are to expect with sudden climate change. These transitions take time and money and room for trial and error. The regions where much of the harm will occur do not have the money or the margin to endure these changes.

Tol’s argument in some ways echoes that of the nouveaux climate change denialists who say, “But it was warm when the dinosaurs walked the earth, and there was still life, plenty of life!” Not human life though. All the changes in past temperature took place over the course of geological time—slow enough for adaptation to occur in the biological sense of the word. Except in the case of the dinosaurs, that is, when the climate did indeed change quite quickly. Man-made climate change is happening in time frames sensible to, well, man.

This means that we are placing ourselves in conditions to which life—in both the biological and cultural sense—has never before had to adapt. We know plenty well enough to know that, given the fragility and interdependence of our existence in nature, such changes run high risks of causing catastrophe.

Tol is an economist not a scientist, but even economists ought to know better by now than to make these mistakes. After all, the catastrophic failure of economists to predict the 2008 financial crisis was in no small part a result of overreliance on models that underestimated the impact of interconnectedness and coordinated failures.

Of course farmers aren’t stupid, but Professor Tol is dead wrong to be so glib.

This article was also posted on The Energy Collective.

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Short Commentaries 02/28/14

Global Carbon Markets to Reach Record Volumes By 2016 from Business Spectator. Carbon markets need a different measure than volume for success. Article cites a point carbon analyst expecting EU-ETS market value to increase by two thirds to 7.5 Euro per ton. Increasing value drives increasing volume, but what does it mean? Permits are rising again off the back of the enactment of back loading measures and the release of a clear schedule for withholding permits from auctions. The price increase is indicative of nothing more than irrational exuberance betting on irrational exuberance. With the EU-ETS still more than 1 billion permits long, the fundamentals for a real appreciation aren’t there. The real value of these permits remains near zero. Optimists might argue that this represents a first step by the EU and that the next step is that backloaded permits will be cancelled, or further permits will be withheld from the system. Given the two-year fight over pulling out less than half of the long permits out of the system, holding permits in hope of another policy breakthrough is bound to be a bad bet. Also, more is now riding on the permits than the EU-ETS. Europe has staked out 40% reductions for its 2030 targets. As Greenpeace has pointed out, 2.3 billion banked permits in the system means that only 33% reductions are required to meet that target. Would the Commission have settled on 40% rather than the less ambitions 30% or 35% targets in play if the escape valve of banked permits weren’t present? Perhaps they would have, but as this blog has pointed out before, bells-and-whistles climate policy has a way of making it easy for countries to take strong positions in name only.

U.S. Coal Exports Jump Three-fold Since 2005 from Oil Price. This is the entirely predictable result of falling coal consumption due to the shale gas boom.  This announced just a day after a kerfuffle about Norway’s Store Norske opening a coal mine in its artic regions even as its sovereign wealth fund bans investment in coal companies. Robbing Peter to pay Paul is a nice way to appear current in sovereign carbon cutting; unfortunately given the global nature of carbon emissions, the collector will soon come around for us all.

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The U.S. Government Should Pay Attention to Uncertainties in the GHG Budget

Cornell professors Robert Howarth, Renee Santoro, and Anthony Ingraffea ignited a controversy in 2011 when they published a study claiming that, due to escaped methane, emissions from hydraulically fractured natural gas were worse than coal. Their study showed that the escaped gas amounted to four to eight percent of total gas production, more than twice the EPA’s estimate for the same figure.

Two different studies, one from Cornell and another from MIT, produced their own analyses criticizing Howarth et. al.’s claims on the grounds that their data set was too small, their assumptions incorrect. Both studies concluded that hydro fracturing leaked little gas. But both studies criticized Howarth et. al.’s assumptions by way of offering new assumptions, but no new data or measurements. Nothing was settled.

Carbon dioxide emissions—with the exception of emissions from transportation—come from large, industrial sources. By contrast, methane emissions leak out of hundreds of thousands of sources that include valves, pipes, landfills, and waste pools.  In oil and gas production, these emissions, known as ‘fugitive’, are just that; they steal out of the equipment and infrastructure and go uncounted into the atmosphere. The Environmental Protection Agency requires gas production, processing and transmission facilities to report fugitive emissions using emissions using estimates based on a predetermined calculation for leakage rates for each piece of equipment. But actual leakage rates can vary depending on the type of equipment, how it is maintained, the type and pressure of the gas that it conveys, and the geology of the formation from which it is withdrawn. The estimations are necessarily inexact. There are no direct measurements, and so much room for controversy.

Recently, the Environmental Defense Fund attempted to fill the data gap by coordinating a study that took direct measurements of gas flow back from wells. Results showed that wells constructed using advanced technology leaked only 0.42 percent of production—much less than Howarth et. al.’s or EPA’s estimates. But the study settled nothing due to skepticism due to over sample bias—companies that voluntarily cooperate with fugitive emissions studies are likely to be the best actors.

Then last month yet another study of fugitive methane emissions lead by Harvard claimed that emissions for the 2007-2008 period were 50 percent above the estimates used by the EPA for that year. The Harvard study is different to preceding studies in that it doesn’t rely on estimates or incomplete measurements, but rather uses to cell phone tower and airplane mounted instruments to detect the mass balance of methane in the air. The data is harder to quibble with.

The findings prompted Henry Waxman to call for hearings on methane emissions and global warming consequences of natural gas extraction. Given the current leadership of the House Energy and Commerce Committee, hearings are unlikely to happen. But methane emissions need more oversight. Uncertainties over methane leakage are just part its underreporting. New science on the global warming impacts of methane also point to it being a much larger portion of U.S. emissions than is currently reflected in U.S emissions inventories.

Methane emissions in the EPA inventory are not given in terms of tons of methane, but tons of carbon dioxide equivalent, or the potency of any gas a greenhouse forcer compared to carbon dioxide. Carbon dioxide equivalent is calculated through a conversion factor called Global Warming Potential (GWP). Estimation of the Global Warming Potential of a gas is complicated. The single number of Global Warming Potential is meant to capture the gas’s comparative power to absorb infrared radiation, its lifetime in the atmosphere and its indirect effects, including induced changes in tropospheric ozone, water vapor levels, and CO2 production. Most recently, the Intergovernmental Panel on Climate Change (IPCC), which sets the international standards recommended GWPs for gasses, has added climate feedback effects to the calculations.

The value of methane’s GWP has constantly changed as the science behind its derivation has evolved. In 1996 twenty-one was the IPCC’s recommended GWP for methane. Next year, the IPCC will revise its recommendations for methane’s GWP for the third time since 1996 from its current twenty-five to thirty-four. Methane numbers in the United States Inventories for Greenhouse Gasses and sinks, meanwhile, are still reported using the 1996 value of twenty-one. The EPA is in the process of updating the GWP for methane to twenty-five, the value recommended by the IPCC in 2007. The change will bring the United States emissions inventories up to the best available science of seven years ago, but leave methane emissions underreported by thirty-seven percent compared to the best available science of today.

The EPA decided to update to 2007 values in part to standardize with the recommendations of the United Nations Framework Convention on Climate Change (UNFCCC), which sets guidelines for international reporting. While it is valuable to be able to accurately compare the United States’ emissions to the rest of the world, it is arguably more important to have a realistic assessment of the comparative size and impact of different sources on a national level. Abatement decisions are not made on an international level, but driven by domestic energy interests and domestic regulatory assessments of significance, harm, and abatement costs within national borders. When numbers are skewed, there is a danger that decision-making will be skewed as well.

According to the EPA, total net emissions in the United States in 2011 were 5.75 billion tons of carbon dioxide equivalent. Of those emissions, methane constitutes 580 million tons, accounting for ten percent of total U.S emissions. If methane emissions in the United States are indeed underestimated by 50 percent, that would make them just over fourteen percent of total emissions. Incorporating the most accurate GWP—thirty-four—into the upward revised number for leakage, total methane emissions become 1.4 billion tons of carbon dioxide equivalent, or 2.4 times higher than emissions listed in the current national inventories, and twenty-one percent of total emissions. Even in the most conservative case where EPAs leakage rates are entirely accurate, if thirty-four were used as a conversion factor, methane would be reported as fourteen percent of total emissions.

Control of fugitive methane emissions is simpler than the control of carbon dioxide emissions. Halting carbon dioxide emissions in the United States will require that trillions of dollars infrastructure currently locked into fossil fuels be retired and further trillions of dollars be invested in development and construction of non-emitting energy technologies. By contrast, controlling fugitive methane emissions requires that simple and already existing technologies be installed at a profit to the companies that install them.

The failure to control fugitive methane despite the obvious benefits is a typical failure of energy efficiency to be effected. There are many reasons why large industries waste energy—and therefore money—including poor incentive structures, higher rates of return on an investment in the company’s main line of business than on investment in efficiency improvement, or poor understanding of where and how the gains are to be made.

But in addition to wasting private money, energy inefficiency imposes a cost on the public through higher emissions and climate change. In the case of methane emissions through natural gas losses, the cost is thirty-four times higher than that of carbon dioxide for every ton of emissions wasted.

Given the high cost to the public of methane emissions, the low cost of regulation to the emitters, and the continued failure of the market to stimulate action, there is a clear case for controlling emissions through regulation. President Obama has highlighted methane as a problem, saying a June 2013 speech, “We’ll keep working with the industry to make drilling safer and cleaner, to make sure that we’re not seeing methane emissions…” But the President’s Climate Action Plan has no specific plans for controlling methane. It calls in general terms for interagency partnerships to reduce methane emissions in agriculture, oil and gas. Concrete plans for controls are yet unarticulated.

In referencing cleaner drilling, President Obama was referring to the EPA’s promulgation of New Source Performance Standards for the oil and gas production. The new regulation puts controls on certain wells, compressors, valves, and storage tanks upstream of processing. Gas wells with ‘green completions’ are the type of infrastructure that the Environmental Defense Fund monitored in its study showing a loss rate of 0.42 percent. The study is also the reason why many companies are claiming that Harvard study showing high leakage from the 2007-2008 period is outdated. The EPA’s New Source Performance Standards are not designed to control methane. They are designed for the control of hazardous and toxic pollutants such as benzene and xylene that are components of natural gas when it is extracted, but are removed during processing. Some methane is controlled as an ancillary benefit, but it is not the principal intent of the regulation. Thus, upstream of processing only very specific installations with high air toxics emissions are targeted. Installations downstream of processing are not affected by the regulation at all.  But about half of methane leaks from oil and gas production occur downstream of production. But EPA’s own estimate, this regulation will prevent between 1 and 1.7 million tons of methane emissions in the future, or between 3 and 5 percent of present day volume as reported by the EPA.

The EPA reports that emissions have dropped 12 percent since 2005. But even through conflicting reports, it is clear that the real magnitude of reductions remains unknown. Information increasingly points to methane emissions being a more serious component of the U.S. emissions than previously believed. The government needs to start taking the problem seriously, first through accurately reporting the emissions, and then through promulgating methane-targeted policy that controls emissions, rather than relying on regulations that were written without methane in mind.

This article was first posted on The Energy Collective.

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Short Commentaries 12/23/13

On climate change, Florida’s been warned from Tampa Bay Times. Local Tampa journalist is told by climate scientist during an MIT fellowship, “Oh, but you’ll be underwater.” The article discusses the now unavoidable flooding of Florida’s coasts due to sea-level rise, but does not discuss the fact that the porous limestone geology of much of south Florida means that not just the coasts, but up to half of the entire state, have a reasonable risk of inundation by the end of the century. More reporting like this is needed in Florida to start moving the dial on the opinion of local leaders like Marco Rubio, who has taken the no-carbon-tax pledge and is against federal action on climate change on the grounds that “Government Policies Can’t Change the Weather.” Rubio is right, of course, but not for the reasons he thinks. Government policies that cut carbon emissions could mitigate climate, which is a different thing from the weather. Rubio is on the record against federal policies for prevention, but he is also on the record as being just fine with having the federal government pick up the bill for climate crises once they have occurred, as he has advocated for the federal government establishing a reinsurance fund for natural catastrophes.

Energy Tax Breaks to Shrink in Baucus Focus on Emissions from Bloomberg. Baucus says he wants to simplify the tax code while creating a policy where the government isn’t picking winners. But discussions on tax reform have eschewed the most elegant solution—the creation of an economy-wide carbon tax. The proposed tax credit will go to installations with emissions that achieve a benchmark of 25% below the national average. Policies aimed at reducing emissions—and particularly policies targeting investment in new infrastructure that will be operating for the next 20 to 60 years—should not have a floor on the amount of emission reductions they are intending to bring about. Here again, a carbon tax is a more effective instrument in that it creates constant, downward pressure. Further, with a U.S. national average of about 1200 lbs. of CO2 per MWh, this policy will be a handout to combined cycle gas plants, most of which can already make the 900 lbs. per MWh threshold.

Not Just the Koch Brothers: New Drexel Study Reveals Funders Behind the Climate Change Denial Effort From DrexelNOW. The implication appears to be that campaigns aimed at shaming foundations out of funding climate denial managed to shame them into doing the same thing sub-rosa instead. Money might be better spent in public education than in trying to coax the wicked out of their ways.

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Short Commentaries 11/27/13

Beijing Looks to Market to Fix Pollution from The Wall Street Journal. The interpretation as an anti-pollution policy is curious. The announcement, released from the Third Plenum of the Chinese Communist Party’s (CCP) 18th Congress, was a typically vague CCP utterance, announcing that markets will have a stronger role in allocating water, electricity, oil, and natural gas. Chinese natural gas, oil, and electricity sell at prices well below international averages. Higher natural gas prices would actually have a negative impact on pollution in China, as gas burners clearn than coal, and has become a choice fuel for cities like Beijing that are facing gross limits on coal consumption imposed as a means of pollution control. The policy will also have no impact on pollution pricing through carbon tax and cap and trade schemes. Those are separate policies, and where they do exist in China, their prices are still too low. China’s carbon taxes of US$1.6 per ton of coal will not create a differential price with gas. While some trades in Shenzhen’s market have closed at over $US 11 per ton, these have been largely speculative trades in a low-liquidity environment that shouldn’t be taken as indicative of a national price. Direct carbon pricing, of course, is not the only way to curb polluting. Ending subsidized electricity prices to energy users in theory could cut waste. However, the Party was clear in its announcement on the continuing centrality of state owned enterprises, and they are unlikely to lose their influence with the government any time soon. Moreover, energy efficiency is already on the negative end of the mitigation cost curve where incremental price increases are unlikely to have significant, if any, effect. Water pricing is a different thing than pollution discharge pricing and will not have any salutary impact on the 70% of China’s water supply that is contaminated. China’s pollution controls will continue to advance primarily by command and control, where they advance at all.

‘Signature’ achievement on forests at UN climate talks from BBC. REDD+ had two small wins at COP 19—the commitment of an extra US$ 280 million of funding for the World Bank’s BioCarbon Fund and the formal adoption of REDD+ through the COP. Formal adoption will pave the way for standardized criteria for baseline measurement and pay for performance financing. Innovations such as publically available data for deforestation detection from the LandSAT and MODUS satellites has greatly improved the odds that pay for performance for forestry can be verifiable and accurate. However, the adoption REDD+ by the COP 19 does not and cannot provide what the forests most critically need—a sustainable source of conservation finance. This, of course, cannot be provided without binding targets, and the COP cannot achieve binding targets.

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Politics and the Language of REDD+

“For the moment you start to discuss some eternal principle or another, you are not arguing, you are fighting. That eternal principle censors out all the objections, isolates the issue from its background and its context, and sets going in you some strong emotion, appropriate enough to the principle, highly inappropriate to the docks, warehouses, and real estate. And having started in that mode you cannot stop. A real danger exists. To meet it you have to invoke more absolute principles in order to defend what is open to attack. Then you have to defend the defenses, erect buffers, and buffers for buffers, until the whole affairs so scrambled that it seems less dangerous to fight than to keep on talking.”

-Walter Lipmann, Public Opinion

Jerry Brown didn’t show up to last week at the ceremony where he was to receive the Blue-Green Alliance’s “Right Stuff” award. But who did? A crowd of protestors condemning the Governor for his support of REDD+ through the Governor’s Climate and Forest Task Force and the possible inclusion of REDD+ projects into California’s emissions trading scheme. Speaking outside the Blue-Green Alliance award ceremony, Executive Director of the Indigenous Environmental Network Tom Goldtooth called REDD+ bad for the climate, environment, human rights, Californians, and the economy. The controversy has had some impact on the state of California, which has decided to avoid the sticky wicket of climate finance by setting no clear timelines in which REDD+ will be accepted into the California’s Emission Trading System.

All of this happened as the Climate Policy Initiative released its report stating that climate finance dipped to $US 359 billion dollars a year in 2012 from $US 364 billion in 2011. If ever implemented on a large scale, REDD+ could be a major vehicle for climate finance, but with the lack of political will to mobilize the money in the developed world and anger about REDD+ in the developing world, it is unclear whether the past six years of efforts to develop a REDD+ regime will ever amount to anything. If REDD+ does go down with a whimper, will it be a major loss for climate finance, or a near miss for the developing world?

What is REDD+?

At this point, the uninitiated in the acronym-overloaded nexus of climate and development finance might be forgiven for asking, ‘what on Earth is REDD+ anyway?’ It is a question both sides of the REDD+ debate would do well to revisit.

Last week, Steve Zwick of Ecosystems Marketplace published an article asking why the mainstream media always gets REDD+ wrong. Just days later, the Center for International Forestry Research (CIFOR) released the results of a media study concluding that the ‘causes of deforestation are getting lost in REDD+ rhetoric.’ Has a jungle of jargon overgrown all lucid discussion of conservation finance?

The ‘REDD’ in REDD+ stands for Reducing Emissions from Deforestation and Forest Degradation with the ‘F’ for forest elided to allow for the abbreviation ‘REDD’ that has a pithy, homonymic quality but also the disadvantage of being too reductive to encompass the diversity of solutions for forest loss. The  problem was dealt with by adding a ‘+’ to represent, ‘the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries.’ The resulting REDD+ looks mathematical, but lacks precision.

The emissions reducing activities that might fall under the REDD+ rubric would include, but not be limited to, governance programs encouraging the devolution of land rights to indigenous groups, establishment of conservation areas, sustainable forest management, establishment of agroforestry projects, payments for ecosystems services through international development funds, payments through ecosystems services through market mechanisms, voluntary conservation payments, commercial agricultural intensification, disbursement of efficient cook stoves to limit wood harvesting, establishment of alternative industries for forest dwellers to prevent clear cutting, training of local police forces to prevent deforestation, establishment and training in remote monitoring, and mobile technology to improve policing and detection. These activities are being carried out in about thirty countries.

The existence of a single word for all of this creates in environment in which not just newcomers, but sometimes practitioners are able to effortlessly reduce, forget, or simply never learn the nuances of a deeply complex topic that cross-cuts technology, ecology, finance, sociology, finance and politics.

Good or Bad?

In his article in The Huffington Post, Steve Zwick reacted to implications, often employed by REDD+ opponents, that profits and markets are necessarily bad. One of the organizations Zwick targets,, on the sidebar of its website lists quotes that it calls ‘reddism’, or quotes by people whose support REDD+. One such quote reads, “I’m doing it to make money. The numbers are colossal.” The speaker is identified as London-based billionaire Vincent Tchenguiz. Parenthesis beside Tchenguiz’s byline note that he was arrested in 2011 as part of a probe into an Icelandic banking collapses. The point is to create a kind of condemnation-by-syllogism through which we are to understand that Vincent Tchenguiz likes money, Vincent Tchenguiz likes REDD+, Vincent Tchenguiz was arrested, therefore money and REDD+ are criminal. There is no mention of Tchenguiz’s $457 million dollar lawsuit against the U.K.’s Serious Frauds Offices which has already been ordered by the high court to pay Tchenguiz’s bills for using false information in the warrant. This omission makes’s methods more egregious, but even without the factual error, its methods are flawed. And Zwick is right to take offense at these tactics, but wrong to employ them himself in branding his opponents ‘ideologues’ and selecting one straw man example of the opposition’s grievances–already given too much attention by the mainstream press–to represent all of the opposition to REDD+.

Zwick’s takedown of REDD+’s opponents ignores that there are real instances where, in the name of conservation, indigenous groups are excluded from their land and livelihood, and harmful activities are incented. The point should not be that either side is pristine, but rather that the diversity of activities under REDD+ is so great and crosses so many disciplines that it can only be evaluated, praised and criticized on a project-by-project or jurisdiction-by-jurisdiction basis and ought never be referred to as a monolith.

In 2007, the Fourth Assessment Report (AR4) of the Intergovernmental Panel on Climate Change identified forest loss as 18% percent of global emissions resulted in increased international interest in finding ways to dramatically increase financing for preventing deforestation. From this point onward, REDD+ came into the foreground of international climate negotiations and global efforts on improving land use management and forest conservation. The problems of weak land rights for indigenous groups, perverse incentives created by markets, insufficient financing for conservation, and widespread deforestation, are not new and predate the REDD+ framework. But the increased attention that has come to forests along with a realization of the large role that they play in climate change has heightened government, multilateral and civil society focus and conflict over their ownership and administration.

But these issues—self-governance, environmental preservation, and climate stabilization—are significant to everyone on Earth. Problems and conflict are inevitable. It is logical that increasing the financial stakes for forestry will increase the risk of corruption and mishandling of assets. But the amount of money required to halt deforestation is enormous. In some sense, Tchenguiz is right to say, “the numbers are colossal”, much greater than the roughly $US 100 billion a year that is currently being spent on development aid. The advances that could be enabled by increased cash flows into REDD+, including remote detection and monitoring, development of alternative fuel sources, and agricultural intensification will need more money than multilateral donors can afford to give. The private sector must be involved, even if risks that come with involvement. Quality debate and informed public participation are critical to success. To this end, all sides should lay down their shibboleths and start addressing specific problems in plain English.

The article was also published on The Energy Collective.

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