Voluntary Carbon Week in Review: The Voters Giveth and Voters Taketh Away

Chad Phillips

After last week’s election in the US, carbon market participants awoke to an icier political climate. California may be the lone victory in the election for the market, as many Cap and Trade supporters have been replaced. This week’s issue digs through this and other election day rubble to bring you the latest in voluntary carbon news.

After Tuesday’s election in the US, carbon market participants awoke to an icier political climate. California may be the lone victory in the election for the market, as many Cap and Trade supporters have been replaced. This week’s issue digs through this and other election day rubble to bring you the latest in voluntary carbon news.

NOTE: This article has been reprinted from Ecosystem Marketplace’s Voluntary Carbon Newsletter. You can receive this summary of global news and views from the world of Voluntary carbon automatically in your inbox every two weeks by clicking here.

4 November 2010 | After Tuesday’s election in the US, carbon market participants awoke to a new political climate, with the winds of change blowing hot or cold depending on your vantage point.

At the high level, the market achieved what may be a lone victory in California while Obama says that Democrats’ support for sweeping climate legislation may have fueled Republican gains in the House of Representatives.

The administration came out on Wednesday with a cool attitude toward cap and trade, and that had an immediate and stifling effect on prices for Regional Greenhouse Gas Initiative futures contracts and raised concerns among European analysts about the outlook for US leadership in the international climate change fight.

Says Thomas Klau, a senior analyst at the European Council on Foreign Relations, “What this election is likely to do is confirm that there is no chance in the foreseeable future of the U.S. being disposed to engage in a deal to fight climate change.”

It’s a different story on the US West Coast, where California’s AB32 cap and trade scheme received a nod of approval from voters who were among the first to ever have the opportunity to vote on a climate policy.

Voters soundly defeated Proposition 23, which would have postponed AB32 implementation barring a fall in the state’s unemployment rate. Analysts are now breathing a sigh of relief and looking to the California Air Resources Board’s final draft of proposed regulations, which were issued a few days before the election.

With trepidation, however, some are also looking to the voter-approved constitutional amendments found in Proposition 26, a possible back-door block on funding for the AB32 program and other environmental initiatives.

Other Western Climate Initiative member jurisdictions also gained some clarity on the tools they will use to reduce emissions as part of the regional trading scheme. Last month, British Columbia released proposed rules for its regional scheme and inclusion of offsets – documents that were anticipated in September but delayed.

New Mexico regulators also confirmed their desire to take part in the WCI, but may find their state’s role challenged by Republican governor-elect Susana Martinez.

If all of the WCI pieces fall into place, however, the west could operate a cap and trade program that’s one third the size of the European scheme (the EU ETS). Says Evolution Markets’ Lenny Hochschild, “It’s not a huge market – but not a small one, either.”

Hochschild spoke at this week’s Carbon Market Insights America hosted by Point Carbon in New York City, where attendees suggested a handful of ways forward for US carbon markets, including:

1) Touting cap and trade as a source of revenue to address state, regional and national fiscal shortfalls; 2) expansion and linkage of regional programs as member states gain market capacity and understanding of market mechanisms; 3) a renewed mandate for Democrats in 2012 – and a re-branding of the cap and trade climate solution.

-The Editors

For comments or questions, please email: [email protected]

Voluntary Carbon

Mercuria rising with MGM purchase

Energy trader Mercuria calls its purchase of project developer MGM International a “strategic move,” having recently acquired MGM International Group from majority owner Morgan Stanley and MGM International LLC from founding directors. Morgan Stanley had been ready to sell its more than 38% stake in MGM since earlier this year, breaking with the trend of other large financial institutions like Barclays and JP Morgan buying into the markets’ project development side. In June, Morgan Stanley reported that it had contracted Evolution Markets Financial Services to advise on the sale, which market observers then expected to be “quite a drawn out process.” MGM is ranked 14th out of the UNEP Riso Center’s top twenty buyers for CDM projects and boasts a portfolio of emissions reduction projects in 22 countries. Mercuria intends to continue to originate projects and leverage MGM’s existing relationships with sellers worldwide.

– Read the Carbon Finance article (free access)
– Read the PR Newswire notice

25 alive after round of CCX staff cuts

As the Chicago Climate Exchange preps to wind down its cap and trade program at the end of this year, the carbon commodity bourse owned by IntercontinentalExchange (ICE) is shedding another large swath of staff – around 40 employees – further diminishing what was once a 66-person staff. On a conference call that place earlier this week, ICE CFO Scott Hill announced the cuts that bring the CCX staff down to 25 people, as well as further staff reductions that readers can expect to see in Q1 2011. Last month, ICE released a program update announcing the demise of CCX’s cap-and-trade component and creation of a registry to process offset transactions for 2011 and 2012.

– Read the Reuters article

Rabobank’s hefty helping of Turkey

Turkish VERs, that is. Rabobank Group has entered into one of the largest ever Gold Standard VER transactions in order to meet its sustainability commitment to offset 1.3 million tCO2e. The VERs support the Mamak Landfill Waste Management Project in Turkey, which reportedly provides clean electric power, creates skilled jobs and improves local air and water quality. The transaction was supported by the WWF and credits were sourced from Switzerland-based Invest Trading and Consulting AG (ITC). ITC’s project was also one of the first landfill-gas utilization projects in Turkey.

– Read the press release

Unique Kenyan deal down to earth – literally

Small-holder farmers in Kenya are changing their farming practices and earning carbon credits from the first ever soil carbon project approved in Africa. The Emission Reductions Purchase Agreement (ERPA) for the credits was signed yesterday in a ceremony held at the Global Conference on Agriculture, Food Security and Climate Change in The Hague, where representatives from Kenya’s Ministry of Agriculture, Vi Agroforestry and the World Bank presented the project to the media and delegates. The Kenya Agricultural Carbon Project, implemented by the Swedish non-governmental organization Vi Agroforestry, is located on 45,000 hectares in the Nyanza Province and Western Province of Kenya, and will sell its credits to the World Bank BioCarbon Fund.

– Read more at Ecosystem Marketplace

TNT blasts auction in search of Gold

Global transportation and distribution business TNT is panning for Gold Standard credits through a Climex Purchase Auction for 23,000 Gold Standard VERs scheduled for November 25th. “Last year we executed the first Purchase Auction for TNT, where Gold Standard VERs were the only accepted standard,” explains Climex Director Sascha Bloemhoff. “We are very pleased that TNT continues their commitment to offset carbon emissions through Climex.” The auction will be conducted through a reverse-auction process and is intended to acquire credits for TNT’s customer-related offsetting purposes. The descending clock auction will work backward from a maximum price of €8/tCO2e.

– Read more from Argus

VCS methodologies REDD-y for comments

Two methodologies currently being assessed under the Voluntary Carbon Standard (VCS) double approval process are now posted on the VCS website for a 30-day public comment period. The first, developed by Wildlife Works Carbon LLC, is the Methodology for Avoided Mosaic Deforestation of Tropical Semi-Arid Forests. It provides a means to quantify the net emissions reductions and/or removals from projects that avoid mosaic deforestation of semi-arid tropical forests. The second, prepared by Keyassociados and Ecofrotas, is the Methodology for Complete Substitution of Gasoline and its Blends by Ethanol in Commercial Fleets of Flex-fuel Vehicles, which requires the use of ethanol produced from renewable biological resources such as plant biomass. Submit comments for either methodology by November 30, 2010.

– Read the forest methodology
– Read the fuel methodology

Diplomatic carbon

Increasingly, forest carbon is earning the developing world a seat at the table for international negotiations. Last week, it also acted as an emissary between Uganda and the Danish Embassy, which announced its intent to offset emissions from vehicle, flight and light energy sources with Ugandan forest carbon credits. The beneficiaries were reported to include the Plan Vivi Project Trees for Global Benefits Project, the Global Woods Kikonda Forest Reserve project and the Abalindwa Ebihangwa Tree Conservation Project. The Embassy signed a five-year agreement with the Uganda Carbon Bureau.

– Read the New Vision article

Canada’s carbon cash crop

Canadians’ low-carbon agricultural practices are turning up new revenues for farmers. Global agribusiness Viterra Inc. recently announced that its Canadian carbon credit program has aggregated over one million offsets from “no till” or “reduced till” practices on agricultural land. The program is based on the Alberta government’s tillage system management protocol and rewards farmers for practices that reduce GHG emissions. The one million offsets represent over $10 million paid to Canadian farmers since the program’s launch in 2008. A supply agreement signed with Alberta’s Enmax Energy Corporation in 2008 means that Viterra customers can count on access to a market for their offsets.

– Read the press release
– Read more about the program

Cargill’s palm reading

As companies remain under fire for their failure to source sustainable palm oil, Cargill Inc. could be the first major palm oil buyer to invest in a REDD scheme in Indonesia, where it owns two plantations and buys from other suppliers. The program, part of Norway’s larger climate aid deal with Indonesia, would limit carbon emissions by using marginal or degraded lands for plantation expansion while keeping key forest reserves off limits. Speaking to Reuters, COO John Hartman indicated that Cargill broadly supports the idea of the REDD scheme, but pointed out that discussions are in the early days and they “need to see how the rules are written before we make any commitment.”

– Read the Reuters article
– Read the Reuters pdf palm oil packet

Reduce & Retire: The Latest on Carbon Neutral

Kicking around carbon credits

Petrochemical company Sasol recently scored some major points with the 2010 FIFA World Cup Local Organizing Committee (LOC) by donating over 127,925 carbon credits in a show of support for the 2010 World Cup in South Africa. The $130,000 worth of credits will offset approximately 14% of the carbon footprint of the tournament, estimated to be 900,000 tCO2. Although event greening has become a focus of the FIFA event in recent years, the infrastructure and geography of South Africa resulted in a larger carbon footprint than that of the 2006 tournament.

– Read more from Engineering News

More corporate palm pilots

Like Cargill, Walmart and General Mills (GM) have joined the ranks of companies taking responsibility for the sustainability of their supply chains. Both companies recently announced their commitments to switch to sustainably sourced palm oil by 2015, with GM pledging to purchase palm oil only from RSPO members. Meanwhile, Walmart estimates that its switch to sustainable palm oil by 2015 will cut its carbon emissions by 5MtCO2 – about a quarter of the company’s 2015 emissions reduction goal. Last week, Walmart announced the anticipated transition as part of its broader set of sustainable agriculture goals.

– Read more from GreenBiz

Climate North America

California’s catch 26

This week, 61% of California voters just said “no” to the Proposition 23 ballot initiative that would have stalled cap and trade provisions until unemployment dropped to what in this economy seemed like impossible lows. In another pro-carbon market move, Democrat Jerry Brown defeated Meg Whitman for the gubernatorial spot – Whitman also opposed Proposition 23 but threatened to suspend AB32 implementation.

But don’t get your hopes up yet. Proposition 26 – what some call the “sleeper” proposition – did pass and also poses a potential threat to AB32 implementation and other state environmental programs. The initiative amends the state constitution to require the 2/3 majority approval of both houses for passage of some fees by redefining them as “taxes.” This will impact many state revenue proposals, including the kind of fees that the California’s Secretary of State Legislative Analyst says “address adverse impacts on society or the environment caused by the fee-payer’s business.” Flash forward to some intense legal discussions over whether market-based scheme allowances are “fees,” “taxes” or exempt.

CARB counting on offsets

…and offsets will factor into the California cap-and-trade program much more prominently than the Air Resources Board planned in previous drafts of the state rules. Before, compliant entities under California’s scheme were allowed to meet up to 4% of their obligation with offsets – that has increased to 8% in the final draft of the proposed regulations released last Friday for public comment.

Since the ARB has already determined scheme caps through 2020, it’s clear that around 223 MtCO2 in offsets will be allowed into the scheme, initially from four protocols that ARB put forward for urban forestry, forestry, livestock methane and the destruction of ozone depleting substances. Initially, all of these offsets must be US-based, but the regulations state that ARB will consider credits from Canada and Mexico, as well as other protocols, as early as next year. In the future, ARB also plans to consider inclusion of international sector-wide programs in developing countries and from project types like REDD.

– Read the Bloomberg article
– Read more from Carbon Positive
– Download ARB’s proposed regulation order

New Mexico: CO2 goes SXSW

Emissions could be going south in the southwest if the cap and trade rules adopted by New Mexico’s Environmental Improvement Board (EIB) ever see the light of day. Ideally, the rules’ passage enables the state to take part in the carbon trading component of the Western Climate Initiative. Among the ways the comprehensive scheme could stall before it starts: the program cannot happen if other states decide not to join the WCI and scheme obligations must cover at least 100 MtCO2 a year of emissions – NM’s largest obligated companies (>25,000 tCO2) currently emit a quarter of that amount. Also, while current NM governor Bill Richardson upholds his state’s scheme as a model for the nation, governor-elect Susana Martinez opposes the cap and trade plan.

– Read the Bloomberg article
– Read the Brighter Energy article

Cap and trade 2010 B.C.

Those who thought British Columbia’s carbon trading program was ancient history after a delayed release of the proposed regulations will be happy to know the wait is over. B.C.’s Ministry of Environment issued consultation papers for two proposed regulations under its Cap and Trade Act, one governing emissions trading and the other looking at scheme offsets. The scheme’s offsets – or “emission reduction units” (ERUs) – will be issued for projects with a start date of Jan. 1, 2007 and that are located in B.C. or a partner jurisdiction. B.C. also will not exclude any project types from eligibility as scheme protocols and a compliant entity can meet up to 4% of its compliance obligation with offsets and/or compliance units from other linked programs.

Kyoto & Beyond

So Indonesia and Malaysia walk into a bar…

A month before climate talks resume in Cancun, the Brazilian government set the bar high for national commitments by announcing that it has reduced CO2 emissions by 34% in the last 5 years. Not only has Brazil virtually met its 2020 targets, but according to President Lula, deforestation has been reduced to the lowest rate in 21 years. “If we keep this pace… we will accomplish our goal of voluntary carbon dioxide reductions in 2016, four years before we had promised,” he said. Known for being one of the world’s top GHG emitters due to deforestation in the Amazon, this is an impressive effort – with an economy growing at a rate of 7% a year, however, further emissions reductions in coming years may be a challenge.

CDM hot despite unCERtainty

Despite the uncertainty surrounding post-2012 CERs, these days they appear to be a hot commodity. The WorldBank BioCarbon fund recently committed to buying temporary CERs (tCERs) for 165,000 tCO2 generated by an Ethiopian A/R project for approximately $4/ton. The Humbo Assisted Natural Regeneration Project is Africa’s first large CDM forestry project, and represents Ethiopia’s first ever carbon credit trade. A consortium consisting of ORBEO, Fonds Capital Carbone Maroc (FCCM) and the Post 2012 Carbon Credit Fund (P12) have also agreed to purchase 2 million CERs (pre-2012 and post-2012) from a Moroccan wind power project. Finally, Vitol SA has purchased 8.5 million CERs from carbon asset manager KYOTOenergy Pte. According to Point Carbon, 92% of the credits are expected to be issued after 2012.

– Read about the World Bank deal
– Read about the consortium deal
– Read about the Vitol deal

EU ETS makeover from floor to ceiling

The EU recently set the 2013 emissions cap at 2.039 billion tons, a 6% increase that reflects the expansion of the EU ETS to include new sectors such as aluminum and petrochemicals. Although some adjustments might take place before the end of 2012, they should be only minor unless the EU agrees to raise the 2020 target to 30%. A separate cap has yet to be finalized for aviation. The impact of the global financial crisis on carbon prices has led to calls for a carbon floor price to be set in the EU ETS. Although the British government wants a minimum carbon price imposed on British companies, how this would be feasible in the Europe-wide market is unclear.

Let’s hope the Mayans got this one wrong

Investors are tackling the post-2012 uncertainty with gusto in recent weeks, including Camco International which announced last Thursday that it has secured options in post-2012 CERs. Speaking to Reuters, Camco’s Chief Carbon Officer Yariv Cohen said, “The market has evolved. There is a tangible value for post-2012 credits.” The Japan Bank for International Cooperation has also allocated $4 billion for investment in renewable energy and carbon projects that will generate credits after 2012. According to Simon Glossop, partner at CF Partners, “Demand has been up for a quite a while. People are making sure they are positioned properly for 2012.” Some say post-2012 activity has been bolstered by emerging clarity on the treatment of industrial gasses in the CDM market and other project types in the EU ETS.

Crackdown on Chinese carbon

The European Commission is planning to crack down on industrial gas projects that have been accused of what climate change commissioner Connie Hedegaard calls a “total lack of environmental integrity.” Particularly controversial are CDM projects that destroy HFC-23, a by-product from the manufacturing of the refrigerant gas HCFC-22. It is alleged that Chinese chemical companies have been ramping up the production of HCFC-22 in order to generate more credits. So far, these projects have accounted for over 50% of all CERs issued, worth billions of Euros. The proposed restrictions, which are expected before climate change talks resume in Cancun, could have a significant impact on the post-2012 carbon market. The International Emissions Trading Association (IETA) is concerned that the limits may lead to the de-registration of projects, while Barclays Plc recently predicted that prices could increase by up to 42% by 2012.

Global Policy Update

Norfolk Island takes carbon trading personally

Residents of tiny Norfolk Island will be the first to undertake a “personal” carbon-trading scheme that aims to simultaneously tackle both emissions and obesity. Under the three-year voluntary initiative, designed by researchers at Southern Cross University, each participant will receive a personal carbon card from which units will be deducted when they purchase gas and power. The number of units allocated will be reduced each year, with any remaining credit exchangeable for cash. In the second year, the goal is to add food products to the scheme, which will be ranked based on both their health and their carbon footprint. The island’s size and remote location in the South Pacific make it an ideal place to carry out such a trial.

– Read the Sydney Morning Herald article
– Read the Telegraph article

Would you like to make that a combo?

There has been much speculation (and skepticism) about where the $100 billion/year in climate aid promised to developing nations in Copenhagen is actually going to come from. Recently, a 35-page U.N. draft report obtained by Reuters has provided some clarity. The report suggests that a combination of private and public sector funds could be tapped in order to meet the target. Among the suggested sources were taxes on foreign exchange deals; shipping; aviation; removing fossil fuel subsidies and auctioning carbon allowances. It was also suggested that loans may form part of the cash, an idea opposed by many developing nations and environmental groups.

AU government strikes the miner key

The Australian government recently indicated that it wo