Verdad Verde

Should the U.S. follow the European Union’s example of a cap-and-trade system to fight greenhouse gas emissions? No, according to two EPA lawyers who recently sent an open letter to Congress outlining their concerns over the proposed cap-and-trade legislation. Cited in the letter as problems with a cap-and-trade system are problems with verifying emissions, setting the beginning emissions cap, difficulties in policing the trading, a misplaced belief in the market theory, and the likelihood of enriching “polluting industries and their consultants.” The couple urges that the U.S. adopt a carbon fee system to combat greenhouse gas emissions.

It would be wise for lawmakers to listen to the couple’s arguments especially with the recent news out of the World Bank. The World’s Bank carbon finance unit recently stated “[t]he global carbon market more than doubled in value in 2007 to $64 billion, but that masked slow growth in actual greenhouse gas emissions cuts.” Sounds like the European Union’s carbon market is making a lot of consultants rich, not curbing greenhouse gas emissions, and generally not improving the environment. Hopefully, the U.S. can learn from the European Union’s shortfalls and not make the same mistakes.

Recently Gov. Rick Perry of Texas requested a waiver from ethanol mandates.  Now it is presidential candidate Sen. John McCain and 23 other Senate Republicans who are requesting that the EPA “consider waiving ethanol mandates.”  In requesting a waiver, the Senate Republicans cite to similar concerns that Gov. Perry outlined in his request such as high food prices and supply shortages.  The bandwagon certainly is getting full with states and now Congressional leaders all asking for waivers from ethanol mandates.

The party primaries sure have brought out the green talk among the candidates.  In fact, John McCain, Barack Obama and Hillary Clinton all have climate change plans as part of their platforms.  Really, how many times have you heard lately that America has to break its addiction to foreign oil?  While this sounds like a great goal and one that all Americans can get behind, it appears the candidates who push this talk have no real intentions to follow through with any actions.  Take for example, Senators McCain and Clinton’s recent proposals to suspend the federal taxes on gasoline for the summer travel season.  Making gasoline cheaper for consumers does not seem like a step towards reducing America’s dependency on foreign oil.  It appears to be a quick-fix in an attempt to buy votes with lower prices at the pump.   

What makes Senators McCain and Clinton’s plans even more ridiclouis is the fact that Americans already have some of the cheapest gas in the world.  According to a recent CNN article the price of a gallon of gas in the United States is the 108 most expensive out of 155 countries surveyed.  Looking at it from the opposite end, the price of a gallon of gas in the United States is the 44 cheapest out of 155 countries.   

Compounding a federal mistake would be if state politicians also looking for a quick-fix got in on the action.  So far state politicians in Florida, New York, Missouri, and Texas have all proposed breaks from state taxes on gasoline during the summer months.  While in North Carolina and Indiana candidates for governor are looking into similar gasoline tax breaks.  All this talk of summer gasoline tax breaks has prompted an outcry from economists.  In an open letter on the Environmental Economics blog numerous economists are united in their oppostion to such gasoline tax breaks as bad policy.     

While Gov. Charlie Crist of Florida is correct when he states that he is ”supposed to respond to the people and try to make them happy,” he is overlooking the fact that he was also elected to do the right thing for the future of Floridians.  Clearly what he and others are doing is pandering to the people in the hopes that it will win a few votes come election time. 

In California, the Bay Area Air Quality Management District (BAAQMD) is quietly proposing what is thought to be the first direct carbon tax on businesses in the country by a governmental entity. Currently the proposed carbon tax is in the final stages of its public hearing process and if the proposal is adopted at a May 21 hearing it would go into effect on July 1. Once adopted the carbon tax would affect “[a]ll facilities with stationary sources of [greenhouse gas] emissions that are subject to an Air District permit requirement.” The BAAQMD’s jurisdiction covers the seven full counties of Alameda, Contra Costa, Marin, San Francisco, San Mateo, Santa Clara and Napa, and portions of Solano and Sonoma. The proposed fee would affect approximately 850 facilities and the BAAQMD anticipates the tax would raise $1.1 million annually for recovery of “the costs associated with its Climate Protection Program activities.”

Even though all indications point to some kind of federal greenhouse gas emission legislation being passed in the near future, the BAAQMD is going foreward with its carbon tax. The success or failure of the BAAQMD’s carbon tax will be closely monitored and more likely than not similar carbon taxes will start showing up in other states.

In what may be a sign of things to come, the state of Texas has requested “a 50 percent waiver from the federal renewable fuel standard (RFS) mandate for ethanol produced from grain.” The RFS mandate is intended to “increase the volume of renewable fuel required to be blended into gasoline to 7.5 billion gallons by 2012.” In a statement on the governor of Texas’ website it cites that the waiver is requested because of “skyrocketing food costs.” Further, in the letter sent to EPA Administrator Stephen Johnson the governor of Texas, Rick Perry, states that RFS mandate is having unintended and harmful consequences on the Texas economy and in particular the agricultural industry. Basically, with the rise in cost of grain it is putting a strain on the 149,000 cattle producers in Texas. If Texas were granted the waiver than the grain that would have been earmarked for biofuels could instead be used to feed Texas cattle. Texas’ waiver request might be the first in a line of similar requests as “officials in Missouri and Virgina are considering asking for similar exemptions.”

Before a business or individual takes the dive into the carbon markets they should be aware of fraud and worthless carbon credits in the markets. Because of the news and momentum in the carbon markets, it has attracted legitimate businesses and those looking to make a quick buck. There already have been a couple of investigations which have uncovered possible fraudulent carbon projects and worthless carbon credits.

Recently the U.N. has started to question some carbon projects for “whether they provide real environmental gains, or are just padding the pockets of middlemen like EcoSecurities.” The U.N.’s actions are noteworthy because the legitimacy of the projects being looked at occurred in the regulated European carbon market, and not an unregulated carbon market. The Guardian alleges that is has collected evidence which so far leads it to believe that the global carbon “markets have earned fortunes for speculators and for some of the companies which produce most greenhouse gases and yet, through a combination of teething troubles and multiple forms of malpractice and possibly fraud, they have delivered little or no benefit for the environment.” The list of those questioning the legitimacy of some carbon projects and whether fraud is being committed in the carbon market continues to grow.

In the past the Financial Times, and the New York Times have run stories about fraud in the carbon markets. All of the questions surrounding the carbon markets should serve as a warning to businesses and individuals looking to enter the carbon markets. It is clearly a buyer beware type of market right now, but it should not be an excuse to stand on the sidelines.

There are several resources available to find legitimate carbon projects such as California Climate Action Registry, and the EPA. There are also many reputable companies that trade in the carbon markets that could help businesses reach their carbon goals, such as NativeEnergy, Climate Trust, and TerraPass. With all of the resources there should be no hesitation about getting into the carbon markets, but you must do your homework beforehand.

The mutual fund industry is certainly starting to take notice of the growing number green investors.  Shareholders demanding climate change resolution are being met with less opposition from the mutual fund industry.  Climate change resolutions  typically “call on companies to disclose their own emissions, reduce emissions and explain climate risks and opportunities from their actions and investments.”  While some in the mutual fund industry are starting to take action there are still some firms resisting these green investors.   

Some of the firms resisting the green investors are being singled out by Co-op America as part of a green investor campain.  Co-op America is trying to get investors of 10 of the largest mutual fund firms to demand that the firms do more to force businesses to look at climate change issues.  Certainly if the mutual fund industry and its billions of dollars invested in businesses started demanding that businesses look at their climate impact, it would not fall on deaf ears. 

As this blog has stated before climate change legislation is coming to the United States and businesses who choose to ignore their environmental impact will be at a competitive disadvantage. In a recent article Personal Computing World gives a good overview of how a business should prepare for carbon legislation. If you are new to climate change or just want a few quick pointers it would serve you well to take a look at this article. As the author puts it “[t]here is a clear competitive advantage available to companies” that work on evaluating and implementing an environmental plan before climate change legislation is passed in the Untied States.

Carbon trading has the potential to become the next big thing in the financial markets. The Financial Times recently reported that “[c]arbon emissions trading could become the world’s leading derivatives product.” The article went on to state that the Hong Kong stock exchange, the Multi Commodity Exchange of India and the New Zealand Stock Exchange are all looking into creating trading platforms for carbon trading. While here in the United States the New York Mercantile Exchange is going to join the Chicago Climate Exchange in offering carbon trading.

When individuals who make their livings on predicting future trends and markets start lining up to get into the carbon market, emitters should take notice. This is just more evidence that carbon legislation is more likely than not going to be passed in the near future. Again it should be noted that it is time for businesses to start looking at their carbon footprints and making plans to reduce their emissions. A business should spend the time now, while it has time, looking at what it can and cannot do with respect to its carbon footprint. Because when carbon legislation is passed it will be too late into the game to come up with a well thought out plan, and instead a business will be forced to run a sprint with one arm behind its back.

Unlike the mandatory carbon markets, such as the European Union’s Emissions Trading Scheme and the Kyoto Protocol, the United States has a completely voluntary carbon market. While a voluntary carbon market might sound like a losing environmental cause, it actually has some weight behind it. In 2006, the volume of carbon offsets traded in the global voluntary market was “larger in volume than both the Kyoto Protocol’s Joint Implementation mechanism and the New South Wales Greenhouse Gas Abatement Scheme.” In fact, the worldwide voluntary carbon market grew 200% between 2005 and 2006. It was further estimated that the global voluntary carbon market was worth $91 million in 2006.

Others probably would be surprised to hear that many large companies are participating in the voluntary carbon market. Dell, Delta, AEP, Google, Pacific Gas & Electric, Yahoo, Nike, Sky, and Origin Energy are just a couple of the businesses buying offsets from the voluntary carbon market. Whether the interest in the voluntary carbon market is in anticipation of future legislation or from a social responsibility point of view, the voluntary carbon market is growing fast. The opportunities to make money in the voluntary carbon market will continue to increase as more and more companies and individuals participate in the market. Also as more money gets invested in the voluntary carbon market, the likelihood of breakthroughs in technology increases.