Progress, albeit small, on carbon markets

In the U.S., climate change and regulations on carbon emissions have been relegated to oped pieces thanks to the recession and lack of political will. Even so, there has been some progress as California advances toward implementing the legislation known as AB 32 that sets greenhouse gas emission targets by 2020. This week will mark an important milestone that industry observers are monitoring with the debut of a market that will auction emission allowances granted by state regulators. Albeit small, it is progress.

Us vs. them: Information and climate change

It is unlikely that the debate will ever be settled but this is a cool graphic depicting key issues among the climate change deniers and believers.

Gorgon’s new model for liabilities of carbon capture and sequestration

The WSJ has an interesting blog uncovering an under-reported aspect of the $37-billion Gorgon natural gas project in Australia being developed by Chevron, ExxonMobil, and Shell.

Under the terms of the agreement, the companies will be responsible for the storage of the carbon-dioxide resulting from the natural-gas project during its operating lifetime and for 15 years afterward, Bloomberg reports. After that, the Australian national and state governments will be responsible.

A major legal hurdle in carbon capture and sequestration (CCS) projects is the ownership of liabilities.  Who should be liable for, say, potential leaks during the course or after developing a project?  Gorgon provides an interesting model.

Wanted: Higher carbon prices

If we want higher carbon prices to incentivize projects that reduce carbon emissions, the latest auction in the United States’ only mandated carbon market — the Regional Greenhouse Gas Initiative — wasn’t good news.  The price of a ton of carbon dioxide equivalent fell from $3.23 in June to $2.19 this month.  Why?

1. Utilities are struggling with the recession’s impact on electricity demand, …
2. … fuel switching from coal to natural gas has gotten easier given that the latter is the cheapest it has been in five years, and …
3. … the RGGI is providing more allowances than demanded by the market (a la the European Emission Trading System in its early years).

Nevertheless, there is cause for cheer:

… RGGI authorities … hailed this week’s sale and the one-year run of the regional cap-and-trade effort as a success. … “Trading volumes … now match volumes in other established carbon markets, such as the Kyoto Clean Development Mechanism,” RGGI’s executive office … said ….  Since the start of RGGI one year ago, the allowance auctions have generated almost $433 million for state coffers. RGGI officials report that to date, more than 100 bidders have participated in the sales, and every major power plant in the Northeast is now reporting its CO2 emissions on a quarterly basis to the program.

As an aside, it is interesting to see how much of an impact verification processes can have on carbon prices.  The CDM credits trade at a significant premium (at least 25%, sometimes, 200%) to those from other exchanges.  More in this report on the state of voluntary carbon markets authored by Ecosystem Marketplace and New Carbon Finance.