[Terrapreta] Carbon Forum America report by Kelpie Wilson

[lou gold]

*Coming Soon - The Carbon Economy*
    By Kelpie Wilson
    t r u t h o u t | Report

    Tuesday 04 March 2008

    By refusing to sign on to the Kyoto climate treaty, Americans have
insulated ourselves from the complexities of the carbon market the European
Union has been trading in for the last three years. But that state of
ignorance, while not exactly blissful, is about to end.

    On February 26 and 27, the international carbon trading financial
community descended on San Francisco to present Carbon Forum America, the
first American carbon trading conference to include a full trade show
featuring 80 companies that manage carbon credit assets and trades,
negotiate contracts, validate projects, and perform various other market
services.

    Why California and why now? California is the US leader on climate
policy and now is the time the tea leaves are spelling out a coming
certainty for investors. The first serious US climate change measure, the
Lieberman-Warner bill, has passed out of a Senate committee. All three
front-running presidential candidates have acknowledged a cap-and-trade
system for carbon emissions is inevitable. US regional programs like the
Western Climate Initiative are picking up steam, and 32 states have now
adopted hard emissions targets.

    The conference sponsor, the International Emissions Trading Association,
is banking on the idea US investors will embrace a worldwide carbon trading
market that reached $60 billion in 2007 and could mushroom to $300 billion
or more very soon.

    But what exactly is a carbon market? At a press briefing, IETA president
and CEO Henry Derwent acknowledged the concept was a difficult one to
explain. "Carbon is an externality, not a commodity. People say, 'What on
earth do I need that for? It's not a pork belly.'"

    Derwent said investors should look at carbon trading as a form of
derivative like a hedge fund. He defended the idea of traders making a
profit from carbon trading. "They should be taking a margin for a service.
If they do their job well they will provide the world with energy with a
lower risk of climate change."

    Environmental critics of a cap-and-trade system worry carbon traders,
like other derivatives traders, will get carried away and game the system to
produce excessive profits for themselves. But the biggest issue as the US
contemplates its first national climate bill is the how to allocate the
emissions under the cap.

    The European Union Emissions Trading System established under the Kyoto
protocol gave away emissions allocations to polluting industries in a
grandfathering scheme. This depressed the price of carbon and got the market
off to a slow start in 2005.

    The Lieberman-Warner bill would repeat this strategy in the US by giving
away over half of the pollution allowances - worth billions of dollars - to
big industries like coal-burning electric utilities. By contrast, both
Clinton and Obama advocate auctioning 100 percent of the allowances.

    One hundred percent auctioning is a litmus test for much of the
environmental community, which sees the revenues as a crucial source of
funds to pay for research and development of renewable energy and to support
low-income people who will be hurt by higher prices. In fact, a
cap-and-trade system with 100 percent auctioning of allowances is
functionally not very different from a carbon tax.

    At a Carbon Forum plenary session on potential federal greenhouse gas
regulation, representatives of some big corporations weighed in on the
auctions debate and other issues.

    Ralph Moran, West Coast Climate Change director for British Petroleum,
said his company supports some amount of auctioning, but it will
dramatically increase the cost of doing business. He warned there was no
guarantee government would use the revenues from auctions wisely.

    Rich Rosenzwieg, Chief Operations Officer of Natsource, a carbon trading
firm, continued the theme of mistrust in government. He said we should start
small with auctions because "the public won't support giving government
billions of dollars in revenue." He said the revenue stream would end up in
a "roach motel" where the money goes in but may not come back out to the
taxpayer. Rosenzwieg also stressed the need for flexibility and said we
should not expect to "solve the problem in ten years."

    Katharine Brass, director of General Electric's Ecomagination program,
spoke about a looming gap in US electricity production due to the recent
cancellation of many new coal-fired generators. That capacity was needed to
meet projected demand, she said, and it will take ten years to bring on new
coal plants with carbon capture and storage, even if we could start now. But
last month, the Bush administration canceled FutureGen, the only pilot
program to develop the untested technology.

    California Lt. Gov. John Garamendi closed the conference with a stirring
address. In an obvious reference to the Bush administration's refusal to
allow California to regulate greenhouse gas emissions under the Clean Air
Act, Garamendi detailed all of the ways in which global warming is now
impacting and will impact California in the future. While drought and
warming are reducing mountain snow pack and drying up the Colorado River,
sea level rise will soon push salt water into the Central Delta.

    "The end result: the California water system as we know it today -
terminated. Doesn't work. We are going to spend billions upon billions of
dollars to redesign our water system," Garamendi said.

    California is taking action, he said, and state legislation (AB32, The
Global Warming Solutions Act) will enable California to establish a carbon
cap-and-trade program in the next two or three years. His hope is the
California program will drive the coming federal policy: "We are eleven
months away from a new regime in Washington and when that happens we want
them to follow the California lead and that means we are moving very rapidly
forward on a whole set of policy issues."

    Garamendi wants California to auction its emissions allowance permits to
create a fund to deal with aspects of the problem not covered by markets,
like energy research and development and environmental justice.

    He also supports bringing in transportation, which accounts for 40
percent of California's greenhouse gas emissions. He said there have been
lots of discussions of how to do that, but his view is, "If anyone figures
out a way to have a cap-and-trade system that rewards individuals, then we
will have a big winner because everyone will want to make an extra buck."

    Getting individuals to engage by coming up with the right incentives
would be "an awesome system," Garamendi said. "If any of you know of
anywhere in the world where such a system is being tried, please let us know
here in California."

    If Garamendi's enthusiasm is any guide, the new carbon-based economy is
coming very soon, at least to California, with the rest of the country
following shortly.

    Mette Peterson, one of the Carbon Forum organizers, said the conference
attendance exceeded expectations with 1,400 participants. She said American
businesses were there to learn about the market and get positioned for the
future.

    It looks like the smart money is gearing up to hedge against climate
change.

------------------------------
    *Kelpie Wilson <http://truthout.org/contactkw.php> is Truthout's
environment editor. Trained as a mechanical engineer, she embarked on a
career as a forest protection activist, then returned to engineering as a
technical writer for the solar power industry. She is the author of *"Primal
Tears <http://www.kelpiewilson.com/>,"* an eco-thriller about a hybrid
human-bonobo girl. Greg Bear, author of *"Darwin's Radio,"* says: "*'Primal
Tears'* is primal storytelling, thoughtful and passionate. Kelpie Wilson
wonderfully expands our definitions of human and family. Read Leslie
Thatcher's review of Kelpie Wilson's novel *"Primal
Tears<http://www.truthout.org/docs_2006/080207G.shtml>
."
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