Posted on 11/20/2006 10:16:21 AM PST by NormsRevenge
SACRAMENTO – Like gold and pork bellies, California's carbon dioxide emissions credits may someday emerge as the big thing on commodity markets.
Brokers who specialize in the art of the deal are closely following developments here as California steers toward a controversial, yet common, market-based course to reduce pollution many scientists link to global warming.
Under the proposal, California would reward low-polluting companies with emissions credits that they can then sell on an open market to industries that cannot readily curb greenhouse gas discharges. Companies are already forming a line, said Josh Margolis, a manager with Cantor Fitzgerald Brokerage.
“We have folks who would like to buy and folks who are willing to sell,” Margolis said.
The potential payouts and payoffs are being measured in the billions – for good reason.
Globally, the World Bank and China worked out a record $1 billion deal this summer to help two refrigerant manufacturers reduce carbon dioxide emissions. In Europe, nearly $13 million changes hands daily as businesses buy and sell emissions credits to comply with demands to curb global warming.
In the United States, Northeastern states are preparing to launch a greenhouse gas marketing program expected to produce millions of dollars in deals to offset power plant emissions starting in 2009. The Chicago Climate Exchange, where many pollution-credit trades are conducted, broke records this year and projects nearly $1.5 million in contracts in 2007.
However, the market for carbon dioxide credits is still in its infancy in the United States. California adopted landmark legislation this year that will require industry to gradually roll back emissions of greenhouse gases, such as carbon dioxide, linked to global warming.
In an important concession sought by Gov. Arnold Schwarzenegger, state lawmakers agreed that the Air Resources Board could develop a system called “cap and trade” as part of an overall strategy to reduce emissions by 25 percent by 2020.
Under cap and trade, companies can earn state-issued credits if emissions fall below a minimum allocation that will be determined by regulators in the coming years. Companies can take that reward and sell it to industries needing pollution credits to come into compliance.
The Legislature made it clear that it wants a cautious approach to the cap and trade system.
But not Schwarzenegger. He wrestled with lawmakers to guarantee that the program was in the legislation and later issued an executive order to jump-start the necessary groundwork before the air board takes up regulations.
“Governor Schwarzenegger has committed us to cap and trade,” said air board Chairman Robert Sawyer when asked whether the program was a foregone conclusion.
Schwarzenegger has already held talks with major players across the nation and overseas. The administration is putting together a globe-trotting team to exchange ideas on implementation. Emissions market specialists have come calling in Sacramento.
“The logic of the system is you use the power of international finance markets to ensure that you're making reductions in a way that's most cost-effective,” said Martin Nesbit, chief of Britain's national climate change division.
Regulators have yet to determine geographical boundaries for the program, but there appears to be momentum for allowing national, if not global, trading because greenhouse gases, unlike many smog-forming compounds, do not stay in one region.
While not exactly on par with Wall Street's anticipation of Google's initial stock sale, the looming California market for carbon dioxide credits is expected to be huge. The state's proposal seeks a reduction of 174 million metric tons by 2020, although a large share of that may be achieved by installing new equipment.
Cutting 1 million metric tons of carbon dioxide is the pollution-reducing equivalent of taking 216,000 passenger cars off the road for a year, according to the state Air Resources Board.
“We will look closely at California for the opportunity to invest given that it is 10 percent of the nation's economy,” said Richard Rosenzweig, chief operating officer of the worldwide asset manager Natsource LLC.
A Cantor Fitzgerald survey of 58 companies found 41 percent said they would buy credits to comply with the law, 26 percent expected to sell credits and another 40 percent said they would reduce emissions on-site.
More telling, 10 percent said they would have to move out of state and another 2 percent said their businesses would close.
There were overlapping answers to some questions, explained Margolis of Cantor Fitzgerald. More important, he said, businesses considering a departure should expect to see “state-offered economic incentives and/or mandated fees that will be designed to discourage companies from moving manufacturing operations out of state. These could include the issuance of bonus allowances, levying fees on goods shipped into California or some other means that emerges.”
The cap and trade program is not revolutionary, though some wary lawmakers and environmentalists question whether it is a truly tested concept. Variations have existed nationally to target other forms of pollution, but none have been aimed specifically at greenhouse gases until recently.
The greenhouse gas program is expected to broaden markets already in place in Southern California, where existing law allows similar activities involving emissions of particulate matter, nitrogen oxides, sulfur oxides, carbon monoxide and hydrocarbons.
In the Los Angeles basin, the nation's smoggiest region, businesses have been buying and selling pollution credits for some time. Contracts are closing in on a cumulative $800 million since 1994.
“Serious money is traded,” said Sam Atwood, a spokesman for the South Coast Air Quality Management District.
In San Diego County, trading in credits for pollution-forming compounds fluctuates. Close to $250,000 in contracts were signed in 2005; $2 million in 2004; and $1 million in 2003. Prices have ranged from $50,000 to $210,000 per ton.
Financial opportunities, combined with the county's aggressive regulations, have provided “dramatic improvements” in air quality even as San Diego continues to grow, said Robert Reider, a county air pollution specialist.
Environmentalists recognize the gains, but are still wary of free-market mechanisms, which they say can be abused and can take much longer than regulations to achieve targets.
“Command and control gives you greater security that you're going to get the reductions. . . . But the reality is we don't appear to have the political will to implement an aggressive command and control program,” said Tim Carmichael, president of the Coalition for Clean Air.
Environmentalists want to make sure that initial allocations of allowable pollution are not inflated. Other concerns include avoiding heavy concentrations of polluting industries in poor neighborhoods and ensuring that emissions reductions are real and not just shown on paper.
“When you're talking about trading pollution, you have to remember that at its core, you're giving somebody the right to pollute in the future,” Carmichael said.
Nevertheless, Carmichael and others accept the market compromises, convinced that it will make a difference.
“With command and control, there's no incentive to do it faster. We want to reward people with early action because we're running out of time,” said Jim Marston, who monitor's pollution issues nationally for Environmental Defense.
A major turning point in emissions trading may have been the federal government's compromise to slow destruction caused by acid rain in legislation signed by the first President Bush in 1990.
The success of the acid rain program erased a long-standing misperception, helping regulators overcome business jitters over emission trading in other arenas, according to federal overseer Brian McLean.
“An emissions cap was always equated with an economic growth cap,” he said. “There was this connection that I believe we broke.”
California's aggressive push is expected to increase pressure on Congress and the Bush administration to take action, those involved say.
“National regulation is coming. It's just a matter of when,” said Brent Dorsey, director of environmental programs for Entergy, a major power producer in the South and Northeast.
But Congress must include market mechanisms, he said.
“Let the market dictate the winners and losers – not regulators,” Dorsey said.
Franz Litz, coordinator of climate change policy for the state of New York, said market forces benefit the environment and public health.
“By establishing a price, you are driving innovation and rewarding innovation,” Litz said.
Said Rosenzweig, Natsource's asset manager, “It's a lot easier to meet your environmental goals if people can make money.”
The TWirPinator pushed for this to the max,, lots of money to be made.. lots
All based on science which cannot tell whether or
not humans contribute to "global warming"
It's a terrible waste of money.
Acid rain was another environmental hogwash.
1a. Doctor documents to show you reduced emissions
1b. Pay off regulator to validate false reduced emissions.
1c. By worthless factory, close it, claim emissions reductions,
1d. Etc.,
Then...
2. State gives you free money in the form of credits which will be redeemed by restrictions on the honest factories and so on!
"Market Based" solutions. What a scam.
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