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Carbon-Intensive Investors Risk $6 Trillion ‘Bubble,’ Study Says

By Sally Bakewell – Apr 18, 2013 4:01 PM PT Investors in carbon-intensive business could see $6 trillion wasted as policies limiting global warming stop them from exploiting their coal, oil and gas reserves, according to a report. The top 200 oil, gas and mining companies spent $674 billion last year finding and developing fossil fuel resources, according […]

Bjorn Lomborg: Green Cars Have a Dirty Little Secret

Producing and charging electric cars means heavy carbon-dioxide emissions. By Bjorn Lomborg Electric cars are promoted as the chic harbinger of an environmentally benign future. Ads assure us of “zero emissions,” and President Obama has promised a million on the road by 2015. With sales for 2012 coming in at about 50,000, that million-car figure […]

“The Carbon Crunch: How We’re Getting Climate Change Wrong — and How to Fix It.”: The Angry Economist

Q and A: The Angry Economist By LISA PALMER Dieter Helm has long been frustrated that, despite more than two decades of international negotiations, the world has failed to tackle climate change. So he got angry, he said, and decided to write a book about it: “The Carbon Crunch: How We’re Getting Climate Change Wrong — and How to […]

A New Path on Emissions

By JOHN M. BRODER World Resources InstituteUnder a “go-getter” regulatory scenario, the nation’s greenhouse gas emissions could be reduced by 17 percent from 2005 levels by 2020, a new analysis suggests. In his second inaugural address, President Obama promised to take on climate change as a priority in his second term. “We will respond to the threat […]

States’ Group Calls for 45% Cut in Amount of Carbon Emissions Allowed

By FELICITY BARRINGER The regional group proposed a 45 percent reduction next year in the total carbon dioxide emissions allowed. The cut is not as draconian as that number suggests, however, because the new total of 91 million tons reflects the current emissions level after five years of a slumping economy and increases in renewable energy […]

The Triumph (and Challenge) of Climate Math

By Andrew Winston – Nov 19, 2012 11:27 AM MT

A nerd hasn’t been this popular since, well, ever. Nate Silver, the creator of the election poll statistical hub FiveThirtyEight was declared the clear winner in the presidential election. And on Fox News, election math was at the center of one of the most bizarre on-air moments in memory.

The numbers discussion then seeped over from polls to other politically charged topics such as climate change. David Frum, President George W. Bush’s speechwriter, tweeted this gem: “Horrible possibility: if the geeks are right about Ohio, might they also be right about climate?”

Saudi Arabia’s plans to invest $109 billion in its solar industry over 20 years. Photographer: Art Partner Images

This awakening about the math (and physics) of climate change has coincided with climate activist Bill McKibben’s “Do the Math” tour, an awareness-raising series of events criss-crossing the country this month. The tour was inspired by McKibben’s incredible essay in Rolling Stone magazine, “Global Warming’s Terrifying New Math.”

In this article, McKibben lays out 3 fundamental climate numbers: to stay below (1) 2°C of warming (the limit the world’s scientists have said might help us avoid the worst of climate change), we can only burn (2) 565 more gigatons (a billion tons) of carbon dioxide, which will force a battle with the fossil fuel industry since it has (3) 2,795 gigatons in reserve. These are important numbers to wrap your head around, but what do they really mean for countries and companies? How fast do we have to change?

To answer these tough questions, we can turn to two of the world’s best number crunchers, McKinsey and PwC (full disclosure: I have a consulting partnership arrangement with PwC US). Last week PwC released its Low Carbon Economy Index 2012 report, which calculated one simple, powerful number: In order to meet the 2°C warming target, we will need to reduce the global carbon intensity (how much carbon it takes to produce every unit of energy or GDP) by 5.1% every year until 2050. For perspective, in 2011 carbon intensity improved just 0.8%.

This number provided another view on some similar math from McKinsey, which concluded that the ratio of global GDP per ton of CO2 would need to rise tenfold by 2050.

OK, so the math is not pretty, but it is what it is. And it’s not like the world is ignoring the challenge entirely. Here are some numbers that make me feel better:

  • $2.2 trillion: The size of the “climate economy” by 2020 according to the bank HSBC
  • $372 billion: China’s budget for energy conservation and anti-pollution measures over the next few years
  • $260 billion: Global clean energy investment in 2011
  • $109 billion: Saudi Arabia’s planned investment in its solar industry over 20 years
  • 50%: the portion of Germany’s entire electric demand satisfied by solar energy during one sunny day in May, a world record

These are great macro stats. But the brutal logic of the McKibben, PwC, and McKinsey numbers applies at the microeconomic level as well. Meaning, I believe, companies need to acknowledge the math and shoot for a 5% reduction in carbon per year.

It’s not so crazy. The early leaders have a good start. Dow Chemical has reduced energy costs $9 billion since 1994. Walmart has improved the fuel efficiency of its distribution fleet by 69% since 2005. A large consumer products company — which tells me it will be going public with this story very soon — has already cut carbon in its own operations by 80%.

Of course, the entire private sector will not achieve these results on its own. We will need strong global policies and a price on carbon. But given how profitable many organizations are finding the low carbon quest to be, they shouldn’t wait.

While it’s a myth that companies make all decisions on ROI calculations (what was the exact return on that Super Bowl ad?), we do claim to love hard-nosed numbers. Let’s not let politics or fear of the size of the task ahead get in the way of today’s climate math.

Climate data has trumped politics in the past. According to Sunday’s op-ed by Cass Sunstein, the Harvard professor and co-author of the great book Nudge, Ronald Reagan embraced aggressive action to solve the problem of ozone depletion because he believed the cost-benefit analysis. Basically, it was cheaper to act than not to. Similarly, the math on climate action is getting better every day as the costs of inaction rise. As Sunstein points out, Hurricane Sandy will likely cost the country $50 billion (New York’s Governor Cuomo has already asked for $35 billion in federal aid).

Climate math is simply a constraint on the imaginary formula that is business as usual. But constraints drive innovation. We in the business community respect numbers and the best companies love challenges. Let’s prove it.

Andrew Winston is the co-author of the best-seller Green to Gold and the author of Green Recovery. He advises some of the world’s biggest companies on environmental strategy. Follow him on Twitter at @AndrewWinston.

Copyright © 2010 Harvard Business School Publishing. All rights reserved. Harvard Business Publishing is an affiliate of Harvard Business School.

California stages successful cap-and-trade trial

California officials have completed a successful trial of its much-anticipated carbon trading scheme, which will be launched in November in an attempt to put a price on emissions from industrial facilities and power plants.

The state’s Air Resources Board staged a mock greenhouse gas auction late last week, in which heavy emitting companies pretended to bid for carbon permits in order to test out the system ahead of its official launch.

California will roll out the platform for real on Nov. 14, when more than 400 companies will be able to buy and sell tradeable carbon credits through quarterly auctions.

A statewide cap on carbon emissions will then be imposed from 2013, before being gradually lowered year-on-year, providing firms with a financial incentive to curb their greenhouse gas emissions.

Under the scheme, which is largely modeled on the EU’s emissions trading scheme, companies will have to hold carbon allowances to cover their own emissions, forcing them to purchase additional emissions if they exceed their cap.

In the first year of the scheme the board plans to give away the vast majority of credits, auctioning just 10 percent in order to put a price on carbon.

However, the amount of free carbon permits will be reduced each year so by 2020, 50 percent of allowances will be auctioned, providing a clear price signal for firms to invest in low emission technologies.

According to local reports, Air Resources Board board officials said the dress rehearsal ran smoothly, buoying hopes that the November launch will be a success.

Around 150 companies submitted bids during the simulation, although the agency did not release any pricing numbers or trading volumes, and no money changed hands.

However, the Board is still facing pressure from politicians to give away all of the credits for free, over fears the cap-and-trade scheme will have a negative impact on businesses and result in higher energy bills.

Assemblymember Henry T. Perea and Senator Michael J. Rubio have argued that the state can achieve its carbon reduction goals without conducting allowance auctions.

Down to the wire, cap-and-trade carbon market is unpopular with California’s manufacturers, refiners, some businesses

By Molly Peterson | September 20th, 2012, 12:14pm


AB 32’s carbon reduction goals will apply to manufacturers, and refiners like Tesoro in Wilmington.

Manufacturers, oil refiners, and other business groups really, really, really don’t want the state of California to cap carbon emissions and enable trading for them, a carbon market the state intends to establish in just a couple of months.

The idea of such a market is to cap carbon pollution and then reduce the amount of it California’s market participants send into the air. Some businesses can’t (or won’t) change their carbon-producing ways; in which case, they will be able to buy credits from other businesses that can. The state plans to auction 61 million credits in mid-November, and recently tested the market function to make sure it would go smoothly.

Today they’re taking their one last shot at the California Air Resources Board, using the public comment at a run-of-the-mill hearing to call attention to what they want.According to the Sacramento Bee’s Dale Kasler:

“It’s our last chance to really comment on this thing before they go forward with the auction,” said Gino DiCaro, spokesman for the California Manufacturers and Technology Association.

As for what they want? A lighter load, at the most basic level. They want no capping and trading, unless they want the rules to be rewritten, unless they want free carbon allowances rather than ones they’d pay for at auction.

In a letter dated September 7, the California League of Food Processors, the California Chamber of Commerce, the California Manufacturers and Technology Association, and the California Business Roundtable wrote to Governor Jerry Brown:

…[T]he cap and trade auction now being implemented by the Air Resources Board goes far beyond that, imposing an additional multi?billion dollar energy tax on consumers and businesses – but doing nothing to further the goals of AB 32…We must ensure that this auction does not raise billions of dollars in new taxes on the backs of California businesses and consumers and does not kill jobs or damage our fragile economic recovery.

The letter goes on to essentially ask for all allowances to be freely distributed (a move, incidentally, which has crippled the European market). But it’s a good strategy: public letters like this have sometimes yielded a political benefit: many of the carbon credits that will populate the initial market are free, for example, after years of intense lobbying and lawsuits.

AB 32 has been law since 2006; these groups have fought it tooth and nail every step of the way; these last-minute appeals aren’t surprising. What would surprise environmental groups watching the final two months before the auction would be if business groups squeezed more out of the Air Resources Board.

Carbon Cap-and-Trade Explained in 1 Simple Diagram

—By  and 

James WestJames WestEvery year at the Pacific Coast Producers processing plant in Woodland, California, half a million tons of tomatoes are sliced, diced, canned, boiled, and shipped to grocery stores nationwide. The operation is driven by steam, lots of it, which comes from a suite of massive natural-gas-powered boilers. Together, these boilers emit over 25,000 metric tons (about 27,557 US tons) of greenhouse gases annually, which means PCP will be forced to join California’s cap-and-trade carbon market, set to kick off in November.

The plan, which officials hope will put the country’s most populous state on track to cut greenhouse gas emissions 80 percent by 2050, isn’t the first carbon trading scheme in the United States: The Regional Greenhouse Gas Initiative, a collective of several Northeastern states (including Massachusetts, which rejoined a few years after being forced out by then-Gov. Mitt Romney), has been auctioning carbon credits, called allowances, since 2008. But unlike RGGI, which applies only to power plants, California’s plan extends to all sectors of the economy, which means businesses from paper mills, oil refineries, and universities to pharmaceutical manufacturers, steel mills, and food processors like PCP will have a stake in California’s campaign against climate change.

Yesterday, some 150 of those businesses got their first taste, as the curtain lifted on a dress rehearsal of the auction where companies will bid for the allowances (each worth one metric ton of carbon) that determine how much they’re allowed to emit, a dry run staged to let companies get comfortable with the system and work out any kinks before it launches for real in a few months. Over the next year, about 150 allowances will be bid on, together worth anywhere from $550 million to $1 billion depending on market forces. Some will be given away for free, to help businesses adjust to the added expense.

“It’s like some brave new adventure,” said Mona Schulman, a PCP vice president, as she waited for the fall of the digital gavel (the auction is held online) to start bidding. “Everybody’s in favor of clean air and the environment being healthy, but there’s a lot of uncertainty down the road.”

Barring an unforeseen advancement in steam boiler technology, Schulman said, the plant will have limited options for reducing emissions; as the cap gets lower every year, they’ll be left with the tough choice of having to cut production, or shell out to other companies for their unused allowances.

“That’ll be an unknown cost we’ll have to bear, that some of our competitors [in other states] won’t,” she said.

Kristen Eberhard, a lawyer with the Natural Resources Defense Council in California, said some of the revenue the state will collect from the auction will go back to businesses like PCP to help them adopt cleaner technology.

“There are lots of opportunities to operate more efficiently and this program will push businesses in that direction,” she said.

When it opens, California’s carbon market will be the second-largest in the world. The largest, the European Union’s Emissions Trading System, became even bigger Tuesday when Australia announced a deal to link its fledgling carbon market to the EU’s. That move, said Harvard environmental economist Robert Stavins, could be a catalyst for increased international cooperation in battling climate change.

“Given the relatively primitive state of climate change policy around the world, especially considering the scope of the problem, this is a very significant step forward,” says Stavins, who, like many environmental policy experts, has long pointed to pricing carbon as the most effective global solution to climate change. A globally linked carbon market is still some years off, he added, but each successful new partnership builds confidence for governments—like the United States—that have been slow to join the fray.

In that respect, California is ahead of the curve: Officials there and up north in Quebec arehammering out details of a plan to link their markets as soon as early 2013.

Still, cap and trade has its detractors, who in 2010 came out in force to squash a bill in Congress establishing a national carbon market. Like Schulman, they worry that the system will impose harsh costs on businesses, translating to higher prices for consumers.

After the closing bell rang, a spokesman for the state agency that manages the auctions said the central idea is to make large polluters accept the carbon price as a cost of doing business. The bidding had gone off without a hitch, leaving him feeling optimistic about the months and years ahead. The hope, he said, is that as the cap falls, businesses will find it more cost-effective to cut emissions by their own means, rather than chasing allowances. But that still leaves Schulman wondering about the future of tomato paste.

“We feel like we put out a pretty healthy product: It’s minimally processed, just preserved,” Schulman said. “The goals of this system we’re all in favor of. But we just don’t know whether cap-and-trade is the right way to do it or not.”

CORRECTION: An earlier version of our graphic misrepresented the auction’s starting price. The floor price for California’s November auction is actually $10 per ton.

Toward a Tougher Cap and Trade Program

The multistate carbon trading system known as the Regional Greenhouse Gas Initiative is undergoing its first comprehensive review since it was first put into effect in 2009.

While the nine participating Northeastern and mid-Atlantic states, including New York, have found that RGGI (pronounced reggie) has succeeded in producing almost $1 billion for energy efficiency programs and in encouraging reliance on renewable energy, they are considering making some changes.

On Monday, the Center for Climate Change Law at Columbia Law School held a panel discussion on RGGI’s future in which various experts, including officials from the energy industry and New York’s Department of Environmental Conservation, took part. They addressed the environmental and economic impact of the program’s cap and trade system, in which a ceiling is set on greenhouse gas emissions and electric utilities pay for their carbon dioxide emissions by buying credits or allowances. Utilities with emissions below an allotted cap can sell or trade their unused allowances in online auctions held four times a year.

The participants discussed whether RGGI should be linked with other trading programs like California’s, whether the program should lower its cap on emissions to require further reductions, and whether the RGGI should include other sources of greenhouse gas emissions beyond the electricity sector.

Because of the faltering economy and a switch from coal to natural gas by many utilities, electricity demand and emissions have been lower than expected, so power suppliers have easily met their caps. New Jersey Gov.Chris Christie cited this issue when he pulled out his state out of the program last year.

A video of the discussion at Columbia University is here.