Greenhouse gas emissions traders refocus on state, regional programs

NEW YORK -- Carbon market enthusiasts have largely given up on the idea of federal legislation on greenhouse gas emissions. Instead, most are now looking to establish cap-and-trade in the United States gradually, through the spread of regional programs.

Experts see only grim prospects for future leadership on climate change coming from Washington after today's vote count is tallied. But they're all also optimistic that a move in California to end that state's emissions control program will fail.

That failure, combined with a fresh climate action campaign among environmental groups expected next year, is seen as potentially boosting prospects for forming more state-led initiatives like the Western Climate Initiative (WCI).

Though much glummer than in the past, attendees gathered for the annual Carbon Market Insights Americas conference, hosted by market monitor Point Carbon, seem relatively undeterred by the prospect of an election victory for Republican congressional candidates today.

Signs of pessimism among the carbon market crowd are in abundance. Attendance at this year's Point Carbon event is way down -- estimated to be at just more than 200, despite past events attracting between 600 to 700 people. And market insiders confirm that investors are pulling back from carbon market projects in general, though they haven't completely abandoned the field.


But pro-climate action efforts continue. Climate activists and many on Wall Street still think they can help make national carbon emissions trading become a reality, but more quietly, mainly through efforts directed at state capitols and via regulators like U.S. EPA and the Securities and Exchange Commission.

A market will grow, but outside the Beltway

"I can't say Washington has become unimportant or less important," said David Hunter, U.S. director for the International Emissions Trading Association in an interview. Nevertheless Hunter acknowledged that any movement on climate coming from the nation's capitol next year would be "difficult," and that the focus of efforts will likely shift away from the goal of establishing a large cap-and-trade program toward fleshing out EPA regulations and promoting state action instead.

IETA has no plans to scale down its presence in Washington as it seeks to help steer future EPA regulations and a hoped-for compromise between Democrats and Republicans on climate and energy issues. And though Hunter and others acknowledge that GOP control of the House of Representatives would effectively put an end to efforts to set up a European-style emissions trading program here, carbon market proponents are far from calling surrender.

Rather, they say they are more closely following California's Proposition 23 up for vote today that, if passed, would put that state's climate change initiatives on hold. The expected defeat of this anti-A.B. 32 drive will be the confirmation many say they need to move forward on a new strategy, what most are calling an "incremental" approach whereby success is achieved through cobbling together cap and trade through regional systems that would eventually cover most of the United States and Canada anyway.

This includes the existing Regional Greenhouse Gas Initiative (RGGI), the 10-state program that regulates emissions from large power generators and raises revenues by auctioning allowances. Also, experts say the survival of California's A.B. 32 would pave the way for the WCI, a RGGI-inspired system that would cover most of the U.S. West and the largest Canadian provinces if fully realized. These systems combined with a proposed Midwestern Greenhouse Gas Reduction Accord (MGGRA), could eventually put the majority of the U.S. population under some type of regime.

A permanently fragmented U.S. system?

Further lifting spirits here are signs that New Zealand, South Korea and other countries seem to be moving to establish their own emissions trading systems despite setbacks globally.

Building up the carbon market through such fragmented systems, both in the United States and abroad, is "the only way to move forward," said Tony La Viña, a climate negotiator with the Philippines and dean of the Ateneo School of Government.

In an informal survey taken at the start of the conference almost half of all attendees said the earliest they could ever hope to see federal cap-and-trade legislation in the United States is now 2015. In early years most experts foresaw a federal legislation passing by 2011, but almost no one thinks that is possible today.

Half of the participants here also believe that a fragmented system of various regional and national cap-and-trade systems, all with their own rules and various roles for emissions offsetting schemes, will become the permanent reality for the global carbon market.

The new growing revelation -- that lobbying for grandiose legislation will not achieve their sought-for results -- came from last year's international climate talks in Copenhagen, Denmark. The extreme difficulty in obtaining a new international treaty to replace the Kyoto Protocol despite two years of intense negotiations has left many convinced the standard approach won't work, and most are all but certain that the Kyoto Protocol will die a quiet death at the end of 2012, with nothing to replace it.

Not everyone is happy with this scenario. Olof Bystrom, an official with the U.N. Framework Convention on Climate Change (UNFCCC), warns that the international offsets trading system, the Clean Development Mechanism, will be in danger without a new international treaty, risking billions of dollars in investments.

Bar for success at Cancun set low

"The viability of [CDM] projects will depend on reaching agreement on what the post-2012 global environment will look like," Bystrom said.

Still, though some insist on clinging to the U.N. process and lobbying for federal action on Capitol Hill, Copenhagen forced carbon market proponents "to consider whether that is the right course," said Elliot Diringer, vice president for international strategies at the Pew Center on Global Climate Change.

Opening the start of discussions, Diringer advocated for the incremental approach. The alternative, he said, is to continue the 15-year process of international talks that now can only hope to result in a vaguely defined "balanced package of decisions" that negotiators say they hope to get at the next climate change negotiating round scheduled for December in Cancun, Mexico.

Expectations for next month's Cancun talks are even lower than what they were last year for the Copenhagen talks.

Günter Hörmandinger, an environmental counselor for the European Union delegation to the United States, acknowledged that most negotiators don't really know what to expect to come out of Cancun even though the bar is set low. He said the European Union's position was that the outcome there "needs to address at least some of the priorities of all parties" but he could not elaborate on how that may come about.

Many are also suggesting that failure at Cancun could seal the fate of the U.N. process itself. Most carbon market players here agree that the balance of power in the global talking rounds will shift from the talks hosted by the office of the UNFCCC to the Major Economies Forum instead.

In the United States, the aftermath of today's election could similarly put to rest the push for federal cap and trade, leaving it up to the states to move forward, at least for the next several years.

"Everybody is fearing a horrible election result," said Hunter.

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