What impact will last week's climate agreement between the United States and China have on global emissions reductions and the path toward the next binding international treaty? During today's OnPoint, Dirk Forrister, president and CEO of the International Emissions Trading Association, discusses the details of the agreement and the steps each country will need to take to reach its targets. He also weighs in on the legal defensibility of U.S. EPA's Clean Power Plan.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Dirk Forrister, president and CEO of the International Emissions Trading Association. Dirk, it's always nice to see you.
Dirk Forrister: Thank you, Monica. Good to be back.
Monica Trauzzi: Dirk, let's start with the climate news coming out of China last week during President Obama's visit with Chinese President Xi. Does the agreement between the two countries on climate change give a boost to the international climate negotiations leading up to Paris next year?
Dirk Forrister: I think it absolutely does, and part of it kind of grows out of the summit at the U.N. in September, where heads of state were getting more engaged, and I think it was a surprise to most people in the process that the two biggest players in the process came out with announcements about their contributions early, because everyone's kind of expecting this in the first quarter of next year, and we're expecting a big fight in Lima about the overall shape of what commitments are going to be in. We're still going to have discussions about that, but this is a surprise announcement and important because of who announced it, where they announced it and the fact that both of them seem bought into this.
Monica Trauzzi: There's a lot of symbolism here, but China didn't even set a target. They just committed to a peak in emissions by 2030. So, is the agreement impressive, then, when you look at just the numbers and not the symbolic nature of it?
Dirk Forrister: Well, I think certainly for people in the business community you care how the countries plan to get to those targets. What're the policies they're going to undertake? Is it really real on the ground? And I'd say with both the U.S. and China, I know my membership is interested in understanding how they intend to do it. In New York, China's vice premier announced that they were accelerating work on a national emissions trading program, which of course caught our attention, because there're these operating pilots there. They're just getting their sea legs, but they're already thinking, yes, that's going to be a core part of what they do. So, we want to know how that's going to fit into this broad target that they've set.
Monica Trauzzi: In terms of the numbers set by the U.S., 26 to 28 emissions reduction below 2005 levels by 2025. Can the U.S. get there with current policies in place, or does the U.S. need the Clean Power Plan to get to that number?
Dirk Forrister: I'm pretty confident that those numbers are based on an intention to implement their automobile regulations and their regulations on power plants. I don't see how they would get there without the Clean Power Plan.
Monica Trauzzi: Does this move by the president, by President Obama, set the stage for more executive action on greenhouse gas emissions over the next two years?
Dirk Forrister: Well, again, we're going to be interested to know sort of component by component how do they intend to do this, and I know that there's activity there on maximizing use of existing authority across the board, so there will be more in energy efficiency, likely to be more in expectations for voluntary commitments like they did on the HFC front recently, perhaps in other areas. So, I don't count them out at all for being able to achieve that just because of the way it works, and on Copenhagen targets we didn't know how they were going to achieve a 17 percent, but looks like U.S. is very likely to hit that.
Monica Trauzzi: We've already seen such a focus on energy and climate since the midterms. Do you think this is emerging as the issue to watch leading up to the 2016 elections?
Dirk Forrister: Well, it's going to be one of the big ones, because it's interesting to me that it's, in a sense, after the elections one of the first things out of the blocks is to step forward with -- it's a pretty major diplomatic coup. I think in the climate terms you see this as almost a tectonic shift for the Chinese and American heads of state to be announcing something like this together. It means they're really committed, and I think that is going to, in the politics of this down, equal and opposite reaction. There's certainly going to be voices on the other side that will ask questions about it.
Monica Trauzzi: So, we're heading to the December 1st deadline for public comments on the Clean Power Plan. What changes are you anticipating? What changes are you hoping for in the final roll?
Dirk Forrister: Well, I think one of the big issues for us has been wanting to understand how states that want to use markets and that maybe want to pool their efforts in multistate efforts, how that would work. And a big piece of that was how do you calculate what the actual state-by-state target is going to be? The original proposal was rather opaque on that. It gave you a lot of potential combinations for how a number might be arrived at. So that was one area where we thought it ought to be clearer to make it an easier choice for states to know whether it's their advantage to use that type of approach. There're some other elements that I think relate to how -- practically speaking, the timing. How fast can something like this get in place, especially if you're going to work out a multistate arrangement? They do give a little extra time, but is it enough extra time, because you want time to do it right. So, those're some of the things that we'll look at.
I think the other thing is for things that my membership has cared about for a long time is if you're managing this issue over many years and you're thinking about this as a structure that, if it survives the courts and if Congress doesn't act and companies have to be thinking about there's a likelihood that this thing sticks around and you have to work with it, what about offsets, because other countries have the ability to use offsets to lower cost. We're seeing that in developing countries that are launching emissions trading programs or carbon-tax programs that they have that sort of cost-containment feature. Should American industry get the same benefit or not? So, that's another area that we'd like to see some further thought.
Monica Trauzzi: We recently had former EPA General Counsel Roger Martella on the show, and he said the Clean Power Plan will not survive a court challenge. What do you think the legal chances are?
Dirk Forrister: Well, I'm a retired lawyer. I haven't practiced in a long time and certainly respect Roger's opinion, but I think companies can't bank on that. And I've looked too many corporate executives in the eye about, "Do you actually rely on the litigator's opinion about what they're going to be able to do?" They won't give you 100 percent confidence level that they can do that, so that's the real challenge of this is I think companies have to be pragmatic and have to plan as if they might have to live with it, which means at some point in time they have to help shape an outcome that they could work with.
Monica Trauzzi: So, back to the international scene, in a few weeks the next round of international negotiations will take place in Lima, Peru. How is that meeting expected to build momentum heading towards Paris next year?
Dirk Forrister: Well, I think it just got a shot in the arm, obviously, from the U.S.-China announcements, but what Lima is really going to be about is talking about the initial framing of what the Paris agreement might look like. I think that's going to start with a big, long, hard fight around how countries define what their national contribution is. That's our new word for targets -- and how they plan to achieve them and measure them and verify them.
So there's a lot of technical stuff that doesn't sound very thrilling to talk about, but it's essential for building confidence in the parties. And it's going to be a lighter-touch U.N. arrangement than we've had in the past, but on the other hand, it's going to be something, again, we live with for a long time, so those of us that're interested in market mechanisms want to be sure that the accounting is done right so that you know that there's no opportunity for counterfeit to enter the system or something. So, Lima starts all of that. It doesn't finish it, so it really tees up the discussion that'll take place over the following year.
Monica Trauzzi: All right, a lot for us to watch. Thank you for coming on the show. Nice to see you.
Dirk Forrister: Thanks, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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