Beginning from next year, the Californian cap-and-trade scheme will come into effect, as the largest emissions allowance market in the western hemisphere. Taking cues from carbon trading programs currently existing in Europe and Australia, California aims to ensure that emissions targets are met. One feature that separates it from other existing programs is its buyer liability, which has generated some amount of controversy. Read more

Danny Morris and Harrison Fell discuss California’s approach to a simple problem—what happens when carbon offsets go bad (that is, when they don’t deliver promised emissions reductions)? California’s solution under its new cap-and-trade program is buyer liability: firms holding an invalidated offset have to replace it to stay in compliance. This is controversial. Opponents claim it will make the carbon market less efficient, and that the state is in a better position to bear this risk. Morris and Fell look at claims by both sides.

Cap-and-Trade in California: An Introduction to Offset Buyer Liability

Daniel Morris and Harrison Fell in Resources for the Future (27July 2012):

When the clock strikes midnight on December 31, 2012, California’s carbon cap-and-trade system, established under the state’s Global Warming Solutions Act (Assembly Bill 32, or AB 32), will be open for business. The start date is one of the few existing certainties for what will be the largest emissions allowance market in the western hemisphere.

The California Air Resources Board (ARB) has worked to design the carbon market to operate as smoothly and efficiently as possible, taking lessons learned from existing carbon trading programs such as the European Union Emissions Trading System (EU ETS) and the Regional Greenhouse Gas Initiative (RGGI), as well as from offset-supply programs such as the Clean Development Mechanism (CDM). The result is a market that attempts to balance the uncertainty of compliance costs and allowance price fluctuations with the assurance that emissions targets are met. Achieving this balance will be tricky, but California has a few notable tools, including an allowance price collar, emissions credit banking, linkages with other GHG reduction programs, and, in particular, the inclusion of approved carbon offsets.

Offsets (emissions reductions made in order to compensate for emissions elsewhere) are a critical cost-containment component of the California cap-and-trade program as they effectively increase the supply of compliance options. They will play a prominent role in the California market—regulated parties can use offsets for up to eight percent of their compliance burden. And yet, offsets continue to generate controversy among stakeholders.

Opponents claim offsets will not create actual emissions reductions. To ease this concern, ARB will review each offset project to verify the emissions reductions. If the offset project did not create meaningful emissions reductions, those credited reductions must be replaced.

This has raised another point of contention: Who is responsible for making up the emissions reductions from invalidated offsets? ARB has put this responsibility on firms purchasing offsets—a buyer liability rule. Firms holding an invalidated credit must replace that credit to remain in compliance. This approach contrasts with methods adopted elsewhere. Quebec, for example, will instead maintain a state-run buffer pool of offsets to replace those invalidated.

Industry and offset advocates are unsurprisingly opposed to the state’s rule. They argue that buyer liability will put costly burdens on them and reduce the liquidity of the entire market. Emitters, the argument goes, are not offset developers, so they lack the resources and expertise to evaluate offset quality. If the state is confident in its certification process for offsets, industry argues, it should stand by that process by assuming liability for bad offsets. Indeed, the protocols approved by ARB for initial offset certification are among the strictest requirements in any current carbon market, and such stringency likely will drive up the cost of developing offsets. State officials counter that opponents of buyer liability are just trying to shift costs onto the state.

Regardless of where liability lies, the possibility of invalidations should force marginal (low quality or high uncertainty) offsets out of the market. Limiting offset supply reduces cost-saving opportunities and increases overall program costs. The fundamental question underlying this debate is whether offset buyers or the state are better equipped to evaluate offset quality and deal with potential invalidation at least cost.

Buyer Liability

If buyers are liable for bad offsets, they can protect themselves. Below are several possible options.

Risk Discount: Offsets are riskier than standard emissions allowances because they can be invalidated. Therefore, we would expect offsets to trade at a discount to emissions allowances. The discount on offsets passes some of cost associated with the invalidation risk on to offset sellers.

Self-Maintained Buffer (Physical or Financial): Offset buyers could protect themselves against invalidation by building and keeping a pool of verified offsets for insurance rather than compliance. Similarly, buyers could require collateral against offset invalidation—at least one likely offset buyer, Pacific Gas and Electric, has indicated it will do so.

Banking: AB 32 allows regulated firms to exceed their compliance burden by achieving additional emissions reductions now, then “banking” allowances for use in the future. Firms typically bank allowances to minimize their costs over the total life of the regulation and insure against unanticipated high abatement costs in the future. (The invalidation of a firm’s offsets is essentially an abatement cost shock.) Therefore, we might expect firms to bank more allowances if they are liable for invalidated offsets.

Insurance: Offset buyers could obtain private insurance to protect against losses from invalidated offsets. Opponents of buyer liability argue that offset insurance would likely be very expensive, especially given regulatory uncertainty around offset provisions, the unknown permanence of a given cap-and-trade program, and the lack of an existing market. Advocates counter that the market will develop along with the cap-and-trade market due to demand. It’s unclear who is right.

State Liability

If, instead, the state were liable for invalid offsets, it could presumably deal with offset risk in some of the same ways as firms could under buyer liability, with some additional options.

Maintained Buffer: Just like buyers, the state could set aside a portion of offsets to be used in case of reversals or invalidations. Such regulator buffers are common: they will be part of Quebec’s cap-and-trade system, and California included a Forest Buffer Account in AB 32 to protect against unintentional reversals of forestry offsets (for example, losses from fires, disease, or pests). This buffer account could be expanded to non-forest offsets.

Emissions Cap Haircut: When the annual emissions cap is set, the state could claim some portion of allowances and hold them in case of invalidation, an approach known in wonky parlance as a “haircut” for the cap. The haircut would force all actors in the market to cover the liability indirectly, regardless of their use of offsets, because the reduced supply of allowances will drive credit prices up. This approach would therefore reduce some of the cost savings provided by offsets.

Insurance: Also like regulated firms, California could buy private insurance against losses. The same challenges remain for developing a functional insurance market, with some potential benefits and complications. As the only purchaser of insurance, California would have some bargaining power for getting beneficial rates. But, if insurance companies are reticent to enter the market for private firms, they may feel even less protected when the state is the only player in the game.

The Reality of Costs

Although many of the actions available to deal with liability may be the same for the state and for offset purchasers, overall costs might be different.

Buyer liability provides incentives for private industry to innovate, creating contract structures and financial instruments to deal with invalidation risk. Although firms claim that the state is in a better position to assess the quality of a given offset project, it may not always be—the market may eventually be better able to determine the acceptable level of uncertainty than the state.

The state may have an advantage, however, in dealing with liability because of economies of scale and investments that the state will have to make regardless of the liability regime. For instance, as the party that issues offset protocols and judges offsets before they enter the market, the state will already have invested in determining offset quality, and may have true informational advantages over purchasing firms. If buffer stocks or third-party insurance are used to insure against possible offset invalidations, the state may be able to take advantage of economies of scale and/or monopsony power to keep costs down. Also, by taking on the liability itself, California might improve the liquidity of the secondary offset market, which would, in turn, lower the cost associated with holding an offset.

Despite complaints, the AB 32 buyer-liability ship appears to have sailed. ARB has reiterated that it is sticking with its decision to place liability on the buyers. Although California might be able to address offset risk more cheaply than industry, the state’s fiscal situation is likely a key factor in its decision. Were it to take on the liability itself, it would incur the additional costs of developing, administrating, and sustaining the liability mechanism in whatever form it selected. Rather than take on the burden of offset insurance options, California is putting the onus on the carbon market to develop the best way to account for invalidated offsets. How the market responds will help determine the future and robustness of offsets as an effective cost-containment mechanism for California’s efforts to reduce greenhouse gas emissions and also will shed light on the costs of dealing with the inherently uncertain nature of offsets.

Daniel Morris is a center fellow at Resources for the Future’s Center for Climate and Electricity Policy. Harrison Fell is an assistant professor at the Colorado School of Mines.

Source: www.rff.org

Certain practices have remained virtually unchanged over centuries. The cremation of the remains of the dead has received concerned over its high energy use and environmental impact, leading to the introduction of “flameless cremation” by the Glasgow-based company using the Resomation machine. Another practice that we take for granted, answering the call of nature, has attracted the attention of the Bill and Melinda Gates Foundation, which has funded the search for the toilet of the future and to improve sanitation in developing nations. Read more

Straits Times (19 August 2012):

Stillwater, Minnesota – A funeral home in the US state of Minnesota is offering a greener way to reduce the dead to ashes – “green cremation” or “flameless cremation”.

The Bradshaw Celebration of Life Centre in Stillwater has already processed the remains of 20 individuals using the so-called “Resomation” machine.

The process involves heating the remains at 149 deg C in a pressurised vessel containing a potassium hydroxide solution.

It takes around three hours and reduces the body to skeletal remains which are processed into a white powder which can be given to the family, like ash from crematoria.

But a key difference is that compared to traditional cremation, the green option produces a third less greenhouse gas, uses a seventh of the energy and allows for the complete separation of dental amalgam for safe disposal.

Mercury from amalgam vaporised in crematoria is blamed for a proportion of airborne mercury emissions worldwide.

The first Resomation machine was installed at the Anderson-McQueen funeral home in St Petersburg, Florida, which has used the new technology on 10 bodies, reported BBC News.

Retiree Stephen Page has signed up for the new cremation option at Bradshaw Celebration of Life Centre.

“I don’t want to be stuck in a cemetery somewhere with my body taking up space for hundreds of years,” he told the Star Tribune newspaper.

A green cremation – without any additional services – costs the same as flame-based cremation at Bradshaw’s – US$2,295 (S$2,850), reported Star Tribune.

“I think we’ve all talked more about green in the past few years,” said Mr Jason Bradshaw, vice-president and chief operating officer of Bradshaw Funeral and Cremation Services.

“As people look at their end-of- life options I think they’re weighing those options the same as others.”

The maker of the Resomation machine is optimistic about prospects.

Mr Sandy Sullivan, chief executive officer of Resomation, told BBC News he is now hoping to secure contracts to supply 10 to 15 more machines in the US in the near future.

Eight American states have so far passed legislation to permit the use of Resomation on their territories.

And while he says there is strong interest in Britain and Europe too – Resomation is a Glasgow-based subsidiary of Co-operative Funeralcare – similar enabling legislation is still needed.

Source: www.euro2012.straitstimes.com

By Rob C. Witzel for The Sun (19 August 2012):

No doubt tsunami warnings are sounding all across techville this fall has as rumors of an iPhone 5 and a smaller iPad continue to crest. However, until the supposed Sept. 12 Apple announcement, most tech news seems to have left the beach to merge with the coming wave.

While fellow tech kingpin Microsoft looks for its own wave of publicity with the imminent launch of Windows 8, co-founder Bill Gates created an interesting little splash of his own this week with the announcement of the toilet of the future.

Yep, you heard right. Bill Gates is involved in the development of the toilet of the future. It’s a solar one to boot.

Before you start wondering about how one of the world’s richest men could flush his fortune down the commode, it’s important to point out this is the work of the Bill and Melinda Gates Foundation, which seeks to lift the impoverished conditions of Third World countries.

When you look at the porcelain throne in terms of a tech device and not a place to play with one, you can see how an invention that has not fundamentally changed since the late 1700s is sorely lacking innovation.

Leave it to the man who took bits and bytes and brought about the modern computer era to deal with a much different set of bits and bytes in modernizing something far more important.

Gates, who has pledged his fortune to help eradicate world poverty, awarded $100,000 to the California Institute of Technology, which provided a working version of tomorrow’s john and transformed it into a self-contained solar unit that is able to recycle water and break down waste into renewable energy.

Subsequently, the foundation is lifting the lid on its deep coffers as it has pledged millions of dollars to see this and other finalists to fruition.

Source: www.gainesville.com

We are all addicts – addicted to the seemingly endless supply of cheap oil, coal and gas that we continually pump and dig out of the earth, and the symptoms appear, not unlike a feverish fit, on the planet, from drying rivers to bursting banks. Yet, we carry on burning and consuming our way through, with the booming voices of the fossil fuel barons urging us that all is fine. Dare we believe that these are the squeaks emanating from the proverbial mouse that will spook the elephant out of its addiction? Geoffrey Chia, Brisbane based cardiologist, who heads Doctors and Scientists for Sustainability and Social Justice – D3SJ  - writes this for us. Read more

“Ecosqueak”

Based on a speech delivered by Geoffrey Chia  Ecospeak session, 25 July 2012, University of Queensland

My favourite author, the much loved and much missed American Humanist, dear old departed Kurt Vonnegut, was a masterful practitioner of the poignant and ironic turn of phrase. His essay “Cold Turkey” decried our addiction to fossil fuels and mourned the parlous state of American politics during Bush junior’s time in   office. “Only a nutcase would want to be President”, Kurt said. Indeed, only a nutcase would want to be a human being. And here we are, nutcase human beings making a mighty mess of things.

“We are terrible animals and I believe the Earth’s immune system is trying to get rid of us, as well it should.” Kurt’s mind remained so sharp and incisive to the very end, you’d swear he ate razor blades for breakfast.

It is a really, really bad parasite that kills its host, if only because, in so doing, it kills itself. And so, long after we have wrecked the very ecosystem which sustains us and we ourselves have turned into fossil fuel gloop to be used for combustion by the next industrial species, what will be the best thing that could be said about the human race? That we were a really bad parasite?

Kurt said that the 51st state of America was the state of denial. Global warming is all a greenie conspiracy, don’t you know, fabricated independently by thousands of poorly paid scientists all round the world. Much better to believe the views of a few billionaire oil, coal and gas barons and their media cronies, who only have our best interests at heart.

So here I am, little old me on my metaphorical soapbox at this ecospeak gathering. Maybe we should call it “ecosqueak”, because our tiny voices will hardly be heard, being drowned out by the deafening cacophony of the corporate media and their internet trolls. Loudest of all the loudmouths by proxy is Chris Mitchell, editor of the Australian newspaper and shameless promoter of global warming denialism, as outlined in last September’s Quarterly Essay.

Now we are told that coal mining magnate Gina Rinehart, a well known bankroller of global warming denialists, has come to the financial rescue of Fairfax, our only remaining commercial counterpoint to the Murdoch press. According to the redoubtable Tony Rabbit, she is a white knight who only wants to save jobs and uphold the journalistic integrity of this nation. A fable worthy of Wonderland, talking caterpillars and magic mushrooms. To this tall tale, let me add my own pathetic and clunky poetic commentary, such as it is:

No one is meaner

Than corpulent Gina

Who won’t hesitate or balk to sue

Non entities like me or you

To tighten Rinehart’s corporate reign!

Saviour of Fairfax

Much better than anthrax

Her good intent let’s not deny

She’ll make us think that pigs may fly!

(In truth, she gets around by plane)

Lewis Carroll described his epic poem “The Hunting of the Snark” as an “agony in eight fits”. I wrote my own “agony in ten pages” earlier this year, an essay I titled “The Brisbane Institute is a Brisbane Prostitute”.  I described my dismay as to how the supposedly honourable Brisbane Institute had become a paid mouthpiece for the fossil fuel lobby, highlighting the views of Christopher Monckton and Ian Plimer. They also imported a morbidly obese fossil fuel professor named Michael Economides to lecture us on how wonderfully beneficial unrestrained overconsumption was for us and how terrifically great the coal seam gas industry was, with no adverse effects whatsoever. In my essay I of course apologised to any prostitutes who may have been offended by the comparison with that reprehensible Brisbane Institute.

“Don’t publicise your Brisbane Prostitute essay”, I was warned by certain individuals. I would be a damned fool to set myself up as a target for litigation, even if every single thing I wrote was true. Yet here I am again, making a damned fool of myself once more. I guess some people never learn.

So what can I hope to have inscribed on my own gravestone when I myself have turned into fossil fuel gloop to be used for combustion by the next industrial species? Perhaps the best thing that could be said about me is this:

“He tried his best not to be a bad parasite”

Source: www.d3sj.org