UNEP Global Environmental Alert Released for March: The Impact of Corruption on Climate Change: Threatening Emissions Trading Mechanisms?

Recently, the United Nations Environment Programme released a new Global Environmental Alert titled, The Impact of Corruption on Climate Change: Threatening Emissions Trading Mechanisms? (Mar. 2013). According to the 13-page alert,

[t]his bulletin provides an overview of recent discussions about the impact of corruption on environmental governance, with a focus on emissions trading. It reviews new definitions and the latest corruption assessment methodologies in order to illuminate the broader challenges faced by GHG trading mechanisms and climate finance.

Prior alerts are available here, dating from Aug. 2010 to the present.

Securing a clean energy future - The Australian Government's Climate Change Plan

This report from the Australian National Government Dated July 2011 states that:

"Scientists advise that the world is warming and high levels of carbon pollution risk
environmental and economic damage. No responsible government can ignore this advice.
The Australian Government has developed a comprehensive plan to move to a clean energy future.

A price on carbon pollution will create incentives to reduce pollution and invest in
clean energy. A carbon price will ensure that pollution is reduced at the lowest cost to the economy...

The carbon price will be accompanied by assistance supporting households, jobs,
businesses and communities, to help them adjust, lower their carbon pollution and to protect our international competitiveness...

Substantial industry assistance will be provided to support jobs and competitiveness
as we move to a clean energy future for emissions-intensive, trade-exposed industries, manufacturing, food processing, metal forgers and foundries, electricity generators and small business, as agreed by the Multi-Party Climate Change Committee. The Government is also separately investing in protecting jobs in the steel and coal industries...

Farmers and land managers will receive significant support to pursue climate change
action on the land and enhance biodiversity through a suite of measures including the
Carbon Farming Initiative, the Carbon Farming Futures program and a new Biodiversity
Fund...

The Government is providing additional support to promote energy efficiency.
Low Carbon Communities will help local councils and communities improve energy efficiency in community facilities, including a new Low Income Energy Efficiency Program. The Government will expedite the development of a national energy savings initiative."

Evaluating Limits on Participation and Transactions in Markets for Emissions Allowances -- CBO

This report from the Congressional Budget Office dated December 2010 finds that various types of participants would probably be active in allowance markets, including covered entities (emitters that must comply with the cap); other entities that would receive allowances from the government and want to sell them; and numerous banks, investors, and other parties that would buy allowances from, and sell them to, the first two types of participants.

Transactions in allowance markets would most likely include allowance derivatives (financial contracts whose value would depend on the future price of allowances). Although broad participation and derivatives transactions are common in many markets—such as those for agricultural and energy commodities—some observers have proposed excluding certain market participants or transactions under a potential cap-and-trade program to protect allowance markets and the broader economy from unwanted risks.

Managing Allowance Prices in a Cap-and-Trade Program -- CBO

This report from the Congressional Budget Office (Pub. No. 4081), dated November 2010, finds that the accumulation of greenhouse gases in the atmosphere--particularly carbon dioxide released as a result of deforestation and the use of fossil fuels--could create costly changes in regional climates throughout the world.

Concern about the damage from such changes has led policymakers and analysts to consider policies designed to reduce emissions of those gases. Many proposals have focused on cap-and-trade programs, which would limit the number of tons of greenhouse gases emitted into the atmosphere over several decades from certain sectors of the U.S. economy. Under such a program, lawmakers would set gradually tightening annual caps on greenhouse gas emissions that together would imply a cumulative limit over the duration of the policy. Rights to emit the gases, referred to as allowances, would then be distributed to businesses or other entities, such as state governments, in amounts that corresponded to those limits. (One allowance would permit one ton of emissions.) The government could distribute the allowances by either selling them, possibly in an auction, or giving them away. Once the allowances were distributed, they could be bought and sold in the secondary market for them that would develop....

[This report] examines the potential effects of features that would help manage allowance prices, and thus the cost of complying with a cap-and-trade program, by altering the number of allowances available to firms at various prices."

Energy Derivatives Regulation after Dodd-Frank ALI-ABA CLE

This telephone conference takes place on Wednesday October 27, 2010 12:30 pm to 1:45 pm Eastern Daylight Time.

Topic: The Dodd-Frank Wall Street Reform and Consumer Protection Act and its affect on energy companies.

One example is, a company that currently uses OTC contracts to trade fuel, power, emissions or other commodities may be required, if no exemption applies, to clear such swaps with a clearinghouse and trade them through an exchange. This in turn may increase a company's cost of hedging and affect its liquidity.

Issues of joint jurisdiction between the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC) further complicate the operation of energy companies whose activities may now cause them, for regulatory purposes, to report to both commissions.

Faculty for this seminar include Ann A. Hawkins, Skadden, Arps, Slate, Meagher & Flom LLP, who concentrates in the areas of development, financing, acquisition and disposition of energy projects; Mark D. Young, also with Skadden Arps, who has practiced within and before the CFTC; and Dr. Sharon Brown-Hruska, an economist who served as a CFTC Commissioner and Acting Chair. Together they will outline the new Dodd Frank requirements that affect energy derivatives, and discuss the economic impact of the new regulations.

Two Recent Studies of Regional Differences in the Effects of Policies That Would Price Carbon Dioxide Emissions

This Congressional Budget Office document dated July 9, 2009 reports that two teams of experts—one affiliated with the National Bureau of Economic Research (NBER) and one affiliated with Resources for the Future (RFF)—have estimated regional differences in the effects of policies that would increase the prices of fossil fuels in rough proportion to the carbon dioxide (CO2) emitted when they are combusted, as would occur under a cap-and-trade program.

NBER’s analysis finds relatively small differences in the effect on households across
regions of the country (see Figure 1). In the analysis, increased expenditures account for the largest share of average household income (1.9 percent) in the East South Central region and the smallest share (1.5 percent) in the West North Central region. Most of the regional differences stem from differences in the amount of energy that households consume directly (such as gasoline, electricity, natural gas, and home heating oil) rather than indirectly (such as fossil fuels used in the production of food, clothing, and other items).

An analysis by RFF examines the effects of an emission price of $20.91 per metric
ton of CO2 using households’ expenditure patterns and income levels in 2006.2 The
analysis accounts for both regional variation in the consumption of goods and services and regional differences in the amount by which electricity prices would increase as a consequence of the policy. Using a model that incorporates changes in the supply of and demand for electricity, RFF estimates that the price of electricity would increase by as little as 7 percent in California and by as much as 27 percent in the Ohio Valley.

Climate Trade Change measures: Estimating Industry Effects

This Testimony by the Government Accountability Office (GAO-09-875T) finds that estimating the potential effects of domestic emissions pricing for industries in the United States is complex. If the United States were to regulate greenhouse gas emissions, production costs could rise for certain industries and could cause output, profits, or employment to fall. Within these industries, some of these adverse effects could arise through an increase in imports, a decrease in exports, or both. However, the magnitude of these potential effects is likely to depend on the greenhouse gas intensity of industry output and on the domestic emissions price, which is not yet known, among other factors.

Estimates of adverse competitiveness effects are generally larger for industries that are both relatively energy- and trade-intensive. In 2007, these industries accounted for about 4.5 percent of domestic output. Estimates of the effects vary because of key assumptions required by economic models. For example, models generally assume a price for U.S. carbon emissions, but do not assume a similar price by other nations. In addition, the models generally do not incorporate all policy provisions, such as legislative proposals related to trade measures and rebates that are based on levels of production.

Climate Change Trade Measures: Considerations for U.S. Policy Makers

This report to Congress by the Government Accountability Office examines how greenhouse gas emissions pricing could potentially affect the international
competitiveness of U.S. industries, and to examine trade measures being considered as part of proposed U.S. climate change legislation. The report shows that estimating these effects is very problematic and depends upon many variable both internal and external.

Climate Change: The Role of the U.S. Agriculture Sector and Congressional Action

This report by the Congressional Research Service (7-5700) dated June 19, 2009 finds that the agriculture sector is a source of greenhouse gas (GHG) emissions, which many scientists agree are contributing to observed climate change and that agriculture is also a “sink” for sequestering carbon, which might offset GHG emissions by capturing and storing carbon in agricultural soils.

Congress is currently considering a range of climate change policy options, including GHG emission reduction programs that would either mandate or authorize a cap-and-trade program to reduce GHG emissions. In general, the current legislative proposals would not require emission reductions in the agriculture and forestry sectors. However, several GHG proposals would allow farmers and landowners to receive emissions allowances (or credits) and/or generate carbon offsets, which could be sold to facilities covered by a cap-and-trade program.

Climate Change Science: High Quality Greenhouse Gas Emissions Data are a Cornerstone of Programs to Address Climate Change

In this Statement by John Stephenson, Director Natural Resources & Environment Office before the Subcommittee on Energy and Environment, Committee on Science and Technology, House of Representatives testified that quality data on emissions are essential to the development and implementation of a system intended to limit greenhouse gas emissions. Domestic and international experiences with cap-and-trade programs, which place a price on emissions, demonstrate the importance of data quality in establishing baselines, monitoring results, and maintaining the integrity of a program. Existing cap-and-trade programs establish an overall allowable level of emissions and distribute allowances to regulated entities, which in turn are able to buy or sell excess allowances.

Key considerations in developing reliable data on greenhouse gas emissions revolve primarily around the purpose and intended use of the data. In cases where the data are used to develop or implement a program to limit emissions, key considerations include (1) the scope of the program across emissions sources, such as whether it affects all emission-producing activities or a specified subgroup, and (2) the program’s coverage across the six primary greenhouse gases.

International Climate Change Programs

This Government Accountability Office Report (GAO-09-151) dated November 2008 is subtitled: Lessons Learned from the European Union’s Emissions Trading Scheme and the Kyoto Protocol’s Clean Development Mechanism. The Report concludes that In the EU "the ETS phase I established a functioning market for carbon dioxide allowances, but its effects on emissions, the European economy, and technology investment are less certain. Nonetheless, experts suggest that it offers lessons that may prove useful in informing congressional decision making. By limiting the total number of emission allowances provided to covered entities under the program and enabling these entities to sell or buy allowances, the ETS set a price on carbon emissions. However, in 2006, a release of emissions data revealed that the supply of allowances the cap exceeded the demand, and the allowance price collapsed. Overall, the cumulative effect of phase I on emissions is uncertain because of a lack of baseline emissions data. The long-term effects on the economy also are uncertain."

Climate Change: Expert Opinion on the Economics of Policy Options to Address Climate Change

This GAO Report (GAO-08-605) the Office surveyed a number of professional economists with 18 responses. Unanimously, the responses urged the implementation of a Cap-and-Trade program, with a large percentage also encouraging the use of emission taxes and research and development of alternative resources.

Preparing for Our Common Future: Policy Choices and the Economics of Climate Change

This presentation was made by Peter Orszag, Director, Congressional Budget Office, as the Goldman Lecture in Economics at Wellesley College on October 27, 2008. The presentation discusses climate change from greenhouse gases and the economics of various policy responses, in particular Cap and Trade emissions trading in greenhouse gases.