The Regional Greenhouse Gas Initiative: The International and National Backdrop

January 26, 2006Edna Sussman

Program Sponsored by the Renewable Energy Resources Committee and the Sustainable Development, Ecosystems and Climate Change Committee of the SEER Section, American Bar Association

U.S. carbon emissions

5% of world population

24% of world carbon emissions

UNFCC, Kyoto Protocol, Montreal

United Nations Framework Convention on Climate Change 1992- U.S. a party – goal to stabilize greenhouse gas emissions at a level that would prevent interference with the world’s climate system

Kyoto Protocol- 1997 - US a signatory but has not ratified – Established firm schedule for CO2 reductions by industrialized countries –

from 2008-2012 those parties will reduce their green house gas emissions by an average of 5.2 percent as against a 1990 base line. Specific targets were set for each of those countries. Developing countries not committed.

– Market mechanisms allowed- targets can be met through (i) emission rights trading, (ii) clean development mechanisms (CDM- sustainable development emission reduction projects in developing countries), and (iii) Joint Implementation ( JI - “additional” emission reduction projects in countries committed to reducing emissions under the protocol, primarily applicable to Central and Eastern European transition economies

Montreal, December 2005 - Agreement by parties to the Kyoto Protocol to begin discussions on setting binding limits for post 2012

European Union Emissions Trading

European Union Emissions Trading - 2003 – established greenhouse gas allowance trading scheme EU-wide commencing January 2005 -"allowance" means the entitlement to emit a tonne of carbon dioxide or an amount of any other greenhouse gas with an equivalent global warming potential during a specified period.

Each country given an allowance allocation and draws up a national plan allocating allowances to each installation

Covers activities in various industrial sectors including energy, iron and steel production and processing, the mineral industry and the wood pulp, paper and card industry

Penalties provided for noncompliance by industry and requires continuing obligation to deliver compliance

In addition to allowance trading, market mechanisms recognize credits given for certain types of CDM and JI projects that qualify under the Kyoto Protocol

U.S. Approach: Asia- Pacific Partnership

Asia- Pacific Partnership on Clean Development and Climate- Australia, China, India, Japan, Korea, and the United States who together account for 50% of greenhouse gas emissions

Vision Statement – July 2005 – work together to create a partnership on a wide range of initiatives to deploy promising technologies that offer greater energy efficiency and lower air pollution and greenhouse gas intensities.

Charter - January 2006 - non- legally binding partnership to share technology and practices

Work plan – January 2006 - focus on power generation and key industry sectors; established 8 public/private task forces to detail action plans, projects and indicators of progress

http://www.state.gov/g/oes/climate/c16054.htm

US Approach: Calls for Private Voluntary Action

President in February 2002 called for voluntary action to cut greenhouse gas intensity – the amount emitted per unit of economic activity- by 18% by 2012. Some of the programs instituted to support that initiative include:

Climate Vision - Presidential public-private partnership initiative launched by the Department of Energy in February 2003 - focus of the initiative is on energy-intensive industries to reduce emissions intensity

Climate Leaders - voluntary EPA industry-government partnership that works with companies to develop long-term comprehensive climate change strategies; Partners set a corporate-wide greenhouse gas (GHG) reduction goal and inventory their emissions to measure progress.

Chicago Climate Exchange

The Chicago Climate Exchange® is a voluntary binding greenhouse gas emission reduction and trading pilot program for emission sources and offset projects.

Tradable Carbon Financial Instruments are Exchange Allowances (XA's) and Exchange Offsets (XO's). Exchange Allowances are issued to Members in accordance with each Member's Emission Baseline and Emission Reduction Schedule. They are also issued on the basis of forest carbon sequestration and reductions in electricity use. Exchange Offsets are generated by qualifying mitigation projects.

Members made a voluntary, legally binding commitment to reduce their emissions of greenhouse gases by four percent below the average of their 1998-2001 baseline by 2006, the last year of the pilot program

http://www.chicagoclimatex.com/

Projected U.S. Emissions

Carbon dioxide emissions in the U.S. rose by 2% in 2004 over 2003 levels and an increase is predicted over 1990 levels of 28% by 2010 and of over 50% by 2025.

Source: Energy Information Administration of the U.S. Department of Energy, December 2005

ftp://ftp.eia.doe.gov/pub/oiaf/1605/cdrom/pdf/ggrpt/057304.pdf

EPAct on Climate Change

Many provisions of the Energy Policy Act of 2005 (“EPAct”) may indirectly affect CO2 emissions. For an overview of the act see http://www.abanet.org/environ/committees/renewableenergy/teleconarchives/101905/

Specific provisions on climate change in EPAct : - Establishment of a Committee on Climate Change to develop a national strategy. - Support for demonstration projects- Report identifying the 25 largest GHG emitting developing countries and provide assistance.

Climate Stewardship Act

McCain-Lieberman Climate Stewardship Act introduced in 2003. Reintroduced in 2005. Patterned after the successful U.S SOx acid rain cap & trade system -Comprehensive market based system requiring submission of allowances for every metric ton of green house gas emission commencing in 2010. Goal to cap emissions in 2010 to 2000 levels- Includes 6 greenhouse gases and electricity, transportation, industry and commercial sectors that emit from any single facility over 10,000 metric tons of greenhouse gas per year - Market system recognizes allowance trading and international credits and allowances- Allowances for early participation

Bingaman proposal- 2005 - Based on recommendations of the National Commission on Energy Policy- Ties emission reduction targets to economic growth- Provides for pollution credit trading- Establishes a cost cap for emission “permits”

The U.S. Senate Today

Following rejection of a plan for carbon emission reduction credits, a non- binding “sense of the Senate” resolution was passed 53-44 on June 22, 2005 stating that there was a growing consensus that human activity is a “substantial cause” of the accumulation of GHG and “mandatory steps” to slow or stop growth are “required.”

Senate hearings have commenced on mandatory climate change legislation.

Senator Bingaman stated in a speech delivered in Montreal at the United Nations Climate Change Conference in December that he “believe(s) that we can enact a mandatory program to control greenhouse gas emissions within the next year or two.”

RGGI and Local Actions

Pressures for action– Climate change/international carbon cap regimes– Achieving energy independence and assuring adequate energy

supply – Air quality benefits with significant health impacts

RGGI California Western Governors Association Massachusetts New Mexico U.S. Mayors Climate Protection Agreement Renewable Portfolio Standards in over 20 states

EDNA SUSSMAN Hoguet Newman & Regal LLP 10 East 40th Street, New York, NY 10016 Tel 212-689-8808 Fax 212-689-5101 Email: esussman@hnrlaw.com