November 6, 2010 at 3:27 pm #2471
A U.S. Cap-and-Trade Experiment To End
But California election results signal regional interest in global warming fight
A Valero refinery in Norco, Louisiana, is just one of the thousands of facilities in the United States with carbon emissions that a nationwide cap-and-trade program would have sought to rein in. Valero fought unsuccessfully for a ballot measure that would have halted California’s global warming program. Photograph by Shannon Stapleton, Reuters
Marianne Lavelle National Geographic News Published November 3, 2010
This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge. Some time before the campaign ad showing a U.S. Senate candidate shooting proposed climate legislation with a rifle, the companies participating in a key experiment to test cap and trade in the United States decided that the idea was already dead.
The Chicago Climate Exchange (CCX), the eight-year-old platform where power companies, manufacturers, and others agreed to reduce their greenhouse gas emissions and traded the credits they earned for their success, will shut down that program at the end of this year. That’s when the current commitments made by the CCX market participants were set to expire, but those involved in the program agree that their efforts would have continued if there were any prospect of congressional climate change action on the horizon.
Although advocates of U.S. action on climate change could take away some good news from the results of the November 3 election-most notably, Californians rejected an effort to roll back the state’s pioneering global warming program-a Republican majority in the U.S. House of Representatives will effectively stymie any renewed effort to advance a bill like the one narrowly passed by the Democratic-controlled House in June 2009. The Senate’s Democratic leaders were unable to muster the 60 votes needed to affirm that legislation, even before the loss of at least six seats Tuesday.
(Related: “How Prospects Cooled for U.S. Global Warming Bill”)
Particularly problematic was the lack of support from Democrats who represent coal and industrial states. That issue won’t go away in a Senate with newcomers like West Virginia Democratic Governor Joe Manchin, who memorably vowed in his TV ads to take “dead aim at the cap-and-trade bill.”
A Carbon Market’s Early Promise
Long before cap and trade became a political target, many in industry and the environmental community alike saw it as an approach for reducing greenhouse gases that would be less costly and more market-friendly than old-style top-down regulations from Washington, D.C. That was the appeal of the CCX experiment, developed by pioneering economist Richard Sandor, known as the father of financial futures.
The idea was that although participation in the CCX market would be voluntary, the companies that joined would have to sign legally binding contracts to reduce their emissions. Those who could find quick and low-cost ways to cut their carbon pollution could sell their credits to other companies that were having a hard time meeting their goals. Eventually, there were 450 members of the exchange-power companies, manufacturers, cities, and universities, including such big names as Ford, DuPont, Motorola, International Paper and Honeywell.
CCX calculates the program resulted in emissions reductions totaling nearly 700 million metric tons of carbon dioxide since 2003, equivalent to taking 140 million cars off the road for a year. Reductions in industrial emission accounted for 88 percent of those cuts, while the remaining 12 percent came from so-called offset projects, such as tree planting.
“Many of us were doing this not only to make voluntary commitments, but as a way that we could get prepared for a mandatory future,” says Bruce Braine, vice president of strategic policy analysis for Columbus, Ohio-based American Electric Power (AEP), one of the founding members of CCX. “We were learning the ropes, learning about trading and trying to become more proficient in reducing our carbon footprint over time.”
AEP, one of the largest electricity generators in the United States with two-thirds of its capacity coal-fired, reduced its carbon emissions by 70 million metric tons over the course of its eight years in CCX, mainly through emissions improvements, says Braine. The company has reduced its greenhouse gas emissions 20 percent since 2000. Braine says AEP aims to continue to work toward reducing emissions, though not through CCX.
(Related: “Lighting a Fire Under Clean Coal”)
CCX will continue to operate a registry for carbon offset programs, which presumably would be helpful to those seeking to make voluntary emission reductions. And Emilie Mazzacurati, head of North American research for Point Carbon, a Thomson Reuters company that follows the development of carbon markets, notes that there will continue to be carbon trading on the Chicago Climate Futures Exchange (CCFE)-a platform for both voluntary and small, regional mandatory climate programs like the one adopted in the northeastern United States. (IntercontinentalExchange, the Atlanta-based owner of CCX, says it will continue to operate both the Chicago Climate Futures Exchange and its much larger and more profitable European Climate Exchange.)
California’s Vote for Climate Action
Mazzacurati says that Point Carbon expects the Chicago Climate Futures Exchange to be one of the platforms that will be vying for a share of trading in the regional carbon market that analysts now see developing in the Western United States and Canada, because Californians voted on Election Day to move forward with their state’s planned market-based program for reducing greenhouse gas emissions. The symbolic importance of that decision at the ballot box, Mazzacurati argues, “cannot be overstated.” She says California’s size and clout will likely encourage other jurisdictions to join in the market to reduce carbon emissions with California, including potentially the Canadian provinces of British Columbia, Ontario, and Quebec.
The California program was at risk when Proposition 23 was placed on the state ballot. It was a measure to delay implementation while the state’s economy was suffering, and was strongly supported by two refining companies with large operations in California, Valero and Tesoro. But opponents of Proposition 23 got help from wealthy philanthropists and Silicon Valley billionaires who are invested in green technology, and who outspent the bill’s backers. “Prop. 23 is the only place in the country where the words ‘global warming’ were actually, literally, on the ballot,” says Tony Massaro, senior vice president for political affairs with the League of Conservation Voters (LCV). “And that’s in the state with the third-worst unemployment rate in the country. Californians said the way to build our way out of this is with clean energy jobs.”
Massaro said it was important to note that at the Congressional level, the tide was not wholly against climate action. Seven of the so-called “Dirty Dozen” candidates LCV campaigned against, including several who denied the science of climate change, were defeated. But Massaro said the important California result will mean a renewed focus on the advances that can be made outside of Washington, D.C. “It means we’re going to keep working at all this stuff at the state level, as we’ve done for years,” says Massaro. “Our preferred plan, Plan A, didn’t pass. But we will go forward with Plan B.”
(Related, from National Geographic Channel: “Six Degrees Could Change the World“)
November 6, 2010 at 3:28 pm #5420
Here is update on bad (cost adding) US experiment CCX Cap & Trade Experimental trading program that will now end. Unfortunately the crazies in California got enough Billionaires Silicon Valley Green supporters who outspent backers of Prop 23 to delay the regional Cap&Trade (another Crash&Burn environmental law for mfg industries in California) while Calif was suffering financially.
Companies like Valero, Koch & Tesoro carried on a brave fight for the refining industry on this ballot measure but were defeated due to the harsh Anti-Mfg/Anti-Oil environment in California. California already lacks enough refining capacity and must import gasoline/diesel products from Asia sector …… a huge irony since China & most countries in that region have no environmental programs since the failed Kyoto program exempted them and they are now the world leader in pollution.
California has been the source for all the bad environmental burdens placed on the oil & refining process even though the state is rich in natural resources and is one of the 6 states that supply over 75% of the entire US refining production. Several California refining plants have been taxed and fined to point of closure and then barred by state from shutting down because of fear of shortage they would create, and is the reason independents like Valero, Koch & Tesoro have so many plants in California. Also the nearly bankrupt cities/state budgets begin to understand what the loss of taxes would mean in event of the plant closure, but like rest of US all plants are over 60-100 years old and have been blocked on putting in new facilities since 1975 by the elite, environmental rabid factions there.
Most Americans have California to thank for raising the cost of gasoline nearly $1.25/gallon thru limitations they have put on gasoline specifications (No lead, No MTBE, Low RVP, Low Sulfur levels, low ect) and made it almost impossible now to supply product from one state to another at one time nearly 14 different US state specifications on gasoline that make it impossible to be fungible – need to have less 4 variations to make it possible.
Hopefully at some time US Majors will begin to make this state pay for its stupidity and harsh restrictions. These laws are often followed by many other states since over 39 of them now have little to no refining plants and do not have any understanding of the security implications from destroying the US production capacity. Once Environmental groups backed by Liberal supporting billionaires like George Sorus, understood that they cannot duplicate the California laws outside the state began a backdoor elimination of fossil fuels thru pressure on the EPA & legal suites.
November 7, 2010 at 5:19 pm #5418
West Coast Refiners Ponder Next Steps After Prop. 23 Loss
Nov 5, 2010 – The refining industry spent millions trying to curb California’s climate law. Now it will have to spend much more trying to adapt to it.
U.S. refiners operating on the West Coast say California’s climate law will force them to spend millions of dollars to update or replace equipment to meet the state’s greenhouse gas emission targets, among the strictest in the country.
Valero Corp. (VLO), Tesoro Corp. (TSO) and others spent more than $9 million since April boosting Proposition 23, which would have suspended California’s greenhouse gas emissions targets until unemployment in the state–which has been around 12% since August 2009–dropped to 5.5% for at least a year. With the proposition garnering a vote of 61% against it, California continues to call for greenhouse gas emissions to fall to 1990 levels by 2020.
California is a major market for refiners. Valero, the largest independent U.S. refiner, reported third-quarter throughput of 272,000 barrels a day at its two refineries in California, or 11% of its total for the period. Tesoro processed more than half of its third-quarter throughput of 474,000 barrels a day at its two California refineries.
Valero spent more than $5 million backing the measure. Bill Klesse, chief executive of the San Antonio-based company, told investors last week that the company would “work around” the emissions targets if the proposition failed. But the CEO has also said the cost of meeting the clean air rules would force Valero to lay off some of the 1,600 people it employs at the two refineries and 83 retail outlets it owns in the state.
Market and industry analysts said the proposition’s failure probably wouldn’t cause refiners to engage in massive layoffs or exit the market–yet. But the defeat could further dampen profits in an already tough business environment and make the state a ripe target for foreign producers.
Dominick Chirichella, a trading analyst with Energy Management Institute, a consultancy, said meeting the emission standards would potentially raise the cost of refining on the West Coast enough to make the region more open to refined product imports from Asia.
“Imported oil would increase, and jobs would in essence be outsourced to refinery centers outside the U.S.,” Chirichella said in an email.
Other industry watchers said West Coast refiners are already used to California’s relative high cost of business and will find a way to work with emissions targets. But they ponder whether other states–or federal regulators–could take inspiration from California’s enthusiasm for greenhouse gas limits. Donors spent more than $30 million to quash the refiners’ proposal, according to data from the California Secretary of State–far more than refiners spent. “When the Obama administration sees the strong vote against it, they may use that to push more stringent rules next summer,” said Carl Larry, analyst with market research group Oil Outlooks and Opinion.
Sandar Cohan, refining industry analyst for research firm Energy Security Analysis, added that although the refiners lost the ballot fight, they could still see some relief from the incoming state government. Incoming governor Jerry Brown and state regulators could still tweak the state’s emission targets to help refiners if they decide the current schedule is unworkable, he said.
The climate laws “affects both alternative fuels and crude oil,” Cohan said. “The next state administration could still scale it back or slow it down if it’s not sustainable.”
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