Transcript Title III - Cap and Trade

Carbon Management Strategies
September 29, 2009
Presentation Overview
 Regulatory Drivers for Change
 Why Set Targets for Emissions
Reductions?
 Evaluate Opportunities for
Reductions
 Identifying and Implementing Offset
Projects
 Next Steps
The Pathway to GHG Reduction
Regulatory Drivers for Change
A Driver: American Clean Energy and Security
Act (ACES) of 2009 (aka Waxman-Markey)
 Title I - Federal Renewable electricity standard, carbon
capture and storage technology, coal power plant
performance standards, low carbon fuel standards,
and smart grid advancement
 Title II - Building, lighting and appliance energy
efficiency and mobile source efficiency standards
 Title III - Cap and Trade (establishes both
allowance and offset trading programs)
 Title IV - Proposals to preserve domestic
competitiveness and support workers, provide
assistance to consumers, and support domestic and
international adaptation initiatives
 Title V – Agricultural and Forestry Related Offsets
Drivers for Change: Cap and Trade is Coming
 ACES - Title III Cap and Trade
 GHGs included- CO2, CH4, N2O, HFCs, PFCs, SF6, and NF3
 Cap and Trade defined as a system which enforces an economywide limit on greenhouse gas emissions through the implementation
of renewable energy, and reduces emission limits over time
 http://energycommerce.house.gov/index.php?option=com_content&view=articl
e&id=1633:the-american-clean-energy-and-security-act-of-2009-hr2454&catid=169:legislation&Itemid=55
 Entities covered
 Large stationary sources with GHG emissions > 25,000 tons/year
GHGs (most water utilities are likely less than this threshold)
 Producers / Importers of all petroleum fuels
 Sellers of natural gas
 Producers of “F-gases”
 Other specified sources
ACES - Title III Cap and Trade
 Establishes national U.S. emission caps relative
to 2005
Proposed US Emission Caps
Baseline
Reduction
120
3%
100
17%
80
42%
60
40
83%
20
0
2005
2012
2020
2030
2050
Federal Reporting Program – EPA GHG MRR
Mandatory Reporting Rule Signed by EPA on Sept 22
 In general, applies to any facility with emissions >
25,000 tpy CO2-e total emissions from listed source
categories
 Approximately 40 listed source categories, of which 11
were deferred while EPA works on monitoring and
verification issues
 Scope 2 emissions and Scope 1 mobile emissions not
included
 Annual reporting due, calendar year reports due by
March 31 of following year
Adaptation Planning is Coming, Too!
 ACES calls for development of a National
Climate Change Adaptation Council (under
Title IV)
• Responsible for:
– Periodic National Vulnerability Assessments
– Providing policy-relevant scientific information,
research products, decision tools, and technical
support related to Climate Change impacts and
adaptation
 Vulnerability Assessments
• Regional and national vulnerability to Climate
Change impacts
• Strategies to adapt
• Priorities for further research
What is Adaptation?
 Climate change adaptation includes changes in
society’s policies, practices, systems,
infrastructure, and operations to manage risks
and impacts resulting from existing and future
climate change effects
 Adaptation is complementary to mitigation,
which reduces Greenhouse Gas emissions to
reduce future climate change effects
ACES Adaptation Planning
 Within 1 year of publication of each National
Assessment, each Federal agency shall
complete an agency climate change adaptation
plan detailing the agency’s current and projected
efforts to address the potential impacts of climate
change
• Review of impacts – current and future
• Description of priorities for building adaptive capacity
• Review of the agency’s current efforts to address
Climate Change
• Description of initiatives including
–
–
–
–
Strategic objectives
Resources
Timelines
Benchmarks and methods
What do Regulatory Drivers mean for Water Utilities?
 Based on regulation, entities covered
 Large stationary sources with GHG emissions >
25,000 tons/year Scope 1 GHGs
 However, unlikely that most water utilities will
be > 25,000 tons/year of direct GHG
emissions
 For example, mid-sized water utility in the Bay
Area (wholesaler with significant source water
pumping) generated approximately 10,000
tons/year of Scope 1 GHG emission in 2006.
 Therefore, unlikely that most water utilities will
be regulated.
 However, water utilities may have an
opportunity to participate in the market
through sale of carbon offsets.
Emissions Trading:
Regulatory Allowance Surplus
Emissions Cap
Emissions
Prior to Cap
Emission
reductions via
technology,
maintenance,
reduced
production, etc.
Allowance Surplus
Available to Sell or Bank
Emissions After
Cap in Effect
Compliance
Period
Emissions Trading:
Regulatory Allowance Deficit
Emissions Cap
Emission
decrease
insufficient
Emissions
Allowances Deficit
Need to Buy Allowances or Offsets
Emissions After
Prior to Cap
Cap in Effect
Compliance
Period
Why Set Targets for Emissions Reductions?
Why Set GHG Emission Reduction Targets?
Though regulatory drivers may not currently apply:
 Setting a Reduction Target drives organizational innovation
 Environmental stewardship & public perception improve
 Climate-related targets have a positive influence on employee
morale.
 In all cases internal communications are important—increasing
employee understanding of climate change helps:
• Gain buy-in to the target
• Generates new ideas on how to improve environmental performance.
 “Action” Benefits of Targets:
• Gives Action Plan a tangible, specific goal
• Allows measurement of progress and credit for results.
• Helps prioritize actions
Target Framework
 Time Frame
• Near-term (1 – 3 years)
• Long term (5 – 20+ years)
 Objective
• Aspirational
• Results-based
 Scope
• International / Domestic
• Sectoral / company-wide / business unit /
facility-wide / process specific
Target Setting Approaches
 A “top-down” target-setting process sets the level for
the whole water utility at once, without a sector by sector
analysis.
• Kyoto reduction commitments
• Industry bench-marks
 Under a “bottom-up” process, the water utility target
level is based on analysis of potential reductions in individual
sectors
•
•
•
•
Short-term, cost-effective reductions
Efficiencies of upcoming projects
Technology implementation
Management system improvements
Optimizing Assets and Products
 Potentially reduce costs through more carbon
efficient operations
• Many GHG reduction opportunities have net positive
payback due to energy savings or other cost reductions
• If reductions qualify as offsets, potential revenue stream
 Design carbon reduction programs with
ambitious targets
• Couple energy and carbon efficiencies to maximize gains
 Cut costs and reduce carbon emissions throughout your supply
chain
• Design clear mandates, key performance indicators when
selecting and negotiating with suppliers
Building “Shareholder” Value
 Completing the GHG emissions inventory will provide actual
numbers from which to develop sustainability goals, set reduction
targets, or report externally
• Carbon Disclosure Project (Goals and Objectives)
• Global Reporting Initiative (Sustainability Reports)
• Various voluntary programs or registries (Inventory Numbers)
 Allows water utility to report with confidence to stakeholders and
customers;
 Meets evolving standards of ‘fiduciary responsibility’ and
materiality expectations of investors, customers, etc.
Evaluate Opportunities For Reductions
Energy Efficiency Projects
Completion of a GHG Inventory:
• Allows for analysis of fossil fuel use (stationary and mobile sources)
and utility usage (e.g. electricity and steam);
• Allows identification and ranking, by facility, state, or region, of assets
that are large emitters of GHGs and heavy users of energy;
• Evaluation of energy use allows firm to evaluate cogeneration options,
alternative fuels, or the purchase of renewable energy certificates, if
desired;
• Guide recommendations for future capital allocations (i.e. process
upgrades, expansions, new plants, etc.)
• Facilitates benchmarking amongst industry peers.
Process of Generating a Reduction Project
Quantify emission reductions by:
•
•
•
•
•
•
Define the emission reduction project
Determine the baseline scenario for each project activity
Determine boundaries
Quantify emission reductions
Monitoring/reporting/verification
Adhere to specific policy-related considerations, as applicable
Additionality Requirements for Offsets must be observed (to be
discussed)
Water Utility Reduction Opportunities


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Building Energy Efficiency
Efficiency of motors, pumps, hydraulic systems
Alternative Fuels
Renewable Energy
Management of Mobile Sources
Land Use, Land Use Change, Forestry (LULUCF)
External Projects
Purchase of Carbon Offsets / RECs
Reducing Costs through Carbon-Efficient Operations
U.S. mid-range abatement cost curve – 2030
Cost
Real 2005 dollars per ton CO2e
*
Industrial
Fuel economy
process
packages – Light
improvetrucks
Residential
ments
Commercial
electronics
buildings –
Combined
Residential
heat and
buildings –
power
Lighting
*
*
Coal mining – Residential
Methane mgmt buildings –
Shell
retrofits
Commercial
Nuclear
Residential
newwater heaters buildings –
Control
build
systems
Commercial
buildings –
HVAC
equipment
efficiency
Solar
Afforestation
of cropland
Coal power plants–
CCS rebuilds with EOR
Active forest
management
Distributed
solar PV
Abatement
cost <$50/ton
Residential
buildings –
HVAC
equipment
efficiency
CSP
*
*
*
*
*
*
*
*
Industry –
Combined
heat and
power
Cellulosic
*
*
*
-23**
biofuels
Residential
buildings –
New shell
Commercial
improvements
electronics
Commercial
buildings – CFL
lighting
Commercial
Commercial
buildings –
buildings –
LED lighting
New shell
Fuel economy packages
improvements
– Cars
Source: McKinsey analysis
*
*
*
*
*
Onshore wind –
Low penetration
*
*
*
Onshore wind –
High penetration
Biomass power –
Cofiring
Manufacturing –
Existing power
HFCs mgmt
plant
conversion
efficiency
Conservation
improvements
tillage
Natural gas
and petroleum
systems
management
4.2 gigatons/yr
Negative or No Life-Cycle Costs
Coal power plants – CCS
new builds with EOR
Onshore wind – Medium
penetration
Winter
cover crops
Reforestation
Afforestation of
pastureland
*
Industry –
CCS new
builds on
carbonintensive
processes
*
*
Potential
Gigatons/year
Car hybridization
Coal-to-gas
shift – dispatch of
existing plants
Coal power plants –
CCS rebuilds
Coal power
plants – CCS
new builds
Developing an Offset Project
Carbon Offsets
 Tradable commodities typically representing the reduction or sequestration
of one metric ton of CO2-e
 Compliance-based or voluntary instruments
 Certified Emission Reductions (CERs) in the Kyoto Protocol Clean
Development Mechanism (CDM)
 Utility could sell offsets
 Utility could invest in actions outside of its boundaries to create reductions
However, must satisfy offset accounting standards. In addition,
methodologies specifically for that project type must exist for
the voluntary or compliance offset trading program
Emissions Trading:
Regulatory Allowance Deficit (A Reminder)
Emissions Cap
Emission
decrease
insufficient
Emissions
Allowances Deficit
Need to Buy Allowances or Offsets
Emissions After
Prior to Cap
Cap in Effect
Compliance
Period
Offset Accounting Standards: Additionality
 New projects that otherwise would not
have occurred
 Regulatory Surplus
• Not required by law, regulation, permit,
etc.
 Implementation Barriers
• investment barriers
• technological barriers
• institutional barriers
 Common Practice
• Not a usual activity
Offset Accounting Standards: Additionality, continued
• The assurance of additionality is required to produce a credit for
transaction.
 Projects only receive marketable credits for doing better than “business
as usual” and showing that they have resulted in a net reduction of
carbon in the atmosphere.
Sequestration with
project
Sequestration without
project: “business as
usual”
This reduction
is creditable.
$
Offset Accounting Standards: Permanence
 Permanence: For example, a critical issue with offset projects like forests is
guaranteeing the permanence of their atmospheric benefits as a carbon
sink.
• The carbon stored by forest projects, can be re-emitted in the future.
Therefore, it may not result in a permanent reduction in atmospheric
greenhouse gases. When a reversal occurs, the credit issued to project
becomes invalid.
• Several instruments have been developed to manage the risk of reversals,
including reserves of credits, aggregation schemes, and insurance
mechanisms. These can ensure that liabilities are covered and the
necessary incentives are maintained, while allowing flexibility for project
developers.
Offset Accounting Standards: Transparency and
Governance
 Transparency and Governance. The issue of market transparency and
fairness is paramount to the success of any fledgling carbon offset market.
Without ensuring trust in the market and the integrity of the underlying
commodity, trade will not occur and the market will fail.
• International compliance markets and voluntary carbon markets in the United States
have made strides in recent years on issues of accountability and standards of
assurance for forest and land based offset projects.
• Providing for impartial, third-party monitoring, verification and assurance of eligible
land-based projects is essential.
Project Life Cycle
Project development cycles for offsets depend heavily on the requirements
of the cap and trade framework, but typically involve the following steps:
Project
Initiation
Project
Definition and
Evaluation
Data Analysis
& Modeling
Preparation of
Project
Documents
Listing on
Verification (&
Registry
Monitoring)
Carbon
Offsets
Issued
Waxman Markey Early Offset Supply
 Bill requires Administrator to issue one credit for
each t/CO2e emissions reduced, avoided, or
sequestered if:
• The offset project was started after Jan 1, 2001
• The reduction occurred after Jan 1, 2009 and before
the date 3 years after the bill’s enactment (whichever is
sooner) and;
• the offset credit was issued under any State, tribal or
voluntary GHG emission offset program that the
administrator determines:
– was established prior to Jan 1, 2009
– has developed offset project type standards, methodologies,
and protocols through a public consultation process
– has publicly published standards, methodologies, and
protocols that require credited emission reductions to be
permanent, additional, verifiable and enforceable;
– requires that all credits are registered with individual serial
numbers.
Waxman Markey—Role of Offsets
 EPA Administrator to publish list of eligible
offset types, establish oversight program.
• 9 member Offsets Integrity Advisory Board (OIAB)
to provide a list of recommended offset project
types to Administrator within 90 days of bill’s
passage.
• In 2017 and every 5 years thereafter, OIAB shall
submit a public scientific review of offset and
deforestation programs including methodologies.
 International offsets allowed
 Maximum 2 billion tons of offsets (1 billion
domestic, 1 billion international)
Waxman Markey and Offsets
 Currently proposed U.S. legislation in the Congress, Waxman-Markey
H.R. 2454, includes provisions to:
• Establish an Offsets Integrity Advisory Board to “provide
recommendations . . . regarding offset project types that should be
considered for eligibility . . .” (Sec.731 (c)(1);
• Promulgate regulations establishing a program for the issuance of offset
credits (Sec. 732 (a) and refers to “projects that result in reductions or
avoidance of greenhouse gas emissions or sequestration of greenhouse
gases.” (Sec. 732 (b) (i)).
• Designate the U.S. Department of Agriculture to manage a land-based
offset program including Agricultural offsets and Forestry offsets. This
has implications for Forestry, Ag Methane, etc.
U.S. Offset Markets
Next Steps
Short Term Steps towards Strategy Development
1. Understand and quantify your CO2e emission sources from
2.
3.
4.
5.
6.
7.
8.
supply chain to distribution – develop your baseline.
Analyze your position with regulations - need for allowances or
ability to develop offsets.
Identify other drivers for action, including environmental
stewardship goals.
Consider your data collection strategy carefully; integrate systems
where possible. Avoid the temptation to create “data islands”.
Analyze, prioritize and publicize your emission reduction
priorities.
Set ambitious goals and initiate positive return emission reduction
projects now.
Incorporate your GHG reduction strategy into your CIPs and
design projects.
Develop and implement external communication plan.
Questions?