|
Server : Apache/2.4.62 System : FreeBSD fbsdweb2.web.rcn.net 14.1-RELEASE FreeBSD 14.1-RELEASE releng/14.1-n267679-10e31f0946d8 GENERIC amd64 User : www ( 80) PHP Version : 8.3.8 Disable Function : NONE Directory : /domains/enrgy/feldman/ |
Upload File : |
<html>
<head>
<title>October 2008: Offset Column</title>
<style>
<!--
h1
{margin-top:0in;
margin-right:0in;
margin-bottom:12.0pt;
margin-left:.5in;
text-align:justify;
text-indent:-.5in;
tab-stops:list .5in;
font-size:12.0pt;
font-family:"Times New Roman Bold";
}
-->
</style>
</head>
<body style="font-family: Arial" vlink="#808080">
<div align="center"><center>
<table border="0" cellpadding="8" cellspacing="0" width="98%" bgcolor="#000000">
<tr>
<td width="100%" valign="middle"><a name="top"></a>
<img src="../images/pmamagsm.gif" alt="PMA Online Magazine" border="0" align="right" width="229" height="100"></td>
</tr>
</table>
</center></div><center>
<table border="0" cellpadding="8" width="98%">
<tr>
<td width="25%" valign="top" align="center">
<!--webbot bot="Include" U-Include="wv_sidebar.htm" TAG="BODY" startspan -->
<table border="0" cellpadding="8" width="98%" id="table1">
<tr>
<td width="25%" valign="top" align="center"><map name="FPMap0_I1">
<area href="http://www.powermarketers.com/adrates.html" shape="rect" coords="14, 297, 97, 322">
<area href="http://www.powermarketers.com/pmajobs.htm" shape="rect" coords="11, 230, 95, 257">
<area href="http://www.powermarketers.com/main.htm" target="_parent" shape="rect" coords="12, 163, 96, 189">
<area href="http://www.powermarketers.com/power2.htm" target="_blank" shape="rect" coords="12, 95, 96, 121">
<area href="../pmamag.htm" shape="rect" coords="11, 29, 96, 54"></map>
<img rectangle="(12,163) (96,189) http://www.powermarketers.com/main.htm##_parent" rectangle="(12,95) (96,121) http://www.powermarketers.com/power2.htm##_blank" rectangle="(11,29) (96,54) ../pmamag.htm" src="../images/magmenu.gif" alt="PMA OnLine Magazine Menu" border="0" align="center" usemap="#FPMap0_I1" width="110" height="350"><p>
<a href="../searchpma.htm">
<img src="../images/archives.gif" alt="Archives Search" border="0" align="center" WIDTH="70" HEIGHT="40"></a></p>
<p align="left"><font face="Arial"><strong><small>About The Author:<br>
<br>
</small></strong><span lang="X-NONE" style="color: black"><font size="2">
ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon
Markets Group has practiced law related to the finance of environmental and
energy projects and companies for 40 years. In particular, he has analyzed
and executed a wide variety and substantial value of project financings. He
chairs the American Bar Association’s Committee on Carbon Trading and
Finance, serves on the Board of the American Council for Renewable Energy,
and has been a senior official in the Federal Energy Administration. He is
a graduate of Brown University, Yale Law School and Harvard Business School.</font></span></font></p>
<p class="BodyText05DS" align="left" style="text-align:left"> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p><a href="#top">
<img src="../images/b-t-top.gif" alt="Back To Top" border="0" WIDTH="71" HEIGHT="35"></a></td>
</tr>
</table>
<!--webbot bot="Include" i-checksum="19883" endspan --></td>
<td width="75%" valign="top">
<img src="../images/feldman.gif" alt="Washington Viewpoint by Roger Feldman" border="0" width="375" height="75"><p align="left"><b><u><br>
October 2008</u></b></p>
<p align="center"><font size="6"><b>Offset Column</b></font></p>
<p><strong>by Roger Feldman --
</strong><b>Andrews Kurth, LLP</b><strong><br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine
Magazine: 2008/11/08</em>)<br>
</font><span style="font-size: 10.0pt; font-family: Palatino; color: black">
</span></p>
<div>
<p class="BodyText05DS">The carbon credit origination business is one
that is established within the framework of the Kyoto Accords, and is
growing as an underpinning of the U.S. Voluntary Market. Its use has
been fit into project finance, and funds have emerged to exploit the
opportunities created. Proposed U.S. legislation appears likely to fit
offsets’ origination into it, in some measure.</p>
<p class="BodyText05DS">But we have arrived at a time when the carbon
credit origination rules need to be reexamined. The four pillars that
support the structure of GHG regulation--faith in market solutions,
globalization, energy agnosticism, and green consumerism--are becoming
shaken. Improved carbon origination rules can create an “offset column”
which can protect the edifice from upcoming shocks.</p>
<p class="BodyText05DS">The first pillar of carbon “cap and trade” is,
of course, that effective markets will create innovative technological
responses to the increased prices imposed on carbon emissions; in
short, economically created necessity will be the mother of invention.
The “offset” concept simply globalizes the thought: it salutes
effective markets being the mother of invention even if in practice
necessity they are not the mother of invention, but of adoption,
utilizing more or less proven technical fixes. Almost all of the
Environmental Defense Fund’s recommended carbon offset projects are
variants of the same technology. </p>
<p class="BodyText05DS">The “globalization” column may also be somewhat
off center since it salutes the market as mother of invention even
though the child is born elsewhere. But GHG reduction of, say,
hydrofluorocarbon emissions in China may not be the path to systematic
reduction of concentrated emissions in Germany. That is an issue that
has been raised with respect to other “cap and trade” programs.
Obviously it remains to be seen whether the whole world will adopt the
same carbon standards so that there is some symmetry in the ratcheting
down of emissions. From a long term standpoint, the scheme may not only
be rewarding the wrong technologies, but in the wrong places.</p>
<p class="BodyText05DS">The third column effectively leans on the
principle that the energy production route which leads to carbon
compliance is the best route regardless of its “energy security”
consequences. Indeed many leading analysts don’t think that, under the
new “cap and trade” regime, new coal plants can play a significant role
in meeting the future foreseeable growing power needs. That field is
left to renewables (if possible) or by default to gas or nuclear--the
availability of which is somewhat problematic. Reduction in use of
foreign transportation fuel sources also is an unaddressed goal. Such
energy agnosticism has its national security risks.</p>
<p class="BodyText05DS">It also endangers the fourth pillar, which
embodies the assumption that green consumerism is a sustainable faith,
<i>i.e</i>., that consumers will inevitably pay for the creation of the
carbon-diminishing marketplace. Indeed, the price of offsets for carbon
origination is predicated on the assumption that the consumers will pay
the passed-through “carbon tax” on energy and consumer goods. But will
reality sustain that assumption? Already leading market survey firms
are reporting that consumers turn away from “green” when it costs more,
even though they like the idea of “green” in principle. The column of
green consumerism is thus a shaky one.</p>
<p class="BodyText05DS">The offsets scheme today does not go very far to
address the problem of keeping upright the four columns which sustain
the edifice of global climate control. It is but one small element of
the present ”cap and trade” order.</p>
<p class="BodyText05DS">But, with a little imagination, it could be
significantly more. If offsets were treated not as a quirk of Kyoto, or
a VER of the soon-to-be-atavistic voluntary market, but as a source of
policy support to help the pillars stay upright.</p>
<p class="BodyText05DS">The starting point for this line of thinking has
to be a return to the first principles: carbon emission reduction has
economic value as “currency” only because a legal scheme directs that
this be the case. The difference between an allocated allowance and an
offset emission reduction is defined and equilibrated only by the rules
of the legal market framework in which they operate. Allowances are
awarded or auctioned value “currency”; offsets are another form of
value “currency” to pay the price of pollution. </p>
<p class="BodyText05DS">Consequently, if the columns are to keep
standing, some carbon value “currency” must be awarded to the activities
which bolster them. Absolute GHG reduction is the goal, but we need
more than arithmetical addition and subtraction of value “currency” for
carbon to influence, in a practical way, positive development sustaining
the occurrence of innovation, globalization, energy security, and
consumer acceptance.</p>
<p class="BodyText05DS">For example, consideration should be given to
modifying the operative definition of “offsets,” which should be
scrutinized in terms of the following guidelines:</p>
<h1><span style="font-weight: 400">1.<span style="font-style: normal; font-variant: normal; font-size: 7.0pt; font-family: Times New Roman">
</span>Offset possibilities should be maximized, regardless of the
emitting source. Covered parties, <i>e.g.</i>, types of emissions
generators, should be permitted to obtain offset rewards (excess
“allowances”) for further improving the management of their systems,
whether by abatement, renewables, or efficiency. (This is essentially
contrary to the approach to covered persons taken, for example, by the
recent Warner-Lieberman legislation.)</span></h1>
<h1><span style="font-weight: 400">2.<span style="font-style: normal; font-variant: normal; font-size: 7.0pt; font-family: Times New Roman">
</span>Offset “dumping” should be precluded. Carbon reductions by
different technologies qualifying as offsets are not necessarily all
equal. There may be several technologies whose development deserves and
requires differential support for a variety of possible policy reasons.
A case can certainly be made, for example, that offsets should not be a
permissible “export” product for countries which are otherwise net
contributors to GHG pollution through their other activities.
Globalization of GHG limitations will not just happen for the simple
reason that cost avoidance creates competitive advantage. It’s a case
of Gresham’s Law in action: value “currency” that is the result of
insufficiently rigorous rules will drive out better quality value
“currency” if permitted to do so.</span></h1>
<h1><span style="font-weight: 400">3.<span style="font-style: normal; font-variant: normal; font-size: 7.0pt; font-family: Times New Roman">
</span>Offset technology development support should be targeted.
Special offset support, analogous in purpose to special tax code
incentives, should be given to certain technologies which promise to
facilitate needed energy technology development. For example, carbon
capture and sequestration must be developed if clean coal development is
to actually occur, with extraordinary importance for long term energy
security. Either CCS use or the development of CCS infrastructure
should be the beneficiary of special offset rights if it meets
progressive performance tests.</span></h1>
<h1><span style="font-weight: 400">4.<span style="font-style: normal; font-variant: normal; font-size: 7.0pt; font-family: Times New Roman">
</span>Regional consumer impacts of carbon regulation should not be
ignored. Offsets should be available in some form as a mitigant to the
costs to consumers of the pass through of carbon charges, at least on a
transitional basis. In areas where there is concentrated location of
generators’ emissions, local consumers should not have to effectively
bear a disproportionate share of the economic burden of the “carbon tax”
or the stranding of costs of coal-fired generating assets.</span></h1>
<p class="BodyText05DS">In sum, the future of the carbon credit offset
generation business depends on the abiding strength of a global GHG
scheme. If availability of offsets is not viewed as a support for those
columns, which require sophisticated engineering, the global GHG program
and with it the carbon credit origination business, may become one in
the dust with other great economic schemes whose flared impacts were not
adequately thought through pragmatically, like power deregulation. The
result: Stonehenge.</p>
<!--webbot bot="Include" U-Include="wv_bottom.htm" TAG="BODY" startspan -->
<hr color="#FFFF00">
<p class="MsoBodyText" align="left" style="margin-bottom:0in;margin-bottom:.0001pt;
text-align:left"><font face="Arial" size="2">
<span lang="X-NONE" style="color: black">ROGER FELDMAN, Co-Chair of Andrews
Kurth LLP Climate Change and Carbon Markets Group has practiced law related
to the finance of environmental and energy projects and companies for 40
years. In particular, he has analyzed and executed a wide variety and
substantial value of project financings. He chairs the American Bar
Association’s Committee on Carbon Trading and Finance, serves on the Board
of the American Council for Renewable Energy, and has been a senior official
in the Federal Energy Administration. He is a graduate of Brown University,
Yale Law School and Harvard Business School.</span></font></p>
<!--webbot bot="Include" i-checksum="63395" endspan --></div>
</td>
</tr>
<tr>
<td width="25%" valign="top" align="center"> </td>
<td width="75%" valign="top">
<p align="center"><a href="#top">
<img src="../images/b-t-top.gif" alt="Back To Top" border="0" width="71" height="35"></a></td>
</tr>
</table>
</center>
<p align="center"> </p>
</body>
</html>