More Trouble for Emissions Trading Schemes
The U.S. Environmental Protection Agency has released a report which heavily criticizes the open-market emissions-trading programs that are being run in three States: New Jersey, New Hampshire and Michigan. This follows on the heels of an announcement by New Jersey Governor James McGreevey (D) that New Jersey will discontinue its emissions trading program.
The report was conducted in response to a request by two environmental groups, Public Employees for Environmental Responsibility and the New Jersey Chapter of the Sierra Club. What it found was that there are serious problems with the programs and that they need to be fine tuned before the EPA will allow an expansion of state-specific, voluntary, open-market trading programs.
Open-market trading (OMT) programs are different than cap-and-trade programs in that they are voluntary, have no expressly defined cap, allow trading between various types and sources of pollutants, and allow credits to be generated through past emission reduction efforts to meet current requirements. Cap-and-trade programs, on the other hand, have a defined emissions cap for a specified group of participants that are required to reduce emissions.
The report evaluates the programs in New Jersey and Michigan because they are the only states with extensive programs. It finds that there are several factors that adversely affect the ability of the programs to reach emission reduction goals. “Foremost among these factors,” says the report, “were the lack of safeguards, use of data of uncertain quality, and limited regulatory agency oversight of trading activities. Many sources have opted not to participate, and problems in one state (New Jersey) have become so significant that it has announced its intention to terminate the program.”
Two of the most important missing safeguards, according to the report, are the lack of public comment on proposed trades, and an acceptance of shutdown credits in Michigan. In fact, 23 percent of Michigans total OMT credits and 80 percent of its volatile organic compound emissions credits were shutdown credits. This shouldnt be allowed, says to the report, because companies may be able receive credits by shutting down in one state and resuming operations in another.
The program also failed to use reliable emissions data. “Our reviews of 84 randomly selected trades in Michigan and New Jersey disclosed that no EPA- or State-approved quantification protocols were used to calculate credits,” bringing into question the validity of the credits. Moreover, the data used to measure emissions was of poor quality.
Finally, there was insufficient enforcement and oversight on the part of EPA, which led to questionable trades. For example, the EPA alleged that a New Jersey utility, PSEG, had violated clean air requirements when it failed to obtain permits for modifications on two power plants, which would have established lower compliance levels.
With lower compliance levels, PSEG would not have been able to claim as many emission reduction credits as it did. In a settlement with the EPA, PSEG agreed to retire 18,600 tons of emissions credits worth $16 million, which represented 90 percent of the tradable credits in New Jersey. Another New Jersey utility, Conectiv, used “cooler, off-season ozone credits to meet warmer, more polluted, ozone season requirements.”
EPA recommends that federal regulation be developed for OMT programs, that shutdown credits be disallowed, that states be required to use EPA- or state-approved quantification protocols, and that OMT programs use a “risk-based targeting approach for federal and state compliance assurance, enforcement and oversight of OMT trades.”
Canadian Government Hides Cost of Kyoto
In a presentation to two Cabinet committees on September 24, the Canadian government expunged figures showing the estimated costs of compliance with the Kyoto Protocol. Indeed, Cabinet ministers have been told by the Prime Ministers office to avoid references to a Kyoto implementation plan, according to the National Post (September 25, 2002).
The cost estimates were the result of a modeling exercise conducted by the government and agreed to by the Prime Ministers Office, the Privy Council Office, the Environment Department, and the Natural Resources Department. They show that compliance would result in 200,000 lost jobs and a 1.5 percent loss in GDP.
The provinces of Alberta and Ontario would experience the worst economic impacts, since each contributes about 27 percent to Canadas national greenhouse gas emissions. The cost of natural gas would also rise between 4 and 14 percent and electricity prices would rise by 2 percent by 2010. These estimates are based on greenhouse gas reductions of 170 megatons, about 70 megatons short of Canadas Kyoto target.
In a letter to the Canadian Manufacturers and Exporters, Prime Minister Jean Chrtien had promised that there would be an implementation plan and consultations before ratification. It now appears that Chrtien is reneging on that promise. The provincial energy and environment ministers are expecting to see a comprehensive plan to meet the Kyoto targets at an October 21 meeting in Halifax, but Chrtien has admitted that there isnt one.
“The development of the plan will take 12 years. Ten years. You know, it will not be in operation tomorrow,” Mr. Chrtien said. “There is a series of things that will have to be done and we will have to meet the commitment by 2012. There is a good chance that if we dont start, we will not be ready by 2012. So we have to start right now. We have a 10-year period to develop the appropriate plans to meet these international obligations that the Canadians want us to commit to. We will develop the plan. We will give the framework of the plan. But all the pieces of this plan will take 10 years to finalize.”
Lorne Taylor, Albertas environment minister isnt buying it. “Theyre either incompetent or theyre not telling Canadians the truth, because we dont have until 2012 to develop a plan,” he said. “We actually have to hit targets in 2012. Not develop a plan by 2012. I think the Prime Ministers comments just are indicative of the confusion thats reigning supreme in Ottawa right now.”
Canadas Environment Minister David Andersen sees no problem with ratifying Kyoto without an implementation plan. “Only on the second of September [when the Prime Minister announced in South Africa that Canada would ratify the treaty] did certain elements of industry take seriously the fact that ratification was a distinct possibility. They tended to think it could be avoided. Now, were having a much more constructive tone to the debate,” he said. Andersen went on to say that the government plans an advertising campaign to “indicate the costs are exaggerated and that the debate must be on a serious level.”