We all take water for granted. Even though water is critical for human life, ecosystems and as a major process or product input for industry, it's a resource that very few of us think actively about managing. And of all environmental issues, it's the least debatable; when there's no more water in a region, you don't need scientists to tell you.
Companies need to develop strategies for managing this important resource as water stress becomes the norm in many regions of the world. As a starting point, some organizations are now conducting "water footprints" to figure out where in the value chain their businesses are vulnerable.
Doesn't this sound familiar? Haven't we been down this road before with energy and carbon emissions? It's very easy to describe water as 'the next carbon', and many have, but it's not really the same.
It's worth reading both for what the authors point out as the differences between carbon and water, and for the opportunities inherent in the increasing constraints on this most valuable resource.
Writing in Yale Environment 360, Mark Schapiro reports on European companies that have been overpaying China to offset their own carbon emissions by incinerating a powerful greenhouse gas known as hfc 23.
If that's not all, those very payments have spurred manufacturing of an ozone-depleting refrigerant, hcfc 22, that is being smuggled into the U.S. and used illegally.
As Schapiro puts it,
That black market completes a global circuit unique to the era of climate change: From China’s industrial zones, the credits for the greenhouse gases — bought and sold as commodities on the global carbon markets — flow to European companies that need them to continue polluting at home, while the underlying ozone-depleting gas responsible for creating those credits flows to American companies seeking discounted refrigerants.
This speaks to the perils of carbon offset programs and potential abuses, but also that safeguards such as the NGOs set up to monitor offset programs do play a valuable role. According to Schapiro, "Two European nonprofits, the Germany-based CDM Watch and the London-based Environmental Investigations Agency, kicked off the controversy when they asserted last summer that European companies were paying dramatically inflated prices for the emissions credits."
The Cantwell-Collins "cap-and-rebate" climate bill, known as the Carbon Limits and Energy for America's Renewal Act (CLEAR), proposes refunding 75 percent of all revenue collected back to U.S. residents in a monthly check of about $100 per family of four.
Tim Hurst over at Ecopolitology has a good analysis of the bill proposed by Senators Maria Cantwell (D-Wash.) and Susan Collins (R-Maine), which they claim would reduce greenhouse gas emissions of 20 percent by 2020 and 83 percent by 2050. And without the messy offset program that would be hard to monitor and regulate.
As Peter Barnes wrote in On the Commons, Cantwell-Collins provides "a simple, transparent cap-and-dividend system that returns higher carbon prices directly to consumers and allows only minimal carbon trading. It would cap fossil fuel suppliers like Exxon-Mobil and Peabody Coal, rather than emitters like utilities and steel plants, because it's much easier to catch carbon when it enters our economy than when it leaves."
Barnes explains "it would auction all carbon permits and avoid giveaways, market distortions and offsets. And it would put a 'collar' on the price of carbon permits in order to limit market volatility."
This Bill has garnered some interesting support, such as Dr. Kenneth P. Green at the American Enterprise Institute, which may give it a leg-up over the Kerry-Lieberman-Graham Climate Bill. But, as Tim Hurst rightly points out, "getting any climate legislation passed before November, 2010 is going to be problematic, to say the least."
Camille Ricketts also takes a hard look at the two Senate proposals in VentureBeat's GreenBeat
On Tuesday, the State of California announced its plans for its own cap-and-trade program as part of Assembly Bill 32, which aims to cut Greenhouse Gas Emissions 15 percent by 2020.
The California Environmental Protection Agency's Air Resources Board released its scoping plan, which was praised by governor Schwarzenegger, environmentalists, and utilities.
But is all the praise deserved?
The California plan follows the same outline of other such plans: a cap limits the amount of GHG emitted by power plants, refineries, cement factories and the like, and requires a permit for every ton of CO2 released into the atmosphere.
The trouble with a California program -- or a Western States Program or a Regional Greenhouse Gas Initiative like we have in the Northeast -- is that it's a patchwork approach.
If you're a company with a national footprint, you have to react to all sorts of different regulations, that's why some companies want a national program.
Yet even a national cap-and-trade program is a flawed scheme for dealing with CO2 emissions. Despite the prevailing sentiment that cap-and-trade is market-based, most of the proposed programs will hand out a significant portion of the permits for free, which could have the unintended consequence of keeping the price of permits lower than desirable.
The EPA estimates that the average price per ton will be around $15 for possibly the next two decades. That's until 2030 folks.
Some analysts say that utilities need a carbon price of $50/ton before they'll commit the billions needed for new technologies, such as carbon capture and storage and alternative energy resources. When will we get to a $50 price for carbon? When it's too late.
At that rate, the price of carbon won't be enough to create incentives for investments in low-carbon energy infrastructure, energy efficiency, and transportation.
The potential for gaming the system is equally troubling. There is little agreement about monitoring and accounting of the permits and projects that qualify, which could provide an avenue for unscrupulous speculators to take advantage of the situation.
A cap-and-trade program potentially creates windfall profits for utilities, but it is unclear whether it will generate significant reductions in emissions or investments in clean technology.
And some analysts think it is doubtful that cap-and-trade will even put a dent in fossil fuel's price advantage. Others fear that much of the transactional value of the assets created by any cap-and-trade program will be in the hands of some of the same folks who gave us the subprime mortgage and credit default debacles.
Finally, if we are going to have a cap, and that seems to be the way it's going, I'd rather see a cap-and-invest structure where you auction of the permits to the highest bidder and use profits to create an R & D investment fund rather than giving the permits away for free.
It seems to me these flaws need to be addressed in any scheme that gets adopted before we head down the road of future regrets.
Perhaps it was the smiling French President Nicolas Sarkozy reaching out to grab Mr. Obama's arm, as if he'd just told the best joke the Frenchman had heard from an American since Jerry Lewis.
Or perhaps it was the beaming German Chancellor Frau Merkel giving an appreciative glance at the charismatic American president.
Or maybe it was British Prime Minister Gordon Brown calling the G-8's non-binding agreement "historic" and German Chancellor Angela Merkel pointing to "a clear step forward."
I couldn't help wondering whether the G-8 summit in the central Italian city of L'Aquila wasn't a well-orchestrated jab at the previous US administration and its resistance to 80 percent reductions. It all felt a little cloying.
At the end of the day, the US and other G-8 nations have pledged to reduce their greenhouse gas emissions by 80 percent or more by 2050, and agreed that global temperatures need to be prevented from rising more than 2 degrees Celsius or 3.6 degrees Fahrenheit.
Of course, not everyone was happy with the agreement. Both environmentalists and developing nations took issue.
While environmentalists welcome the shift in US policy, they are critical of the big industrial emitters' failure to agree on more immediate goals. Developing nations feel that complying with major reductions will hamper their economic growth and keep their people in poverty.
According to sources close to the situation, representatives of developing nations, such as China, India, and Brazil still feel those who have benefited from 100-plus years of unbridled development should do more.
In other words, the burden of emissions reduction should be on those who created the problem, not on those who are struggling to catch up.
There is no question that China and India will be a major force in the upcoming negotiations. They have much at stake: both are still heavily reliant on coal to fuel their economies, but both also seem to be serious about investing in alternative energy development.
China and India seem to be serious about developing a low-carbon economy -- or at least seizing a large share of the market.
Last month, Zhang Xiaoqiang the vice-chairman of China's National Development and Reform Commission, said that China wants to produce one-fifth of its energy needs from renewable sources by 2020.
According to Lou Schwartz, of China Strategies LLC, the Chinese will spend over 3 trillion Yuan (roughly US$462 billion) on alternative energy development in the next decade. This includes 100,000 MW of installed wind power capacity by 2020.
Meanwhile, in a visit to the Solar Energy Centre in Gurgaon last month, Indian Minister for New and Renewable Energy, Dr. Farooq Abdullah, pledged that "new and renewable energy will increasingly play a larger role in meeting the development aspirations of a growing economy like India."
The US and other G-8 countries need to take notice, listen to the concerns of developing nations and do more to enable those countries leapfrog dirty technologies, while doing more at home to facilitate their own swift transition.
The Associate Press (AP) reported this morning that "President Barack Obama's proposed new fuel and emission standards for cars and trucks will save billions of barrels of oil but are expected to cost consumers an extra $1,300 per vehicle by the time the plan is complete in 2016.
Today, Obama will announce the first-ever national emissions limits for vehicles, including an overall average of 39 miles per gallon for cars and 30 mpg for trucks by 2016.
According to AP, Obama's plan effectively puts an to the feud between automakers and statehouses over emission standards and "couples for the first time pollution reduction from vehicle tailpipes with increased efficiency on the road. It would save 1.8 billion barrels of oil through 2016 and would be the environmental equivalent to taking 177 million cars off the road, senior administration officials said, speaking anonymously ahead of the announcement."
I'm still looking for some data to back up these claims, but I agree that raising these standards is long overdue -- and may even spur innovation.
Image via WikipediaClean tech investments have been hammered lately, driven down by the economic depression and demand-destruction prices for oil. Less green to spend; less incentive to spend it on green.
It will take a while to recover. And, even though the oil price spikes of last summer are a fading memory; people do remember the impact they felt.
But one area stands to gain from both the presidential turnover and shifting of focus to infrastructure to stimulate the economy: energy efficiency.
No, I'm not talking about Jimmy Carter's sweater and I'm not asking you to turn down your thermostat.
Rather, I'm talking about using technology so that your energy consumption is monitored, even transferred to when it is not peak; where so-called smart meters can help you regulate your home's energy consumption over the Internet. You may never have to adjust a thermostat or ponder whether you turned off this or that light again.
New technologies are needed, but also old technologies. As Van Jones likes to say, the tool of the new green economy is the caulking gun. Forget "Drill, baby, drill," now the mantra is "Caulk, baby, caulk"?
And best of all, it may in fact lead to job-creation.
As Stephen Cowell, CEO of Conservation Services Group, said, "A $3 billion investment in energy efficiency will immediately produce 50,000 jobs. The multiplier effect of lower energy costs could lead to as many as 100,000 additional positions, resulting from increased products and services that have become unburdened by staggering bills."
McKinsey & Company would seem to agree, according to a recent studied cited by Karim Salamatian, a partner and chief investment officer of Viresco International Capital Management. Salamatian reports that "US$170 billion in annual global Energy Efficiency spend for the next 13 years will generate US$900 billion in annual savings beyond 2020."
An added benefit, according to Salamatian, is that it can "deliver 50 percent of the CO2 abatement required to cap greenhouse gases in the atmosphere at 500 parts per million.
But will the American investor embrace energy efficiency? Or will they simply ignore the issue for as long as we have cheaper oil? Only time will tell.
The important thing is to demonstrate how energy efficiency projects can make a difference, be implemented quickly, and to make money.
And this is true not just in the states, but in remote locations as well.
"In markets such as China, Vietnam and India," Salamatian recently wrote in FINalternatives.com. "CO2 emission abatement is an afterthought, so there needs to be solutions where it is a by-product."
In other words, the conversation needs to get beyond global warming to creating jobs, saving money, and building the future -- today.
Early in 2009, CF Partners of London will launch a new 50 million euro (USD$70.06 million) hedge fund designed to profit from volatility in carbon markets.
The CF Carbon Fund will be one of the first dedicated carbon hedge fund products of which I'm aware. Others will likely follow.
The Fund, according to CF Partners "adopts a relative value and arbitrage-based approach to trading carbon and the correlation of carbon with other global energy markets. It seeks to capitalize on pricing inefficiencies and dislocations in these markets."
The European Union's endorsement of climate goals stretching to 2020 may make the EU's emissions trading scheme a stronger investment, according to Michael Szabo at Reuters, who reported on the announcement in London this morning. And "recent volatility in commodities markets has opened shorting opportunities."
"To date in the carbon space the majority of the players from a fund point of view have been long-only guys," Simon Glossop, one of CF's founders, told Reuters. "That's been a workable model up to this year, but carbon has now become an asset class in its own right instead of a compliance tool."
The global carbon market, which has an anticipated of US$100 billion this year, allows companies to trade rights to emit greenhouse gases.
Carbon prices, which are closely linked to energy prices, have fallen nearly half from a peak price last summer of 29.69 euros (US$41.60), according to Reuters.
Questions surrounding a new global pact on climate and uncertainty about future energy prices has made for a rocky carbon road.
"'The volatility around the market's policy risk is actually good for us from an investor point of view, so we encourage it,' Glossop told Reuters."
Glossop said that "the fund was investing in large hydro projects in China. The fund has a staff of 10 in London, with another employee on the ground in China originating deals." And the fund could grow to 250 million euros (US$350.3 million), but still needs to secure initial investment.
I'm unaware of anything like this starting up in the US, but president-elect Barack Obama's focus on a cap-and-trade program in the US could encourage development of such funds here.
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CF Partners is a specialised environmental advisory and investments firm. The Firm’s strategic focus is on advisory, sales & trading coverage and fund management with a specialisation on environmental and global carbon products.
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