As the US gets closer to considering Cap and Trade legislation once again, in the Senate this time, a troublesome story appears in the Economist that would make even the strongest supporters of doing the right thing on Global Warming a little queasy. (“The Wrong Sort of Recycling” Hungary’s sale of used carbon credits damages investor confidence. March 25, 2010. The Economist)
No doubt the Hungarians would feel that they had been slandered – after all it was out of their hands. And it’s OK to sell credits twice in Japan. So its unfortunate that this sent the market in Paris into turmoil.
But perhaps we get ahead of ourselves…The Hungarian Ministry of Environment and Water issued 800,000 certified emission-reduction credits (CERs). As the Economist explains “CERs are generated by the Kyoto protocol’s “Clean Development Mechanism, whereby reductions in greenhouse gases in developing countries can produce a carbon credit for use in industrialised markets.”
What happened with this sale of CERs was that Hungarian firms had already put the CERs to good use offsetting their own emissions. The Economist explains that Hungarian officials reported that the credits were ultimately destined for a buyer in Japan and in Japan you can use credits twice, something that you cannot do in Europe.
The point of having a carbon market is to be able to price the right to emit carbon dioxide efficiently. The Economist quotes Yuichi Takayama of Tokio Marine Asset Managementas explaining, “In Japan’s view, so long as some environmental benefit has occurred, then the CERs have a value”.
Not so much in the view of the European carbon markets. The CERs were not simply sent from Hungary to Japan but instead found their way onto BlueNext that is an exchange based in Paris. “By the time that the European Commission realized what had happened, all hell broke lose. BlueNext temporarily suspended trading.” The price fell and investor confidence appeared to be shaken. Since this trade was not in a government’s hands no one broke the rules.
In Europe you are not supposed trade the same credit twice. There has been support for making different kinds of credits fungible. The market will be bigger if new entrants aren’t discouraged from coming in. But if the new players bring credits that are sold in Hungary and again in Japan and then on the European exchange there’s going to be resistance from investors and then there won’t be a market at all.
Tonight as Barack Obama prepares to leave for Copenhagen, the drama could not be more intense and this is happening on multiple fronts.
In Copenhagen the talks have broken down as the world awaits the arrival of more than 100 heads of state. As compared with the refinement and protocol of the Nobel Peace Prize Award in Oslo last week, Copenhagen with its police cordons and demonstrations seems to be near chaos.
The Wall Street Journal reported (Peter Walsten)
The United Nations summit that was supposed to galvanize global cooperation against climate change is on the brink of failure, and how it ends will depend on whether President Barack Obama and other world leaders about to descend on the Danish capital can bridge deep disagreements over trillion-dollar decisions.
The controversy does not appear to be solvable. China has remained close to the poor nations, the G-77. As of today China is resisting the notion that there could be any outside inspection of its voluntary agreements.
In the meantime, President Obama’s popularity continues to fall. Less than 50% of the public approves of the way that he is handling his job. This discontent appears to have come from concern with the health care bill that continues to head toward the 11th hour showdown in the Senate. And many American’s, especially some his strongest supporters, disapprove of his war policies.
In a Wall Street Journal NBC poll, a majority of Americans believe that America will be surpassed by China in 20 years. Obama’s popularity has fallen in his first year more than his predecessors. These are all measures that are not lost on the Democrats who must be concerned that as they run for office next year, their own popularity continues to erode.
Global warming could not be a more difficult challenge and the President will have to play his role with resources that are increasingly constrained.
This is a good time to revisit all of the major climate change issues because no matter what happens in Copenhagen, EPA has already announced that it is compelled to act under the Clean Air Act to address the concern with the “endangerment” caused by Greenhouse Gases. The issue of whether action will be taken here is beyond popularity. What is at issue is how limits will be set and what will happen to everyone else as policy plays itself out. Henry the IV would have understood what the President faces tonight.
To point out that the President of the U.S. has become critical to many public policy debates (especially Climate Change) would seem to be gratuitous in these times. But we have come upon an obscure set of anniversaries and its useful to recognize, before Copenhagen, how tenuous progress on Climate Change has been. Now we seem to be moving on one of the profound historical shifts of our times and it all turns on Barack Obama.
Only three years ago, the Supreme Court agreed to hear a case in which Massachusetts and 12 other states sought to require the Environmental Protection Agency to regulate greenhouse gases. In February of 2007, Al Gore’s documentary, an Inconvenient Truth, won an Oscar. On April 2nd 2007 in a 5-4 vote the Court agreed that Massachusetts did have standing to bring the case.
Justice Roberts argued on behalf of Justices Scalia, Thomas, Alito and himself that the President should be allowed to execute the laws. (Of course there is some irony here since the dispute was about whether the President should be required to act to execute the law.) The Bush Administration had argued that EPA should not be required to regulate automobile emissions because the science was unclear and it had a much broader program of voluntary compliance, incentives and research. Conservatives argue that the Executive Branch should be free to devise its own strategies and to negotiate with the less developed countries without interference from the Courts and the Legislative Branch (hence the Unitary Executive).
Of course that was then, and this is now. Last November, long before he was sworn in as the 44th President of the U.S., Barack Obama declared that there was no longer any debate, the science was clear. He declared that during his Administration the US would become a world leader on Climate Change Policy. President Obama has done many things in the ensuring year to demonstrate that he was serious. But now he goes to China and then to Scandinavia in December. The ball is in his hands.
And the science was clear, but the economics? The Climate Change aficionados have been saying that the recession has given us some breathing room. But not much. Today the International Energy Agency forecasts that the demand for electricity (by 2030) that will be generated by coal unless something happens to change things, this will require the equivalent of 5 times the amount currently consumed by the entire US.
More than half of that coal generation will come from China. Much of the balance will come from the Less Developed Countries. By 2030 the world will be looking back to this time when the direction changed, indeed pivoted on one Unitary Executive in a very short period of time.
In the weeks that have followed the announcement that President Barack Obama had been awarded the Nobel Peace Prize, there were no doubt moments when former Prime Minister Thorbjørn Jagland has wondered whether they did the right thing. The critics refuse to go away.
His question, won’t it be too late to respond 3 years from now? And his comment at the press conference when he asked, “who has done more to advance the cause of world peace?” expressed his logic and the reasoning of his fellow board members. Since then he has been attacked from many sides, most recently in the Wall Street Journal.
But whether or not the Nobel Peace Prize should have been awarded to the American President only a few months into his Presidency (even President Obama said that he was not sure that he had yet earned a place among the transformational figures who have been awarded the prize), it does raise some interesting questions.
In recent weeks the question of Copenhagen has had to play a much bigger role in the conversations at Rahm Emanuel’s conference table where Presidential schedules are planned. No, not the trip to Copenhagen to make the pitch for Chicago’s bid to host the Olympics, the trip that would outline the U.S. position toward a global Climate Change treaty. Would the President go? Would the Chinese and the Indians do enough to make a US response necessary?
In early October 2009 there are many voices seeking to anticipate or even to influence the Climate Change policy debate. Many are predicting that there will not be the kind of global policy that had been anticipated. Nor do most people think that the US Congress, embroiled in debates over health care, could turn to passage of the Cap and Trade bill that would set US Climate change policy.
And now, President Obama will be going to Oslo on December 10th to receive the Nobel Peace Prize.
The website of the Norwegian delegation to the Council of Europe where former Prime Minister Jagland presides, there is an interesting note. “In its awards to Wangari Maathai in 2004 and to the Intergovernmental Panel on Climate Change (IPCC) and Al Gore in 2007, the Nobel Committee has indicated that its concept of peace now also embraces efforts to limit the harm done by man-made climate change and threats to the environment.” There is no question that they have their eye on the Copenhagen Climate Change conference as well.
Back to Mr. Emanuel’s conference table where the ghost of former Prime Minister Jagland now has a place. Can the President skip Copenhagen and then go to Oslo? Tricky question indeed.