Sunday, November 26, 2006

Emission caps in America: will Bush embrace Kyoto?
In many of my recent posts, I have suggested mainstream America is becoming more comfortable with the idea of caps, or limits, on emissions from fossil fuel use by heavy industry. So far, this shift has manifested itself in policy and action at the state level, with carbon-capping regimes in the northeast (the RGGI) and in California; see my posts of August 13 and August 20.

Federal efforts, like the McCain-Lieberman draft Senate proposal on carbon caps, have not met with the same success.

Up to now.

After the November 7 mid-terms, the scene is changed. Democratic takeover of the leadership of the great standing congressional committees gives initiatives like McCain-Lieberman a much better chance. Many industry leaders are already advocating an overall federal policy on emissions, for fear of a patchwork of state-level policies that could become impossibly complex, especially in inter-jurisdictional electricity markets. And many, like NRG Energy’s David Crane, accept that emission caps in some form are inevitable.

The question is, will these be hard or soft caps? I.e., how hard will the federal government push emitters?

My prediction: a carbon market will come to America. The two biggest bellwether states, California and Massachusetts, support such measures (though Massachusetts pulled out of the RGGI last year, incoming governor Deval Patrick supports the RGGI, and has indicated he wants back in).

America’s carbon market will contain the general features of the European Union’s emission trading scheme (ETS). The ETS’s failure so far to reduce emissions—due, as I suggested on November 12, to tacit and systemic collusion between individual emitters, their national governments, and the ETS’s administrators in the European Commission—will make the idea of cap-and-trade palatable to coal-based power generators, and their lobbies, in the U.S.

Canada should also take this route: a hard cap on emissions, in the form of a tax, is simply a non-starter.

A national cap-and-trade system in the U.S. could come by way of a rejuvenated McCain-Lieberman proposal. For this to work, the president must be involved. Bush has resisted carbon caps up to now (for exactly the same economic reason that forced the Ontario Liberals to back away from their coal phase-out).

But now the landscape is different, and industry opposition in some quarters is beginning to evaporate, as in the case of NRG Energy. Bush still has major clout, and if he reads the writing on the wall—his former energy secretary, Spencer Abraham, predicts a carbon framework in the U.S. within five years—he might decide to spend his final two years leading the effort, instead of opposing it.

Should Canada lead this, or follow? We’re well-placed to lead, as I’ll explain in my next post. Stay tuned.

Saturday, November 25, 2006

Ontario’s nuclear renaissance: million-tonne emission reductions, but zero payoff for McGuinty
Over the past six months, I have applauded Ontario’s recommitment to nuclear power. The nuclear renaissance in this province has already chopped twelve million tonnes per year from the province’s greenhouse gas (GHG) emission inventory—making it by far the biggest and most successful emission reduction effort since Canada signed the Kyoto Protocol in 1997.

I have also wondered why no one talks about this, what with Kyoto such a hot topic these days. The McGuinty government, which took a big risk by approving the Pickering unit 1 rehab project in mid-2004, deserves a lot of credit for this success. Let’s not forget the Liberals’ approval for unit 1 came hard on the heels of the cost-plagued unit 4 rehab, which the Conservatives started in 2000.

However, in spite of the success of the unit 1 project, the McGuinty Liberals have so far reaped zero political dividends.

The government’s critics say it has no plan when it comes to electricity. I think that’s wrong: they do have a plan, and it’s a good one. It’s the Liberals’ communications that are inept.

Look at this week’s hoopla over McGuinty’s latest embarrassing retreat from his pledge to close Ontario’s coal-fired generating plants. You will recall that he made this promise during the 2003 provincial election campaign. It appears the Liberals made this promise, which every expert agreed was rash and ill-considered, in a bid to win the support of anti-coal (i.e., pro–natural gas; see my July 23 post) environmental groups. These groups, unlike the T. Rex in the Jeep’s mirror in Jurassic Park, are smaller and less fearsome than they appear to Liberal strategists.

What was the basis of the promise to phase out coal? Air quality. Emissions from Ontario’s electricity generation skyrocketed after the nuclear lay-ups which began in the mid-1990s. As they rose each year, power-sector emissions became a hot topic in the province.

But now that four of those reactors have returned to service and emissions have accordingly dropped—by 12 million tonnes per year since 2000—the Liberals are well on their way to achieving Kyoto compliance in the provincial generating sector. This is a major achievement.

But instead of redefining the coal-and-air-quality issue in these terms, the premier stayed on the defensive during last week’s clamour over the coal promise. He even blamed his expert advisers for telling him the coal phase-out was ever feasible in the first place.

Well, it’s not too late for McGuinty to roll out a new communication strategy. He has lost the support of mainstream greens anyway, so why coddle them any longer.

And speaking of mainstream greens’ stance on this issue, let’s recall their response to the former Liberal federal government’s plan to purchase domestic carbon emissions at $15 dollars per tonne. They applauded it. But their silence over Ontario’s stunning emissions reductions proves they really think the price of carbon should be somewhere around zero.

Sunday, November 19, 2006

Clueless in Kenya: Kyoto gab-fest avoids the central issue of how to reduce emissions
Last week, the mainstream environmental movement and much of the Canadian media piled on Environment Minister Rona Ambrose during the Kyoto talks in Nairobi. Her high offence? Failing to pay the proper lip service to Kyoto. Nothing is more important to this crowd than talking the talk.

The Minister’s response to these magpies was to throw parochial politics right back in their faces. For this, she’s winning my respect. Mainstream greens’ policy prognostications are, and always have been, basically useless. They’re good at media relations and that’s about it. Realizing this, Ambrose decided to at least try to score some partisan points. What the hell, airtime is airtime.

Ambrose wasn’t really wasting anyone’s time, since the conference was all about hyperbole and media stunts anyway. Totally absent was discussion of any credible plan, whether international or Canada-specific, to reduce emissions. This is odd, considering what I have been saying about the major emission reductions that have occurred in Ontario since this province’s nuclear program was restarted six years ago. (See my October 22 post.)

You might think that someone would mention the central role nuclear energy must play in emission-reduction efforts, especially in view of the International Energy Agency’s recently released report saying exactly that.

But you’d be wrong. A search of the Factiva and Lexis Nexis media databases reveals not a single story coming out of the Nairobi conference that even acknowledges that nuclear energy is at least part of the solution to the Kyoto problem.

This is disappointing proof that the Nairobi conference was all talk and no problem solving. To her credit, Ambrose recognized this and acted accordingly.

Sunday, November 12, 2006

Greenhouse gas reductions in the EU: talk meets reality
You will recall my May 19 post, in which I described the teething problems in the European Union’s Emission Trading Scheme (ETS). After the ETS’s first year of official operation, the price of carbon crashed to around €8 per tonne, making it cheaper for Europe’s biggest emitters to continue business as usual than to cut emissions.

To make things worse the price then spiked, which, according to some observers, enabled some of Europe’s largest emitters to actually make an additional profit from the sale of their excess permits.

This is exactly the situation the ETS’s designers set out to avoid. The ETS was supposed to make business-as-usual expensive enough to compel heavy emitters—including and especially coal-based electricity generators—to find ways to cut emissions without sacrificing economic output. To discourage business-as-usual, the ETS was designed to make carbon permits scarce and therefore expensive.

So how did carbon become so cheap? Because rather than ensuring permit scarcity, the system allowed permit abundance. It is difficult to say precisely how this happened, since certain aspects of the permit allocation process are confidential. But one thing is clear: the European Commission issued more carbon permits than emitters could use. This means that somewhere along the line, somebody over-estimated the amount of carbon Europe’s heavy emitters would emit. And permits were allocated based on this over-estimation.

Regardless of the methodologies by which carbon emissions were estimated, I suspect the central reason for this over-allocation was the realization that the ETS would surely cause electricity prices to rise—and rise significantly—though the European Commission tries to make it look like the scheme is only one factor among many affecting the price of electricity (see the EC’s emissions trading website).

All this raises a fascinating question: how much is Europe really willing to pay to implement Kyoto? A possible answer: not as much as the ETS would cost, if the scheme were administered with brass-balled discipline. And what would it cost? It could well be that certain EU members, whose electricity systems are 50 percent coal-powered, are not much interested in finding out.

Saturday, November 11, 2006

Citizens of Ottawa set to take wrong turn
Two days from today, the citizens of Ottawa will either re-elect Mayor Bob Chiarelli or choose someone else. If Ottawa electors do what the polls say they will, Chiarelli will get turfed out, and his electric light rail dream will likely die.

This is not good, either for Ottawa or for Canada. Mass transit’s power as a major weapon against emissions is boosted when it is propelled by electricity—especially when that electricity comes from largely non-emitting sources, as it does in Ontario. Imagine how much dirtier air would be in Toronto if that city’s subways and streetcars were diesel-powered, rather than electric. See my May 23 post for more detail on electrified transportation.

I won’t elaborate on why Chiarelli’s southwest-to-northeast route is superior to that proposed by any of his opponents, other than to point out that it is a firm plan (whereas his opponents’ plans are vague suggestions cobbled together in the cut and thrust of a political campaign), and that it addresses the reality that the city’s growth is indeed proceeding southwest.

Mapping a route that follows (and will eventually drive) growth ensures that Ottawans will actually ride this train. And making it electric is truly visionary: it anticipates the trend toward electrification in transportation vehicles, while taking advantage of Ontario’s clean electricity. The multiplier effect of clean electricity will ensure dramatically lower emissions from motor vehicles.

Or rather, clean electrified mass transit will lower motor vehicle emissions—in some city other than Ottawa. It is disappointing to realize that Bob Chiarelli, apparently the only mayoral candidate who recognizes electricity’s central role in the post-Kyoto transportation economy, seems set to lose Canada’s first municipal election in which electric mass transit is the main issue.

Which beg the question: is Ottawa, supposedly the most intellectual city in the country, really just a backwater?

Saturday, November 04, 2006

Heavyweight candidates push carbon cap-and-trade, nuclear power in U.S. mid-term elections: what does it mean for Canada?
The frantic clamour of the U.S. mid-terms is about to subside momentarily as hundreds of candidates wrap up their campaigns, cross their fingers, and wait for Tuesday’s results. For those who track government policy on energy and the environment, the wait will be particularly excruciating. The so-called “energy lobby” in the U.S. has enjoyed six years of sweet times under Bush and the Republican Congress. All indications are that even if the Republicans in Congress somehow manage to ward off the Democratic hordes (which is not looking likely), the pulverized coal component of the U.S. power industry is looking at much tougher regulation at the federal level.

Several high-profile candidates—including NY senator Hillary Clinton, Delaware senator Tom Carper, New Mexico governor Bill Richardson, and California governor Arnold Schwarzenegger—have signaled strong support for carbon caps.

And the fact that carbon cap-and-trade has achieved prominence in Republican circles (Schwarzenegger, outgoing NY governor George Pataki, and Arizona senator John McCain are among the big-name Republicans who have supported carbon-capping legislation) is undeniable evidence of the “greening of America” to which I referred in my August 13 post.

If the Congress indeed goes Democratic on Tuesday, Bush will have an easier time acceding to congressional demands for more robust federal-level action on climate change. And Bush has already laid the groundwork for a win-win solution to carbon caps: his support for non-emitting nuclear generation in the 2005 EPAct.

How does Bush’s support for nuclear spell a win for pulverized coal? The solution to America’s heavy-emitting electricity system is to reduce system-wide emission intensity. The way to do that is to add more non-emitting (i.e., nuclear) generation to the system. I predicted in my September 14 post that coal-based generators (like NRG Energy and American Electric Power) would acquire nuclear assets as a way of reducing their system intensity to meet the caps.

These companies will come to resemble Constellation Energy, which has a good mix of fossil and nuclear generating assets. The financial support under the EPAct makes it easier to do this.

And siting the plants themselves will have more support, if the Congress goes the way the polls say it will.

Clinton, Carper, and Richardson are members of the moderate Democratic Leadership Council, which recently endorsed the construction of new nuclear plants as a way of offsetting emissions from America’s carbon-heavy electricity generating systems.

This by itself is pretty newsworthy. For decades, the issue of nuclear power in the U.S. has followed a fairly predictable partisan script, with Republicans supporting it and Democrats opposing. The fact that major Democratic candidates are now willing to endorse nuclear—in the middle of a crucial mid-term—says how far the issue of climate change has come in mainstream American politics.

Will there be a similar shift in Canada? I think there will. Prime Minister Harper is now working with the NDP’s Jack Layton to resolve the impasse over the Conservative Clean Air Act. Harper has moved to the left to accommodate Layton (don’t think Jack isn’t ecstatic over Harper’s income trust turnaround). Will Layton now move to the new centre, and endorse nuclear as Canada’s best way to reduce emissions?