On Friday, the World Trade Organization (WTO) and the United Nations Environment Program (UNEP) published a report that indicates increased economic activity could result in a rise in carbon dioxide emissions. However, the report also stipulates that increased ease of trade can also help combat climate change through delivering energy efficient and renewable energy technologies to more markets.

Although these findings align with the existing beliefs of numerous business managers and policy makers, the conclusions issued in the report are significant because this is the first time the WTO and UNEP have collaborated to examine the connections between trade and climate change. These types of multilateral cooperation and findings are critical measures to ensure the success of the upcoming UN climate negotiations in Copenhagen (December 2009).

In summary, the report illustrates that it is within the scope of WTO rules to enact trade policies that address climate change at the national level, but that the efficacy of these policies are determined by the design of the policies and the implementation conditions in the local regions. Although the report does not highlight specific examples, it does assert that the energy intensive sectors of our global economy (agriculture, forestry, fisheries, tourism and transport) can reduce their contribution to GHG emissions if we increase the diffusion of mitigation technologies through free trade policies.

In support of this notion, WTO Director General Pascal Lamy and UNEP’s Executive Director Achim Steiner are urging nations to adopt policies that open up trading for environmental goods and services as a means of reducing GHG emissions. Specifically, Lamy and Steiner issued a joint news release, urging the international community to finalize the stalled Doha trade talks that began in 2001 in hopes of and opening trade reducing barriers for innovative products and services that support cleantech economies.

The comprehensive, 161-page report examines the relationship between trade and global climate change through four perspectives:
1) Climate change science
2) National and international economics
3) Multilateral efforts to combat climate change
4) The implications of national climate change policies on trade.
The report provides an overview of the traditional regulatory instruments, economic incentives and other financial measures that have been used worldwide to increase energy efficiency and to reduce emissions. More in-depth coverage of the mainstream pricing mechanisms (carbon tax and emissions trading) provide insight into how to prevent emissions leakage through off-shoring production and how to protect competitiveness across markets.

A common concern among policy makers is that new taxes and tariffs could be put in place, which protect domestic industries and exclude products and services that are made available through countries with weaker environmental standards. The new report indicates that these types of border adjustment measures would become trade barriers that negatively impact the shared international goals of increasing income and reducing harmful impacts to the environment.

Environmentalists, economists, business leaders and policy makers may differ in their beliefs regarding the potential for free trade policies to successfully address increasing global GHG emissions. However, the consensus seems to be that climate change and free trade are intricately linked and that there is a critical need to address both arenas when shaping a new, clean energy economy.

China’s Ministry of Finance and Ministry of Environmental Protection have requested research from a regional think-tank to develop preliminary proposals for a national carbon tax. The proposals, which are due for publication within the month, may one day become a part of the Chinese government’s strategy to reduce greenhouse gas emissions.

International governments have pressed Beijing to implement legislation to curtail their carbon dioxide emissions and the Chinese response has typically been a call for rich countries to lead by example in the development of CO2 regulation schemes. With the possibility of a US cap-and-trade regime being approved later this year, the Chinese government’s request for research on carbon tax policies may indicate that China will head off in it’s own direction.

Devising an agreement on an appropriate taxation cost for carbon is complex, as it is affected by a number of uncontrollable variables. Preliminary research by the World Bank and the Dutch and British governments has come up with a range of $70 to $280 per ton of CO2. Certainly, further research is necessary to refine the range of taxation and more importantly, to devise one that is appropriate to the practices and scale of a country as large as China.

Revenue from a carbon tax in China represents a significant financial stream when you consider that China is the world’s largest source of CO2 with roughly 80% of its electricity being generated by coal-fired power plants. China has a population of 1.3 billion people and the country produces roughly four metric tons of GHG emissions per person. Although China’s total emission count now exceeds that of the US, the US averages about 20 metric tons of GHG emissions per person.

The question remains, what is driving Chinese interest in pursuing the possibility of a carbon tax policy when for years, they have adamantly declared that developed nations who have caused the climate crisis should lead the way in mitigating climate change? It seems apparent that developed nations are now heading in the direction of a cap-and-trade regime versus a carbon tax. Perhaps, the Chinese government views a cap-and –trade system as being overly laborious on the regulation side. Or, perhaps China is making preparations in advance of the December climate talks in Copenhagen.

However, the more likely motivation is that China strives to become a leading nation in the reduction of carbon emissions.

Alaska governor Sarah Palin has rejected $28.6 million dollars in federal stimulus money for Alaska’s State Energy Program. However, Gov. Palin did accept all other federal stimulus money that her state is eligible for ($930 million). Palin’s rejection of the funds is founded in her opposition to strengthening state building codes and making energy efficiency and renewable energy top priorities when spending the money.

Although other governors have voiced opposition to the stimulus package, Gov. Palin is the only governor who has not signed a letter of reassurance to Steven Chu (US Energy Secretary) that her state intends to accept the funds and will comply with the policies associated with the money for state energy departments.

Governor Palin has argued that mandating a statewide energy building code throughout her region does not serve the interests of Alaskans due to the fact that once the federal funds are exhausted through initiating programs, state funds will be required to continue the new programs and activities. However, Palin did accept $28 million for home weatherization and home energy-efficiency programs.

Rejecting the additional $28.6 million for the State Energy Program will put Alaska behind other states in terms of adopting more stringent building codes to conserve energy. Additionally, the rejection of the federal stimulus money for energy delays progress towards state-driven initiatives to encourage utilities to develop incentives for residential and commercial customers to adopt energy efficiency practices.

Click here to read the assurance letter submitted by your state to Steven Chu.

As industry leaders closely watch the consumer response to new electric vehicles, ideas are quickly taking shape in regards to where manufacturers should target their sales and production. While North American, European and Chinese auto manufacturers race to bring a viable electric car to market, the question remains, who will arrive first and where will the manufacturing centers be located?

A recent announcement that Think, Norway’s pioneering electric carmaker is opening a manufacturing plant in the US is an indication that the US may be overtaking Europe as a more lucrative marketplace for the production of electric vehicles.

Think CEO, Richard Canny has stated, “The U.S. is quickly overtaking Europe as an attractive market for EVs and is an ideal location to engineer and build EVs” and he may be right. Think is currently in discussion with eight US states to determine where to build their new manufacturing facility which will initially employ 300 workers and will have a production capacity of 16,000 cars per year. Think’s technical center will also provide 70 additional jobs for engineers and electric drive specialists. Long term plans for this facility include employment for roughly 900 total employees and production capacity of 60,000 electric vehicles per year.

In addition to job creation and dealer sales, the migration of Think manufacturing to the US will also impact our national economy through contributing to a growing supply chain which serves the electric vehicle and plug-in hybrid car markets. Currently, Think is partnering with US battery makers Ener1, Inc. and A123 to provide compact, high-powered lithium-ion power systems for “TH!NK city” which, is Think’s flagship vehicle.

The TH!NK city is estimated at being capable of traveling 65 miles per hour and up to 112 miles per charge. Although numbers such as those are impressive in terms of what consumer options have been in the past, the question still remains as to whether or not those specs are enough to draw in US consumers. If the failure of China’s marketplace to embrace the F3DM electric car is any indication as to the possible future of the TH!NK city, the Norwegian-run company may have some more design work ahead of them before being able to capture revenue through US sales.

However, with talks underway with eight US states (including Michigan), a recent acquisition of $5.7 million in interim financing and loans available through the US Department of Energy’s Advanced Technology Vehicle Manufacturing program, the arrival of a vibrant Think presence on the streets of America seems inevitable.

The question remains, will US consumers respond to an fully electric car that can travel 112 miles with a top speed of 65mph or, will they hold out for longer range and higher speed hybrid electric vehicles?

It’s been an exciting week as commentaries on the merits and shortcomings of the American Clean Energy and Security Act have taken place among the sustainability and business leadership communities. If enacted, this legislation could propel the US into an entirely new economy comprised of clean energy technologies & infrastructure, reduced greenhouse gas emissions across industries, and an innovative green jobs workforce.

If passed, this bill will certainly change the manners in which we do business and the costs of doing so. Forward thinking business leaders are staying ahead of the curve and preparing their businesses for the upcoming changes by closely following the development of this critical legislation.

The goal of this article is to provide business leaders with an overview of the American Clean Energy and Security Act and to highlight the aspects of the bill that may significantly change how you do business in the very near future. In addition to understanding the details of this proposed legislation, business leaders are encouraged to be informed of the details surrounding the debate of a carbon tax versus cap-and-trade.

Materials:
American Clean Energy and Security Act of 2009 Discussion Draft Full Text
American Clean Energy and Security Act of 2009 Discussion Draft Summary

Opening Commentary:
The focus of much debate surrounding the draft version of this bill is centered on questions of: 1) the efficacy of a cap and trade system on affecting emissions reductions and 2) the impact of a cap and trade regime on company profits and consumer prices.

A key issue that the draft does not address is how the allowances for tradable emissions will be allocated across and within industries. This issue will be refined through upcoming conversations among Committee members. Although the resolution of this issue may not affect the overall cost of implementing the cap and trade program, it will certainly affect the finances of businesses as some businesses may now be facing potentially very large fines for exceeding allowable emissions counts as early as 2012.

In addition to being quiet on the details of how the allowable emissions will be allocated, the legislation also avoids laying out the details of consumer price protection strategies that it refers to in the “transitioning” title portion of the legislation.

A final point of note is that although the bill articulates that the cap and trade regime is for businesses emitting more than 25,000 tons of GHGs, businesses that emit less are not free of regulation. Instead, the emissions reductions from these companies will be regulated directly by the EPA. Government rebates will be awarded to high energy consuming industries as a means of enabling them to remain competitive in domestic and foreign markets. However no U.S. businesses are off the hook with regards to emissions regulation through this bill.

Overview: On March 31, 2009, the American Clean Energy and Security Act was introduced as a discussion draft into the House Committee on Energy and Commerce. Also known as “The Waxman-Markey Bill”, the discussion draft was authored by Representatives Henry Waxman (California) and Edward Markey (Massachusetts).

The discussion draft represents a comprehensive piece of energy legislation that aims to create millions of new clean energy jobs, save consumers hundreds of billions of dollars in energy costs, enhance America’s energy independence and cut global warming pollution.

Goals: The draft legislation aspires to reduce greenhouse gas (GHG) emissions by 20% of 2005 levels by 2020. It is worth noting that this target is substantially more aggressive than President Obama’s goal of a 14% reduction by 2020.

Framework: The discussion draft is organized into four titles:

• Clean energy – Promotes of renewable sources of energy, technologies for carbon capture and sequestration, low-carbon fuels, clean electric vehicles and smart grid technologies & infrastructure.
• Energy Efficiency – Increases energy efficiency throughout activities such as buildings, appliances, transportation and industry.
• Global Warming – Places limits on the allowable amount of emissions of GHG’s.
• Transitioning – Safeguards U.S. companies and consumers and advances green jobs during the shift to a clean energy economy.

Schedule: The House Energy and Commerce Committee will complete deliberation on the legislation by May 25th. The preliminary schedule for completing the House consideration is as follows:

Week of April 20: Energy and Environment Subcommittee Hearings
Week of April 27: Energy and Environment Subcommittee Markup Period Begins
Week of May 11: Full Energy and Commerce Committee Markup Period Begins

If you have not already read about the innovative business model that Recurrent Energy is built around, you might want to spend some time reading about their, “solar as a service” approach to enabling commercial, residential and government entities to adopt a solar energy infrastructure without investing in the upfront costs.  EIA’s updated Annual Energy Outlook makes the succinct but relevant point that in order to see continued participation in renewables from the residential and commercial sectors, we’re going to need to find more and more innovative models for making the technology and the energy accessible, without the initial costs, the risk of ownership as well as operation and maintenance costs.

If the next US President accepts the agreements of the Kyoto Protocol, the carbon market is estimated to reach $3 trillion by 2020.  Now more than ever, investors are looking for data to guide their carbon market investment strategies.  Carbon Disclosure Project data is now available via the BLOOMBERG PROFESSIONAL service.  This new dataset will make available information regarding a company’s GHG emissions and energy consumption.

For investors looking to gain more knowledge and insight into this emerging market, it has just been announced that the Koelnmesse group will hold Carbon TradeEx America in Washington D.C. this coming April.

Economists and industry experts vary widely in terms of what they think the impact of the economic crisis is going to be on the development of renewable energy technologies and infrastructures in the US market.  For anyone interested in this topic, I’d like to point you towards a few articles:

The End of Green – Thomas Friedman
Climate deal seen helping overcome financial crisis – Reuters
Economic Crisis and Renewable Energy – sustainablebusiness.com
Sunny outlook for solar industry – San Diego Union Tribune