What does it take to get the US on the carbon program?

U.S. House of Representatives Committee on Energy and Commerce staff has published a "Climate Change Legislation Design White Paper" in February 2008.

The baseline for the paper is that any US commitment to a climate change program would require incentives for developing nations specifically China and India to curb their emissions. The rational behind this twofold:

1. There is only impact of such a program if the developing countries do their part

2. Creating a level playing field for the US economy

The white paper discusses policy options in the following three categories:

1. Border adjustments such as tariffs

2. Performance standards such as emissions standards or carbon intensity based regulations

3. Carbon Market Design imposing conditions on other countries' access to a US carbon market

I think the key success factor for such policies is the creation of win-win situation which satisfy the US concerns and also help the developing nations to curb their emissions. The combination of tariffs with the re-investment in carbon reduction activities in the source countries I have been proposing may be just such a solution.

EPA to work on GHG reporting rule

Buried in the $500 billion omnibus budget package signed into law by President Bush Dec 27 is a provision that requires EPA to establish a mandatory program that will require U.S. companies by mid-2009 to report their GHG emissions. The mandate in the omnibus budget package requires EPA to publish a draft GHG reporting rule by June 2008 and a final rule by June 2009. For details, see Diane Feinstein's press release.

China on "transfer emissions"

For the first time, I saw an article where a Chinese source is quoted on the carbon emissions associated with exported goods and services:

He [Cao Bochun, vice director of the Environment and Resources Protection Committee of the Chinese National People's Congress] also rebutted criticism of China's increasing greenhouse gas emissions, saying most of the critics have ignored a fact that transfer emissions account for some 30 percent of China's total greenhouse gas emissions, which means China has shifted some emission pressures from a lot of countries.

On Carbon Tariffs

Carbon tariffs have been making their debut in the public debate during the last couple of months. A good summary is provided by the German news weekly Der Spiegel.

The January 4th The Financial Times editorial "The Greening of Globalisation" argued that discussion on carbon tariffs is "rhetorical protectionist sabre-rattling to actual restrictions on international trade in goods and services".

Gernot Wagner and I argued against this position in our letter to the editor. Our two key messages are:

• While negotiating multi-lateral agreements on CO2 emission reductions is very complex, CO2 tariffs provide means for (unilateral) action
• We propose to not sink the tariffs in government coffers, but directly invest them into CO2 emission reduction projects in the producing / exporting countries, creating a win-win situation.
  

Financial Times today

There were a couple of interesting articles relating to the export of CO2 in the Financial Times today.

The first article reports: "Nicolas Sarkozy, the French president, warned China on Tuesday that the European Union could penalise cheap imports from high carbon-emitting countries in order to defend European companies that are obliged to meet strict environmental standards." Details on the penalties were not provided, but one can certainly imagine a CO2 tariff as discussed on this web site.

The second article reports on comments made by EU Industry Commissioner Günter Verheugen to give concessions to Europe's heavy industries: "Manufacturers of items such as aluminium, steel, base chemicals and semi-conductors should be granted free permits to emit greenhouse gases under the bloc’s emissions trading scheme (ETS), Günter Verheugen, Commission vice-president with responsibility for industry and enterprise, told the Financial Times." The reasoning behind this proposal is that companies in these sectors may leave Europe otherwise.

I think what Günter Verheugen jumps to conclusions here. While I certainly agree with the problem statement. I disagree with the solution. I would rather see a solutions which creates an level playing field, for example through CO2 tariffs on imports from countries without CO2 cutting commitments.

The long carbon tail

Over the last few years there has been quite of discussion of the long tail of retail (a model on low volume sales of highly diversified products by Chris Anderson) and how the Internet helped to make this a viable business.

Now in the carbon world, there is (and rightly so) the focus on the heavy emitters and the products, which have the largest energy consumption. When I was visiting Cambridge University's Julian Woodall this morning, we re-confirmed this approach.

But there is certainly a long tail of companies with products and services which have a low to medium carbon footprint and by smaller companies which are still heavy emitters. These companies are the long tail of the carbon world and they are not subject to reductions schemes like the EU ETS.

Nevertheless these companies represent in sum a large chunk of the total global footprint. The question is if the Internet (and software solutions) can help these long tail companies to manage and reduce the carbon footprint of the goods and services they offer.

So a better approach (which we also discussed) this morning, maybe to not distinguish the world into big companies which are heavy emitters and the rest of the world. Instead it maybe more useful to look for the low hanging fruits, i.e. to look for greatest inefficiencies, across all industries and companies.

CMU Green Design Institute's economic input-output models

I was visiting Carnegie Mellon University (CMU) on November 16^th and met with a a variety of people from different departments. Among them was Scott Matthews from CMU’s Green Design Institute who presented some of the work which was quoted in a recent Wall Street Journal article. Essentially he uses input-output tables which describe the economic activities between different (about 500) industry sectors: Economic Input-Output Life Cycle Assessment (EIO-LCA) model, http://www.eiolca.net

For example you can look at the automotive industry and analyze how much the automotive industry is buying from other industry sector, let’s say paint, rubber, steel, aluminum, plastics, electronics, etc. The data does not only contain the dollar volume the trade activities but also the associated amount of environmental parameters and CO2. You can then apply this mechanism recursively and trace the complete supply chain. This gives you the CO2 and environmental footprint of the average American car.

Scott also mentioned that further studies have shown that typically the variation of a specific product from the average is not more than 5%.

Another interesting research result is that the CO2 footprint is created on average 80% down in the supply chain.

I see two interesting applications of this work to Green2.0: around the CO2 import/export topic and the total environmental footprint of goods and services.

Import/export of CO2

As this data is also available for China, it will be great basis for simulation the impacts of the policies on the CO2 imports. The data will allow identifying the average CO2 footprint of imports from China (in the 500 industry sectors), according to the different policies the CO2 adjusted cost of the imported goods can be determined and compared with locally available products. The question is: Which policies will alter the purchase behavior of importing companies and how?

Total environmental footprint

The Economic Input-Output Life Cycle Assessment will provide a great baseline for the investigation of the total environmental footprint of the selected products (rice products and beer). It will allow to show the impact of the green policies the companies have defined and implemented and how much they have move away from the average as a consequence.