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New Details on Proposed Climate Security Act That Would Create the World's Largest Carbon Market

Posted on: Tuesday, 12 February 2008, 18:00 CST

Point Carbon, a world-leading provider of independent analysis and consulting services for governments and companies in the global power, gas and carbon markets, today released an analysis of the current version of the U.S. Senate's Lieberman-Warner Climate Security Act (CSA). According to the report titled, "American Climate Policy: A Tale of Two Bills," passage of the CSA would create the largest cap-and-trade emissions trading system in the world with an allocation of 5.7 billion emissions allowances in 2012--a market value equivalent of USD $150 billion.1

The report comes as Point Carbon prepares to testify before the U.S. Senate Finance Committee hearing on "International Aspects of a Climate Change Cap and Trade Program," this Thursday, February 14th.

"A U.S. market of nearly 6 billion emissions allowances is more than two and half times greater than the current European Union Emissions Trading Scheme (EU ETS). The potential in a market of this size for both domestic and international parties is tremendous," said Kjell Olav Kristiansen, Director of Advisory Services, Point Carbon North America.

The CSA, introduced in October 2007, is expected to be the basis for a future federal US emission trading scheme (US ETS) and sets a greenhouse gas emissions target that is 70 percent below 2005 levels by 2050. Achieving that target will require a fundamental restructuring of the US economy and how it produces and uses energy.

As the second largest emitter of CO2 gasses globally, Point Carbon sees many challenges in store for the U.S. power industry and consumers alike. While the initial bill placed most of the regulatory burden on the actual emitters, the newer version shifts more of the regulatory responsibility upstream to fossil fuel producers, processors and importers within the economy, which for consumers would act much like a fuel tax.

Overall, domestic offsets are the cheapest way to cover the shortage upon initiation of the scheme, but supply will most likely be limited. In the short term, only fuel switching to natural gas and offsets will reduce emissions. Ultimately, the industrial sector will experience higher energy prices.

At the outset, the initial shortage cannot be addressed with domestic measures alone, which implies that the US ETS will place upward pressure on foreign carbon prices as demand for EU ETS and other international allowances would grow. This would be incentive for the development of other international emission trading systems that could supply foreign allowances to the US market and subsequently strong motivation for the US to contribute to a new international post-2012 agreement to secure a flow of international allowances.

"While domestic initiatives will cover some of the reductions, the U.S. will not be able to cover everything alone. This means strong incentive for international cooperation and U.S. participation in a post-2012 agreement," noted Mr. Kristiansen.

Additional highlights of the report include:

During the first year of operation, 3 to 4 billion allowances would have to be purchased in the U.S. market for the emitters to meet their compliance obligations. Total traded volumes are more likely to be in the range of 4 to 5 billion tons.

Transportation fuel refiners and importers will become the largest purchasers of carbon allowances, needing approximately 2 billion allowances per year beginning in 2012.

Under the revised bill, natural gas fired power plants no longer benefit from the allowance allocation. Natural gas power generation facilities, which would have seen an increased competitive advantage under the initial draft of the CSA, will see higher feedstock prices under the latest draft.

So-called "process" emissions in the industrial sector such as the carbon dioxide emissions associated with cement, iron or steel production, are left out of the most recent version of the bill.

For a complete version of the report, please contact Jenna Agins at Intermarket Communications.

About Point Carbon

Point Carbon is the leading global provider of analysis, news, forecasting, information and market intelligence for energy and environmental markets. Point Carbon has global outreach with more than 15,000 subscribers in more than 150 countries. Point Carbon's in-depth knowledge of power, gas and CO2 emissions market dynamics positions us as the number one supplier of unrivalled market intelligence on these markets. Point Carbon's staff consists of over 130 specialists and includes experts in international and regional climate policy, mathematical and economic modelling, forecasting methodologies, risk management and market reporting. Point Carbon produces regular reports in English, Japanese, Mandarin, Portuguese, Spanish, Russian, Polish and Norwegian. Point Carbon has offices in Oslo (HQ), Washington, D.C., London, Brussels, Kiev, Hamburg and Tokyo. Please visit www.pointcarbon.com for more details.

1 Market value with carbon prices seen in EU ETS, $30/ton.

Source: Business Wire

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