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Government Environmental Policies and Regulations

(Abhishek Uppal, Clean Technology Private Equity 2009; Reference to DB Advisors Investing in Climate Change)

There is an opportunity for governments to use climate change as an impetus for growth during the credit crisis.

Update on the UN negotiating process
The United Nations Framework Convention on Climate Change (UNFCCC) is responsible for international climate change negotiations. In December 2007, negotiators met for the 2007 United Nations Climate Change Conference in Bali. The conference included meetings of the 13th Conference of Parties (COP 13) to the UNFCCC and the 3rd Meeting of the Parties (MOP 3) to the Kyoto Protocol.

The countries participating in the conference agreed to adopt the Bali Road Map. The Road Map is meant to lead to a binding commitment to succeed the Kyoto Protocol, which expires in 2012. This commitment should be negotiated at COP 15, which will take place in Copenhagen in December, 2009.

The Bali Road Map, agreed by the parties to the UNFCCC at the conference:
4. Gained acknowledgement from the signatories to the UNFCCC, which includes the US, EU, China and India, that evidence for global warming is unequivocal and that reduced emissions were required to avoid severe climate change impacts;
5. Stipulated that nations would develop policy and incentives to protect forests;
6. Recognised that nations would enhance cooperation around adaptation;
7. Underscored the need for nations to facilitate transfer of clean technologies.

The next 12 months will be crucial in determining how well these ideas can be expressed at a global policy level, particularly in the face of weaker economies.

New developments in national and regional regulation
Significant regulatory and legislative activity also took place at the national and regional level over the course of the past year.

United States:
· The America’s Climate Security Act, also known as the Lieberman-Warner bill, made it through Senate and House. It represents an important milestone in US regulation, as it included long-term emissions reductions targets that were reasonably ambitious and it proposed a cap-and-trade scheme for the power, transportation and industry sectors;
· A long awaited discussion draft of the Dingell-Boucher Climate Change Bill was released early in October 2008. The Bill seeks to cut US greenhouse gas emissions by around 80% over the next 40 years and calls for a cap-and-trade program to achieve these reductions, with two major provisions for carbon offset credits: a domestic offset program and an international emission allowance program.
· Barack Obama has announced his support for emissions cap-and-trade, and talked extensively about energy security, alternative energy policy and creating new ‘green’ jobs.
· Significant regional leadership has emerged on climate change. Thirty-two states now have renewable portfolio standards, up from 25 in 2007, a number of regional climate initiatives are moving rapidly towards instituting cap-and-trade regimes with the Northeastern Regional Greenhouse Gas Initiative (RGGI) starting to trade, and Assembly Bill 32 (AB 32) established a comprehensive program of regulatory and market mechanisms for mitigation in California.
· Congress extended incentives for wind and solar as part of the Emergency Economic Stabilization Act of 2008. The Production Tax Credit (PTC) has been extended for one year for large-scale wind projects and the Investment Tax Credit (ITC) has been extended for eight years for solar projects. The new legislation now also permits utilities to take advantage of the energy tax credits. $2.5bn was granted for CCS demonstration.

European Union:
· In the Climate Action and Renewable Energy Package released in January, 2008, the European Commission committed to unilaterally reduce overall emissions to at least 20% below 1990 levels by 2020 (and to 30% if other developed countries make comparable efforts), and targeted increasing the share of renewable energy use to 20% by 2020;
· In a revision of the EU ETS, the European Parliament’s Environment Committee voted in October, 2008, to cut EU greenhouse gas emissions from most industrial sectors by 21% from 2005 levels by 2020 and to phase out free allocation of emission permits, leading to full auctioning, with an exception for energy-intensive sectors that face international competition;
· On a more cautious note, Germany’s government has backed an almost total exemption for industry from the new European rules that would force companies to pay for the carbon dioxide they emit through auctioning emission credits in the ETS rather than through the current system of free distribution of permits. Italy is also pushing for free distribution of carbon permits for specified sectors, and a coalition of eastern European countries has pressed to delay discussion of the EU climate plan beyond December 2008;
· A framework has been developed to allow additional state aid for carbon capture and storage demonstration plants;
· The EU has proposed capping carbon dioxide emissions from new vehicles to an average of 130g/km by 2012, compared to the current 158g/km;
· While most developments have indicated increased ambition and action in the climate change space, the EU goal of increasing the share of biofuels in transport to 10% has been rolled-back to 5%, in light of food vs. fuel debates.

China:
· In December 2007, China issued its first white paper on energy conditions and policies that advocated for energy conservation, accelerated technological innovation, and improved coordination between energy and environmental development;
· The tax rate for big cars has been doubled to 40%, while the tax on cars with small engines has been reduced from 3% to 1%;
· Government buildings are now required to conform to energy efficiency standards;
· Ten provinces, municipalities and regions have begun piloting a new energy regulation to stop fixed-asset projects that do not meet national energy standards. This regulation is set to be rolled-out nationwide once piloting is complete;
· In 2009-10, a package of laws will come into force that aim to create a “recycling economy”, reduce pollution 10% below 2005 levels by 2010, and increase monitoring of capital-intensive assets.

India:
· The Indian National Action Plan on Climate Change was released in June, 2008. The plan established 8 national ‘missions’ running through 2017, which include major investments in solar capacity, energy efficiency, water use efficiency, and forestry;
· The Indian government is also mandating the retirement of inefficient coal-fired power plants and requiring big consumers of energy to conduct energy audits.

About the Author

Abhishek Uppal college graduate from Cornell University.

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