Josephine V. Yam

By 2023, a Changed World in Energy

“When it comes to energy, the rule of the game is to expect the unexpected,” observed energy historian Daniel Yergin in the New York Times article, “By 2023, a Changed World in Energy”.

Yergin noted: “So much effort is going into research, development and innovation all across the energy spectrum, 10 years from now we may well see the next game changer.”

Writer Clifford Krauss recalls that, in 2003, American natural gas fields were thought to be depleting rapidly such that expensive terminals for natural gas importation, not exportation, were being built. U.S. oil production was likewise declining at rapid rates.

Now, ten years later, the U.S. is well on its way to become energy independent, thanks in no small part to new drilling technology that has made its oil and natural gas fields much more productive. In fact, in its latest World Energy Outlook, the International Energy Agency (IEA) reported that the U.S. will overtake Saudi Arabia and Russia as the world's top oil producer by 2017. This will have massive geopolitical consequences, as the U.S. will no longer depend on undemocratic regimes like Venezuela or Nigeria for obtaining its oil supply.

So what will the energy world look like in 2023? It will be a different energy world where there will be widespread adoption of electric cars, solar panels by business and households and trains and trucks guzzling on natural gas. It will be a world where renewable energy sources will become dominant, accounting "for 32 percent of the overall growth in electricity generation through 2040.”

According to the IEA, the emerging market economies, like China, will still be reliant on fossil fuels through 2035. Yet, it reports that China’s new government has committed to investing more than $70 billion a year in clean energy projects, in recognition of the imperative sustainability path that it must undertake to quench its still growing energy appetite.

“Much of the future of energy will depend on government policy, of course,” noted Krauss. And indeed, a clean energy world will only be possible if governments around the globe arm themselves with the solid political will and foresight to bravely implement policies that support sustainable growth that is so crucial in this carbon-constrained decade.

U.S., China Forge Historic Deal on Climate Change

"Groundbreaking" is the appropriate word to describe the United States - China deal recently forged to jointly combat climate change. Being the world’s two biggest economies and greenhouse gas (GHG) emitters, their monumental “call to action” to reduce GHGs will be undertaken "by advancing cooperation on technology, research, conservation, and alternative and renewable energy."

The National Post article reported that this deal was reached during U.S. Secretary of State John Kerry's visit to China this weekend. Kerry is known to be a staunch advocate for advancing U.S. policies on GHG reduction and climate change.

The U.S.-China joint statement forcefully enunciated that both countries “consider that the overwhelming scientific consensus regarding climate change constitutes a compelling call to action crucial to having a global impact on climate change.” Moreover, they recognize that an “urgent need to intensify global efforts to reduce greenhouse gas emissions… is more critical than ever” and believe that “such action is crucial both to contain climate change and to set the kind of powerful example that can inspire the world.”

Noted Alden Meyer, representative for the Union of Concerned Scientist in the United States: By “pledging to set the kind of powerful example that can inspire the world," both countries "raise expectations" that they "will move more forcefully to confront the threat of climate change."

Yet, as we all know, the devil will surely be in the details. So we wait in anticipation as the U.S. and China discuss the details of this historic deal in an upcoming Strategic and Economic Dialogue meeting later this July.

The Accelerated Growth of Carbon Markets

"Right now, the carbon markets of the future are under construction in all corners of the world", enthused Rachel Kyte, Vice President of Sustainable Development at the World Bank, in a recent Huffington Post article.

According to Kyte, at least 35 countries, 18 sub-national jurisdictions in the U.S. and Canada, and 7 Chinese cities and provinces will eventually be launching their own carbon markets to reduce their greenhouse gas emissions (GHG).

For example, China has vocally expressed its resolute determination to use the "magic of the market" of emissions trading as a way of greening its robust economy. The Chinese government believes that the creation of its own national carbon emissions market will serve as a very efficient strategy to achieving a sustainable green economy.

The linking of carbon markets with one another is crucial to achieving cost efficiencies in reaching a global carbon price for carbon credits. To this end, the World Bank established the Partnership for Market Readiness (PMR) in 2011, which has brought together over 30 developed and developing countries to consolidate their efforts in creating market-based instruments for GHG emissions reduction, including the creation of emissions trading schemes. Indeed, this bottom-up approach may prove to be a more effective way to successfully combat climate change.

EU Inclusion of Airline Emissions triggers International Law Dispute

The brewing international controversy of airline emissions being included in the EU ETS highlights one of the risks of the EU unilaterally imposing a carbon market on its member countries while China, US and other major economies do not have their own carbon markets, as reported in the New York Times.

The Law

The European initiative, which was effective on January 1, 2012, involves folding aviation into the six-year-old emissions trading system, in which polluters can buy and sell a limited quantity of permits, each representing a ton of carbon dioxide. The law requires airlines to account for their emissions for the entirety of any flight that takes off from — or lands at — any airport in the EU bloc. While airlines landing or taking off in Europe are included in the EU ETS beginning January 1, 2012, they do not have to start paying anything until April 2013.

The goal of this European initiative is to speed up the adoption of greener technologies at a time when air traffic, which represents about 3 percent of global carbon dioxide emissions, is growing much faster than gains in efficiency.

Consequences of the Law

Airlines will have to buy 15 percent of their emissions certificates at auction. Carbon emissions from planes will initially be capped at 97 percent of the 2004-2006 levels. The emissions rules apply from the moment an aircraft begins to taxi from the gate, either en route to or from a European airport, and they cover emissions for the flight from start to finish — not just the portion that occurs in European airspace.

Why the EU went ahead with the Law

Governments and airlines have been in negotiations for more than a decade over the creation of a global cap-and-trade system under the auspices of the International Civil Aviation Organization (ICAO), a U.N. agency that handles global aviation matters. The organization’s 190 member countries passed a resolution in 2010 committing the group to devising a market-based solution, though without a fixed timetable. Impatient with the pace of those talks, the European Commission moved ahead with its own plan, which was passed two years ago with the support of national governments and the European Parliament.

Airline Industry Raise Vehement Objections

Some 26 countries, including China, Russia and the United Countries, formally showed their dissatisfaction with the European system — a move that heralds a possible commencement of a formal dispute procedure at the ICAO. They have questioned whether this EU directive is invalid. Their arguments include the following:

1) Why the requirements apply to emissions from the entire flight, not just the portion that occurs within EU airspace?

2) In applying its environmental legislation to aviation activities in third countries' airspace and over the high seas, the E.U. has violated fundamental and well-established principles of customary international law.

3) The EU's actions infringe on the notion that each nation has sovereignty over its territory, a universally recognized principle of international law

4) By acting unilaterally, the European Union also breached international obligations that require such matters to be resolved by consensus under the auspices of the International Civil Aviation Organization (ICAO), a U.N. agency that handles global aviation matters.

China's Reaction

China announced that its carriers would be forbidden to pay any charges under the European emissions system without Beijing’s permission. It also threatened retaliation, such as impounding European aircraft, if the EU punishes Chinese airlines for not complying with its emissions trading scheme. In fact, this dispute halted China's purchase of Airbus planes worth up to $14 billion. However, during Chancellor Angela Merkel’s visit to Beijing last August, China signed an agreement with Germany for 50 Airbus planes worth over $4 billion.

U.S. Reaction

The U.S. Senate recently passed a bill that would protect U.S. airlines from paying for their carbon emissions on European flights. Democratic Senator Claire McCaskill said that “Americans shouldn’t be forced to pay a European tax when flying in U.S. airspace.” The U.S. bill increases pressure on the ICAO to formulate a global alternative to the EU law.

EU Response to China and the other countries

The EU posits that the ETS is not a charge or a tax but a cap-and-trade system. Its defense includes the following claims:

1) The purpose of our legislation is to reduce emissions, not make money.

2) Including aviation in the ETS is "fully consistent with international law" because the EU is not seeking to extend its authority outside of its airspace.

3) However, given the complaints of China and other countries, the EU could suspend parts of a new law requiring airlines to account for their greenhouse gas emissions if countries were to make clear progress this year toward establishing a global emissions control system

The EU Commission said that the EU would only repeal or amend the law if there was an international deal to tackle emissions from planes, which account for less than 3 percent of global greenhouse gas emissions.

Inclusion of Airline Emissions by European Union Emissions Trading System (EU ETS) triggers International Law Dispute

The brewing international controversy of airline emissions being included in the European Union Emissions Trading System (EU ETS) highlights one of the risks of the EU unilaterally imposing a carbon market on its member countries while China, US and other major economies do not have their own carbon markets.

The Law

The European initiative, effective January 1, 2012, involves folding aviation into the six-year-old emissions trading system, in which polluters can buy and sell a limited quantity of permits, each representing a ton of carbon dioxide. The law requires airlines to account for their emissions for the entirety of any flight that takes off from — or lands at — any airport in the EU bloc. While airlines landing or taking off in Europe are included in the EU ETS beginning January 1, 2012, they do not have to start paying anything until April 2013.

The goal of this European initiative is to speed up the adoption of greener technologies at a time when air traffic, which represents about 3 percent of global carbon dioxide emissions, is growing much faster than gains in efficiency.

Consequences of the Law

Airlines will have to buy 15 percent of their emissions certificates at auction. Carbon emissions from planes will initially be capped at 97 percent of the 2004-2006 levels. The emissions rules apply from the moment an aircraft begins to taxi from the gate, either en route to or from a European airport, and they cover emissions for the flight from start to finish — not just the portion that occurs in European airspace.

Why the EU went ahead with the Law

Governments and airlines have been in negotiations for more than a decade over the creation of a global cap-and-trade system under the auspices of the International Civil Aviation Organization, an arm of the United Nations. The organization’s 190 member states passed a resolution in 2010 committing the group to devising a market-based solution, though without a fixed timetable.
Impatient with the pace of those talks, the European Commission moved ahead with its own plan, which was passed two years ago with the support of national governments and the European Parliament.

Airline arguments

Some 26 countries, including China, Russia and the United States, formally showed their dissatisfaction with the European system — a move that heralds a possible commencement of a formal dispute procedure at the International Civil Aviation Organization (ICAO), a U.N. agency that handles global aviation matters. They have questioned whether this EU directive is invalid. Their arguments include the following:

  1. Why the requirements apply to emissions from the entire flight, not just the portion that occurs within EU airspace?
  2. In applying its environmental legislation to aviation activities in third countries' airspace and over the high seas, the E.U. has violated fundamental and well-established principles of customary international law.
  3. The EU's actions infringe on the notion that each nation has sovereignty over its territory, a universally recognized principle of international law.
  4. By acting unilaterally, the European Union also breached international obligations that require such matters to be resolved by consensus under the auspices of the International Civil Aviation Organization (ICAO), a U.N. agency that handles global aviation matters.

In fact, China recently announced that its carriers would be forbidden to pay any charges under the European emissions system without Beijing’s permission.

EU Response to China and the other countries

The EU posits that the ETS is not a charge or a tax but a cap-and-trade system. Its defense includes the following claims:

  1. The purpose of our legislation is to reduce emissions, not make money.
  2. Including aviation in the ETS is "fully consistent with international law" because the EU is not seeking to extend its authority outside of its airspace.
  3. However, given the complaints of China and other countries, the EU could suspend parts of a new law requiring airlines to account for their greenhouse gas emissions if countries were to make clear progress this year toward establishing a global emissions control system.

Written: 2012 February
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