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.

US is Global Leader in Cutting Greenhouse Gas Emissions

In his New York Times article, "A Model for Reducing Emissions", Eduardo Porter reports that the US has cut its CO2 emissions by almost 13 percent since 2007. The Americans have reduced their total energy use in the past 5 years by 5 percent. Surprisingly, this reduction is likely the most substantial GHG cut among developed countries and even more than what Europe has achieved.

The most compelling driver for the incredible decline in CO2 spewing is neither regulation nor increased citizenry initiatives to combat climate change. It is simply the interplay of market forces: low energy prices and technological innovation. In other words, the reasons are economic, not political.

Undeniably, the depressed economy has caused the lower production of goods and services, which in turn has decreased the Americans' use of energy. But a breakthrough in hydraulic fracturing of shale rocks has also produced massive amounts of cheap natural gas, which is significantly cleaner than coal. This in turn has caused electric utilities to switch from coal to natural gas, increasing the latter's overall proportion from 21 percent to 30 percent of total electricity produced from power plants.

Will these market forces continue to bring into fulfillment President Obama's goal of cutting CO2 emissions by 17 percent by 2020? Maybe. But until there is a carbon price that internalizes the escalating environmental damage and climate threat that carbon imposes on humanity, only then will there be a genuine driver that effectively dampens massive CO2 spewing.

Time to Confront Climate Change

The New York Times editorial “Time to Confront Climate Change” recalls that during his first term, President Obama described climate change as one of humanity’s most pressing challenges. He pledged an all-out effort to pass a cap-and-trade bill that would limit greenhouse gas (GHG) emissions. Unfortunately, during that period, many political obstacles blocked Mr. Obama’s administration from successfully passing a cap-and-trade bill.

Since his re-election in November 2012, President Obama identified climate change as one of his top priorities in his second term. In his interview for TIME’s Person of the Year award, he cited the economy, immigration, climate change and energy at the top of his agenda for the next four years.

The article then raised a very important question: Will President Obama bring the powers of the presidency to bear on the climate change problem?

President Obama has strategic “weapons” within his reach to tackle climate change and reduce emissions while reasserting America’s global leadership, the article notes.

One weapon he has is to ensure that natural gas, which is hugely abundant in the U.S., is extracted without risk to drinking water or the atmosphere. Indeed, the U.S. has natural gas in abundance, a boon considering that it emits only half the GHG emissions as coal does. This can be undertaken by the Obama administration through national legislation to replace the inconsistent, patch-work requirements of various state regulations.

Another weapon President Obama has is to enact and implement policies both in well-known clean energy technologies (i.e. wind power and solar power) as well as in basic research, next-generation nuclear plants and promising technologies that could lead to a low-carbon economy.

Moreover, another weapon within President Obama’s arsenal is to call on the Environmental Protection Agency (EPA)’s authority under the Clean Air Act to limit emissions from stationary sources, mainly coal-fired power plants. The EPA has already proposed strict emission standards for new power plants that can only be built when they have installed carbon capture and sequestration technologies. The problem that the EPA will need to deal with is what to do with existing coal-fired power plants, which still generate about 40% of U.S. electricity power.

At the Copenhagen climate meeting back in 2009, President Obama committed that the U.S. would reduce its GHG emissions by 17% below 2005 levels by 2020. With the abundant supply and strong demand for cheap natural gas as well as the EPA’s newly established fuel standards and mercury rules, among others, the U.S. is now on its way to achieving a 10% GHG reduction by 2020.

Thus, it appears that reaching President Obama’s 17% goal is within the realm of the possible after all. That is, if he courageously uses the powers of his presidency to wield the strategic weapons he has to tackle climate change.

5 Steps for Business-friendly Climate Agenda

Eric Pooley provides five steps that President Obama should take to address climate change in his second term. In his Harvard Business Review article, “A Business-Friendly Climate Agenda for Obama's Second Term”, Pooley outlines how the president can fulfill his promise to ensure that America "isn't threatened by the destructive power of a warming planet". He emphasizes that the following 5 steps can only be successful with the active support and participation of private industry.

1. Feed the conversation. President Obama can start by simply by talking about the issue and helping Americans see the relationship between emissions, climate change and extreme weather. This conversation is crucial as it engages the voices from private industry, including insurance companies, pension funds, banks and small business. To be politically viable, climate solutions must be economically sustainable.

2. Reduce climate accelerants. President Obama can take immediate steps to reduce potent greenhouse gases other than carbon, such as methane and fluorinated gases used in refrigerants and industrial applications. Although carbon is most ubiquitous, these substances are "climate accelerants", which means that they accelerate global warming the same way gasoline fuels a fire.

3. Start a clean energy race. President Obama can reduce subsidies for fossil fuels, continue tax credits for renewable energy while increasing R&D funding. Congress should pass national clean energy standards, which would require states to get more energy from renewables. Obama should also encourage private capital to invest in low-carbon energy by removing barriers to investments in efficiency and renewables.

4. Use the Clean Air Act. President Obama should use the Clean Air Act to reduce greenhouse gas emissions, under authority confirmed by the U.S. Supreme Court in Massachusetts v. EPA. This means vigorously defending the clean-air rules that his administration has already put in place, including the historic higher fuel economy standards for new cars and trucks and restrictions on the emission of mercury and other toxic air pollution for power plants. His administration should also set CO2 emission standards for new and existing power plants through flexible and economically efficient approaches.

5. Put a price on carbon. President Obama should heed the call of economists from across the political spectrum that believe that the most economically efficient way to cut carbon pollution is by imposing a price via a carbon tax or through cap and trade. Either would be a powerful incentive to produce cleaner power and could be accompanied by lower taxes on labor or capital, easing the impact on working families and business. As the U.S. moves toward a fiscal cliff, there is slew of discussions in Washington about raising revenue through a carbon fee. It could be in the form of a carbon tax starting at $20 per metric ton and rising at 6% a year that could raise $154 billion by 2021.

Energy and Climate Change in Obama's To-Do List

In the New York Times article, “A To-Do List for the Next For Years”, Carol Browner proposes the need for President Barack Obama to finally execute on a climate change agenda. Ms. Browner was former director of the White House Office of Energy and Climate Change Policy from 2009 to 2011 and the administrator of the Environmental Protection Agency (EPA) from 1993 to 2001.

“Energy and climate change, two issues that deeply divide the country, stand out as major pieces of unfinished business for the Obama administration,” she notes. Nevertheless, she points out that President Obama has unequivocally stated that “even for those who don’t believe climate change is real, the benefits of clean energy -- cleaner air, energy independence, American jobs and enhanced global competitiveness -- are just too important to ignore.”

How then can President Obama execute on a climate change agenda? By using his executive authority and by leverage existing energy laws.

The U.S. Supreme Court has affirmed the EPA’s authority to limit greenhouse gases that endanger public health. Browner recalls that during his first term as president, Obama used an energy bill signed by George W. Bush to reach an agreement on cleaner, more fuel-efficient cars. Car manufacturers had business certainty, consumers saved money at the pump and the environment became cleaner. She notes that President Obama can use this existing authority to work with the electric utilities to reduce carbon pollution and secure greater energy efficiency while providing business certainty.

Ms. Browner also recommends that given the abundance of natural gas, the Obama administration must ensure that “fracking” is done in accordance with strong public health standards. Also, instead of 20 to 30 different state regulations that are imposed on fracking businesses, the Obama administration should just develop one set of national requirements based on the best available science and technology while leaving the oversight and enforcement up to the states.

Indeed, by executing on a strong climate change agenda in the next 4 years, President Obama can ensure that the U.S. moves steadily and unconditionally towards a sustainable, clean energy future.

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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