and the Carbon Market

sprocketflipOil and Offshore

Nov 8, 2013 (3 years and 11 months ago)

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Environmental Markets
Association Webinar

May 18, 2010


Kyle Danish

Van Ness Feldman, P.C.


The Kerry
-
Lieberman Bill
and the Carbon Market

1050 Thomas Jefferson Street, NW

Seventh Floor

Washington, DC 20007

(202) 298
-
1800

Millennium Tower

719 Second Street, Suite 1150

Seattle, Washington 98104

(206) 623
-
9372

EMA Kerry
-
Lieberman Webinar 18 May 2010

2

Overview


Key elements of the bill


Deep dive


Offsets


Market oversight provisions


EMA Kerry
-
Lieberman Webinar 18 May 2010

3

Status


Discussion draft


Not formally introduced


Process


Majority Leader will decide next steps during Memorial
Day recess


Modeling underway by EPA and EIA

EMA Kerry
-
Lieberman Webinar 18 May 2010

4

Targets and Timetables



2013

4.75% below 2005 levels

2020

17% below 2005 levels

2030

42% below 2005 levels

2050

83% below 2005 levels

EMA Kerry
-
Lieberman Webinar 18 May 2010

5

Coverage of Sectors


Electric power


Allowance surrender obligations in 2013


Manufacturing


Allowance surrender obligations in 2016


Transportation


Petroleum refiners purchase allowances at fixed fee
(related to market price)


Cannot trade or bank allowances

EMA Kerry
-
Lieberman Webinar 18 May 2010

6

Allowance Allocation for
Power Sector


Local distribution companies


Allocation through 2030


75% distributed on basis of emissions


25% distributed on basis of output


Merchant coal


Long
-
term contract generators


Other allocations


Energy
-
intensive, trade
-
exposed industries


Merchant coal plants that retire or switch to NG


Deficit reduction


Transportation sector projects

EMA Kerry
-
Lieberman Webinar 18 May 2010

7

Preemptions


Preemption of EPA Clean Air Act authority


NAAQS


NSPS


HAPs


However:


New coal
-
fired power plants permitted btw 2009
-
2019 must reduce
emissions 50% starting no later than 2020


Plants permitted in 2020 after: 65% reduction


Preemption of state authority


Permanent preemption of state cap
-
and
-
trade programs


States can implement other measures

EMA Kerry
-
Lieberman Webinar 18 May 2010

8

Other Provisions


Price Collar


Nuclear incentives


Offshore drilling


CCS incentives


Incentives for NG in transportation

EMA Kerry
-
Lieberman Webinar 18 May 2010

9

Offsets: Limits
*


Overall limit: 2 billion tons annually


75/25 split domestic and international


If EPA forecasts less than 1.5 billion domestic offsets, can increase
international share up to 1 billion to make up for shortfall


Covered entity’s share of 2 billion equals


Entity’s emissions/emissions of covered entities (excepting refiners) * 2
billion tons


Post
-
2018 penalty on international offsets


Must surrender 5 international offset credits in lieu of 4 allowances

* Corrected after presentation

EMA Kerry
-
Lieberman Webinar 18 May 2010

10

Domestic Offsets
Framework


Utilize Stabenow bill framework


Early action


Earliest project start date: Jan. 1, 2001


Crediting from Jan. 1, 2004


Register with qualifying program


Crediting period up to 10 years


Eligible list


Methane projects are eligible


EPA/USDA authorities



EMA Kerry
-
Lieberman Webinar 18 May 2010

11

International Offsets


Three flavors


Project
-
based offsets from an “international body”
(CDM)


Sector
-
based offsets


REDD


Common requirement


Agreement in place with host country


Strong preference for sector
-
based


Directs EPA to identify countries that should have
sector
-
based limits


Phases out project
-
based credits in 2016

EMA Kerry
-
Lieberman Webinar 18 May 2010

12

REDD Offsets


Allows credits only for nation
-

or state
-
based
reductions


Waxman
-
Markey and Kerry
-
Boxer also allowed project
-
based reductions in poorer countries


Result: serious reduction in supply of REDD offsets


Extensive requirements for national plans


Social and biodiversity protections

EMA Kerry
-
Lieberman Webinar 18 May 2010

13

Market Oversight


CFTC jurisdiction over “greenhouse gas instruments”


Includes allowances


EPA can also designate offset credits


Any transaction in greenhouse gas instruments (spot
or derivative)


Must be on an exchange


Must be cleared


Must involve covered entities or certain “regulated greenhouse gas
market participants”


Exception: transactions not involving physical settlement and occur on
designated futures exchanges (which already are highly regulated)


Exception: transactions with EPA (
e.g.,
purchase of allowance in auction)

EMA Kerry
-
Lieberman Webinar 18 May 2010

14

Market Oversight, cont.


Regulated greenhouse gas market participants


Selected by CFTC, consulting with Treasury and EPA


“Assessment of market structure”


“Necessary for a liquid and well
-
functioning market that would ensure not
more than a reasonable rate of economic return”


Removal of CEA exemptions for greenhouse
gas instruments


Not exempt commodities


No availability of exemptions for swaps, forwards


Other restrictions


Position limits


Regulation of short sales


EMA Kerry
-
Lieberman Webinar 18 May 2010

15

Implications for Offsets


Challenges if offset credits are “greenhouse
gas instruments”


Offset credits are generated by entities other than
covered entities


Many offset transactions are derivatives


Need for aggregation


Difficult to standardize


Difficult to clear because of regulatory risk

EMA Kerry
-
Lieberman Webinar 18 May 2010

16

Assessment


Positive assessment on domestic offsets


Problematic provisions on international offsets


Problematic provisions on market oversight


A placeholder/discussion starter?

Kyle Danish

202
-
298
-
1876

kwd@vnf.com


For more information

For weekly news and analysis about climate change policy and
business developments, go to:

www.vnf.com/news
-
signup.html



Environmental Markets
Association

Kerry
-
Lieberman Bill Webinar

May 18 2010