On October 5, 2016, all of the conditions needed for the Paris Climate Agreement (December 2015) to take effect were met. The Paris Agreement entered into full force on November 4, 2016. With the agreement being so global in nature, it can be difficult to comprehend the impacts on an individual business here in the United States. The impacts are certainly not known completely, but the purpose of highlighting the agreement here is to let our readers know that the agreement is moving forward and that they should pay attention to carbon market developments as they could eventually be a driver in making business decisions.
In October, the World Bank released its annual report, “State And Trends of Carbon Pricing”. Mechanisms for putting a price on carbon either through taxes or Emissions Trading Systems (ETS) have been in existence for the last 10-15 years. The largest and now one of the oldest Emissions Trading Systems has been the European Union Emissions Trading System (EU ETS). The EU ETS has had its share of problems since mandatory carbon compliance was introduced for 2008, but it has survived several economic and regulatory tests. In their report, the World Bank stated that there are now 40 national jurisdictions and over 20 cities, states, and regions putting a price on carbon in 2016. These jurisdictional programs cover about 13% of total GHG emissions. With the possible addition of a national Chinese ETS during 2017, the percentage of GHGs covered by Emission Trading Systems could possibly reach 25%. One other development that was highlighted in the report is the increasing number of companies that are now using an internal carbon price when operating and evaluating their businesses. The methods they use can be a bit different, but we see voluntary carbon emission reporting continuing to grow.
There are quite a few mandatory Emission Trading Systems in North America though they are regional in focus. The oldest is the Regional Greenhouse Gas Initiative (RGGI), which started in 2009 and regulates Greenhouse Gas Emissions in nine Northeast states. The goal is to regulate the CO2 Emissions from fossil fuel power plants that have a generating capacity of 25 MWs or more. The other USA regional Emissions Trading System is in California, which has been in existence since 2012 and regulates the carbon emissions from the power and transportation sectors. It has a link with Quebec, the other regional ETS in North America. It is our opinion that while these Emission Trading Systems have not been perfect, they have survived and the Paris Agreement only makes them that much more important. We see them growing in number and importance, not shrinking.
As we move forward, we think it is important that our readers start to familiarize themselves with energy use benchmarking and CO2 emissions reporting. We have reported before that there are several USA cities (in addition to Chicago) that require mandatory energy use intensity reporting for buildings of a certain size. This requirement will most likely exist in more cities going forward, and the existing cities will also most likely expand the number of entities who need to report. The Environmental Protection Agency (EPA) software that is used to report for most of the mandatory energy use intensity programs can be used to capture the energy CO2 emissions that a company can use. alfaenergy provide this service, so please contact us with any questions regarding energy use and/or CO2 emissions reporting.
Analyst – David Mousseau
Information Sources – World Bank: State And Trends Of Carbon Pricing