Obama administration could fast track cap-and-trade, RPS in '09

U.S. President Barack Obama has been in office for just one day, but already the cleantech industry is speculating as to when he and Congressional Democrats could introduce mandates for national renewable portfolio standards, cap-and-trade systems and air quality regulations.

New York-based consultancy Global Change Associates said today that at least some of those proposals are likely to be realized in 2009.

Peter Fusaro, chairman of Global Change Associates, said leaders are under pressure to fast track emissions-reductions legislation in time for the U.N. conference on climate change in Copenhagen in December, which would prepare the U.S. to join a global strategy when the Kyoto Treaty expires in 2012.

Likely proposals include a 15-percent reduction in emissions from 2005 levels by 2012 and 80 percent by 2050, Fusaro said in a post-election briefing on carbon markets today. 

"That will incent industry to invest in cleaner technology since they would have regulatory certainty and long term time horizon," he told the Cleantech Group.

A U.S. cap-and-trade policy would be in line with the 184 countries participating in the Kyoto Protocol, whereas a carbon tax wouldn't, Fusaro said. Such a cap-and-trade system would operate as a de facto tax because costs would be added to consumers' airline tickets, electricity bills and vehicle purchases, he said.

The biggest factors in the speed-up of the federal legislation, which has failed before, are the Democratic majority and Rep. Henry Waxman of California taking over as chairman of the House Energy and Commerce Committee from John Dingell, Fusaro said.

Waxman, who has promised greenhouse gas legislation by Memorial Day, is likely to push an agenda similar to California's AB-32, which caps emissions from power stations, industry and oil refineries starting in 2012, Fusaro said. House Speaker Nancy Pelosi has said the legislation is more likely to come later in the year.

The state also proposed a limit on tailpipe emissions but was stopped by the U.S. Environmental Protection Agency (see California slaps suit on U.S. EPA over car emissions). While that is being decided in the courts, Obama could issue an executive order forcing automakers to comply with the emissions-reductions requirements, Fusaro said.

"The federal vacuum has forced state and regional approaches to the problem," he said. "Today 27 states are on board with greenhouse gas initiatives."

A national cap-and-trade system would trump regional requirements such as the Northeast's 10-state Regional Greenhouse Gas Initiative (RGGI), which requires utilities to reduce emissions 10 percent by 2018. States would have the option to implement more-stringent policies, Fusaro said.

There are 38 environmental trading markets with varying territories. The Western Climate Initiative, which includes U.S. states and Canadian provinces, is paving the way for a North American carbon market, Fusaro said. 

Carbon trading markets today don't provide the financial incentive for companies to reduce emissions, with a ton of carbon dioxide emissions selling for between $3 and $15 on various exchanges.

Fusaro said the price has stayed low because there are too many sellers and not enough buyers of emissions thanks to nonexistent caps from the U.S. or too-high allowances from governments such as the European Union. Additionally, the EU mandates don't cover enough sectors of the economy, such as transportation, Fusaro told the Cleantech Group.

"Greenhouse gas reductions don’t have an intrinsic value. It's rather a value driven by legislation and the anticipation of legislation," he said. 

Voluntary cap-and-trade markets are giving companies a head start on the learning curve for emissions reductions. The U.S. makes up about 40 percent of the voluntary markets, which are increasingly being used as an alternative to the sometimes-onerous process to get credits through the Kyoto Protocol's Clean Development Mechanism (CDM) program, Fusaro said.

The forced entry of U.S. companies in a cap-and-trade scheme could create a $1 trillion market thanks to the the country's 6 billion tons of emissions each year, Fusaro said. Realistically, the program will likely cover 80 percent of the country's carbon footprint and establish a price cap of $20 a ton, generating enough money for the federal government to spent $15 billion on clean energy, he said. 

The program could also fund energy efficiency improvements, smart grid technologies, and carbon capture and storage, Fusaro said (see Smart grid could be early winner in U.S. stimulus package). The Cleantech Group's new year predictions also highlighted energy efficiency as the biggest cleantech trend for 2009 (see Nine clean technology predictions for 2009).

Fusaro said an energy bill is expected in the second quarter that could establish a national renewable portfolio standard (RPS) before the end of the year, but such plans could be inhibited if developers can't get project financing for large-scale wind or solar farms because of the credit crunch (see Record 2008 for cleantech with $8.4B in investments).

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