David Hone

This week I managed to stay a bit closer to home and met up for lunch with Dr. Myles Allen of the Department of Physics (Atmospheric, Oceanic and Planetary Physics) at the University of Oxford.

Although we have probably all understood the bit about the “area under the curve” when it comes to CO2 emissions, Myles and his team have brought a whole new dimension to the issue with a recent article in Nature. The core of the arguement is that simply emitting carbon dioxide slower will not address the  issue of climate change unless it involves phasing out carbon dioxide emissions altogether, before we reach an upper limit of one trillion tonnes of carbon.

According to Myles the risk of exceeding the EU stated target of 2 degrees Celcius is primarily determined by the accumulation of carbon dioxide emissions over time, not by short-term emission rates. He has shown that total cumulative emissions of one trillion tonnes of carbon (1 Tt C, or 3,670 billion tonnes of carbon dioxide) over the entire ‘anthropocene’ period 1750-2500 causes a most likely peak warming of 2 degrees Celsius above pre-industrial temperatures. Of this budget, emissions to 2009 have already consumed approximately half (0.5 Tt C).

You can track the “progress” (hardly seems the right word for this) of global carbon emissions on his website. As of today 532 billion tonnes of the trillion tonne budget have been consumed. Extrapolating emission rates forward leads to the forecast that the trillionth tonne will be emitted sometime in the late first quarter of 2045 (although the website shows this moving forward all the time). All this means we have 468 billion tonnes left – which might sound alot, but carve that up amongst 200 countries with populations ranging form 1.4 billion down to a few thousand and it presents quite a problem.

The EU and the USA are already in the process of carving their bit out. Have a look in Waxman-Markey and add up the number of allowances to be issued into the US economy between 2012 and 2100 (from 2050 onwards one billion tonnes of CO2 per annum are allowed) and it comes to 50 billion tonnes of carbon (which doesn’t even account for the whole economy, but most of it). This represents nearly 11% of the total remaining carbon emissions for some 5% of the global population.

Whilst this is a huge reduction from current US emissions (which, according to the IEA, account for some 20% of global energy related CO2 emissions), it of course raises the difficult question of equity. Add to this the fact that US and EU economies will be able to emit more as they purchase offsets from other countries. This in turn raises the issue as to the nature of offsets. In order to keep this system whole all offsets should really only be sequestration based – i.e. a tonne stored away for every tonne emitted. That means forestry and carbon capture and storage and that’s all, although GHG destruction should probably also qualify. By 2050 of course we may also be talking about a tonne removed from the atmosphere, but that will still have to be sequestered somewhere as well. There is a certain irony here in that neither forestry nor CCS qualify as offsets under the EU-ETS today – in the case of forestry it is because the EU doesn’t want to allow it and in the case of CCS because the international community won’t allow it to qualify under the CDM.

Another aspect to all of this is that very long tails of low emissions can’t be allowed. Waxman-Markey does an excellent job of driving down US emissions to very low levels by 2050, but then has a billion tonnes of CO2 remaining indefinately, i.e. a very long tail. Over time that continues to accumulate which just adds to the problem. As I have noted in a previous posting, the last 20% is indeed problematic, but under a trillion tonne scenario it cannot be. As it will be extraordinarily difficult for an economy to get to zero emissions, the solution will doubtless be net zero emissions, which could mean sequestering a tonne of CO2 from the atmosphere for every tonne emitted, either by direct removal or by gasification of biomass to produce electricity with the resultant CO2 being stored.

This will indeed be a brave new world.

One of the less discussed and least used features of the Kyoto Protocol is the tradability of the Assigned Amount Unit or AAU. This is the instrument that national governments use for compliance and it functions in pretty much the same way as allowances do in a cap-and-trade system. If a Kyoto signatory country emitted 500 million tonnes CO2e in 1990 and agreed to a 10% reduction, then the UNFCCC would grant that country 5*(500-50)=2250 million AAUs for the period 2008-2012. The country can of course emit whatever it wants, so long as it can surrender sufficient AAUs or related units such as CERs from the CDM. The AAU is backed by a certain set of definitions that establish the measurement and reporting protocols for the emissions they represent.

One option open to a country is to buy from or sell AAUs to another country, depending on its overall position, i.e. in surplus or deficit. But the AAU can also transfer through other means. The EU-ETS is underpinned by the AAU, such that if an EU allowance was bought by a participant in a linked ETS, say the upcoming Australian system, then an AAU would quietly make its way from the EU account to the Australian one on the International Transaction Log (ITL) to keep everyone whole at the international level. Of course there is only one AAU backed ETS today and nobody is linked to it, so none of this has actually happened yet, but the principal is important to the long term goal of building a global carbon market.

I am in Bangkok this week at another round of UNFCCC talks in the lead-up to Copenhagen and one issue that has suddenly leapt out of the dark is the often ignored AAU. The US delegation has made the point that as they are not a signatory to the Kyoto Protocol and don’t intend to be, the AAU will not feature in the US view of a future agreement. By contrast, the Kyoto signatories whose (future) emissions trading systems are built around the AAU see this as the undermining of their hopes for a growing market. Other nations simply saw it as a brazen US attempt to tear up the Kyoto Protocol and said so in no uncertain terms – so the negotiations go on!

Despite this, the US delegation made it clear that they see linking to the EU-ETS (and others) as an important goal for the future. I for one can’t see this happening whilst the AAU is still part of the system, or at least part of some of the system. The problem is that there are a finite number of AAUs that represent the cap on those countries with targets on the basis of a certain measurement protocol. Typically, a national emissions trading system (cap-and-trade) is a cascade down into the economy of the AAU, but with a name change and revised legal definition on the way such that trading rules can be crafted for particular national circumstances. Nevertheless, there remains a one-to-one alignment between the two. When two trading systems are linked the AAUs move back and forth as described above. But if a US system were to link, trade between the two would be very limited. Certainly EU allowances could flow to the USA as this would be the same as retiring AAUs from that part of the system and just lowering the defined cap. But US allowances couldn’t flow back as this would bring unknown allowances into the system, raising the cap by the same amount. The exception would be if the US registry had a bank of AAUs from previous trades from the EU or if both recognised the same project mechanism and the US had a bank of these instead – but once the bank ran out that would be it, no more trade.

There are probably constructions around this, such as special recognition of US allowances (given that their cap is known and presumably agreed), but perversely the US is then effectively recognising AAUs within its system, which it didn’t want to do at the outset. The systems would also have to adopt the same definitions throughout, such that allowance arbitrage did not take place, which means that any change in the US system (and vice versa) at any point in time would have to be internationally ratified, which isn’t that different to recognising AAUs in the first place. The sensible thing to do is to back all the national targets with a single underpinning currency but this looks impossible from the discourse in Bangkok – for the US it would mean recognising some aspect of the Kyoto Protocol, which it just can’t do or for the Kyoto countries it would mean dismantling the Protocol, which is a non-starter for most participants.

A further casualty of an AAU free agreement could be a cap-and-trade approach for sectors such as shipping and aviation. The approaches described in my previous posting both rely on a carbon currency exisiting in the international agreement. The units are used as the basic building block of the shipping approach.

So, is the notion of a future global carbon market under threat? Perhaps not, but it will be quite a bit more difficult getting there given the current sentiment. The irony of the situation is that apparently some time back in 1997 it was the US delegation that invented the AAU in the first place!!!

Late last week a significant development came from an equally significant slice of the global shipping community – support for action to reduce CO2 emissions from international shipping in the form of a global cap-and-trade system. International marine and aviation bunkers were excluded from the Kyoto Protocol, but if there is one thing I can be sure of seeing from Copenhagen is that this exclusion will no longer be the case. Shipping emissions will almost certainly be included and the shipping community will either grasp the opportunity to shape its future in terms of policy or it will have its future shaped for it by national governments and the UNFCCC.

The announcement comes in the form of a discussion document released by the British, Australian, Belgian, Norwegian and Swedish ship owners associations. The document clearly outlines the issue and challenges, spells out the advantages of a trading approach and then outlines two different constructions for a possible system. At this stage the document doesn’t discuss the scale of reductions, but I don’t think that is important right at this moment. Rather, the industry is taking a major step into the policy arena with a view to charting its own course foward (pun intended, sorry).

What really differentiates the two models in the document is the flow of money. In the “sectoral” approach, the industry pretty much creates its own allowances (although they originally come from the UNFCCC in the form of AAUs), auctions them, manages the revenue from the auctions and establishes registries and compliance mechanisms. Revenue management is not discussed in great detail, but it is clear that some portion is directed towards technology development. By contrast, the “distibuted” approach sees national governments being issued additonal AAUs to cover international marine bunkers (but only those governments with national targets also underpinned by AAUs)  and the shipping market buying either CERs from developing country projects or AAUs from government auctions. The industry maintains its important role in the compliance process but has little control over the money flow. That rests largely with governments.

The flow of money is bound to be a divisive issue, with many shippers, as with big emitters in land based systems, arguing that they should be in control of the auction revenue raised. It is difficult not to be sympathetic with this, but the reality of our world is that governments control the money flow, not sectors or industry associations or even banks. This is almost certainly a subject for further postings.

I will certainly write more about shipping in the weeks ahead, but in the meantime I would recommend reading this document. The shipping community that put it together deserves a round of applause for taking on a difficult subject at a pivotal moment for the industry.

I was speaking on a panel in Oxford last week and the subject of greenhouse gases other than CO2 came up with one of my fellow panelists. It seems we can add a “new” one to the list of recognised greenhouse gases, Nitrogen Trifluoride. NF3 has a global warming potential (GWP) some 17,000 times that of CO2 with an estimated atmospheric lifetime of about 700 years. Like many of these high GWP compounds, NF3 finds a home in the electronics industry. It is not a listed Kyoto gas.

Global production of NF3 has grown from some 100 tonnes in 1992 to an estimated 4000 tonnes in 2007 and is projected to reach 8000 tonnes a year by 2010. The electronics industry tells us that only a very small (~2%) of global production is released into the atmosphere and that most industrial processes result in its destruction. However, not all observers agree on such levels (claims of up to 16% released).

Neverthless, the issue here is not NF3 itself, but the much more important need to keep a check on all the greenhouse gases. This point was really driven home for me when the Shell scenario team submitted the two Shell Scenarios, Scramble and Blueprints, to analysis by the MIT Integrated Global System Model of the Joint Program on the Science and Policy of Global Change.

Just a quick scenario synopsis first:

• Scramble sees the world taking a more reactive approach, first focussing on increasing the energy supply and then facing the consequences later.
• In Blueprints, the difficult decisions are taken sooner rather than later, leading to revolutionary changes and a better balance of economic and environmental needs.

The analysis is described very thoroughly in the MIT paper The Influence on Climate Change of Differing Scenarios for Future Development Analyzed Using the MIT Integrated Global System Model. In Blueprints the emission of non-CO2 gases is kept in check at about current levels whereas by 2100 the same gases under Scramble are some two and a half times current levels and still rising, even though Scramble has finally managed to see CO2 emissions plateau by the second half of this century.

The impact on atmospheric concentration of GHGs is even more marked. By 2100 Blueprints sees CO2 levels in the atmosphere plateau at about 550 ppm and total GHGs plateau at 630 ppm CO2e. In Scramble, CO2 is nearing 700 ppm and still rising, but total GHGs are now over 1000 ppm CO2e and rising. The latter translates into a near quadrupling over the 21st century of the net radiative forcing due to all long-lived GHGs, sulfate and black carbon, aerosols, and ozone which translates again to an increase, by 2100, in the Global Mean Temperature in degrees Centigrade (relative to 2000) of some 4.5 deg.C.

Whilst even the concerted mitigation efforts of Blueprints may be insufficient overall, the stark message of the analysis is “watch out for the other gases”. As we head towards Copenhagen, all eyes will be on the energy sector and CO2 emissions. NF3 and its cohorts may well miss the party, but to our long term detriment.

A tectonic shift may be underway in Japan, but not of the sort normally associated with this country and its frequent earth tremors. Rather, a new era in climate politics may dawn as a result of the recent win by the DPJ in the national elections. This is because within the manifesto pledges of the DPJ sit two key policy choices, now (Monday September 7^th) formally announced by incoming Prime Minister Yukio Hatoyama;

1. A commitment to reduce national emissions by 25% by 2020, relative to 1990 – this compares with the proposal by the LDP of an 8% reduction, one which was heavily criticised internationally as being insufficient support for the developed country contribution to an agreement in Copenhagen.
2. A commitment to implement a cap-and-trade system within the Japanese economy. Although the previous government had talked about this policy instrument, little progress was made in implementing it given the negative position that some business groups took towards it.

Whilst much domestic “nemawashi” is still to take place, this shift could be critical for the success of an agreement in Copenhagen.

But Japan already finds itself an international leader in energy management, given the energy legacy inherited from the previous administration. However, the CO₂ story in Japan, whilst positive, has not delivered an overall drop in emissions. Whilst energy diversity and efficiency have been key policy objectives for many years now, absolute CO₂ emissions have risen by nearly 15% from 1990 (to 2006, IEA). At the same time emissions in the EU-27 have fallen, but only slightly. Over the same time period CO₂ emissions in the USA have risen by just over 19%. 

A big difference lies in the power sector, with Japanese power emissions staying at around 430 gms CO₂ per kWh over a 20 year period, but EU power emissions falling from over 430 gms per kWh to some 350 gms per kWh in the same period. This is due to the continuing rise of nuclear power in the EU, the influx of natural gas and the more recent aggressive build of renewables in countries such as Germany and Denmark.  By contrast, Japan has seen emissions from coal grow by 45% over the same period, much of that in the power sector.

With a transport sector already one of the most CO₂ efficient in the world and an efficient manufacturing base, the power sector will become a particular area of focus.  But efficiency alone is not going to deliver the necessary change, so fuel switching (i.e. more natural gas), renewables and international offsets will all play important roles.

The last item above will be critical to the strategy. But to be truly effective, the tougher target must be backed by an emissions trading system, which is also a preferred policy position of the DPJ. A Japanese emissions trading system, with very open access to international markets will allow the domestic target to be met but importantly will direct significant funding to developing countries.

Some quick numbers – let’s assume domestic emissions in 2013 are down to 1100 MT (with the Kyoto target met through CER and AAU purchases) and that the country can reduce this to 1000 MT by 2020 (i.e. a ~20% reduction from 2006 to 2020). Therefore, meeting a 2020 target of 810 MT CO₂ (i.e. 25% lower than 1990) could mean the purchase of over 800 million tonnes of international credits from projects between 2013 and 2020.

Between Japan, the USA, the EU, Canada, Australia and New Zealand, six cap-and-trade systems could be buyers of some 10 billion tonnes of international reductions in the period 2013-2020, giving rise to not only a very large and liquid global carbon market but also an ability to fund very significant step changes in developing country emissions. In tandem, new avenues of supply would have to be rapidly developed, including a mechanism that supports some kind of sectoral crediting, although this will likely be more successful as an outgrowth of the CDM through the creative use of methodologies rather than an entirely new approach.

The announcements by the new government in Japan, if put into practice over the next three years, could have very far-reaching effects. Rather than facing the prospect of a lone EU-ETS struggling to hold the fort for this powerful market instrument, we instead head rapidly into the brave new world of a global carbon market.

It may be vacation time, but I find I am not far away from the world of climate policy – in fact a trip with my son up to Norway by ship gives an excellent perspective on policy measures that are delivering real results.

We started out in Copenhagen, with the main convention centre near the airport already sporting a Vestas wind turbine out the front, presumably in readiness for COP 15 in just a few months time. This turned out to be the first of many that can be seen around Copenhagen and in the near vicinity. Although Denmark still relies on both coal and natural gas for electricity generation, it now also generates more than 6000 GWhrs per annum from 5212 wind turbines (2007), making up nearly 20 % of domestic electricity supply.

Wind, coal and gas are all used in Denmark

A spectacular array of turbines can be seen in Copenhagen harbour and the main shipping channel serving the city. Oddly, the actual number of wind turbines in Denmark is expected to decline in the near term as older small units (< 500 MW) are decommissioned and new large units are built (now up to 4+ GW).

Copenhagen harbour

This transformation in the energy mix comes through the application of a focussed policy agenda which supports wind energy through a fixed tariff approach. In the process Denmark has built a significant wind industry, employing nearly 30,000 people and delivering export earnings of €5.7 billion per annum.

Norway has led the way in carbon dioxide capture and storage (CCS) and some 8 million tonnes of CO2 has been successfully sequestered within the Utsira formation by Statoil Hydro. The CO2 comes from the Sleipner natural gas field where it is removed from the natural gas by amine treatment. Importantly, 12 years of storage experience now exists in this location and there has been no trace of any leakage despite extensive monitoring. The CO2 sits in the formation about 1000 metres below the sea bed, protected by some 800 metres of cap rock.  Today, the north-south extension of the Utsira / Sleipner carbon dioxide plume is about three kilometres long. Over time the CO2 will dissolve in the formation water and sink to the reservoir bottom.

Oil, gas (and now CO2) rigs can be seen in the Norwegian North Sea

Getting back to the policy aspect of this, this pioneering CCS project has been underpinned by a long standing CO2 price in the Norwegian offshore sector, delivered by a ~$50 per tonne CO2 tax. Similarly, the EU-ETS and other nascent trading systems are beginning to deliver a CO2 price into the broader developed country markets.

The experience in Scandinavia supports a number of points:

• That big changes can be made in the energy system over a number of years, provided policy is focussed, long term and that the government stays with it.
• That CCS is a viable technology that can be delivered on commercial terms provided a suitable CO2 price exists in the market.
• That CCS is a safe technology, backup up by experience and monitoring for over 10 years.

Both Norway and Britain have their eyes on a large-scale CO2 storage industry. One of the Norwegian maritime schools has even proposed a design for a multi-purpose vessel which could be used for backhaul transport of CO2 to suitable storage locations. In such a service, CO2 transport costs from other Northern European ports to the North Sea could be less than €10 per tonne.

Replicating the achievements of Denmark and Norway is now a priority for many countries. But results will take time and successive governments will need to persist with and build on the foundations put down by their predecessors. On this issue at least, bipartisan politics will need to be the name of the game in the years to come.

Our ship in Geiranger Fjiord at the norther end of the Utsira formation

I have been in Sao Paulo this week at Sustentavel 2009, perhaps the premiere Sustainable Development event in Brazil, if not all of South America. At the opening I represented the World Business Council for Sustainable Development and then on the first day of presentations I participated in the main climate change panel session.

What is clear is that there is a passion in Brazil for sustainability – from the huge issues they face in the Amazon region to the road congestion in Sao Paulo. Talking with delegates at Sustentavel, it is also clear that the country faces an interesting future in terms of greenhouse gas emissions.

According to the IEA, in 2006 fossil energy CO2 emissions in Brazil were 332 million tonnes. Reportedly (from delegates at the conference), this represents some 25% of overall CO2 emissions in Brazil, which puts emissions from deforestation at about 1 billion tonnes per annum and total emissions at some 1.3 billion tonnes. Such a figure, if correct, would put total Brazilian emissions at about the level of Japan and India.

From an energy perspective (i.e. putting to one side for the moment emissions from deforestation) Brazil is one of a handful of countries globally that is managing a development pathway that is compatible with a 450 ppm trajectory – i.e. keeping emissions below 2 tonnes per capita even as it continues to develop. Although emissions per capita have risen since 1970, there has been a plateau of sorts more recently. Brazil has achieved this through its large-scale use of renewables, namely hydroelectricity and biomass, the latter both as a source for transport fuel (ethanol) and electricity. Although CO2/KWhr jumped from 50 gms to 88 gms between 1990 and 2000, it fell back to 81 gms in 2006.

Looking forward, continued expansion of hydroelectricity is under pressure. Although only 30% of theoretical capacity has been utilised, new projects are taking some 10 years to complete owing to increasingly stringent permitting requirements. Meeting future electricity demand may mean that the country needs to draw increasingly on alternative sources, particularly natural gas which is being discovered offshore. CO2 emissions from natural gas use more than doubled between 2000 and 2006.

In the transport sector, ethanol and now bio-diesel use is continuing to grow. Between 2000 and 2006 oil demand was flat despite a nearly 20% increase in both GDP and overall energy demand. Brazil still has a formidable potential for increasing ethanol and bio-diesel production, even as it grapples with the issue of deforestation. Brazilian ethanol also has a very low CO2 footprint owing to the use of bagasse as a fuel in the ethanol plants, many of which also produce electricity for the local community. But Brazil is also on the verge of becoming a new petro-economy. Offshore discoveries now amount to some 70 billion barrels of oil equivalent. If consumed this will result in emissions of 25 billion tonnes of CO2 or the equivalent of an additional 1-1.5 ppm in atmospheric CO2. In addition, there may be further CO2 emissions after removal from contaminated offshore natural gas.

What solutions lie in Brazil’s future? The first priority is of course to address deforestation, but one option that doesn’t immediately jump out of the page but could be pivotal for Brazil is the application of carbon dioxide capture and storage. Whilst Brazil is a low CO2 economy, CCS could help it remain so whilst letting the country make best use of the resources it has. For example, CCS applied offshore is a potential solution to the CO2 that will be removed from any contaminated natural gas.

Longer term, CCS could be tied in with the nations huge biomass potential (even after deforestation is addressed) to possibly deliver a negative CO2 economy by 2050. Gasification of biomass is a technology gaining ground today. As in the gasification of coal it produces syngas, which can then be used for electricity generation, with a high purity CO2 stream remaining. When sequestered, with biomass as the original feedstock, the process is effectively removing CO2 from the atmosphere. Most biofuel processes (e.g. manufacture of ethanol) also produce bio-CO2 that could be captured and stored. These approaches may be pivotal in the quest for atmospheric stabilisation at safe levels.

So although Brazil has real sustainability challenges ahead, particularly in the area of deforestation and the further expansion of hydroelectricity, it also offers tremendous opportunity for managing emissions on a very large scale. Certainly the willingness is there, you could feel it at the conference. Now that needs to be turned into political action to drive the solutions forward.

This week has seen a report produced for the British Government which details pathways towards a global carbon market and the benefits of doing so. A series of policy recommendations are put foprward in the report along with supporting analysis. The report makes excellent reading.

A fully functioning global market for carbon is essential for many reasons. First and foremost, it will drive the reduction of emissions globally in an organised and equitable manner, always picking off the next best project along the abatament curve and therefore giving us a lowest cost solution to meeting reduction targets. The resulting carbon price will also act as an incentive to spur the development of a range of new technologies, such as carbon carbon and storage. The overall global cost of meeting, say, a 2050 target can be reduced significantly with a fully fungible global market, compared to the alternative of many separate stand alone systems.

But such a market will not be something that policy makers will ever be able to create in one swoop, rather it will evolve as individual systems are linked together, as sectoral approaches mature and begin to deliver credited reductions and as new policy mechanisms are introduced in areas such as land use and forestry. Today, we have just the beginnings of such a system, with the EU-ETS buying certified reductions via the CDM, thereby projecting the EU carbon price into many developing countries.

We can already see the dawn of other approaches, such as in the USA, Australia and New Zealand. But whilst both the Australian and New Zealand systems are underpinned with Kyoto AAUs, as is the EU, this is clearly not the case in the US Waxman-Markey case. The USA system, whilst architecturally very similar to the other systems, does not immediately recognise the same project mechanism nor present the possibility of fungible (AAU based) allowances, so discontinuities are already appearing. What is missing is the notion of a common currency for carbon.

This then brings into focus one of the key deliverables from Copenhagen – somehow merging the Kyoto negotiating track and the Long Term Cooperative Action track. Unless this can be achieved we may end up with emission trading systems that simply can’t link together because they are built on different platforms. Although Waxman-Markey does offer an open door for recognition, it won’t be possible to use it as it will present an unrecognised source or sink for allowances within the other systems.

Such a discontinuity will drive up the overall cost of compliance for everyone. Alternatively, we can ensure that the various systems are built on a common platform, recognising the same underlying units, thereby ensuring the shift towards a global market.

Towards a global carbon market

At the end of last week I was in Bonn, where another round of UNFCCC negotiations was taking place in the lead-up to Copenhagen. I happened to catch the Greenpeace show, which involved the sounding of an incredibly loud air-raid type siren from within a locked steel cage on the back of a truck. The German police didn’t take kindly to this and proceeded to cut them out.

But the point made by Greenpeace isn’t without merit. My own “alarm moment” comes from looking at the text which the negotiators are deliberating over. Although much was apparently added during the Bonn talks, the starting point (the AWG-LCA text) says little about how to actually address this problem, but rather presents fifty three pages of arcane language about process. It talks of “appropriate action”, but doesen’t define what this might actually entail, other than in the loosest terms. Take a technology such as carbon capture and geological storage – it doesn’t even get a mention. The word “renewable” appears once, “nuclear” doesn’t appear at all and “energy efficiency” twice. Even the notion of a carbon market to drive large scale deployment is barely touched upon.

Short of a document which clearly spells out a forward emissons profile for every country, perhaps it is time to replace abstraction with clarity and focus. There are five, and only five things we can do to address the mitigation side of climate change. We have to do all of them, we have to do them at huge scale and we have to do them very quickly. They are;

• Using energy much more efficiently;
• Increasing the use of renewable and nuclear sources of energy;
• Rapidly commercialising and deploying carbon dioxide capture and geological storage in tandem with the use of fossil fuels [or with the chemical conversion of fossil derived materials for the provision of various manufactured products];
• Containment, destruction and reduced usage of greenhouse gases other than carbon dioxide;
• Reducing emissions through land use, land use change and forestry, including reducing emissions from deforestation and degradation.

At the very least, the text should be driving these specific solutions forward, for example through properly funded large scale demonstration programmes and targeted mechanisms to hasten deployment. Carbon capture and storage provides a good example. Three policy initiatives are required to support this technology;

• An underlying price for CO2 must be in place;
• A clear recognition of the demonstration nature of the technology, which means funding, objectives, timelines and focus on delivery of projects;
• A robust approach to CO2 storage certification (and MRV) based on 2006 IPCC GHG Inventory Guidelines.

The EU has nearly reached this point, but it has taken eight years to do so. Whilst this represents a landmark in policy creation, the rate at which it has happened is hardly commensurate with the gravity of the issue that we are trying to address. We need to focus our efforts on bringing this technology to developing countries, particulalry those with large coal reserves. A policy framework similar to that in place now in the EU is needed, but on an international scale. First and foremost, this means recognising CCS within the an international project mechanism. We will also need to underpin this with an internationally recognised CO2 storage certification, again based on the 2006 IPCC GHG Inventory Guidelines. Finally, we need a mechanism within which large clusters of projects can be identified, funded and implemented against defined deadlines. Most importantly, we need all this now, in Copehagen, with a view to starting implementation in 2010.

This week I have been in Canada, talking with people in both Provincial and Federal government about Canada’s policy plans to reduce greenhouse gas emissions. There is a feeling of deja vu doing this, because it seems that Canada has been talking about such policy for years now – but almost nothing substantive has been implemented.

But now very substantive action is going to be needed – and needed fast. Its largest tading partner is on the move and will implement either an emissions trading system or succumb to the rigours of the Clean Air Act. As a developed country in a leadership position with G8 status, Canada will almost certainly have to sign up to something like a 20% reduction in emissions (or more) from 2005 to 2020 when it faces other nations across the negotiating table in Copenhagen.

But Canada has been here before, signing up to the Kyoto Protocol and agreeing to reduce emissions by 6% from their 1990 level of about 600 million tones. In 2006 GHG emissions were at 721 million tonnes, nearly 30% above the Kyoto target. However, emissions have fallen from a high of 743 million tonnes in 2004, perhaps driven by a variety of policy efforts at provincial level and some from the Feds.

Putting to one side the issue of how Canada will finesse complance with its Kyoto obligations (and these are real obligations irrespective of what happens to the Protocol), a formidable task remains to reduce emissions between now and 2020 (remember, that’s 4000 days). This is all the more challenging for Canada because the resources boom in Alberta is also putting upward pressure on emissions.

Getting back to my mission this week, it is clear that the political appetite for action has changed and that a cap-and-trade system is now the preferred way forward. But there are many hurdles to cross. Whatever is put in place has to be compatible with the expected US system. Waxman-Markey allows unrestricted flow of allowances from “equivalent systems”, but therein lies the first issue – what will be deemed equivalent. Whilst the idea of a trading approach is alive and well in Canada, so too is the idea of a buy-out option by putting money in the collection tin (the “Technology Fund”). Unfortunately this means it isn’t a cap-and-trade system any longer and it is hard to imagine any such construction being deemed equivalent.

Two other obstacles confront Canada in the design of a national trading system.

The first involves the concerns that wealth transfer may result between provinces arising from the flow of allowances between those needing to buy allowances due to substantial growth from those with a flatter emissions profile. This is a real issue, but it has been addressed in the EU and the approach adopted there may be applicable in Canada. In the EU a large New Entrant Reserve has been set aside from within the cap. Member states can draw on this as necessary, using the allowances for auction or grant to the new facilities in question. This helps countries like Poland experiencing rapid growth in that it limits the flow of funds leaving the country for compliance pruposes.

The second issue is also a wealth transfer one, but between Canada and the rest of the world. It is almost certain that Canada will have to buy international offsets or US / EU allowances to meet a potential 20% by 2020 reduction target. With the resources boom in Alberta, the best that Canada can probably achieve domestically is a 10% reduction by 2020. This means Canada / Canadian industry could need to purchase some 250 million tonnes of external compliance units between 2013 and 2020, perhaps costing as much as $10 billion. There really is no getting around this – it is the nature of an emissions trading approach built on environmental targets and strict compliance. It is also because there is no getting around the issue of climate change other than reducing emissions – the atmosphere doesn’t really have much use for our money, only our ability to manage what we emit to it.

So there is much to do to push Canada across the line and get cap-and-trade implemented. But there is also a great deal of willingness and drive to finally make something happen – hopefully enough to overcome some tricky obstacles along the way.