Volume 2, Number 5
31 October 2001
Green Green Expands Focus
Green Green is expanding its focus. In addition to reporting on international project financing and opportunities, the newsletter will begin reporting on news relevant to financing small- and medium-size power generation and direct use geothermal projects in the United States. Issues which may be covered include the effects of Electric Utility Restructuring, Renewable Portfolio Standards, Environmental or Carbon Credits and their trading benefits, and Public Benefits Funds.
Renewable Portfolio Standards can provide an incentive to small generation projects due to the need for utilities to find and buy renewable energy. This needs to be defined on an ongoing basis and presented to the smaller entities in the geothermal industry. The trading of carbon or environmental credits is likely to become a brokers market, as this incentive area grows. This, too, needs definition and promulgation to the industry. Finally, Public Benefits Funds exist in 23 states and are used in various ways, many of which may well be of use and benefit to the geothermal industry. These, too, need better definition and their status reported to the industry on an ongoing basis.
This issue of Green Green addresses greenhouse gas and carbon dioxide emissions trading what is being done around the world and in the United States.
Greenhouse Gas Emissions Trading
The potential market for greenhouse gas (GHG) and carbon dioxide emissions is enormous. In the U.S. alone, estimates range from $100 billion to $500 billion. Worldwide trade in GHG emissions have resulted in more than 160 million metric tons of CO2 equivalent reductions, and are expected to grow to $90.4 billion per year by 2010 (Source: Resource and Economics, Vol. 21, 1999; http://www.CO2e.com). The implementation of GHG emissions trading and development of national markets are in various stages throughout the world.
The United Kingdom will have the world's first nationwide greenhouse gas trading system. The $313-million UK Emissions Trading Scheme could cut up to 2 million tons of carbon per year from the atmosphere by 2010. In April, the UK Government introduced the Climate Change Levy (CCL). The CCL is an energy tax which is applied to most non-domestic users on energy unless it comes from renewable energy sources or combined heat and power generation. Non-domestic users are charged 0.00625 cents/kWh on electricity. The UK has set itself a goal that goes beyond the Kyoto target to reduce emissions of CO2 by 20% below 1990 levels by 2010.
Additionally, through the Renewables Obligation, the UK is committed to increasing the amount of the country's electricity generated by renewables to 10% by 2010. Under the plan, participants sign up to deliver emission reduction targets through either cuts in-house or by buying and selling emission allowances on the market. If firms can reduce emissions cheaply and beat their targets, they can sell the surplus allowances or bank them for future use.
In Norway, at the request of the Parliament, the Ministry of Petroleum and Energy is evaluating how a compulsory tradeable green certificate program could support increased use of renewable energy. Since most homes across Norway are heated with electricity, the proposed program should include heat from solar energy, biomass, and geothermal heat pumps, as well as power.
In Europe, the European Commission is supporting an international project called RECerT (Renewable Electricity Certificate Trading) to help achieve the European Union's target for renewables penetration of 12% of primary energy by 2010, thereby contributing to achieving the EU's Kyoto objective targets for CO2 emissions reduction. There is also a private initiative called RECS (Renewable Energy Certificate System).
Down under, as part of Australia's new Renewable Energy (Electricity) Act 2001, the Mandatory Renewable Energy Target (MRET) requires that an extra 2% of energy must be generated from renewable energy sources, including geothermal-aquifer and hot dry rock, by 2010. The Act is expected to add an additional 9,500 GWh of renewable energy sources. Renewable Energy Certificates (RECs), one created for every MWh of renewable energy produced, would be traded and used to demonstrate compliance with the MRET. For more information, refer to the Office of the Renewable Energy Regulator (ORER) web site.
In the United States, Native Americans in Montana made the first carbon offset trade in April. Sustainable Forestry Management (SFM), a London-based company which invests in forestry projects with environmental and social benefits, will buy GHG emission reductions equivalent to almost 48,000 tons of carbon dioxide from native Americans in Montana. SFM is paying the Confederated Salish and Kootenai tribes on the Flathead Indian Reservation $50,000 to reforest 100 hectares of their reservation that was destroyed by forest fires in 1994. In return, the tribes will preserve the forest for 100 years and pass on the associated GHG offsets or "carbon credits" to SFM for 80 years. The trade was facilitated by the Montana Carbon Offset Coalition and arranged by Chicago-based Environmental Financial Products LLC, headed by Richard L. Sandor.
Dr. Sandor, widely known as the father of market-based emissions trading instruments, and research professor at the Kellogg Graduate School of Management at Northwestern University, designed and created the Chicago Climate Exchange (CCX). CCX, the first U.S. voluntary pilot program for trading of GHG, and covers Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, and Wisconsin. It has received grants from the Joyce Foundation.
Midwest-based utility companies involved in the design phase of the CCX represent almost 20% greenhouse gas emissions in the region. They include energy providers, e.g., multinational oil, gas, and solar giant BP; Calpine of San Jose, CA; and Alliant Energy of Madison, WI. Combined market capitalization of the 33 participants amounts to $425 billion.
"Those of us who can see that it will be necessary in the future to reduce carbon dioxide want to be involved in creating the mechanism that will do that," said Kristine Krause, vice president of the environment division of the Milwaukee-based Wisconsin Energy Corp., a CCX participant.
The CCX would enable participants to get credit for voluntary emissions reductions and to buy and sell credits to find the most cost effective way to reduce their emissions. The CCX's stated goal is to reduce participants' greenhouse gas emissions by 5% below 1999 levels over five years. By comparison, the countries that ratified the Kyoto Protocol must reduce emissions of carbon dioxide to an average of 5.2% below 1990 levels during the five-year period 2008-2012.
The CCX will be the first test of carbon trading on a regional scale with global potential. The Midwest is a promising location for starting the market because of its nearly one-fifth share of the U.S. economy and GHG emissions; its mix of manufacturing, transport, energy, agriculture, and forestry sectors; and its extensive international linkages.
Mexico's power demand growth is expected to be 10% per year. To meet that demand, generation capacity will have to grow approximately 71% through 2008.
Jointly organized by the Ministry of Power, Government of India, and Confederation of Indian Industry, the conference will discuss and deliberate issues related to development of hydro, nuclear and renewable-based generation in India.
The conference combines the 2nd International Conference on Renewable Energy and Environment Protection Technologies, and the 5th International Conference on Solar Electricity: Photovoltaics, Wind, and Solar Thermal Technologies.
What are the structural and economic forces driving investment in the alternative energy market? How are the energy majors already benefiting from green energy opportunities and how can your company develop a successful sustainable energy strategy? Get answers to these critical questions and listen to case studies from industry experts such as the European Commission, Enel, BG Group, and Edison.
Hear first-hand experiences and case studies from Calpine, Consolidated Edison Development, Dynegy, El Paso, Enron, and Mirant. Plus, get an update from FERC on the changed political and regulatory landscape, find out about the cost of capital, and identify hidden risks in complex financing structures. Two pre-conference workshops focus on IPOs and Financing Merchant Plants.
Approximately 75 up-and-coming growth companies in areas including distributed generation, emissions control, energy e-commerce, energy information management, power quality and reliability, renewables, virtual utilities and infrastructure will meet with venture capitalists and strategic investors to explore the significant business opportunities in today's electric power sector, one of the most rapidly growing destinations for private equity investment dollars.
Hosted by Interior Secretary Gale Norton and Energy Secretary Spencer Abraham, the national summit will bring renewable energy experts together to discuss the future development of renewable energy resources on public lands.
The purpose of this meeting is to provide an opportunity for a direct exchange of information about the Bank's institutional and project development with the NADB Board of Directors. With that in mind, please note that each person interested in addressing the Board will be asked to limit his/her remarks to three minutes, in order to allow as many people as possible to participate.
The conference will showcase outstanding projects and initiatives in the fields of energy efficiency and renewable energy sources from all over the world and inform about the latest development in energy politics. A special program element is the presentation of the winners of the Energy Globe Award 2002 the prize for sustainable energy projects.
The Electric Power 2002 Exhibition and Conference has been selected by the U.S. Department of Commerce to participate in its International Buyer Program, one of only 28 events chosen and the only one serving the power sector. With this designation, U.S. Embassies and commercial offices throughout the world will actively encourage buying delegations to attend the conference.
Green Green is produced for the Idaho National Engineering & Environmental Laboratory (INEEL) under Purchase Order No. K99-181018 and the U.S. Department of Energy, Assistant Secretary for Energy Efficiency and Renewable Energy, Office of Wind and Geothermal Technologies.
This information was prepared as an account of work sponsored by an agency of the U.S. Government. Neither the U.S. Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not necessarily constitute or imply its endorsement, recommendation, or favoring by the U.S. Government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the U.S. Government or any agency thereof.
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