Green finance has changed under current economic conditions and the lack of much federal action in this direction. Much activity has now centered on state and regional initiatives for renewable and carbon reductions. What has emerged are new models for investment and finance for renewables and cleaner technology in 2011. Investors are interested and projects are moving forward, and now it’s time to see more innovation in environmental financial markets. The Wall Street Green Trading Summit X sets the stage each year for the latest developments in environmental finance. Learn from Mission Markets, Point Carbon, Brown Rudnick, Element Markets, Barclays Capital, Bloomberg New Energy. Crescent Energy, Carbon Trade Exchange, Gensler, Cushman & Wakefield, NextEra Energy and many other environmental financial players on how to invest, trade and profit from these new market opportunities. If you can’t make the conference, we are offering DVDs of the proceedings.

Topics at this year’s summit include:

• Learn how renewable projects are moving forward
• Investigate how trading solutions for emissions and renewables are primed to accelerate in the EU and California
• See the latest innovations in green buildings and real estate
• Learn about what VCs are looking for in green
• Learn why forestry offsets are getting an added thrust in carbon trading markets
• Find out the new market opportunities from 8 green hedge funds
• Find out why water is the new emerging commodity market
• Find out how to reduce the carbon footprint and turn that into money
• Learn about new renewable securitizations

For further information, please go to www.wsgts.com

March 29+30, 2011
Center for Architecture, New York

Can you describe the green trading markets in Europe for us? How active are they, what’s driving them, who participates, How liquid are they?

The green energy trading market in Europe is still an emerging market and it is currently still very segmented. The most liquid and widespread part is of course the EU-ETS. After going through a rough patch in phase 1, the market, as well as the policy makers, have learned a lot and phase 2 is proving to be more successful. Going into phase 3, starting in 2013, the market will be more mature and have improved functional market mechanisms (e.g. easier to value, more stable prices, better analysis: I heard one of the main carbon market analysis companies refer to the carbon price as the ‘teenager’ in the market last year. While you do see a strong correlation between factors in most energy-related commodities, the carbon price over time has shown very little such correlation and seemed to be more dependent on policy issues and current industry updates.)

But this is only one aspect of green power markets. There are also a wide range of national certificate schemes designed to enhance investments into renewable power. These are set up differently from country to country, and many, if not most, are struggling with both transparency and liquidity issues. Currently, Sweden and Norway are having talks regarding developing a joint scheme starting 2012 for green certificates and, if this happens, it will be the first European joint compliance scheme.

Speaking of compliance markets a sizable voluntary market has also emerged since 2001. The GoO is regulated in the RES directive and used for disclosure – not for target counting. That makes the market entirely voluntary. Volumes have been growing steadily even through the credit crunch. Up until now the market has been consistently long but it has now reached critical mass and is likely to achieve market balance some time at the end of this year. This market is bilaterally traded in a large number of European countries and is becoming more and more segmented based on customer demand and national branding local availability.

In addition to this there are tradable white certificates (for energy efficiency) in some countries, and also some yellow certificates (for transportation). Market participants are all member states and countries with bilateral agreements for compliance markets. As for national schemes, the most active seem to be UK, Italy, Poland, , Belgium, France and Sweden (with the potential of joining in with Norway).

The voluntary markets participants are energy suppliers wanting to brand or differentiate their products, industry participants and national governments. Participation seems to be largely driven by customer demand, obligation and profit.

How do you see the future of these markets? What’s needed to help them grow etc.?

Two key factors: regulatory affairs and market liquidity!

Ideally I would like to see 3 joint European schemes, one for lowering emissions, one for energy efficiency and, one to increase the share of renewable power generation. That would support common targets, be understandable to all, and create better market liquidity. Given our regulatory set-up however, that is unlikely to happen any time soon.

Still, I think the key to successful development of the green trading markets is in regulatory affairs. Today we are facing a jungle of green trading instruments, support and taxation schemes. This is leading to lower liquidity and less focus.
Climate change as a policy issue has changed from being very left wing in the 80’s to being very much main stream today. Green trading markets will keep growing and expanding over the years to come.

I think the ETS is making good progress and phase 3 will move away from national allocation altogether and do everything via auction. New industries are being introduced and there are talks of increasing the reduction target from 20 to 30%.
As for the various national schemes and the voluntary markets this has to be a cause and effect issue. All free markets are based on supply and demand. I think the demand side of the market is anxious to see something come out of the different schemes and hear some success stories. The good thing about market based support schemes is that only those that deliver tend to survive over time.

As an ex end user of trading solutions in the green area, how do you currently see the broad capabilities of ETRM software in terms of supporting green trading activity?

ETRM software today has gradually been adopted to the green trading area and all tier 1 solutions have some sort of capabilities in this area. However, there is still a big gap in terms of managing the full scope of green trading. Particularly the “physical” part is very open, which is primarily due to lack of possibilities to integrate with central registries.

But, there is definite room for improvement. The market right now is suffering from too little information, too little transparency and at best varied liquidity. Some of the green trading products are far from standardized, and market intelligence, risk and pricing are areas that are difficult to handle.

And how do you see POMAX as a platform in this area? What does POMAX currently support in terms of the requirements?

Pomax is well positioned among the top tier vendors, with good coverage for both up-stream and down-stream processing related to certificates, carbon and other green products. However, the golden child is to provide full-cycle “physical” trading for emissions and certificates, which is still far from standardised, and in most cases not even possible to fulfill.

How do you see POMAX and Navita developing over the next 12-months as a green trading solution platform and provider?

Navita is currently involved in a R&D project called Energy Trading and Environment 2020. The outcome for the project will be used as a basis in our development of a” green version” of Pomax addressing specific issues in green trading. We are in the project with market players from production companies, trading divisions and observers from the regulator. As green trading is growing at the rate we are seeing right now there will be an increased need for suitable trading solutions to handle this complex mix of financial & physical, compliance & voluntary OTC & bilateral trading environment.
Navita sees this as a opportunity in the market, one that we are excited to be working together with some of our customers and partners to develop.

About Annette Nordskog

Anette Nordskog is Vice-President of Corporate Communications and Project Development for Navita Systems, a technology provider for commodity trading. Recently awarded this position for her strategic industry insight and vast industry network, she is responsible for developing and deploying Navita’s green offers to a fast-growing global trading market, managing its market communications and heading its customer relations.

Late last year, CommodityPoint and Global Change Associates released a report titled Emissions Monitoring & Trading Software sponsored by IHS, Locus Technologies, Navita, Nirvanasoft, SunGard Energy and VisionMonitor. That study found that only 18% of the respondents utilized a commercially provided CTRM solution to handle their emissions trading requirements but that 30% said that they planned to procure emissions trading software in the next 24-months.

Trading emissions is, not surprisingly, increasing and there are a broader array of instruments to trade and exchanges to trade on. While many trade simply to hedge cap exposure there are also signs of increased ‘speculative’ trading with traders seeking to profit from spreads. We expect emissions trading to continue to mature and evolve and increase in sophistication and complexity. In reality, there are two aspects to trading emissions;

• The first is to ensure that the enterprise is adequately covered in terms of allowances with trading of allowances taking place in accordance with its emissions footprint. In essence, this is akin to ‘physical commodity’ trading in that the actual allowances have to be managed and tracked internally and with respect to the registries. It is in this area that we might have expected a need for greater integration between the trade capture solution and the emissions monitoring solution.

• The second is in the trading and risk assessment of emissions instruments in a more speculative trading environment. While most CTRM software solutions can support this requirement to an extent it often also involves some additional and specific functionality if the area of speculation is in CERS from CDM projects for example which again require tracking and managing.

Almost every company, particularly generators and utilities, will need to manage their allowances and ensure that they are adequately covered. This form of ‘emissions trading’ is not effectively covered by many existing CTRM solutions today and is immature from a commercially available software perspective although solutions like that from Allegro, SunGard Energy and IHS do offer significant functionality. Allegro currently is one of the few that can provide functional coverage for both of the requirements above and, with this announcement, it seems to be finding some success.

Note: The above mentioned report may be found available for purchase at http://www.commoditypointstore.com

• The American Clean Energy and Security Act of 2009 (passed by the House Representatives and stalled in the Senate) and
• The Clean Energy Jobs and American Power Act of 2009 (proposed and stalled in the Senate)

Current political events and a still recovering economy strongly preclude the likelihood of these bills or any compromise being passed during 2010. In other words “Climate Change/GHG” legislation is dead until after the fall elections.

However, as proponents’ hopes for climate change legislation dimmed and in the absence of Congressional action, the U.S. Environmental Protection Agency (EPA) has stepped up to the plate. Conveniently timed to predate the Copenhagen Summit, on September 22, 2009, the EPA Administrator, Lisa Jackson signed a new rule requiring facilities to begin reporting GHG emissions as early as 2011. According to the EPA:

“Under the rule, suppliers of fossil fuels or industrial greenhouse gases, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more per year of GHG emissions are required to submit annual reports to EPA. The gases covered by the proposed rule are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF6), and other fluorinated gases including nitrogen trifluoride (NF3) and hydrofluorinated ethers (HFE).”

Following closely on the heels of this announcement, on September 30, 2009, Administrator Jackson announced in a speech that the EPA has “… taken a significant step to address greenhouse gas (GHG) emissions under the Clean Air Act.” The Administrator announced a proposed rulemaking requiring large industrial facilities that emit at least 25,000 tons of GHGs a year to obtain construction and operating permits covering these emissions and that these facilities must use “best available control technologies and energy efficiency measures” to minimize GHG emissions when facilities are “constructed or significantly modified.” This includes power plants, refineries, and factories. According to the Administrator, small businesses would be excluded from these requirements.

Finally, on January 12, 2010, Administrator Jackson announced her seven priorities for the EPA. They are:

• Taking Action on Climate Change,
• Improving Air Quality,
• Assuring the Safety of Chemicals,
• Cleaning Up Our Communities,
• Protecting America’s Waters,
• Expanding the Conversation on Environmentalism and Working for Environmental Justice and
• Building Strong State and Tribal Partnerships.

The EPA’s top 2 priorities involve Clean Air/GHG emissions. EPA’s first step is making emitters begin submitting annual reports on GHG emissions mandatory.

However new environmental regulations are often challenged in court and we expect the EPA’s reporting requirement will witness a similar fate. Groans already being heard about why some industries need to report and others not to report are the first such indications of challenges to come. And Republicans, emboldened by their surprise victory in Massachusetts, are already raising the ante. Last week, Alaska Republican Sen. Lisa Murkowski proposed a “resolution of disapproval” seeking to keep the EPA from regulating GHG emissions. This is a rarely used Congressional action authorized in the Congressional Review Act of 1996. If Sen. Murkowski can get both Houses of Congress to pass the resolution and the President to sign it, then the EPA’s rule will not take effect.

This year’s trend? It’s looking like yet another year of “wait and see” with respect to GHG emissions or “cap and trade” regulation and without clarity, all that’s left for those most likely affected by potential legislation or regulation is to continue reading the political tea leaves. UtiliPoint will continue to closely monitor events in Washington D.C. and at the state level, and will report on important developments.

Against this regulatory and legislative background, two software categories stand to benefit as companies seek to capture their carbon footprint, report on their emissions and trade various instruments to manage their emissions profile and allowances or simply profit from speculative trading in those instruments. Those two software categories are CTRM software for emissions and emissions monitoring software.

Environmental Software

Environmental software is evolving to capture greenhouse gases data for a single facility, as well as across the enterprise. While most companies are still collecting this data on spreadsheets, the day is rapidly approaching when government mandatory reporting requirements will drive significant change in this industry. In fact, we foresee that environmental software solutions should be transparent end-to-end, highly automated and scalable. They should be easily customizable as well and adaptable to changing regulations and standards. Carbon management strategies will need to incorporate changing regulations in its software design.

We undertook a study to determine the present state of the market for this type of software. What we have found is that most companies are not yet capturing greenhouse gas data using software applications. That represents a unique business opportunity on a corporate level to deploy new software technology to existing systems. In fact, both software categories remain somewhat immature lacking the regulatory certainty and impetus to truly take off. The survey that we undertook as the core of the study strongly indicates that this is an emerging yet immature area. While Emissions Monitoring software is attracting investment capital and the interest of larger software vendors such as SAP and IHS, it will take U.S. action to ignite activity in this market.

Currently, there are a large number of vendors participating in the market. As many are relatively new entrants, much of the software benefits by being on modern technologies and architectures and from being offered under cost effective deployment models such as ASP and SaaS. We have attempted in the study report to broadly classify this emerging market and see interest from traditional TRM software vendors, environmental consulting firms, compliance and risk management software providers as well as traditional EH&S suite vendors. The result is a confusing array of potential solutions that offer a variety of different functionalities ranging from monitoring and compliance, through foot printing, trading, registry interfacing and reporting to tracking and management of allowances. Without regulatory certainty, actual required functionality is difficult to pin down.

Environmental Responsibility?

Another issue facing vendors was highlighted by our study. That of where corporate responsibility truly lays for GHG emissions issues. Without a true regulatory impetus many companies may be paying no more than lip service to the issue currently and have not yet created the organizational responsibilities, accountabilities and budgets required.

We believe that once the United States acts, it will prove to be the catalyst to enact global rules and standards that will clear up much uncertainty and start to drive procurement activities in a much more positive manner. The literally tens if not hundreds of potential solutions and suppliers of software in this area will then be forced to rapidly adopt those standards to support their clients and potential clients business processes. As this occurs there will be a natural fall out of vendors who do not survive and new entrants making acquisitions such that the sector will mature reasonably rapidly.

The Clash of Software Markets

In undertaking the study we were particularly interested in the coming clash of the emissions monitoring and emissions trading vendors. In reality, while there will need to be integration between the two types of software, we feel that the evidence suggests that the existing CTRM vendors will have a relatively easy task of adding GHG trading and risk management functionality into their software and will continue to own that part of the business. As the Emissions Monitoring side develops and matures it will naturally leave an area of functionality related to tracking and managing allowances that can be likened to the ‘logistical’ side of managing Carbon. This area will likely be fertile ground for new players such as IHS but may also be tackled by CTRM vendors.

Summary

Our new report examines the current regulatory and legislative position and the drivers behind developing this market concluding that regulatory certainty is required to drive the market to the tipping point. It also then examines the software market itself concluding that both software segments are relatively immature and finally, it provides a list of many of the vendors and products in the space currently.

Our new report, Emissions Trading & Monitoring Software Markets is available for purchase at the CommodityPoint Store (www.commoditypointstore.com) and UtiliPoint websites (www.utilpoint.com).

The study was kindly sponsored by IHS, Locus Technologies, NirvanaSoft, Navita, SunGard and VisionMonitor.

]]> http://www.ctrmblog.com/2009/12/emissions-software-are-we-ready/feed/ 0 http://www.ctrmblog.com/2009/12/cop15%e2%80%94to-be-or-not-to-be-that-is-the-question/ http://www.ctrmblog.com/2009/12/cop15%e2%80%94to-be-or-not-to-be-that-is-the-question/#comments Tue, 22 Dec 2009 10:25:55 +0000 Gary M. Vasey http://ctrmblog.com/?p=27 As many of the world’s leaders arrive in Copenhagen to try to seal a climate deal, the signals emerging regarding progress from COP15 are mixed. Yesterday, the negotiating process was subject to an “unexpected stop,” according to Yvo de Boer, the United Nation’s top climate official and it has indeed been a week of stops and starts as even on Monday, informal talks between the COP15 presidency and developing countries ended a daylong boycott of negotiations, which was apparently caused by controversy over the Kyoto Protocol. There has also been much public talk by those involved of “posturing” and “placing blame on others.” On the other hand, the Danish hosts are said to be preparing a new compromise draft and many of the countries involved have already brought forward substantive voluntary commitments to the table including, for example, Japan’s offer of a total of 15 billion U.S. dollars for climate aid for developing countries through 2012.

The Issues

Many of the issues that have arisen were not necessarily unexpected and include the following in summary:

Emissions
There is a sizeable gulf between the commitments of industrialized nations and what environmentalists and poorer nations would like to see—in particular, a reduction of 40% or more in GHG emissions by 2020. Contrast that to the EU offer to cut by 20% and the U.S. offer to cut by 3-4 %.

Climate Aid
Another large gap between the aid currently offered by richer countries to help developing nations adjust to the impact of global warming and migrate to clean energy (and what most experts agree is actually needed), and developing countries are pressing for.

Monitoring
As was anticipated, a proposal to create a global monitoring agency with powers to levy sanctions against countries not meeting their future obligations doesn’t sit well with some countries including China.

Legal Framework

There is yet an added complication around having to pursue a multi-track approach whereby some countries currently governed by the Kyoto protocol will be handled separately from others who are likely to be included under a separate package. Obligation levels between these will likely be different and some countries favor voluntary goals only.

One area in which progress does appear to have been made is on the preservation of rainforests. U.S. Agriculture Secretary Tom Vilsack said that the United States and five other countries had pledged 3.5 billion dollars over the next three years to a program aimed at protecting rainforests, with the US portion of the commitment equaling one billion dollars. The other countries involved in the agreement are Australia, France, Japan, Norway and Britain.

A Lot of Work Left to Do

119 heads of state and governments are heading to, or have now arrived in Denmark, including President Obama, House Speaker Nancy Pelosi and a large number of U.S. senators. It would appear that they have much work left to do at this point to come to any kind of agreement that isn’t simply a weak compromise. Many observers have expected COP15 to produce a step forward, even if only in the form of a political deal designed to keep the process moving and to provide the United States a framework on which to act politically. However, given that this event takes place against a back drop of difficult economic and political climates in many of the countries involved, including the United States, success, however it is defined, is less than certain.

“Climategate” Lingers

Meanwhile, the lingering impact of “Climategate” still smolders as a UK newspaper reported that a Russian investigation into the affair suggests that much Russian weather data was ignored by the British University researchers in favor of only those stations showing temperature gains-many of which were located close to urban centers or had relocated over the years. Also, The U.S. Department of Energy (DOE) has apparently issued a “Litigation Hold Notice” to its various sub-departments asking them to retain any documents pertaining to the Climatic Research Unit at University of East Anglia as they apparently investigate usage of DOE funding by those researchers.

Summary

As COP15 is in its penultimate day, it would seem that there is much left to discuss and agree by the politicians now arriving in Copenhagen. While there certainly does seem to be a willingness to gain some form of agreement, it may be that the divide on the key issues are still too broad to complete the process at COP15, leading to, at best, some form of interim political agreement of intent to continue negotiations. On the other hand, “where there is a will there is a way” and there may still be time left to produce something substantive.

One thing that the recent “Climategate” episode may have done is to rightly focus more attention on the science that is really the driving force behind the COP15 meeting currently taking place in Copenhagen. Reading through the hacked e-mails published on various blog sites, it becomes obvious very quickly that the rigor and pure approach of science has been totally overwhelmed and compromised by politics and money.

Science should work on the basis of an open, free debate and a fair peer review process. If that is stifled then what we have is neither science nor reliable. What these e-mails show can be summarized as follows:

* The neutral and unbiased approach necessary in science has been replaced with almost a religious fervor that seeks a particular finding at almost any cost including carefully choosing exactly what data is used,
* The data is a mess with, for example, instances of data from recording stations predating that stations inception and, data of unknown quality and origin,
* Avoiding public scrutiny of the data and assumptions even to the point of destroying it,
* The scientists involved appear determined to use their reputations and any available tool to block the peer review process meaning those with a different opinion cannot get published and are subject to having their reputations questioned.

Science or Politics?

The original hypothesis that carbon and other “green house gas” emissions is causing the Earth to warm began as a scientific endeavor, but now appears to have evolved into a political matter where the science is playing second fiddle to other motives. And the reason why it is political and a mess, frankly, may be found in the root of modern politics—money. One only has to look around at this Summit—full of lobbyists with check books. What is required and long overdue is a full and independent audit of climate science and the models used so that the scientists can once again be confident they are operating with accurate information.

As a trained scientist, the one phrase that upsets me most is “the science is proven.” Anyone who has ever practiced scientific method and rigor understands the sheer philosophical ridiculousness of this statement. Science is a process and methodology of observing known facts, creating a hypothesis and then allowing that hypothesis to be critiqued or replaced by your peer group. Scientific theories evolve as a result and from time to time an advance occurs that throws accepted scientific theory on its head!

Let’s examine the science just a little. Let’s start by establishing an indisputable fact and, one that is very important: CO2 levels in the atmosphere have gone up in the last few decades from an upper limit over the last 400,000 years of 300 parts per million (ppm) to 370ppm or thereabouts. Much of this increase is down to man’s activities as it has increased steadily trough time. We are “filling” our atmosphere with CO2.

However, the basis for COP15 and other past climate agreements is based on the assertion that CO2 in the atmosphere causes warming and that we are at, or already have, passed the point of no return such that atmospheric levels of CO2 will cause considerable warming with all the attendant problems—sea level rise, weather changes etc. Actually, I would argue that while evidence indicates this hypothesis could be true, it is still far from unequivocally proven. Furthermore, the archeological and geological evidence data suggests something quite different—that the changes in climate being observed today are quite normal variations in climate and that CO2 has little, if anything, to do with those variations in climate. It is worth noting that climate science actually amounts to developing and estimating climate models. Temperature data is collected and projected into the future with various assumptions about CO2 and temperature changes to see what may happen to the Earth’s temperatures. The results haven’t actually been very accurate and it is only one of many possible methods for looking at the earth’s climate. For example, tree ring data suggests that the Earth’s atmosphere could be cooling. At other times, the rush to publish has opened the results to ridicule as in the case last year when it turned out that a sudden spike in global temperature was simply due to an error rolling over Russian temperature data.

Climate History and Observation

The Earth’s average temperature changes frequently though time as does the atmospheric CO2 content. In fact, recent observations regarding climate change are still geologically well within the bounds of very normal for our planet. But perhaps even stranger is the historical relationship between CO2 and temperature where you may be surprised to learn that temperature rises and falls actually precede CO2 increases and decreases. The observable evidence tends to suggest that historically much of the geological climate change has little to do with CO2 content of the atmosphere. Consider that 460 million years ago, CO2 concentrations were 4,400 ppm while temperatures then were about the same as they are today. Ice core data show that both temperatures, and with around an 800 year lag time, CO2, have been increasing for the last 18,000 years—long before man was around to have any influence. It’s strange but climate change advocates continue to use this ice core data suggesting that it shows that CO2 is causing temperature rises when this was long ago shown to be false.

Another aspect of the inability to debate the science is the lack of understanding of time. “But, I see it with my own eyes—the glaciers are melting,” said the Greenpeace demonstrator I met outside of COP15. The problem is that the Earth and its processes are very complex and that one must look at these things in geological time, not a decade or single human life span! This planet has had no polar ice on many occasions and the Earth’s temperature and CO2 levels today have simply reached levels similar to a previous interglacial cycle of 120,000 – 140,000 years ago. We have been here before in the geologically recent past and man wasn’t there at the time to be held responsible.

Summary

Does any of this prove the argument for or against? In my view, not yet—more research is required and that research needs to be open and subject to scrutiny and debate. In the meantime, COP15 moves on and this week approaches the difficult task of reaching actual agreement. It may be that discussing the science is irrelevant now so far as COP15 is concerned. Public opinion has shifted to one of demanding action, and while this may be a case of “if you tell the people often enough something is so, they will believe it.” I would like to see that full and independent audit and debate around the science.

As for COP15? Well, if we take the view that CO2 is a pollutant and that the Earth has finite resources, then shifting our paradigm to a greener and less polluted future isn’t such a bad thing.

A City on a Mission

Walking through the airport, one is greeted with the anticipated billboards and posters advertising COP15 and, the many household name firms who desire to be associated with it, but it is lower key than might have been expected in keeping with this city’s apparent image. Arriving at my hotel, I am handed two 200kg CO2 retirement certificates purchased on my behalf by the hotel which claims to be a part of the first Carbon neutral hotel chain, and provided with a small brochure which highlights all of the events and exhibitions associated with the Conference. And yes—Al Gore is in town! COP15 is definitely a show replete with pop band entertainment and pop politicians—but it is also deadly serious business.

Last night I visited “Hopenhagen,” an exhibition in the Square outside of City Hall. Lit up in bright green and featuring a huge Earth Globe that displays facts about climate change, the exhibition is difficult to miss. Here you can learn a great deal about many of the issues that the United Nations Conference is facing and it is symptomatic of the way that the city has tried to bring the importance of the conference to its citizens in both a fun and informative manner. Indeed, almost every square and available public space in the city includes an exhibit which range from the top 100 sights that may be threatened photograph exhibition to large tree stumps on display from the Amazon rain forest.

Conference Update

This morning I headed out to the conference itself where yesterday’s main news was the release of the World Meteorological Organization’s annual findings which suggest that this decade has been the warmest on record and 2009 will most likely be the fifth warmest year ever recorded. The organization noted that above normal temperatures had been recorded on most continents in 2009 with North America being the exception.

I was greeted by small and friendly demonstrations by both Greenpeace and groups from African nations who demand that the polluting nations pay to help them develop in a CO2 constrained environment. This is really one of the challenges before the conference—how to fund the developing world’s requirements under any new agreement and it is one that has already caused issues as the UK’s Guardian newspaper published what it purports to be a Danish compromise draft of a final agreement which didn’t sit well with leaders of developing economies. China has also criticized U.S. and European Union CO2 reduction proposals as being insufficient. However, the UN Secretary General remains confident that an “historic and robust” agreement will still be reached. Today, the U.S. Environmental Protection Agency Administrator Lisa Jackson delivers a keynote address and Climate Action Network Europe, a group of European NGOs, presents an update of developed countries’ targets for reducing emissions, among other speakers.

The EPA Leads the U.S. Efforts

The EPA has given President Obama a new way to cut back on greenhouse gas emissions by determining that scientific evidence clearly shows they are endangering Americans’ health. That means the EPA could regulate those gases without the approval of the U.S. Congress. “We need legislation” to remove any uncertainty that businesses might have, Jackson said. “The reason for legislation is to take that question out of their minds …we will work closely with our Congress to pass legislation to lower our greenhouse gases more than 80 percent by 2050.” Jackson also stated the United States would take “reasonable efforts” to cut emissions. Indeed, CommodityPoint’s just released Emissions Trading and Monitoring software study performed in conjunction with Global Change Associates, demonstrates that most companies are awaiting “regulatory certainty” before acting and many U.S. firms have yet to get started on inventorying their CO2 sources and emissions.

In reality, the real work of the conference will only take place at the high level discussions scheduled for next week and to be attended by President Obama and many other of the world’s leading politicians.

Tonight I will be attending one of the many “side events” here in “Hopenhagen,” which I will cover in my next IssueAlert article.

Understanding COP15—The Kyoto Protocol

The Kyoto Protocol agreement was made between the 182 Parties of the United Nations Framework Convention on Climate Change (UNFCCC) and agreed upon at the third Conference of the Parties (COP3) in December 1997 in Kyoto, Japan, coming into force on February 16th, 2005. Its first commitment period ends in 2012 and COP15 is hoped to result in new agreements that will come into force when the current Kyoto Protocol agreement ends.

The major point of Kyoto was that it set binding targets for 37 industrialized countries and the European Community for reducing greenhouse gas (GHG) emissions as the signatories agreed to reduce their greenhouse gas emissions by at least 5 percent compared to the 1990 level. However, several of the world’s largest CO2 emitters, such as the United States and key developing countries including Brazil, India and China, did not sign up and have not yet officially committed themselves to any fixed targets to reduce greenhouse gas emissions.

The Kyoto Protocol offered three market?based mechanisms through which the committed countries could reach their reduction goals:

* Emissions trading—countries could trade the quotas they had been allocated,
* Joint Implementation (JI)—a developed country could receive “emissions reduction units” when it helped to finance emission reducing projects in another developed country,
* The Clean Development Mechanism (CDM)—developed countries could finance their emission reduction or removal projects in developing countries and receive credits for doing so which could then be applied to meeting mandatory limits in their own emissions.

For both JI and CDM projects, independent bodies must verify that the projects do in fact lead to actual emission reductions prior to them being incorporated in the emissions account. The aim of the mechanisms was to encourage green investment and help the parties meet their emission targets in a cost?effective way.

What Are the Objectives of COP15?

The goal of COP15 is to enter into a further binding global climate agreement which will apply to the period after 2012. The Danish government’s ambition is for the agreement to include as many countries as possible and it has presented the following objectives as the hosting nation for COP15:

* To get all the world’s countries to agree on a global target for the reduction of greenhouse gas emissions,
* To get the world’s industrialized countries to take the lead and reduce their CO2 emissions significantly, while the world’s newly industrialized countries and developing countries contribute to a collective solution,
* To agree on a global climate regime that does not restrain economic growth and does not distort competition in world markets.

In reality, this can be summarized as follows:

* Carbon emissions—The objective is to reduce carbon emissions from 390 parts per million of CO2 in the atmosphere to 350 parts per million meaning that an agreement must be reached to reduce CO2 by 20 to 30 percent of the 1990 levels by 2020 and by 75 to 80 percent by 2050. COP15 is looking to obtain a binding multilateral agreement on the size of these CO2 reductions.
* Global warming limit—It is hoped that the countries will agree to limit the warming of the earth to no more than two degrees Celsius by 2099. CO2 reductions, reforestation and a switch to green energy and green technologies are seen as vital components in any strategy to fight global warming.
* Creation of a fund for developing countries—The fund would help to support developing countries support CO2 reduction initiatives. While the EU has suggested that this fund needs to be at least $100 billion each year for the foreseeable future, some are suggesting that this amount is insufficient and needs to be considerably higher.
* Technology transfer—A transfer of technologies and expertise freely around the world that will help accelerate the adoption of clean energy and sustainable technologies.
* International governing body—the establishment of an international governing body to monitor compliance and intervene where necessary directly.

The consensus of opinion is that an agreement will be difficult but that COP15 will eventually result in an agreement of some kind is virtually certain. Some of the challenges in reaching an agreement are likely to include;

* Despite President Obama’s administration’s statements on COP15 and his presence there, the US is not yet able to make any firm commitments,
* There remains an impasse between the developed nations and the developing nations about both the impact of CO2 reductions on economic growth and on the need for these economies to develop,
* The role of the multilateral agency in monitoring and enforcing the treaty to be agreed in Copenhagen will be an especially sensitive issue.

UtiliPoint will be at COP15 in Copenhagen this week and we will report in some special IssueAlert articles over the next few days on both the Conference and some of the side events and exhibitions there.