The reduction of emissions is a global goal affecting practically every industry in every country. With new measures like the EU Emissions Trading Scheme, which became active in January 2005, and the Kyoto protocol, which becomes legally binding Feb 16, 2005, there has never been a more important time to receive incisive information on emissions trading. Platts Emissions Daily analyzes the market for you, providing news and features on issues that will influence both daily trading and long-term development, giving you the inside track on emissions trading around the world.

With experienced journalists based in London and Washington covering all the daily activities in the European, Asian and North American emissions markets, Platts Emissions Daily will bring you concise daily news direct to your desktop.

Click on the pdf icon below to download the first issue of Emissions Daily from Feb 23 for free.

Below is a selection of news stories written by Platts journalists in the run-up to the Feb 23 launch of Platts Emissions Daily.

Feb 21
Germany's emissions trading office receives over 800 objections to NAP

Feb 18
Bundled coal/emissions product mulled
Flawed emissions allocation process can't be fixed by 2008: EC
Northeast players weigh carbon-cutting options
Bush air bill stymied in US Senate for now

Feb 17
Kyoto Protocol comes into effect Feb 16

Feb 16
EC says too early to set post-2012 Kyoto emissions targets
European Emission Trading Scheme to push long-term electricity prices up 30%: UBS Warburg

Feb 15
UK says it will give out allowances despite EC plan rejection
Emissions market hails NYMEX move
EU ETS ‘unlikely’ to reduce CO2 emissions, says report
CO2 limits bring mixed prospects to Europe’s power sectors
Bush budget holds coal program harmless
Calpine is first to report GHGs to California registry

UK says it will give out allowances despite EC plan rejection
London (Platts)--15Feb2005
The UK's Department for the Environment, Food and Rural Affairs announced Feb 14 that it will proceed with its amended National Allocation Plan, despite the European Commission's rejection of the plan. A statement from DEFRA said "The Government is now announcing how 756-mil allowances would be allocated at [the] installation level in line with the proposed amendment submitted to the European Commission." "Discussions with the commission are continuing as the government believes that the proposed amendment to the NAP is compatible with the requirements of the EU ETS legislation. The government continues to press the UK's case with the commission and is taking steps to protect its legal position." The EC approved the UK's first plan in July 2004, but the UK revised the plan to increase the allocations by almost 20-mil mt after the power generation industry spotted mistakes in the way the energy projections had been made. "The UK asked for a considerable increase in allowances after the period for revisions had expired," said an EC spokeswoman. "The UK could have gone to court to challenge the EC's approval during this period but it chose not to." There is now no legal way of changing the plan, she said. Under the EU emissions trading law, all member states must allocate their allowances into national registries by Feb 28. "The UK has said it will launch its emissions trading scheme sometime this week," she said. "If the UK gives the allowances agreed in the July plan, good. If not, it's illegal." The UK government did confirm that any allocation below 756-mil would be achieved by reducing the number of allowances given to the electricity generation sector. This should give industry confidence in the government's intentions, and allow them to plan accordingly, the statement added. Emissions market sources expressed surprise that the UK had decided to ignore the EU's rejection of its NAP and extending the uncertainty for UK companies, some of which would be expecting to book their emissions allowances as assets in the coming month.

Emissions market hails NYMEX move
Washington (Platts)--15Feb2005
Players in the US emissions market are praising a NYMEX decision to offer services on sulfur and nitrogen allowances as another step toward improving market liquidity. NYMEX announced this month that it plans to allow SO2 and NOx deals on its ClearPort system this year. That means companies can use the NYMEX as a trading platform for SO2 and NOx allowances or to clear their emissions transactions. “I think I can safely say it will happen in the first half of this year,” said NYMEX Spokeswoman Anu Ahluwalia. Traders appear heartened by the announcement. "NYMEX does offer information on power, and any time you have them expanding into our market, that's going to create opportunities for people who may be using other products to take a second look at emissions,"; said Matt Most, a member of the Emissions Market Association board of the directors. Most said the NYMEX may also give dormant emissions market players with credit concerns additional assurances about the value of SO2 and NOx allowances. In order to do business on the NYMEX, a party must meet credit requirements. Emissions brokers also applauded the news. "It may make the emissions markets more liquid,"; one broker said. "After all, it's a financially settled instrument." Market observers agreed. "I think it's real good for the market and will tend to make it more transparent," an environmental lawyer said. The 1990 Clean Air Act created SO2 and NOx allowance trading to cut emissions causing acid rain and ozone, which harm the environment and human health. Under the trading program, US power plants and refineries receive a gradually decreasing allotment of allowances. If they install state-of-the-art air pollution controls or switch fuels to cleaner burning coal and/or natural gas, they can sell surplus allowances. Companies that forgo the installation of pollution controls may buy allowances as needed to comply with emissions caps. SO2 prices in the US market more than tripled last year, creating at least $170 million in spending by traders. Prices have hovered around $700 a ton recently, soaring to the point that emissions costs were cited as a factor in low third-quarter earnings in 2004 for Cinergy Corp, an Ohio-based utility that burns mostly coal.

EU ETS ‘unlikely’ to reduce CO2 emissions, says report
London (Platts)--15Feb2005
Europe’s Emissions Trading Scheme is unlikely to lead to a reduction in carbon dioxide emissions, according to a new report issued Monday by Global Insight. According to the economic analysis group, "oil and gas prices are at levels at which coal remains highly competitive, even taking into account current CO2 prices". The report focused on the power sector in Western Europe and concluded that, based on current estimates and forecasts of CO2 prices, power sector emissions are likely to remain unchanged from levels in 2004. The report also pointed out that forward coal prices are falling faster than forward gas prices, which may result in even higher emissions as power generators continue to burn cheaper coal during Phase One (2005-2007) of the ETS. Global Insight principal Trevor Sikorski commented, "The generous level of National Allocation Plan credits, and the rules of the EU ETS that allow market participants to import CO2 credits from outside the EU, mean that the price of CO2 is largely independent of movements in the relative prices of gas and coal." Looking forward to Phase Two of the ETS (2008-2012), Sikorski said the situation will not improve: "Continuing growth in power demand and the net retirement of low carbon emitting forms of generation (nuclear) means that even with improvements in energy efficiency, higher CO2 prices and a higher level of fuel switching between coal and gas, emissions are not forecast to reduce." The report forecasts that UK power prices are likely to react the most to the advent of carbon emissions trading; given that CO2 emissions allowances are given to companies free of charge and constitute a tradable asset, power generators will weigh up the relative values of emissions allowances versus their fuel costs. If there is more revenue to be gained by selling gas and allowances than by generating power, UK companies have the greatest flexibility to do so, as they benefit from a liquid and active spot gas market. Sikorski concluded that UK power prices are therefore reflecting CO2 costs, whereas on the continent, where there is less of a spot market for natural gas, power generators are less able to monetize the value of emissions allowances and so CO2 costs would not be reflected properly in power pricing.

CO2 limits bring mixed prospects to Europe’s power sectors
London (Platts)--15Feb2005
While Europe's power sector is generally regarded as being short on emissions allowances for the first phase of the allowance trading system, individual countries are facing widely varying prospects. According to IXIS' analysts Céline Chérubin, Philippe Ourpatian and Franck Bataille, several of the larger countries have been generous in delaying the full impact of Kyoto’s emissions reduction targets till phase two (2008-2012), while others face a difficult task to meet the phase one (2005-2007) targets laid down by the EU. Speaking at the launch of the European Carbon Fund in London last week, Bataille said Germany's electricity sector, for example, produced some 322-mil mt in carbon dioxide emissions in 2002, and faces an average annual CO2 allocation of 309-mil mt in 2005-2007, representing a cut of just 4%. Over phase two, emissions of German power companies will have therefore to be cut by a further 9.4% in order to reach the Kyoto target of 280-mil mt. The UK's power sector produced CO2 emissions totaling 157.6-mil mt in 2002, and needs to reduce this total by 8.8% by 2007. However, the UK's Kyoto target for 2012 is 173.7-mil mt. Although the UK power companies achieved their goals before the system started, Bataille said, the British government has delivered a harsh target for an already over-performing industry, in order to complete the move away from coal-fired generation. Nonetheless, the British government has been seeking to increase its National Allocation Plan by almost 20-mil mt, and is expected to announce the results of its negotiations with the EU this week. France's power sector, due to its heavier nuclear base load, has already seen carbon dioxide emissions dip below both the 2007 and 2012 targets, and as a result has scope for modest increases in CO2 emissions. The two countries that face the biggest challenges are Italy and Spain, according to Bataille. Spain's power industry saw CO2 emissions leap 55% between 1990 and 2002 to 96-mil mt. The sector needs to cut this total by 10% by 2007, but phase two sees an even tougher reduction target of a further 18%. Bataille called this "postponing the problem," but acknowledged that Spain’s large proportion of hydro generation is a key variable. In contrast, the Italian power sector has been set a target that allows for an increase in emissions of 14% between 2001 and 2007, before slashing CO2 output by nearly 27% in 2008-2012. Italy's main power generator ENEL is heavily reliant on more carbon-intensive fuels, and its plants are mostly old and relatively inefficient compared to the newer technologies available. However Brussels has not approved the NAP proposed by the Italian government and is looking for a new NAP more in line with Kyoto's objectives, Bataille believes the renegotiated NAP will seek a reduction in carbon emissions in 2005-2007 in order to show at least a stabilization on the 1990-2007 period. The various NAPs are also raising the prospects of a renewed interest in nuclear generation as a cheap, reliable and relatively clean alternative to fossil fuel-powered plants. According to Bataille, other European countries may reconsider their energy policies as Finland did. A new 1,600-MW nuclear unit is being built there. For example, the UK government is believed to be revisiting the matter after making a firm decision in the 1990s not to pursue new nuclear units.

Bush budget holds coal program harmless
Washington (Platts)--15Feb2005
Low-emissions coal technology was among the few domestic programs spared funding cuts in President George W. Bush's $2.6 trillion US federal budget for fiscal 2006. The Department of Energy budget includes $50-mil for Bush's Clean Coal Power Initiative and $18-mil for a zero emissions coal plant, dubbed FutureGen by the administration. Those figures mirror the clean coal funding sought by Bush last year. Since 2003, DOE has funded 10 clean coal projects targeting "an array of new clean and cheaper concepts for reducing sulfur dioxide, nitrogen oxide and mercury,” according to an agency statement on the budget. DOE spokesman John Grasser said the new FutureGen funding request would put the project on track for the $1-bil budget envisioned by the president when he announced the effort two years ago. When Bush first launched FutureGen, the Department of Energy had no funding for the first year of the program. Agency officials managed to direct some funds to the effort internally. The Bush administration tried to make up for the shortage of near-term FutureGen funding with a $257-mil request in future monies for the project. The President in 2002 had pledged to break ground on a zero-emissions power plant within five years. That timeline has since been extended to at least 2010. A major attraction of FutureGen is its focus on capturing carbon dioxide, the most prevalent greenhouse gas, and creating hydrogen for fuel. The program aims to "establish the capability and feasibility of co-producing electricity and hydrogen from coal with essentially zero emissions," DOE states. The effort includes "carbon sequestration and gasification combined cycle technologies, both integral components of the zero emissions plant of the future," according to the agency. Grasser pointed out that if Congress approves the Bush budget, DOE's carbon storage program would see a $22.2-mil increase to $67.2-mil. The budget submitted last week does not include funding for the Iraq war or Social Security entitlements; funding for those programs could swamp domestic spending plans. Despite Bush's support for clean coal spending, the slow pace of the FutureGen project has frustrated industry officials who criticize the White House Office of Management amp; Budget for foot-dragging. "The ball is in OMB's court," said Battelle's Ken Humphreys, who is coordinator of the FutureGen Industrial Alliance. "OMB will decide if the president's initiative succeeds or fails." The alliance includes some of the largest US coal-fired utilities and coal producers. In a FutureGen schedule the department issued in March 2004, DOE was supposed to identify candidate sites and begin preliminary design of the facility by the end of September. The department had pledged to spend $4-mil on the site design and was expecting $2-mil from an industry consortium. So far, no site has been chosen and industry has not provided its share. US environmental groups claim most federal clean coal funding is for sub-par air pollution control technologies. FutureGen aside, the program continues to subsidize technologies such as coal sprayed with latex over integrated gasification combined cycle technology, said John Stanton, a National Environmental Trust lawyer. IGCC cuts SO2, NOx and mercury emissions to 90-95 % below current levels, according to ConocoPhilips. The Bush administration will "embrace IGCC technology if it happens to unfold cosmically," but has no clear vision for making it widely used, Stanton said. Consequently, IGCC is forecast to be more expensive than constructing new nuclear power plants, he added.

Calpine is first to report GHGs to California registry
Washington (Platts)--15Feb2005
Calpine Corp of San Jose, California, has become the first independent power producer to publicly report its greenhouse gas emissions, the California Climate Action Registry announced Feb. 11. The registry certified the company’s GHG inventory. Calpine reported generating more than 6-mil mt of CO2 emissions in California in 2003, the most recent year for which data was available, and exported more than 5.9-mil mt in the form of power, the registry indicated. Calpine also reported a total energy efficiency metric of 591 lb of CO2 per MWh. According to a registry spokeswoman, Calpine used a new metric which will not be required until 2006, and there will be no way to judge how well the company is doing in efficiency until other companies use the same measurement method. "Over time, this efficiency metric will be one way of tracking how efficiently a power company is operating," the spokeswoman said. Neal Pospisil, Calpine's vice president of safety, health and environment, who oversaw the reporting effort, said having a third party certifying its GHG inventory ensures that Calpine's reporting meets objective and uniform standards. Last year, the company committed itself to limiting its investments to low-carbon power generation. Calpine generates geothermal power at The Geysers, one of the world's largest geothermal fields in production, and it generates power with natural gas at close to a dozen plants of varying size in California. The registry was created by the state of California as a non-profit public-private partnership to encourage early reductions of GHGs.

EC says too early to set post-2012 Kyoto emissions targets
London (Platts)--16Feb2005
It is too early to set specific European Union medium to long term emission reduction targets, EU environment commissioner Stavros Dimas said last week. "We are recommending to the European Council not to have post-2012 EU targets at this moment," Dimas said. "We don't want to create problems in our negotiations with other countries." Last spring the European Council of EU heads of state asked the EC to analyze the costs and benefits of potential medium and longer term emission reduction strategies, including targets, in preparation for a debate at this year's spring Council. But the EC concluded that setting targets was secondary to building broad international support for more action. "We need to find a way to re-engage the US," Dimas said. Involving major developing emitters such as China and India was also key. The EC recommended that any EU commitments beyond 2012 "should depend on the level and type of participation of other major emitters." The EC is to discuss climate change with US President George Bush during his Feb 22 Brussels visit. The EC said it planned to pay particular attention to energy efficiency, renewable energy and carbon capture and storage as part of its 2005 European climate change program. It plans to review progress and explore new actions "to systematically exploit cost effective emission reduction options." It also wants to remove obstacles to using existing or promising new environmentally friendly technologies and pursue initiatives such as assessing the potential of an EU market for green certificates. Any post-2012 strategy should keep market-based and flexible instruments such as emissions trading and the clean development mechanism, which allows EU companies and governments to gain carbon emission reduction credits from investing in low carbon projects in developing countries. The EC also wants to see prices that reflect environmental costs, and the abolition of environmentally harmful subsidies and tax cuts, for example for solid fuels or aviation. The power sector's need to renew and expand over the next 30 years is an opportunity to reduce longer term CO2 emissions. The EC wants a stable, long term policy framework in place as soon as possible to encourage the power industry to take account of climate change policy in its investment decisions. Europe is forecast to need to install about 700GW of electricity capacity-- equivalent to today's installed capacity--by 2030, at an estimated cost of Eur1.2 trillion ($1.5 trillion). The EC recognises that fossil-fuel based energy industries can expect higher compliance costs from a low carbon policy regime. But it sees as likely increased demand for renewable energy, including energy crops in agriculture, and nuclear electricity. "Energy-intensive sectors (chemicals, iron and steel, building materials) will face higher compliance costs, while producers of abatement equipment (energy-saving technologies, carbon storage) will benefit in relative terms," said the EC.

European Emission Trading Scheme to push long-term electricity prices up 30%: UBS Warburg
London (Platts)--16Feb2005
Investment bank UBS Warburg believes the European Emission Trading Scheme will push long-term electricity prices up 30%, the bank said in a note Tuesday. The bank said the price of carbon dioxide allowances was already reflected in electricity prices in competitive generation markets, with UBS estimating the current carbon premium to be about Eur2.00-3.00/MWh, moving to Eur4.00-5.00/MWh in the summer as lower loads push coal to the margin. UBS said it expected the premium to grow further from 2008. "We have modeled the marginal cost of CO2 abatement for 2005-2015 and forecast flat CO2 prices for the next one to two years, signaling no significant additional electricity price impact in the short term," said UBS. However, it forecast CO2 prices to gradually increase from 2008, reaching the "end-game" equilibrium in 2013-15. UBS said it expected an increase in profits but also volatility. The bank added that price increases were expected to directly feed through to improved margins as long as generators receive most of the allowances they need for free. The bank's analysis also found the CO2 price correlates with the oil price, magnifying the expected generation price volatility. Furthermore, UBS expects northern European utilities, in particular German and Czech utilities, to benefit more than southern European utilities. "We think it is more likely that the CO2 price will be internalized into electricity prices in those markets, and we expect compliance costs to be lower," said UBS.

Kyoto Protocol comes into effect Feb 16
London (Platts)--17Feb 2005
The Kyoto Protocol, the world's most far-reaching environmental treaty, took effect Wednesday at 0500 GMT with 34 industrialized countries legally bound to slash pollution causing global warming.

"It enters into force today," Seth Osafo, senior legal adviser at the UN Framework Convention on Climate Change, Kyoto's parent treaty, said.

Japanese Prime Minister Junichiro Koizumi issued a statement celebrating the treaty. "We sincerely welcome that the framework in which the world will cooperate to stop global warming has finally come into effect," Koizumi said. "From now, we have to build a system in which more nations will work together under the common framework to stop global warming," he said.

The treaty requires industrial countries to cut carbon-dioxide gas emissions by an average of 5.2% before 2012 compared with their 1990 levels, with targets set individually for each nation.

The developing world has no obligations under the treaty, which was rejected by the US in one of President George W. Bush's first acts after taking office in 2001. Australia is the only other major industrial country which has rejected Kyoto. Australia and the US together account for 30% of global greenhouse-gas pollution. After the US withdrawal, Kyoto could not come into effect until the ratification last year by Russia which ensured that an adequate percentage of industrialized nations' pollution producers were on board.

The US rejected the Kyoto Protocol for "good reasons," but America has been a leader in pushing the science of climate change, White House press secretary Scott McClellan said.

Talking to reporters Tuesday, McClellan said the Bush administration had made an unprecedented commitment to trim the growth of greenhouse gases without moving to curtail America's economic growth. "We are continuing to move forward in an aggressive way to address climate change. It is a serious matter; it's a matter that this administration takes very seriously," he said.

"There's a lot that we are still learning about the science of climate change, but this administration is working to advance that science and to learn more about climate change, itself, and its effect on the world."

Britain's Prime Minister Tony Blair said he was determined to pull the United States "back into dialogue" over the need to tackle global warming, as the Kyoto treaty on climate change took effect.

Speaking on British television Wednesday, Blair renewed his commitment to involve not only the United States, but also China and India, in the dialogue during Britain's presidency this year of the G8 group of industrialized nations.

It was important to have China and India signed up to the Kyoto protocol "because they will be the big economic players" in several decades, Blair said. But Blair faces criticism at home and abroad following the UK's decision to implement its own updated national allocation plan for emissions trading, a decision which the EU called "illegal" and promised to fight.

Campaigners from environmental lobby group Greenpeace disrupted trade on London's International Petroleum Exchange Wednesday to mark the coming into force of the Kyoto Protocol, a Greenpeace spokeswoman said.

"We decided today with Kyoto coming into force we wanted to stop oil being traded," the spokeswoman said. Around 35 volunteers got onto the trading floor of the IPE, home to benchmark futures contracts for Brent crude and European gasoil, and disrupted trade, releasing helium balloons and sounding foghorns, the spokeswoman said.

One Brent broker said activists had chained themselves to railings at the premises. An IPE official said open outcry trade was suspended but that Brent was continuing to trade on the exchange's electronic platform.

Germany marked the implementation of the Kyoto Protocol with a rebuke to the United States for its uncontrolled greenhouse-gas pollution and a call to the European Union to deepen its planned emissions cut.

German Environment Minister Juergen Trittin, in a videotaped address to ceremonies that ushered in Kyoto as a UN treaty, said "The window of opportunity in which compliance is still possible will close in 10 to 20 years," and urged a switch to cleaner energy sources and better building insulation.

"We cannot afford to be inactive. We have to reduce global emissions by around 50% by the middle of this century," Trittin, a member of the Greens environmentalist party, said.

Trittin called on the EU to reduce its emissions by 30% by 2020 as compared to 1990, the benchmark used for Kyoto. "To this end, Germany is willing to double its efforts and save another 200 million mt of greenhouse gases. We would reduce our emissions by 40% by 2020. Unfortunately, the European Commission is not as bold as we would hope."

Kyoto requires industrialized countries which have signed and ratified it to trim output of six carbon gases that linger in the air and trap solar heat instead of letting it radiate back into space.

Trittin claimed that already 200 million mt of carbon pollution had been saved by Germany each year, and the country was "only a few percent away" from its 2012 target.

Trittin had tough words for the United States, the world's No. 1 carbon polluter; "We must also reincorporate the USA into the international climate protection process," Trittin said. "The world's largest emitter of greenhouse gases must face up to its responsibility. It is unacceptable to me and for the climate that despite the same quality of living the annual per-capita emissions of greenhouse gases in the USA is two and a half times the level in Europe."

Canada will host the next round of negotiations on the Kyoto Protocol, the UN Framework Convention on Climate Change (UNFCCC) announced on Wednesday. The conference will take place in Montreal from November 28 to December 9, in response to an offer from Canada, the UNFCCC, which is Kyoto's parent organisation, said in a press statement.

It will be the first "Meeting of the Parties", or MOP, since Kyoto took effect, and is expected to broach some of the toughest political issues on the climate-change agenda. Croatia said Wednesday that it was not yet ready to ratify the Kyoto Protocol, the landmark treaty requiring cuts in gas emissions that cause global warming, insisting on lighter terms for its implementation. Croatia must ratify the treaty before it enters the European Union, a goal it hopes to achieve by the end of the decade. "Croatia signed the Kyoto Protocol in 1999, but did not ratify it due to...a request for an increase of its output for the starting year (1990)," the country's environment ministry said in a statement.

Under the treaty which came into effect Wednesday the Balkan country is to reduce its output of greenhouse gas emissions by 5% by 2008-12, compared to 1990 levels. However, Zagreb is asking for a new calculation, claiming that the output attributed to Croatia for 1990, when the country was still part of the Yugoslav federation, is too low.

"Unless the request is fulfilled, the implementation of measures to reduce greenhouse gas emissions would seriously endanger economic growth due to the large investments it requires," the ministry added.

The Kyoto Treaty will cost Ireland no more than Eur42-mil a year up to 2012, Irish business group IBEC said Wednesday. In a statement issued Wednesday, IBEC said contributions from many commentators were unbalanced, inaccurate and misleading and had not helped a clear understanding to develop on the key issues.

In 1997 Ireland agreed to limit emissions of CO2 to 60.1 million mt by 2012, or 13% above 1990 levels. In 2003, the last year for which figures are available, emissions stood at 66.7 million mt, or 24.7% above target.

More positively, emissions have fallen by a total of 5% in 2002 and 2003. Countries that fail to meet their target will be required to buy allowances equivalent to their excess emissions from the open market.

According to IBEC, assuming no further progress is made from the current position, Ireland would be required to buy 6 million mt per annum. At current prices this would cost Eur42-mil a year.

Bush air bill stymied in US Senate for now

The panel was scheduled to vote on the legislation, originally put forth by US President George Bush and dubbed the Clear Skies bill, that would require power plants to cut sulfur, nitrogen and mercury pollution by an average of 70% over the next 13 years.

But Chairman James Inhofe, an Oklahoma Republican, convened the EPW panel for the vote only to announce it was being delayed for two weeks. That suggests changes he made to the bill late Feb 14 to persuade one or more opponents to switch sides failed to do the job. "A lot has happened since last night," Inhofe said after he announced the delay. "We need to have time to determine if there is a middle ground." The committee is believed to be deadlocked over the bill, which is strongly backed by the Bush administration and the electric utility industry.

The last-minute changes included incentives for state-of-the-art emissions technology for coal plants and provisions mandating new climate change research, which Inhofe had hoped would persuade Democrats or Lincoln Chafee, a moderate Republican from Rhode Island, to support the bill.

But Thomas Carper, a committee Democrat from Delaware, said approval of the bill was useless without assurances that the new provisions would be supported by a majority of House lawmakers. In the past, influential House Republicans such as Energy & Commerce Committee Chairman Joe Barton have refused to support any bill with climate change mandates.

If Inhofe is ultimately unable to get the Clear Skies bill passed by his committee, the US Environmental Protection Agency plans to issue rules virtually adopting the emission cuts in the bill.

EPA is required by a lawsuit settlement with environmentalists to issue a mercury rule by March 15. The agency angered environmentalists in 2003 when it proposed to set up an emissions trading program for mercury based on the successful SO2 and NOx trading systems enacted by Congress in 1990. Groups including the Natural Resources Defense Council claim allowing utilities to trade mercury emissions allowances under an industry-wide cap rather than mandating reductions of the toxic metal at each plant will create pollution "hot spots." The Clear Skies bill as written by Inhofe would require EPA to take steps to address this problem under a mercury trading program, a provision opposed by the White House, a Bush administration official said.

Although mercury trading is EPA's preferred approach, the agency is still considering whether it should require minimum mercury reductions at every power plant to avoid hot spots, this official added.

No matter what approach EPA takes on mercury, environmentalists and industry officials believe the chances of lawsuits challenging the rule are high.

It is unclear whether EPA will stick to its plan to issue a separate SO2 and NOx rule imposing cuts similar to Clear Skies with the mercury rule. Barring the approval of Clear Skies by Congress, utilities have called on EPA to issue new SO2, NOx and mercury rules together in hopes of avoiding regulatory uncertainty.

Northeast players weigh carbon-cutting options
New York (Platts)--18Feb 2005
A CO2 emissions trading program in the nine northeastern US states can be designed to impose modest costs on the region, consultants to the states said Wednesday.

Representatives from ICF Consulting discussed their preliminary research on CO2 cuts of 5%, 10%, 15% or 25% below 1990 levels by 2024 at a meeting of the Regional Greenhouse Gas Initiative. The RGGI is led by New York and includes officials from Massachusetts, Maine, Connecticut, New Jersey, New Hampshire, Delaware, Rhode Island and Vermont.

ICF's Steve Fine and Chris McCracken said a 5% cut would likely cost the region nothing. A 10% cut would cost about $1/st while a 15% cut would cost up to $2.50/st. ICF projects that a 25% cut could cost as much as $7/st.

It's not clear how fuel and electricity prices would change as a result of the scenarios contemplated. McCracken said those prices are not addressed in the RGGI work ICF has done so far.

Regional price caps on retail electricity may prevent utilities from passing on all of the cost of CO2 controls onto consumers. Retail electricity price controls have been imposed in New York and other northeastern states as part of the transition to deregulation and ICF assumes that "the competitive market environment will continue," Fine said.

Other key assumptions made by ICF include that all renewable energy mandates in the Northeast will be met and that no new coal-fired power plants will be constructed in the region. In addition, the rising power demand will likely be met by increased electricity imports from outside the region, nuclear plant upgrades and the use of more efficient generating turbines, according to ICF.

Following numerous questions about ICF's assumptions, Franz Litz, a New York Department of Environmental Conservation lawyer, said the states will consider as many other scenarios as possible between now and the end of April. That's when RGGI staff will make recommendations to state environmental and energy commissioners for a model rule that each state can use to implement a CO2 trading program.

"If there are still unresolved issues, the draft model rule will likely come later," Litz said.

Observers of the RGGI process said after the meeting that they expect the draft rule to be delayed for several more months at least because of questions about how to design the trading program in a way that doesn't hurt the region's economy.

Still many officials expressed general support for the effort. "Absent a national [CO2] framework, a regional system is the preferred approach," said Gavin Donahue, president and CEO of the Independent Power Producers of New York.

Flawed emissions allocation process can't be fixed by 2008: EC
Brussels (Platts)--18Feb 2005
It will be "ambitious, if not impossible" to make legally binding changes to the European Union's emissions trading scheme before the second phase starts on Jan 1, 2008, European Commission environment department director of air and chemicals, Jos Delbeke, said late Wednesday.

The EC is legally bound to review the EU ETS, which started on Jan 1, 2005, in 2006, and can then propose improvements. But any changes to the emissions trading law, which sets the rules for the ETS, have to be agreed by both the European Parliament and the EU Council of member states governments. This rarely takes less than two years.

"The national allocation plan process has to be rethought to ensure a level playing field both environmentally and economically," said Delbeke. "We might need to take some tough decisions for 2012, but I doubt if we can do much for the next round (2008-12)."

He said the key elements in the NAPs debate included the state of the internal EU energy market, business as usual forecasts, consistency with Kyoto targets and state aid.

Delbeke's main concern was that the NAPs were not harmonized across the 25 EU members. "I'm frightened by the degree of complexity creeping in with each NAP we receive," he said. He recognized that member state governments were under pressure from national lobbyists, but there was a danger of making the NAPs so complicated that the ETS would not work well.

Council representative Henri Haine said that there needed to be some flexibility in the NAPs to take account of different national circumstances, such as different Kyoto targets under the burden sharing agreement.

But Delbeke said: "Is more flexibility in NAPs not creating more distortions?" For example, member states had come up with different definitions for combustion which meant that industrial plants might be treated differently in different member states. "We have to clean up any distortions," said Delbeke.

Once the EC has approved last four outstanding NAPs--from Czech Republic, Greece, Italy and Poland--Delbeke wants to debate, formally or informally, having more precise guidance for producing a NAP.

Bundled coal/emissions product mulled
London (Platts)--18Feb 2005
The rapid development of the emissions sector is fuelling creativity in related markets, and the first effort at producing a combined fossil fuel/emissions product has been launched in the coal sector.

A hybrid ‘carbon neutral’ product that bundles together physical coal contracts and CO2 emissions allowances is said to be under consideration by leading coal and emissions market players.

Coal producers see this product as a way to maintain competitiveness against other fuels, particularly natural gas. Purely coal-based generators such as the UK's Drax plant would have less need of such intruments, one broker source commented, since their emissions caps and allowances are based on coal-fired generation. Fuel-flexible generators, however, might be dissuaded from buying coal due to its higher carbon profile, and a "neutral" offering from producers would mitigate their exposure to carbon.

“The idea is being discussed by a couple of the markets’ larger players. I wouldn’t be surprised if we didn’t see such a bundled product launched within the next six months,” said an emissions market trader.

Since the introduction of emissions trading on Jan 1, utilities planning to burn more than their annual allocated CO2 emissions allowances have to purchase additional allowances on the open market.

Bundling physical coal and emissions allowances into a competitively priced product would address environmental concerns about coal and benefit coal users, claim supporters of the idea.

“Each purchased tonne of coal would come with a CO2 emissions allowance to offset against the effects of coal burning, making the product carbon neutral and offer[ing] a hedge against increased coal burn,” said a trader.

Sellers of the hybrid product are likely to have a close day-to-day involvement in the emissions market, which would enable them to buy large volumes of allowances cheaply and sell them at a premium with physical coal.

The proposed product is likely to appeal more to spot coal buyers, where the number of emissions allowances bundled with a coal sale is smaller than the standard traded CO2 lot size, said Louis Redshaw, head of Barclays Capital’s environmental markets trading desk.

“However, I expect that wholesale buyers of coal, such as electricity utilities and steel manufacturers, will access the wholesale CO2 market directly and will have less need for bundling,” he stated.

This might be because utilities and steel companies will in any case have to negotiate delivery terms for emissions allowances that may be separate from those for their coal trades.

Although Redshaw suggests that coal producers, if they embrace emissions trading, could engineer a [bundled] product that allows them to compete with gas producers on a level CO2 playing field. “In the future all fossil fuels could trade with bundled CO2 allowances because ultimately you won’t be able to burn the former without the latter.”

Sources note that "bundled" products have been offered in the US SO2 market for some time already: US coal producers can offer high-sulfur coal together with SO2 allowances to achieve the same competitiveness against alternative fuels.

Germany's emissions trading office receives over 800 objections to NAP>
London (Platts)--21Feb 2005
Germany's Deutsche Emissionshandelsstelle (DEHSt), the country's emission trading office, has received more than 800 objections to the emissions allowances it has allocated, a spokeswoman for the Berlin-based office said Friday.

The complaints will not delay the scheme at all, "but they merely mean a lot of work for us," the spokeswoman added. "Many of the companies have submitted complaints without giving any specific reasons, but they simply did it to register a complaint within the timeframe," said the spokeswoman. She said the DEHSt expected many of the companies to provide their reasons later.

Reasons submitted to the DEHSt so far range from general complaints about having to take place in the emissions trading system in the first place, to mistakes in the calculations--which have indeed happened "in some cases", the spokeswoman confirmed.

Under German emission law, operators have one month to object to allocations at the DEHSt. German emission trading started on Jan 1, while the Kyoto protocol took effect for 34 countries on Feb 16. A total of 1,849 plants from Germany's energy and energy-intensive industries are taking part in the first phase (2005-2007) of emission trade.

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Updated: Feb 18, 2005