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Climate Change Initiative Newsletter

January 2003 (31)

Table of Contents

Climate Change Initiative

Upcoming events

National Conference on Climate Change

On February 27-28, 2003, National Conference on climate change is planned to be held in Kiev. The Conference is organized jointly by the government of Ukraine and public actors assisted by the Climate Change Initiative. For more information please contact Alex Khomenko at CCI: akhomenko@climate.org.ua; +38044-2537663/5177.

US Climate Change News

1. A Word of Support for ET Before Senates Committee

2. Bush proposes easing rules for small timber sales

International Climate Change News

3. The British plan ahead half century

4. China works with Canada on climate change

5. What is the future of emissions trading in an enlarged EU

6. Where to do JI?

7. Emissions trading when is the question for EU

8. Canadians launch GHG reduction fund

9. Russia is not playing, yet

10. Japan eager to ally with Russia


US Climate Change News

1. A Word of Support for ET Before Senates Committee

On January 8, 2002, Eileen Claussen, the Pew Center President spoke to the Senates Committee of Commerce regarding the draft American Investments for Reduction of Emissions Act of 2003. The draft that allows for GHG emissions reduction and trading across the nation economy was introduced by Senators Lieberman and Mccain.

Other countries are moving forward to address climate change, and, in the United States, states and companies are exercising leadership to fill the void left by inaction at the federal level. In this context, I believe the draft American Investments for Reduction of Emissions Act of 2003 represents an important milestone in the effort to ensure that the United States does its part to address global climate change. Its enactment would establish comprehensive national framework that would put the United States on path toward significant long-term emissions reduction.

The draft Act incorporates several features that would be critical to the success of national climate change strategy. First, it would establish ambitious environmental goals through binding caps on greenhouse gas emissions. Recognizing the need for reductions from all the major sectors, the Act would apply this cap economy-wide, providing an important signal to key players throughout the economy to increase energy efficiency and develop alternative fuels and technologies to reduce greenhouse gas emissions.

Second, the Act would provide companies with the flexibility they need to reduce emissions as cost-effectively as possible. It would establish rigorous nationwide system allowing emissions trading across sectors, gases, and national borders, and would provide reasonable credit for carbon storage through sequestration.

Third, the Act would take phased approach that respects economic realities. As mentioned, our work has demonstrated that there are many cost-effective - in fact, cost-saving - opportunities to reduce emissions in the short- and perhaps medium-term. The Acts phased approach would take advantage of the relatively easy steps now readily available, while allowing time for the capital and technology investments needed to achieve deeper emissions cuts over the long term.

Finally, the Act would seek to treat all affected parties fairly. It would recognize the real and verifiable reductions of those who have taken the lead in reducing their emissions, and would provide assistance to consumers, workers, and communities affected by climate change policy.

(Pew Center, January 8)

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2. Bush proposes easing rules for small timber sales

WASHINGTON - The Bush administration unveiled plan to quicken timber sales in small forests if the project prevents the spread of insects that can lead to further destruction or if removal does not adversely impact the environment.

The U.s. Forest Service proposed reducing the amount of regulations necessary in small projects up to 250 acres in size if it required no more than half-mile of temporary roads. Requirements for timber sales would only be eased to allow the removal of trees that pose danger to the public or where the infestation of insects could harm additional trees in the area.

"The proposed categories are about how we document our decisions regarding activities that are environmentally safe", Forest Chief Dale Bosworth said in statement. "Through these proposed categories, the agency hopes to reduce the bureaucratic red tape and save time, energy and money in preparing small, routine, projects that are supported by local communities", he said. The proposed exemption for small projects could not be used in forest where endangered species live, wilderness areas, wetlands, inventoried roadless areas or historical sites.

In November, the Forest Service unveiled plan to give local forest managers greater control over recreational and commercial activities in U.s. forests, policy opponents said skirts environmental rules designed to protect fish and wildlife habitat. A range of other forest initiatives to prevent wildfires by making it easier to cut down the small trees and brush that fuels them have been introduced during the last year. Many have been opposed by green groups who argue they favor logging companies eager to remove timber.

But environmental groups scored major victory last month after federal appeals court effectively reinstated Clinton-era ban on road construction on nearly 60 million acres of forest land, overturning preliminary injunction obtained by Boise Cascade Corp. and other groups last year. The Clinton plan aims to prevent road construction and the removal of oil and lumber in 58.5 million acres (23.67 million hectares) of federal forest land, unless needed for environmental reasons or to reduce the risk of wildfires.

(by Christopher Doering, REUTERS, January 6)

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International Climate Change News

3. The British plan ahead half century

LONDON - British Trade and Industry Secretary Patricia Hewitt said that government paper on restructuring the energy sector to be published in the New Year will set out plans for the sector for half century.

Hewitt said the White Paper, which sets out the governments legislative plans, will address four main long-term objectives. The paper will look at the scarcity of energy supply, at environmental issues such as climate change and will address "Economic competitiveness" to ensure British energy firms can compete against rivals across the world. The paper will also seek to ensure that everyone has access to heating and lighting, which basically entails dealing with the problem of old, dark, damp houses, Hewitt said. The paper will also look at the role of nuclear power, she said, without going into details.

The nuclear industry shot to the top of the political agenda earlier this year when privatised nuclear firm British Energy Plc (BGY.L) went to the government for loan to keep it from going bust. A government-backed restructuring plan is being fiercely contested by anti-nuclear groups.

"Its really looking 50 years ahead, but particularly 20 years ahead because that is the timespan one has to look at with energy", Hewitt told.

In May, the government launched prolonged consultation process over its energy strategy with view to publishing White Paper. A White Paper can later be drafted into bill to pass through parliament into law. A government-commissioned report, released in February, said Britain should raise its target for energy supplied by renewable sources to 20 percent by 2020 but also keep open the option to invest anew in nuclear power. Then, Energy minister Brian Wilson signalled support for the conclusions of the Performance and Innovation Unit, thinktank set up by Prime Minister Tony Blair. That unit suggested that the government should set overall domestic targets for 20 percent improvement in energy efficiency by 2010 and further 20 percent over the following decade.

The governments existing target is for 10 percent of Britains energy supplies to come from sources such as wind and solar power by 2010. Hewitt said the environmental side of the paper would look beyond the Kyoto protocol "at what our climate change targets ought to be and how we create an energy policy and market that will actually deliver on...climate change but other environmental goals too.

(REUTERS, December 19)

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4. China works with Canada on climate change

Lu Fuyuan, vice-minister at Chinas Ministry of Foreign Trade and Economic Co-operation, and visiting Canadian Minister for International Co-operation Susan Whelan signed memorandums on four projects and letter of intent on co-operation in the field of climate change in Beijing.

The four projects concern the adaptation of small farmers to the global market, the reform of Chinas prosecutor system, roads in western China and primary education capacity in western China. China and Canada started to co-operate in development in 1982. They have agreed 91 projects involving 600 million Canadian dollars (Us$410 million). The projects cover areas such as agriculture, forestry, energy, transportation, education, telecommunications, environmental protection, human-resources development and poverty relief. Some 58 of the projects have been finished.

China and Canada are negotiating revisions to the Country Development Programming Framework, signed in 1994, and are expected to finish that work this year, said Chinese ministry officials. Balanced development, environmental continuity and civil affairs will be the focus of Sino-canadian development co-operation, they said.

(Co2ecom, January 9)

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5. What is the future of emissions trading in an enlarged EU

EU leaders reached agreement with the ten accession countries that are now set to join the EU on May 1 2004. The question then arises; to what extent will eastern enlargement affect carbon prices and market structure under the envisaged pan-european trading scheme?

Owing to the fall of the Iron Curtain and economic restructuring, GHG emissions in the eight accession countries in Central and Eastern Europe (Ceecs) decreased by about 335 million tonnes of Co2 equivalent emissions (Mtco2e) from the base year under the Kyoto Protocol to year 2000 (see CEEC facts below).

Hence, and depending on the base year chosen for the period 2005-2007, the Ceecs could become big net sellers of allowances in Eu-wide emissions trading. Still, and even though accession countries will have to adopt the emissions trading directive as required under the environmental acquis, they could ask for transition periods. Owing to the potential revenues from sales of allowances, however, it is probably not in their interest to do so. At market price of 5 /tCO2e, the volume of excess allowances would represent assets of some 1675 million. On the other hand, the EU could impose restrictions on sales of excess allowances, or make use of transition periods to enable the selective inclusion of countries that are most prepared for emissions trading.

As argued in the first issue of Europe weekly (9 December 2002), we expect to see gradually increasing market from about 1 billion in 2005 possibly up to 8 billion in 2007. The size of the market will depend inter alia on how many of the Ceecs that are included, the extent of opt-outs, carbon prices and market liquidity.

(by Atle Christer Christiansen, Pointcarbon, December 20)

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6. Where to do JI?

In ranking of potential host countries for Joint Implementation (JI) projects done by Point Carbon and Vertis Environmental Finance Romania gets the top spot. Its well-established institutional framework and large and varied project pipeline, as well as clear government support for JI, compensate for Romanias risky investment climate.

The study ranks economies in transition (Eits) of Central and Eastern Europe according to their attractiveness as JI hosts. The total score was calculated on the basis of the score along four (weighted) indicators:

1) Project Pipeline: What is the potential size of the JI market? What quality of projects can we expect in areas such as renewable energy and energy efficiency given the countrys natural characteristics and carbon intensity (emissions per economic output)?

2) Political & Institutional Environment: Has there been established regulatory framework for approving JI projects? What is the general attitude at the governmental level to JI? Have governmental decision-makers been supportive or obstructive to Ji-like projects recently?

3) Investment Climate: Is the general investment climate stable and investor-friendly? How sophisticated are capital and service markets? Is there high level of Foreign Direct Investments (FDI) to the country?

4) Project Experiences: Has the country been able to attract AIJ and JI investors? How many projects have been implemented? What are the current trends when it comes to investor interest and development of new projects?

Apart from Romania, Poland also scores well, with plentiful project opportunities in both renewable energy and energy efficiency and good investment climate. Wavering political commitment to JI, despite well-structured institutional approach, has limited Polands engagement in JI so far.

Slovakia is also close to the top of the list despite limited project track record to date. Hungary and the Czech Republic end up with lower total score, much because the government has been wavering in their support for JI, in the latter gradually shifting focus towards emissions trading - which is still some years away.

Russia and Ukraine are in the bottom half of the list. Despite an enormous potential for projects and political interest in somehow monetising expected Kyoto surpluses, investors should await the establishment of new institutions that will follow Russian ratification of the Kyoto Protocol. The current organisations responsible for approving JI projects in Russia are rather unsupportive; indeed, their operations are often counter-productive and add considerable risks for investors.

The Baltic States (Estonia, Latvia, and Lithuania) are promising but small JI markets, while Croatia and Slovenia lag behind in both project potential and preparedness.

(Pointcarbon, January 9)

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7. Emissions trading when is the question for EU

The European Parliaments rapporteur on emissions trading, Jorge Moreira da Silva, is concerned about the time schedule for the EU Directive. The Parliament is interested in having fast track. However, I am very concerned about the timetable, because the Council is taking too much time from the moment they approve political agreement until the moment they publish the common position", he said.

There is chance that the Councils final common position on emissions trading is not ready until next summer, leaving the Parliament only next fall to undertake its second reading. If the directive is not given fast track, but requires conciliation, the final adoption of the directive would not take place until 2004. Emissions trading is due to begin in 2005.

With the exception of Slovakia, very little has been done to prepare for emissions trading in the Central European countries invited to join the EU, Paul Bodnar of Hungarian based Vertis Environmental Finance told. There are primarily two areas of uncertainty. The first is the method of allocation. The baseline year is yet to be decided, which is cause of great concern for these countries. The second is whether they will be asked to participate in the burden sharing of the first Kyoto period. For these countries, emissions trading is an EU issue. They have not participated in the creation of the directive, and they have had no influence. Also, there is capacity problem in these states. Hungary, for example, has done absolutely nothing to prepare for emissions trading. However, I expect this work to begin by the second quarter of 2003.

Pointcarbon, Carbon Market Forecasting Europe weekly

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8. Canadians launch GHG reduction fund

MONTREAL -- A new player in the reduction of greenhouse gas emissions, the Energy Efficiency Fund, announced in press conference the injection of almost two million dollars for the implementation of innovative energy efficiency programs, which will contribute to reaching the objectives of the "Kyoto Protocol". The Funds annual action plan also includes programs for low-income families and should generate energy savings of more than three million cubic meters of natural gas, in total.

The Energy Efficiency Fund offers financial and technical assistance for the construction of energy efficient social housing built to standards achieving 25% energy savings. This program is aimed at municipalities, community groups and the private sector which build social housing.

The financing offered by the Energy Efficiency Fund will be provided within an "Energy Performance Contract" based on "shared savings". Participants will reimburse only third of the amount over period of five years, from the projected energy savings.

The Energy Efficiency Fund will give up to maximum of $500 to existing owners of single family houses, who have had an "Energuide for Houses" energy audit done of their home, and who will purchase high energy performance windows (tested in accordance with CSA A440 standard). For new home buyers, the same incentive will be available if the new home purchased is "Novoclimat" house (25% more energy efficient). These homeowners must be clients of Gaz Metropolitain.

For the commercial sector, owners of commercial buildings heated with hot water or steam radiators, who install "Novitherm"(TM) Heat Reflector Panels designed to reduce conductive heat losses, will get back 10 cents per cubic meter of gas saved, up to maximum of $20,000. To be eligible for this program offered by Gaz Metropolitain, the annual consumption of natural gas for space heating must be at least 50,000 m3.

(Co2e.com, January 6)

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9. Russia is not playing, yet

MOSCOW (Reuters) - Russia, vital to the U.n. Kyoto accord on global warming after the United States pulled out in 2001, is not ready to ratify it for economic reasons and this could cripple the pact, experts said. The delay could cost Moscow billions of dollars, they added.

Russian Prime Minister Mikhail Kasyanov told the Earth Summit in Johannesburg last September that Russia would ratify the Kyoto Protocol on climate change "in the near future." But Russia, which could boost revenues from treaty clause allowing it to sell some of its pollution quota, has set no deadlines for government, and then parliament, to back the pact.

"The time frame now depends on how quickly the economic scenarios will be worked out. When we agree on the scenarios, then we will have worked out the social and economic consequences and we will head for ratification", said Yakovenko, also the head of Russias State Ecology Service.

Experts and ecologists say that while pressing Russia could prove counter-productive, further delays could cripple deal already scarred by political wrangling and the U.s. pullout. "If Russia does not ratify in the first half of this year you will be seeing great deal more skepticism. This is not good for confidence or for the development of the market" (in emissions quotas), said Frank Joshua at environmental brokerage Natsource Tullett in London. "There are uncertainties, but they exist precisely because Russia has not ratified. We live in an uncertain world and governments operate in an uncertain world."

Russia is the last remaining key player which has signed but not ratified the protocol, after Canada backed it. While Canadian politicians faced opposition from regional and energy lobbies, no organized opposition exists in Russia. Most Russian producers expect foreign investment and foreign partnerships, and not losses, as result of the protocol.

"Nobody has come out against the protocol. This is just Russian bureaucracy and civil servant apathy", said Natalya Olefirenko, head of the climate project at Greenpeace in Moscow. "We are not only losing the chance to lead the process, but the money we could have used ... to modernize industry." According to Greenpeace, Russia could make $20 billion annually from quotas, about quarter of 2003 budget revenues.

"To say that Russia is losing money, or that Russia is making money, that is all fantasy at the moment, because for now nothing exists", Yakovenko said. "Why should the protocol lose any of its force? This is all part of the normal process."

(By Clara Ferreira-marques, Reuters, January 15)

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10. Japan eager to ally with Russia

TOKYO -- Japan is expected to advise Russia on reducing carbon emissions and carbon trading, government officials said. Russia would be the second country Japan has advised on cutting emissions.

A delegation of 16 senior bureaucrats of the Ministry of Economy, Trade and Industry visited Moscow, talking with their Russian counterparts on how exactly the two sides can cooperate, the ministry said.

Last year, the Japanese government began advising the Kazakh government on the issue, as an increasing number of developing countries realize they can not only potentially increase the amount of financial assistance they receive for pursuing environmentally friendly policies, but also that they can profit from the carbon trading market in the longer term.

Japans Ministry of the Environment announced it will begin officially promoting carbon trading by creating market for it as early as 2005, and spend the next two years looking into details of making the concept reality by encouraging it to grow at an experimental level. As one of the first countries to sign the Kyoto treaty, Japan must by 2012 reduce its carbon dioxide-emissions level by 6 percent from the level it produced in 1990.

Japan hopes to have participating companies actively seek to reduce their carbon-emissions levels both at their factories and in their offices. After being assessed for carbon levels by third party, companies that have succeeded in reducing emissions beyond expectations can sell the difference in target and achieved levels of carbon emission to another company that has been unable to reach its target.

The environment ministry anticipates about 30 companies signing on to the project, and will begin advertising for participating corporations this spring. Meanwhile, the Japan Bank for International Cooperation, formerly part of the Export-import Bank of Japan, has made clear that it too anticipates establishing fund of about $33 million geared specifically towards promoting carbon trading.

As nation that has few natural resources, Japan is one of the worlds biggest importers of petroleum and other energy sources. Moreover, it has become one of the worlds most energy-efficient countries and many Japanese manufacturers have concentrated on developing more environmentally friendly products as potentially lucrative business venture.

(By Shihoko Goto, UPI, January 16)