Florida businesses dabble in voluntary carbon-trading markets.
Devil in the Details
Should companies get credit for carbon-reducing activities they already conduct?
Any eventual carbon cap-and-trade system will have to address a myriad of issues: Who exactly will be subject to carbon limits? How will carbon output be measured? What will the caps be?
One important question involves what’s called "additionality" — essentially, whether companies that are subject to caps should get credit for carbon-reducing activities they already conduct or whether they should have to do more. Case in point: Walter Energy, a coal mining and coke-making company that’s become a carbon trader.
Coal mining releases methane gas that Walter must vent to the atmosphere to prevent underground explosions. For 20 years now, Walter has been "draining" the methane from coal seams in advance of mining and shipping the gas via pipeline to an electricity producer. Then came carbon trading. Walter joined the Chicago Climate Exchange, which has given the company credits for what it was already doing, diverting the methane from the atmosphere to power production. Walter racks up 1- to 1.5-million tons of credits a year over and above the credits it needs to reach its own emissions reduction goals for its mining and coke plants. Today, it sells them for the going rate of just 20 to 30 cents per ton, but when it first joined the exchange and credits sold for $4 per ton, Walter pocketed a nice chunk of change "at virtually zero cost," says Rich Donnelly, vice president of engineering.
Walter, a winner now in a voluntary market, may not fare so well under a federal mandatory system. The Chicago Climate Exchange has a low bar for additionality. Other exchanges and the global Kyoto protocol have a higher standard. Donnelley says most of Walter’s credits — the exceptions including work it’s doing with another company to capture and destroy methane at the mine source — wouldn’t meet the test of additionality that other exchanges and Kyoto require for credits. Those types of credits trade for significantly higher prices than what Walter’s getting for its credits now. "The potential for a considerable revenue source is there — or a considerable cost if you have to buy credits," Donnelly says. If the Waxman-Markey House bill passes as is, "I would think less than 10% (of Walter’s credits now) would be valid."
Florida mounted its own effort to constrain carbon. Will a federal law make it all moot?
In a 2007 executive order, Gov. Charlie Crist set a goal for the state to reduce greenhouse gas emissions 20% by 2020 and 80% by 2050. His panel on climate change subsequently developed an exhaustive plan calculated to surpass the governor’s goals, reduce the state’s dependence on fossil fuels and help build a "green economy." To that end, the Legislature last year required the Florida Department of Environmental Protection to develop a statewide cap-and-trade program.
DEP is now in the middle of that job, which includes figuring out whether a state system should target all emitters, some of the biggest or just the biggest — which would mean power companies only.
Some experts involved in the research, including Ted Kury, director of energy studies at the UF’s Public Utility Research Center, believe that the federal government, not the state, should tackle those decisions. The federal Waxman-Markey bill prohibits individual state schemes on capping carbon, meaning federal standards will trump whatever Florida may devise. The experts say Florida could better spend its money on energy-efficiency programs and investments in the most promising alternative fuel technologies.
DEP Secretary Michael Sole says the state’s work is important regardless how the federal debate turns out. For example, part of the project analyzed the potential for carbon sequestration on state lands — a possible revenue-generator for the state. (The agency paid Lykes subsidiary Eco2 $93,425 for that portion of the research. To the university researchers working on the cap-and-trade analysis, it is spending another $144,000.)
Sole says when DEP’s initial work is completed this spring, the agency will be able to show lawmakers and taxpayers specific data on how cap-and-trade will work in Florida, outlining both costs and benefits to businesses and taxpayers. "The low carbon future does exist, in the nation as well as the world," says Sole, "So it’s important that we take a progressive stance."