By Michael J. Walsh, Executive Vice President for Research, Chicago Climate Exchange/Chicago Climate Futures Exchange
Policymakers in Washington and in capitals around the world continue to debate how to achieve cleaner energy and reduce greenhouse gas emissions. While challenging issues surrounding costs, international competitiveness, job creation and other tough topics remain, there is also reason to be optimistic. The challenge of balancing real progress in cutting carbon while maintaining a strong economy and developing new solutions is eminently doable.
Here are five reasons to take heart:
1) Dozens of technical solutions for producing clean energy and reducing global warming are being implemented right now, and new breakthroughs look promising.
A multitude of practical climate solutions are being implemented today. They’re taking place through cleaner fuels, renewable energy, more efficient power generation, superior vehicles, insulation, better lighting and motors, farm and forest conservation, methane recovery, low emission industrial processes and more.
These now-viable solutions yield multiple economic and ecological benefits. The challenge is to implement them at larger scale while getting maximum return on our investment. To do that we need to tap into market incentives that will efficiently allocate capital among these solutions. The good news is we can protect the environment while growing our economy by using market-based mechanisms that have repeatedly proven successful in the U.S.
Good examples are programs put in place to reduce sulfur and nitrogen emissions. The 1990 Clean Air Act Amendments mandated major cuts in acid rain emissions at fossil fuel fired power plants that were implemented through an emission allowance trading system. The result has been a 56% decline in SO2 emissions. The Nitrous Oxide (NOx) Budget Trading Program, a precursor to the Clean Air Interstate Rule, dramatically reduced emissions and resulted in cleaner air for 103 million Americans in the United States. Both programs surpassed expectations by delivering pollution cuts at such low cost that there is now widespread agreement to mandate further reductions.
Where big technology breakthroughs are needed, there is also cause for optimism. Large-scale pilot projects that capture CO2 at energy plants and store it deep underground are working well in Norway, the U.S. and Canada. Well-structured programs to slow and stop deforestation are emerging through efforts of governments, businesses and NGOs in numerous tropical countries. The notion of zero-carbon fuels from algae, which a few years ago was just a concept, is on the march towards commercial scale. The history of inventive activity shows that a carbon price signal will drive environmental innovations that nobody can anticipate.
2) Proven climate solutions can help improve U.S. energy security and competitiveness.
Through seven years of practical experience with legally binding commitments to cut carbon emissions, a wide variety of industries that participate as members of Chicago Climate Exchange (CCX) have demonstrated, at large scale, the win-win nature of dozens of climate solutions. Electricity generators in CCX have implemented efficiency retrofits at power plants, used lower-carbon fuels and optimized nuclear and hydro plant operations. Major paper companies upgraded motors and boiler equipment and are using more renewable fuel and less fossil fuel. Technology leaders adopted lower-emitting microchip cleaning techniques. These companies are finding that cutting waste enhances energy security and makes them more competitive globally. Managing to a carbon goal is now part of the smart path for growing their businesses.
A demanding independent verification process has determined that since CCX began in 2003, total member emissions were cut more than required under their annual commitments—a cumulative cut of more than 450 million metric tons CO2. That emission cut exceeds the total annual CO2 emissions of France, the world’s 9th largest economy.
3) Mitigation practices taking place on farms, ranches and forests are good for water, wildlife and climate resilience, while providing a new income source for rural economies.
Beyond the industrial emission cuts, further greenhouse gas mitigation has been achieved through CCX’s program to test a wide variety of solutions through “offset” projects. While numerically modest compared to absolute cuts made by industry, it is nevertheless important to test and refine methods for harnessing the multitude of climate solutions that do not fit under an industrial emission cap. The solutions realized through project-level efforts, each of which has been cited by the Intergovernmental Panel on Climate Change, come from hundreds of small-scale projects in methane, agriculture and other sectors.
Methane capture projects undertaken by environmental service companies, and by dairy producers from New York to California, help U.S. energy security by converting a smelly waste product into a clean, domestic energy source – natural gas.
Thousands of farmers, foresters and ranchers in all corners of the country who commit to exceptional management practices that remove carbon from the air are now earning new income. Twenty million acres of North American agricultural lands have enrolled in the program, an area bigger than the state of Maine. The verified best practices that are used by land managers make crops more resilient to climate extremes, generate clean economy jobs, and incentivize new techniques that can further cut emissions.
Some of the loudest voices calling for urgent action on climate want to leave these doable solutions on the cutting room floor. But the enormity of the challenge we face suggests we don’t have the luxury of passing up any solutions.
4) Well regulated and transparent exchange-based emissions markets are proving their mettle, despite unprecedented economic strain.
The only thing mandated by a cap-and-trade system is compliance with annual emission caps. Trading of emission allowances is optional. While trading allows flexibility in how, where and exactly when emission cuts are realized, the bottom line does not change: overall emissions must be cut.
The benefits of trading through an exchange, like the Chicago Climate Futures Exchange (CCFE) or other venues, include a reliable clearing system and a well-regulated market. For example, trading in U.S. emission allowances on our futures exchange involves EPA enforced environmental compliance, and Commodity Futures Trading Commission, National Futures Association and CCFE compliance department trading regulations. While EPA assures environmental compliance, market regulation contributes to efficiency and cost savings by keeping the allowance market fair, competitive and free from prohibited trading practices. Providing a rules-based, regulated platform provides transparent pricing while giving regulators access to all the information they need to enforce laws that govern trading, such as position limits.
Despite widespread turmoil caused by last year’s financial crisis, exchanges operated throughout with no defaults, no blow-ups and no bail-outs.
5) It is a feel-good based in reality: the professionals who work in the American private and public sectors are sincere people who want to improve our environment for future generations.
They are proud to work for companies, governments and universities that are helping get the U.S. started in intelligently managing yet another challenge that innovation has historically solved while growing our economy. They want to be at the cutting edge and to develop new opportunities for good jobs and incomes.
The U.S. has shown we can achieve major environmental progress while maintain a healthy economy. Market-based reduction programs have been repeat environmental and economic successes in the U.S., and dozens of now-viable climate solutions have been proven at scale in a rules-based market mechanism.
Under a regulatory design that sets clear goals, welcomes all solutions and rewards innovation, Americans will meet the goals, beat the goals and generate major economic benefits by being a world leader in the clean energy economy.
Michael J. Walsh is Executive Vice President of the Chicago Climate Exchange where he oversees new product research and development and policy analysis. His work to support international understanding of market-based environmental protection has included serving as an educational consultant to the U.S. Agency for International Development. Michael has been a lead speaker at conferences, legislatures and academic institutions throughout the world.