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Ensuring Greenhouse Gas Offset Quality in the Clean Energy Jobs and American Power Act

Alexia Kelly — Thu, 05 Nov 2009 09:37:13 -0500

S.1733, the Clean Energy Jobs and American Power Act (CEJAPA) also known as the Kerry Boxer bill , provides a number of important provisions that will ensure that offsets used in the U.S. cap-and-trade program represent real, additional, measurable and verified greenhouse gas (GHG) emission reductions.

This summary is based on the version of CEJAPA released on 10/30/2009 and not subsequent iterations. Inquiries can be directed to Alexia Kelly.

For more information, visit the U.S. Federal Climate Policy home page.

Offsets are used in lieu of reductions from sectors subject to mandatory emission reduction requirements; thus, offset quality is central to the environmental integrity and credibility of the cap-and-trade program. WRI’s review of the environmental quality criteria in CEJAPA affirms that its provisions will safeguard the environmental intent of the legislation. The CEJAPA lays a strong foundation that should be preserved in any future policy for an offset program that will deliver high quality offset credits. Critical program attributes are described below.

The Clean Energy Jobs and American Power Act:

Does not include a list of “per se” eligible offset project types. Per se eligibility lists require the offset program administrator to develop offset crediting methodologies for specified project types, regardless of their demonstrated ability to permanently reduce, avoid or sequester GHG emissions. In order to ensure offset quality, a full scientific review of any potential offset project type is of paramount importance in ensuring that offset projects are able to deliver real emissions reductions. CEJAPA ensures that offset project eligibility determinations are developed through a science-based, publicly-accessible rulemaking process conducted through the appropriate federal agencies with input from scientists and technical experts. (Sec. 733)
Establishes clear, consistent, and rigorous definitions of key offset quality criteria. This includes robust provisions to address additionality, leakage, impermanence, and measurement and quantification uncertainty through science-based, standardized, and transparent methodologies. These provisions will help provide assurance that offsets used in the program represent emissions reduction projects and activities that would not have occurred in the absence of the offset market and are measured against consistent criteria and quality definitions. (Sec. 734)
Includes strong provisions to ensure offset credits sourced from sequestration projects deliver permanent reductions. The bill provides stringent provisions that include buffer accounts, discounting, clear assignment of liability, and insurance mechanisms to ensure proper emissions accounting. These provisions ensure that the emissions reduction targets of the program are met in the event of a sequestration project’s emissions reduction reversal. (Sec. 734)
Places liability for intentional reversals with offset project developers and shares responsibility for unintentional reversals. Release of carbon dioxide stored in forests and soils can occur for a wide range of reasons. Reversals are typically classified as intentional (e.g. premature harvest of forests, tilling of fields) and unintentional (e.g. disease outbreak, pest infestation, forest fire). Clear liability for reversals is an integral part of ensuring the environmental effectiveness of the cap and trade program. Assigning complete responsibility for intentional reversals, and partial responsibility for unintentional reversals, provides a strong incentive for offset project developers and implementers to reduce the likelihood that reversals will occur and to take preventative action to avoid unintentional reversals. (Sec. 734)
Allows for program transparency, adaptation and flexibility over time. The bill allows for both the addition and removal of eligible offset project types over time, and includes a public petition process as a key component of this process. The bill also calls for regular (every 5 years) review and evaluation of the offset program. These are crucial elements of ensuring emissions reduction or sequestration projects receiving offset credit continue to meet high offset quality standards and that the program is able to adapt to changes in scientific understanding over time. (Sec. 733 and 739)
Establishes an Offsets Integrity and Advisory Board and Office of Offsets Integrity. The bill establishes an Offsets Integrity Advisory Board tasked with providing scientific and technical guidance to the offset program administrator as regulations are promulgated. It also establishes a new office of offsets integrity within the Department of Justice to ensure that the offset provisions are enforced and appropriate legal frameworks are in place to administer this unique program. (Sec. 731 and 743)
Establishes one verification program for the entire offset system. A robust verification program is a vital element of a credible offset program. Verification entities and protocols certify that emissions reduction projects meet the requirements of the regulatory offset program and establish the quantity of offset credits to be issued from a particular project. Developing multiple verification programs for U.S. compliance offsets could lead to inconsistencies in the U.S. offset market and compromise the quality of the offset credits issued. (Sec. 736)

Fact Sheet: Energy and Climate Policy Action in China (Update)

Deborah Seligsohn — Thu, 05 Nov 2009 00:00:00 -0500

China’s recent statements and policy initiatives demonstrate growing concerns about energy security, pollution and the ability to sustain long-term economic strategies for reducing poverty.

Note:: this fact sheet is an update of previous posts here and here.

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(includes footnotes & references)
WRI & climate policy in China
More resources on China

China’s per-capita GDP is less than one-tenth of U.S. levels, and about half of its 1.3 billion people earn less than $2 per day. Indeed, China confronts a challenge no other large, emerging economy has ever faced: fostering rapid economic growth while at the same time limiting harmful emissions.

Recent Actions By Chinese Officials

On August 27th, 2009, China’s top legislative chamber adopted a resolution calling for active engagement in global climate negotiations, and new domestic initiatives to “make carbon reduction a new source of economic growth.” The Standing Committee of the 11th National People’s Congress also endorsed new policies and rules designed to drive down China’s energy use and emissions. It also called for improving China’s capacity to deal with “climate disasters.”
On June 5th, 2009, China’s highest council announced that the government would step up efforts to shut down old, inefficient power plants and factories, and increase spending on renewables and efficiency. Premier Wen Jiabo presided over the State Council Meeting on Climate Change, Energy Saving and Emissions Reduction, which also backed increased incentives for consumers to buy energy-saving appliances, and new rules that would drive up costs for “energy wasting” companies.

China’s Evolving Targets

To meet these challenges, China has adopted a range of new energy policies, rules and targets. Many of these initiatives are linked to goals outlined in China’s “National Climate Change Programme,” approved by the State Council in June 2007. Indications are that China may meet or exceed many of its goals, and has even raised its original targets in some areas. The government is also currently developing new energy and climate goals for its 12th Five Year Plan. The next five year plan, to begin in 2011, is expected to build on a suite of existing policies, which include:

Reducing overall national energy intensity by 20% by 2010

Implementing a 2005 policy, China reduced its energy used per unit of GDP by 1.8% in 2006, 4% in 2007, and 4.6% in 2008. In the first half of 2009, China reduced energy intensity by 3.35%; at that pace, China would achieve the goal set in 2005. Analysts estimate that reaching the goal will prevent the equivalent of 1.5 billion tons of carbon dioxide (CO2) from reaching the atmosphere, compared to “business as usual.” Initiatives to spur efficiency have included:

Making large enterprises more efficient. The Top 1000 Energy-Consuming Enterprises Program sets energy-saving targets for China’s largest industries. The program was responsible for an impressive two-thirds of China’s energy efficiency gains in 2006 and half of the gains in 2007. The program is on track to reach its goal for 2010.
Building better coal-fired power plants. As of 2008, all coal-fired power plants built in China must use state-of-the-art commercially available technology, or better. As a result, most of the world’s cleanest and most efficient coal-fired power plants are now located in China—and the average efficiency of its entire coal-fired power plant fleet is now better than that of U.S. plants.
Closing wasteful facilities. China is on track to close far more inefficient factories, power plants, and industrial facilities than originally called for by the 11th Five Year Plan, adopted in 2006. To date, it has closed inefficient plants that once produced 60.6 million tons of iron, 43.5 million tons of steel, 140 million tons of cement, and 64.5 million tons of coke. It has also shuttered nearly 7,500 small power plants. The policy of replacing these inefficient power plants alone could prevent 12.4 billion tons of CO2 emissions.
Raising taxes on petroleum. In January 2009, China increased the tax on gasoline from 11 cents per gallon to 55 cents per gallon and the tax on diesel rose from 6 cents per gallon to 44 cents per gallon.
Spurring local government action. Since April 2008, China has required all local governments to increase urban energy efficiency in buildings and public transportation to meet energy intensity goals. The central government now audits local government plans, and the increased local attention has helped accelerate energy efficiency improvements.
Helping consumers buy “green” home appliances. In May 2009, China’s National Development and Reform Commission and the Ministry of Finance started the “Conservation Products Beneficial to Consumers Project.” It provides consumers with subsidies that range from $44 to $125 to buy energy-efficient air-conditioners, refrigerators, television sets, washing machines and motors. The subsidies are expected to generate $60 billion to $75 billion in sales, and save 75 billion kilowatt hours of power.

Expanding the use of renewable energy

By 2020, China has committed to using energy technologies that don’t burn fossil fuels – including hydro, wind, solar and biomass and nuclear – to generate at least 15% of its total energy. In particular, China aims to promote renewable energy by:

Rapidly expanding windpower. China is now the world’s fastest-growing installer of wind turbines, and in 2008 it set a goal of increasing wind power generation capacity to 100 GW by 2020. In 2008, China installed 6.3 GW of new wind power, with total installed capacity reaching 12.2 GW. To provide an incentive for wind power operators, some utilities pay fixed rates for new power—called “feed-in tariffs”—that are higher than those paid for electricity from coal.x
Growing its solar industry. Although most of the photovoltaic (PV) panels produced in China to date have been exported—China is the world’s largest PV producer—the government has announced increased spending on R&D and subsidies for installing PV systems in order to foster a domestic market for making solar electricity.xiv Under the “Golden Sun” program announced in July 2009, for instance, the government will provide up to 70% of the cost of installing PV generation and transmission systems for projects selected by provincial governments. By 2020, some analysts estimate that China’s installed solar capacity could range from 1.8GW to 10GW, depending on policy decisions, although some believe 20GW is feasible.
Diversifying domestic energy sources. The public and private sectors are increasingly using waste gases captured from facilities such as dumps, manure pits and coal mines to make heat and electricity for household use. More than 50 cities, for instance, run waste-to-energy or district heating plants. By 2030, China’s aims to convert 30% of its total municipal waste into energy.
Expanding capacity for biomass. By 2010, China wants biomass – from crop plants to wood chips – to provide about 1% of its total energy. Biomass can be burned directly for heat, converted to a gas (“biogas”), or converted to liquid fuels (such as ethanol). The government is promoting biomass with direct subsidies, and also provides financial incentives for generating electricity from biomass by paying generous fixed fees for biomass power.xviii By 2010, China plans to use biomass to produce 5.5 million kilowatt hours of electricity; 2 million tons of liquid fuels; 19 billion cubic meters of biogas, and 1 million tons of fuel pellets.

Conclusion: China’s Development Challenge

Although China is now the world’s largest annual emitter of greenhouse gases, China’s per capita emissions are just one-fifth of those of the United States (see chart). So, as China pursues economic development levels on par with the United States, it will be critical to de-link its economic growth from greenhouse gas emissions. This “decarbonization” of China’s economy is beginning with the policy steps it is taking today. To stabilize global greenhouse levels, however, the United States and China must together move beyond their reliance on fossil fuels, to cleaner and more secure sources of energy.

Per Capita CO2 Emissions For Select Major Emitters, 2007 and 2030 (Projected)

In a recent series of high-profile statements, China’s leaders have indicated that confronting climate change and improving energy efficiency are becoming central goals of China’s domestic and foreign policies:

After a cabinet meeting on August 12th, 2009, Premier Wen Jiabao warned that global warming threatened China’s environmental and economic health. He said, “Controlling greenhouse gas emissions and adapting to climate change,” would become “an important basis for setting the medium and long-term development strategies and plans of government at every level.”

The stated intention to continue policies that foster the “decarbonization” of China’s economy received a spotlight in the first-ever speech by a Chinese president to the United Nations General Assembly on September 23rd, 2009. President Hu Jintao said China will reduce its carbon intensity by “a notable margin” by 2020 and confirmed that China will ratchet up national targets for producing renewable energy. President Hu’s speech included a commitment to take “determined and practical steps” and “forceful measures” to integrate climate goals into China’s economic development policies, a strong indication that national-level attention and action will be sustained.

WRI & Climate Policy in China

The World Resources Institute (WRI) is drawing upon the Institute’s technical expertise, research and analytical tools, and history of effective private sector collaboration to support Chinese policy-makers, businesses, and researchers in reaching their climate and energy goals.

Relevant WRI programs and projects include:

A joint research program in Beijing with the Tsinghua University Low Carbon Energy Laboratory with major projects focused on carbon capture and storage, and elements of a potential international agreement, including both measuring and reporting issues and technology.
In June 2009, WRI established ChinaFAQs, the Network for Climate and Energy, to develop better information tools for policymakers in the United States to understand China’s climate and energy policies and data.
The GHG Protocol Initiative is a partnership of businesses, NGOs, governments and academics convened by WRI and WBCSD. The GHG Protocol Corporate Accounting and Reporting Standard has emerged as the pre-eminent international standard for preparing a corporate-wide GHG emissions inventory. Last year the protocol team began developing GHG standards and programs in China focused on the country’s most energy intensive sectors–power, cement, steel and petroleum.
The Green Power Market Development Group is working with Jiangsu Province to promote the domestic renewable market and led off with a program on promoting solar power in Nanjing in April 2009.
WRI’s New Ventures China project promotes sustainable growth by accelerating the transfer of capital to small and medium enterprises (SMEs) that deliver social and environmental benefits. Since 2004, NV China has mentored 40 companies that have since received a combined total of $70 million in equity and debt financing.

Countdown to Copenhagen: Paying the Premium - Options for the UNFCCC on Insurance in Copenhagen

Heather McGray — Wed, 04 Nov 2009 12:17:19 -0500

WRI examines current insurance proposals under discussion in the UNFCCC and considers options for a global agreement in promoting insurance as a climate change solution.

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The last several decades have seen growth around the world in economic damages from extreme weather events. Most of these losses are attributable to global population growth, the greater concentration of people and economic value in urban areas, and the worldwide migration of populations and industries into areas like coastal regions, which are particularly exposed to natural hazards. However, the increasing severity of climate forces has also contributed to this rising trend. Poor people and poor countries – those least able to cope with such damages – are likely to suffer disproportionately as these trends intensify under a changing climate.

Effective adaptation to climate change will require risk management strategies that can reach vulnerable people in the developing world. Insurance – a financial mechanism through which a policy-holder pays a premium to transfer the risk of future losses to an insurance provider — could be an important component of these strategies. But to provide the adaptation benefits that vulnerable people need, insurance schemes must be designed carefully.

Insuring Against Climate Change: A Challenge for Public and Private Decision-makers

As the climate changes and more people experience weather extremes, the insurance industry will be called upon to provide products and services to a large new set of customers. At the same time, the current supply of insurance could be negatively affected if insurers are unable (or unwilling) to cover climate-related losses under changing risk profiles. Insurance providers will have to develop innovative products and delivery systems if they are to expand coverage to the poor and vulnerable while simultaneously covering growing weather-related losses among those who already have access to insurance.

Private insurers alone are unlikely to succeed in this dual challenge of expanding and deepening insurance coverage in response to climate change. For this reason, a growing number of public entities – including the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) – are considering their own role in helping to make insurance an effective adaptation option.

How Can Insurance Help in a Changing Climate?

Insurance is a form of ex-ante preparedness for economic losses and can help build resilience to shocks such as storms, floods, or drought. If designed and operated well, insurance can provide immediate financial relief when a climate hazard strikes, providing several resilience benefits that are becoming increasingly important as the climate changes:

At the household or business level, insurance can help prevent an extreme climatic event from leading to long-term reduction in assets. This helps to prevent a household from falling into a poverty trap, and enables a business to continue to grow.
At a government level, insurance can help prevent extended gaps in government services after an extreme event, and can speed reconstruction of roads, energy systems, and other important infrastructure. Doing so can help, broadly, to maintain economic, social, and political stability.

Parameterized insurance, where insurance payouts are tied to a physical parameter (or an index) like rainfall – rather than to actual losses – can be especially effective in addressing large weather-induced losses. Parameterization reduces the administrative costs involved in calculating insurance benefits, and speeds delivery of payouts to clients. It is also an important design element in insurance products for small farmers and other low-income consumers. Typical loss-based insurance products rarely reach these customers, due to the high transaction costs involved in providing a large number of very small insurance policies.

Types of Insurance for Negotiators to Consider

The adaptation stream of the post-Bali negotiations has seen extensive discussion of whether and how to address insurance through the UNFCCC. Types of insurance that have been discussed include:

Post-catastrophe Resource Fund: The global community pays into a fund that directly supports the governments of vulnerable countries in contending with large-scale catastrophic losses caused by climate change. This is not true insurance, as there is no risk-based premium pricing. Solidarity funds (like the EU solidarity fund for disasters) and the proposed compensation mechanism both would function this way.

Subsidized Global Risk Pool: The international community establishes a global risk pool and pays the premiums on behalf of vulnerable countries to insure them against the large-scale catastrophic losses related from climate change.

Sovereign Risk Pool: Vulnerable country governments themselves share the risks of weather-related catastrophic events by paying into regional or global sovereign risk pools. (The Caribbean Catastrophic Risk Insurance Facility is an example of this type of risk pool.)

Commercial Insurance: Individuals and companies purchase private insurance to cover extreme weather and climate change related risks.

Micro-insurance: Poor and vulnerable individuals purchase specially designed insurance products that cover small-scale household- level losses due to weather extremes.

Insurance Proposals Under Discussion

Several proposals have been made regarding possible insurance programs in the UNFCCC:

AOSIS

The Alliance of Small Island States (AOSIS) has actively called for the Copenhagen agreement to include insurance. They have submitted a detailed proposal for creating a new global insurance mechanism that would include “windows” for increasing insurance coverage for climate impacts and for supporting countries in promoting commercial and micro-insurance.
AOSIS recognizes that insurance can have limits. Beyond insuring for weather related damages, they ask for compensation and rehabilitation funding to address catastrophic climate losses that insurance will not be able to cover, such as the inundation of entire island nations.

MCII

A consortium of organizations called the Munich Climate Insurance Initiative (MCII), which includes private insurance companies, NGOs and universities, has also submitted a detailed proposal for a UNFCCC-led insurance program. Instead of asking for compensation, MCII imagines a multilayered insurance system with a subsidized global risk pool that pays out to affected countries if they are hit. Annex 1 countries would be expected to put money into such a pool.
Like AOSIS, the MCII proposal includes a “pillar” addressing commercial and micro-insurance.

Risk Reduction Proposals

Parties are also exploring ways through which insurance can be integrated into larger risk reduction and management strategies that are vital to adapt to a changing climate. The AOSIS proposal leaves the nature of non-insurance risk reduction activities at the discretion of participating Parties; MCII makes risk reduction a condition of access to the insurance mechanism.
Some Parties (mostly Annex I countries) see insurance as just one element of risk reduction and have not supported the creation of a special UNFCCC insurance mechanism.

The Next Step on Insurance: Deciding What Role the UNFCCC Should Play

The costs of insurance programs under discussion have only been roughly estimated, and the overall pool of adaptation finance available through the post-2012 regime remains unknown. The initial level of finance may constrain options for insurance program design, and may force some difficult trade-offs between insurance programs and other adaptation activities that could be supported through the UNFCCC. This situation calls for concrete and specific discussions about options for the roles the UNFCCC should play in the promotion and provision of insurance, and for the institutional arrangements needed to support each option.

The role of a global institution like the UNFCCC in supporting the provision of insurance may vary depending upon:

which type(s) of insurance Parties prioritize
the scale of finance available
Parties’ decisions about what roles are appropriate and feasible
Parties’ expectations regarding the roles of the private sector and national governments

Countdown to Copenhagen: U.S. Climate Policymaking Process-A Guide for the Perplexed

Ruth Greenspan Bell — Tue, 03 Nov 2009 18:03:47 -0500

In deciphering U.S. climate policy, it is important to understand the limitations of the president’s powers and the distinct processes that all legislation follows in the two chambers of the United States Congress.

The world is looking to the United States for leadership on countering climate change. President Obama’s identification of climate change as an issue his administration would address has raised international expectations of quick and expansive U.S. action. However, in deciphering U.S. climate policy, it is important to understand the limitations of the president’s powers and the distinct processes that all legislation follows in the two chambers of the United States Congress: the House of Representatives and the Senate.

Foreign observers and negotiators, especially those from parliamentary systems, may not grasp the unique features of the American system in moving policy forward. This brief seeks to further their understanding of the United States in order to promote effective climate negotiations both in the ongoing UN process and in other multilateral and bilateral forums.

Limitations of Presidential Power

The 435 voting members of the House of Representatives are elected by specific “districts” within the 50 U.S. states and serve a two-year term. Districts primarily reflect population distribution and size; thus, a sparsely populated state might have only one Representative, while more populous states such as California have more than fifty. On the other hand, each state, regardless of population size, has two senators for a term of six years. This can award disproportionate power to small and sometimes rural populations. Each House and Senate election is intensely local.

The approach to party discipline between the executive (White House) and legislative (Congress) branches of U.S. government differs from parliamentary models. The president can cajole, offer incentives (such as helping fundraise or campaign for a member of Congress), and appeal to the sensibilities of Democratic Party elected officials; but ultimately they are free to vote based on how they assess the interests of their own constituencies and electoral prospects. Even new Democratic Party members of both houses who may have won their seats through association with Barack Obama will not automatically vote for all of his policies.

How Congress Makes a Law

Senate Committees with a Role in Climate Legislation

Foreign Affairs
Chair: John Kerry
Environment & Public Works
Chair: Barbara Boxer
Finance
Chair: Max Baucus
Agriculture
Chair: Blanche Lincoln
Energy and Natural Resources
Chair: Jeff Bingaman

Typically, bills are written and considered separately in each house of Congress, which often makes the process of legislating time-consuming. The two houses may not even communicate during this process, although the Speaker of the House and the Senate majority leader, especially if from the same party, might confer. The initial bill writing responsibility lies with the membership of House and Senate committees that have jurisdiction over the subject matter. For complex subject areas, including climate policy, more than one committee has jurisdiction. Thus, while the Senate’s Environment and Public Works Committee has jurisdiction over environmental issues, other committees which oversee energy, finance and agriculture may also draft versions of parts of the bill relevant to their specialty. (see sidebar).

The Senate is free to construct its own unique climate bill, and is doing so, even though the House has already passed the American Clean Energy and Security Act (ACES, also known as the Waxman-Markey bill.) It also sets its schedule to reflect its own legislative priorities, with current Senate priorities including health care and financial regulatory reform.

Lobbying by special interests on public issues can also have an impact on the legislative process, with money playing a major role. Representatives and senators independently raise funds for their re-election campaigns. Contributions can provide access to members, if only to make an interested party’s case on specific policy issues. In 2009, millions of dollars have been spent on advertising and campaigning by industry, business, labor, and environmental lobbies in supporting or opposing climate legislation.

Voting Challenges

Party discipline on voting in each house may differ. House leadership responsibilities include passing legislation and preserving the party’s majority. These goals may not always be aligned. Thus, if the Speaker of the House of Representatives finds the necessary votes to pass controversial legislation, she might “release” certain Democrats who might be willing to vote “yes” but would strongly prefer to vote “no” to preserve their electability. This reportedly took place during passage of the ACES.

The Senate faces a different challenge in passing climate legislation. Although only a simple majority of 51 votes (or 50 if the Vice President can break a tie vote) is technically needed to pass legislation, in practice 60 votes must be found. This is because the minority party can pursue a tactic called filibustering in which endless debate keeps a bill from a final vote. Sixty votes are needed to end the filibuster in a process called cloture. This gives the Senate minority enormous power and poses a constant threat to majority party Senate leadership.

Once legislation has passed both houses of Congress, a separate process reconciles differences between House and Senate bills. The leadership in each house will appoint representatives to a joint Conference Committee to produce a final integrated bill. This is usually not a cut-and-paste job but a delicate task to balance and reconcile competing interests. The reconciled committee draft receives a final up or down vote in each house.

Who’s Who and What They Do

The main federal executive branch departments and agencies dealing with climate change issues include:

U.S. Environmental Protection Agency (EPA)
Administrator Lisa Jackson; Gina McCarthy is assistant administrator for the Office of Air and Radiation, tasked with climate regulatory development.

U.S. Department of Energy (DOE)
Secretary of Energy Steven Chu is tasked with advancing the national, economic, and energy security of the United States, and promoting scientific and technological innovation in support of that mission.

U.S. Department of State
Secretary of State Hillary Rodham Clinton; Todd Stern heads the climate negotiations; Jonathan Pershing is his deputy.

White House
The Office of Management and Budget (OMB) approves all rulemakings and Executive Orders, headed by Peter Orszag.

The Energy and Climate “Czar” is new position created by President Obama and occupied by Carol Browner who served as EPA administrator under President Clinton.

The Council on Environmental Quality (CEQ) coordinates federal environmental efforts and liaises with agencies and other White House offices in developing environmental policies and initiatives.

Windows of opportunity to pass legislation The opportunity to work on bills is time limited. The current climate change bills — the ACES and the Clean Energy Jobs and American Power Act, also known as Kerry-Boxer—pertain only to the 111th Congress (January 6, 2009 to January 3, 2011). Because House members must seek re-election every two years, and a third of senators are up for re-election in the same time period, each of these two-year periods becomes a separate, numerically identified “session of Congress.” Failure to reach agreement on a bill within this two-year period kicks the process into the next session of Congress, where it must start again from the beginning. Once a bill has passed both houses of Congress it goes to the president for signature. The president has only two choices — sign or veto. Congress can override a veto, but only with a two-thirds majority vote in each house; or it could write a new bill that might be more acceptable to the president.

What happens after Congress passes a law and the President signs it?

After presidential signature the process of executive branch implementation begins, including rulemaking by the federal agencies involved. Typically, even detailed legislation (the American Clean Energy and Security Act is 1,428 pages long) requires further specifics to be filled in by executive branch agency rulemaking. If ACES was enacted into law, well over 50 rulemakings would be conducted by the U.S. Environmental Protection Agency the U.S. Department of Agriculture, and other federal departments and agencies. How long a rulemaking takes depends on the complexity of the subject matter and the speed with which the agency addresses it. Some environmental rulemakings have taken decades; others have moved more quickly. The EPA has signaled that it considers action to reduce greenhouse gas emissions a priority.

What can the president do about climate change without help from Congress?

Within the executive branch (which contains all the departments and agencies, which are similar to ministries in most European governments), the president has a fair amount of latitude. He can issue executive orders that require the federal government to follow certain rules. (For example, President Obama recently required that the federal government reduce its own greenhouse gas emissions.) If sufficient legal authority is contained in existing statutes, the president can direct any part of the executive branch to initiate rulemaking, a form of administrative law-making. For example, the U.S. Clean Air Act’s existing statutory authority is the basis for several EPA rulemakings to monitor and control greenhouse gases.

Following the Money in an International Climate Agreement

Maria Athena Ballesteros — Mon, 02 Nov 2009 10:18:35 -0500

Athena Ballesteros explains how international climate finance could make or break a deal in Copenhagen.

WRI has released a new paper on climate finance. What is climate finance and why is it important in climate negotiations?

In order to avoid the worst impacts of climate change, the world will have to act quickly and at scale. Developing countries have indicated their readiness to act, alongside the industrialized nations. But to do so, they will need significant financial support. Such assistance is necessary to help developing countries deal with climate change by: adapting to its destructive impacts, such as stronger storms, droughts, and sea level rises; reducing greenhouse gases by switching to cleaner fuels and energy sources; and building capacity so that they have the expertise and institutions to make the necessary changes.

This support will come in a range of forms – private investment and carbon markets, but also public finance. Though there is increasing agreement about the amount of finance required to satisfactorily tackle climate change, there is still no consensus on how this money will be actually be delivered.

Traditionally, aid has been managed by existing institutions like the World Bank, which in turn have been controlled by the developed, donor countries. The climate issue is different. It is not only about giving aid but also about jointly solving a common problem. Therefore, a new global agreement on climate finance is likely to significantly redistribute power, responsibility, and accountability between traditional donor and recipient countries. This is both long overdue and necessary.

Why is climate finance being described as a deal breaker in Copenhagen?

Climate finance is one of the most contentious issues in the ongoing negotiations among the 192 member countries of the UN Framework Convention on Climate Change (UNFCCC). Whichever finance mechanism they choose will mobilize and then allocate funds, prepare and approve projects, provide technical advice, set standards for performance, and then monitor projects to ensure that they are held accountable. It is a huge task, so it is no wonder that its design and governance has been a sticking point in the negotiations between developed and developing countries.

The key point of contention is whether this job should be done by existing institutions, which are traditionally dominated by developed countries, or by creating reformed or new institutions that would provide a greater voice for developing countries. There is also heated debate over whether money should be administered and distributed by one large, centralized institution, or through a decentralized approach, one that would incorporate international, regional, and national institutions.

How does a new publication from WRI inform the negotiations?

Power, Responsibility, and Accountability: Rethinking the Legitimacy of Institutions of Climate Finance is meant to draw lessons for negotiators. We reviewed the governance structures, operational procedures, and records of 11 international and national climate funds to see what has been most effective to date. This is the first publication to move beyond the issue of “which institution will we use?” and explore an equally important issue: “what will it take for these institutions to have legitimacy?”

What do you mean by “legitimacy?”

No matter what institutions are eventually charged with managing these new flows of climate finance, they will only be successful if both donor and recipient countries see them as legitimate. The key elements we identified as required for legitimacy are power, responsibility, and accountability.

Power: To be legitimate, the distribution of power within the governing body of the financial institution has to be balanced. We examined whether developed and developing countries have an equal say in how existing funds are managed and operated. Looking ahead, if existing institutions are to meet evolving standards of legitimacy, then their fundamental governance structures, operational procedures, and institutional capacities will need to be reformed.
Responsibility: Efforts to address climate change must be “country-driven” and reflect national priorities and circumstances in order to be successful, rather than being mandated by donor countries. Direct access to climate funds is important in enabling developing countries to take direct responsibility at the country level without having to rely on implementing agencies such as the World Bank or the UN Development Program (UNDP), or having to navigate layers of donor conditionality.
Accountability: Strong provisions for accountability are needed to ensure that money is managed well, to promote good governance, and to manage potential environmental and social impacts. If done well, the institutional re-designs that shift power and responsibility towards developing countries will also entail more accountability for how the money is spent.

Can existing institutions follow this framework for legitimacy?

Our research finds that relying on existing institutions could work if significant reforms are put in place. For example, if the World Bank wants to continue to play a role, it needs to demonstrate to both member countries and civil society that it is willing to embrace fundamental changes in its governance structures and operational procedures in order to give greater voice to developing countries. This would include (through the guidance and authority of the Parties to the UNFCCC) taking advice from civil society, technical experts, and the private sector.

To be viewed as legitimate, the Bank’s “business as usual” practices – including its support for fossil fuel projects in developing countries, and its minimal attention to climate change and low-carbon development strategies – will need to change.

What are some of the critical elements of a climate finance agreement in Copenhagen?

First, we need an agreement on a fund that can put money towards a range of urgent purposes, such as adaptation to the impacts of climate change, technology transfer, and greenhouse gas reduction measures, including reducing emissions from deforestation and forest degradation (REDD). In addition, a climate fund must be able to trigger new, additional and predictable climate funding from many other sources, including the private sector, carbon markets, and national public and private finance sources.

The fund must have a governing body that will oversee its operations under the guidance and authority of the Conference of the Parties (COP) to the UNFCCC, with equitable and balanced representation from both developed and developing countries, and with input from civil society and technical experts.

The international community must also de-link the source of finance from the power and influence traditionally exerted by donor countries, for example by adopting new levies such as those on Clean Development Mechanism (CDM) projects. Also essential is agreement to scale up existing climate financing. Yvo de Boer, UNFCCC chief, recently estimated that funding needed “both to curb emissions and help people adapt to changes such as droughts or floods could total $250 billion per year in 2020.” Whatever financing is agreed in Copenhagen should include immediate mobilization of at least 10 billion dollars. This ‘start-up’ fund is urgently needed to help the poorest countries to build capacity to design and implement adaptation and low carbon development plans.

WRI Summary of the Clean Energy Jobs and American Power Act (Kerry-Boxer)

John Larsen — Fri, 30 Oct 2009 18:16:42 -0400

This summary provides a concise overview of the Chairman’s Mark of the Clean Energy Jobs and American Power Act (CEJAPA), released by Senator Boxer on October 23, 2009.

Download the Complete Summary (PDF, 21 pages, 637 Kb)
(includes footnotes and references)

Note: This summary was originally posted on October 6th. It was revised to reflect changes in the Chairman’s markup. You can download the original summary here (PDF, 11 pages, 132 Kb).

The CEJAPA consists of two divisions:

Division A: Authorizes new greenhouse gas (GHG) emissions standards, creates new programs for energy, research and development (R&D), adaptation, transition assistance and other purposes
Division B: Authorizes the establishment of GHG emission caps and directs the investment of allowance value to various programs including those established or revised in Division A.

This summary roughly follows the structure of the bill; it deviates from this structure where we believe grouping related components together facilitates understanding of the bill. The legislation contains some placeholders that are likely to be clarified in subsequent stages of the legislative process. For more information on specific components of the CEJAPA, please refer to the actual legislative language as referenced by section and page number in this document.

Download the Complete Summary (PDF, 21 pages, 637 Kb)
(includes footnotes and references)

Emission Reductions Under Congress' Cap & Trade Proposals

John Larsen — Fri, 30 Oct 2009 10:55:22 -0400

New analysis compares emissions reductions in the current Kerry-Boxer and Waxman-Markey bills.

WRI has released a new assessment of greenhouse gas (GHG) emissions reductions that could be achieved under the proposals currently under consideration in the 111th Congress. This assessment is an update to a previous analysis WRI released on June 25, 2009 and includes an assessment comparing the Manager’s Amendment to S.1733 the Clean Energy Jobs and American Power Act (CEJAPA) sponsored by Senators Kerry and Boxer and H.R. 2454 the American Clean Energy and Security Act of 2009 (ACESA) passed by the House of Representatives on June 26, 2009.

Key Findings

The emissions caps in the CEJAPA and ACESA achieve reductions of 17 and 14 percent respectively relative to 2005 levels in 2020. By 2050, both the CEJAPA and ACESA achieve reductions of 72 percent relative to 2005 levels.
Estimates of total US emissions in 2012 under the emissions caps in both the CEJAPA and ACESA are approximately 300 million tonnes higher than recent short-term projections of U.S. emissions for 2010 published by the Energy Information Administration.
While the CEJAPA and ACESA contain similar complementary measures in addition to emissions caps, they are sometimes applied in different ways and in turn result in somewhat different relative emission reductions. Specifically:
- When all complementary requirements are considered in addition to the caps, GHG emissions would be reduced 29 and 28 percent relative to 2005 levels by 2020 and 73 and 75 percent relative to 2005 levels by 2050 for the CEJAPA and ACESA respectively.
- When additional potential emission reductions are considered, the CEJAPA and ACESA could achieve up to 34 and 33 percent relative to 2005 levels by 2020 and up to 78 and 81 percent relative to 2005 levels by 2050 respectively. The actual amount of reductions will depend on the quantity and quality of international offsets used for compliance and the effectiveness of supplemental reduction programs that do not explicitly contain GHG reduction requirements.

“Emission Reductions Under Cap-and-Trade Proposals in the 111th Congress, 2005-2050” graphically presents total GHG reductions achieved by S.1733 and H.R.2454 relative to U.S. historic and projected emissions under the three reduction scenarios:

The complete analysis, including a full description of the methods and assumptions, is available here: Emissions Reductions Under Cap and Trade Proposals in the 111th Congress.

Carbon Dioxide Capture & Storage and S. 1733, The Clean Energy Jobs & American Power Act of 2009

Sarah Forbes — Wed, 28 Oct 2009 09:50:02 -0400

The Clean Energy Jobs and American Power Act of 2009 (CEJAPA) provides a number of provisions that facilitate the demonstration and deployment of carbon dioxide capture and storage (CCS) technologies. This document provides a brief overview of the most important of these. Coal use is responsible for over 40 percent of global carbon dioxide emissions¹, and significant, deliberate action will be required to reduce these emissions. The CEJAPA lays a foundation for moving CCS technology to scale by reducing costs and providing funding for demonstrations.

Note: This summary was originally posted on October 22nd. It was revised to reflect changes in the Chairman’s markup.

The provisions for CCS in the CEJAPA include the following:

Develops a comprehensive national strategy for deployment. The bill requires Federal agencies, with EPA leadership, to develop a comprehensive strategy for commercial deployment and deliver a report to Congress within one year. The report will identify barriers and regulatory challenges and will recommend regulation, legislation, and other actions to facilitate CCS deployment (Sec. 121).
Establishes regulations for geologic storage. Amends the Clean Air Act and Safe Drinking Water Act to establish regulations for geologic storage. Requires EPA to finalize the rules for carbon dioxide geologic sequestration wells, including financial responsibility requirements, within one year. The bill also requires EPA to identify a coordinated process for certifying and permitting geologic storage sites within two years. Standards must include rules on financial responsibility of injected CO2, monitoring, record keeping, public participation and certification rules, among other things. Rules must minimize redundancy between CAA and SDWA authority (Sec. 122 and Sec. 813).
Requires emissions reporting for geologic storage sites. Geologic storage sites are regulated sources under the cap and trade program. Mandatory emissions reporting is required beginning in 2011 (Sec. 700 and Sec. 722).
Requires a formal report and evaluation of regulatory framework every three years. The bill requires EPA to formally report data on geologic storage sites, evaluate the performance of the geologic storage sites, and reassess the regulatory framework for geologic storage sites to Congress once every three years (Sec. 813).
Establishes a task force to design legal frameworks. The bill establishes a task force to provide recommendations to Congress within eighteen months that include a study of the ability of existing laws and insurance mechanisms to manage risks associated with CCS, the implications and considerations for different models for liability assumption, and subsurface property rights. The bill also requires EPA to study the means and circumstances under which existing environmental statute would apply to CCS and to present a formal report to congress within one year (Sec. 123).
Promotes R&D and early deployment of CCS. The bill establishes a Carbon Storage Research Corporation to be run by the Electric Power Research Institute (as proposed in HR 1869, introduced by Rep. Boucher). The Corporation would use funds collected through a feed-in tariff to issue grants and financial assistance for commercial-scale CCS demonstrations. Funding is capped at $1.1B per year for no more than 10 years. The bill also includes provisions for governance, government oversight, information sharing and intellectual property for both the Corporation and projects it would undertake. Commercial-scale projects undertaken by private, public, academic and non-profit organizations are eligible for funding, with an emphasis on supporting a diversity of technologies and fuels. Funding will go towards at least 5 commercial-scale integrated CCS projects, with 50% of funds to utilities that have already committed resources towards such projects (Sec.125).
Provides bonus allowances for stored carbon dioxide. The bill provides bonus allowances to the first 72 GW of facilities that implement capture and secure geologic storage or convert the carbon dioxide into a stable form. To qualify a project should reduce the facility’s annual carbon dioxide emissions by at least a 50 percent Payment is available for electric generating units fired by coal or petroleum coke at least 50 percent of the time and with a nameplate capacity of 200MW or greater (or retrofit equivalent of 200MW), and to industrial sources that emit more than 50,000 tonnes of carbon dioxide per year and do not produce liquid transportation fuel. Funds will be divided into tranches with the payment on sliding scales with higher payments for greater percentage capture, with a lower bonus provided for projects that combine geologic storage with enhanced oil recovery. Conditions for eligibility and advanced distribution of emissions allowances for these projects are specified. This program provides a mechanism for offsetting the technical risk assumed by early-adopters and a financial incentive to capture and store greater percentages of carbon dioxide than is required under the performance standards. Specifics of the bonus allowance payments are outlined below (Sec. 780):

Phase I (first 20 GW of treated CCS generating capacity, divided into two tranches):

First tranche (first 10 GW of treated generating capacity):
- Units achieving capture and storage of 90% or more of the carbon dioxide that would have otherwise been emitted would receive $96 bonus allowance value for each ton of CO2 captured and sequestered.
- Bonus allowance payment for lower percentage capture will be determined by the EPA administrator, with a minimum payment of $50 per ton of CO2 captured and sequestered for a 50 percent reduction in carbon dioxide. The payment should vary in direct proportion with increasing rates of capture receiving proportionally larger payments.
- An extra $10 per tonne bonus allowance is given for early-adopters, or those that begin operating at a 50% capture and storage rate before 2017.
- Industrial source projects are excluded under the first tranche.
Second tranche (10-20 GW of treated generating capacity):
- Units achieving capture and storage of 90% or more of the carbon dioxide that would have otherwise been emitted would receive $85 bonus allowance value for each ton of CO2 captured and sequestered.
- Bonus allowance payment for lower percentage capture will be determined by the EPA administrator, with a minimum payment of $50 per ton of CO2 captured and sequestered for a 50 percent reduction in carbon dioxide. The payment should vary in direct proportion with increasing rates of capture receiving proportionally larger payments.
Phase II (20-72 GW):
- Allowances are distributed through an annual reverse auction (unless otherwise decided by the EPA) with bids based on the desired level of incentive for 10 years of geologic storage.
- At least two of these reverse auctions will be held, and a separate auction may be held for up to five separate project categories. These categories may be defined based on coal type, capture technology, type of geologic formation and new/retrofit application.
- The EPA Administrator may prescribe a schedule for providing bonus allowances if it is determined that a reverse auction would not result in efficient and cost-effective deployment. The established bonus allowance values should cover not more than the reasonable incremental capital and operating costs for CCS.
- Phase II will be divided into tranches of not more than 10 GW.
Sets performance standards for new coal-fired power plants. The bill amends the Clean Air Act to require new coal-fired power plants to meet performance standards. The EPA Administrator must review the standards and may tighten them depending on the performance of commercially-available technology (Sec. 812).
- Standards apply to all plants permitted after January 1, 2009 where 30% or more of their fuel is coal and/or petroleum coke.
- Plants permitted from 2009-2020 must achieve a 50 percent reduction in annual emissions by 2025 or earlier (if a threshold of 10 GW of commercial deployment is met).
- Plants permitted from 2020 onward must achieve a 65 percent reduction in annual CO2 emissions from the unit.
- The onset date may be extended to 2022, if the Secretary of Energy and Administrator find insufficient commercial deployment in 2017 and Congress approves this finding.
- The standards are reviewed by the Administrator before 2020 and at 5 year intervals afterwards. The maximum carbon dioxide emissions rate for new plants may be reduced (via rulemaking) to reflect the degree of reduction achievable.
Establishes allowance allocations for the bonus allowance program. 1.7 percent of allowances are allocated to CCS, beginning in 2014 (Sec. 771):
- 1.75% of allowances from 2014-2017
- 4.75% of allowances in 2018 and 2019
- 5% of allowances from 2020-2050

International Energy Outlook 2008, Figure 76 ↩

China, the United States, and the Climate Change Challenge

Deborah Seligsohn — Wed, 21 Oct 2009 12:41:11 -0400

As December’s climate change talks approach, a new WRI report discusses the successes and challenges to effective regulation in China.

As the two largest current global emitters of greenhouse gases (GHGs), it is imperative that the United States and China work together to support effective domestic energy and climate change programs and an effective international climate regime. As China’s domestic energy policy has transformed over the last several years to incorporate climate-friendly goals – increased energy efficiency and a greater contribution of non-fossil fuels to its energy mix – this opportunity is already becoming a reality, especially as the United States advances comprehensive climate policy.

The new WRI report, China, the United States, and the Climate Change Challenge discusses the successes and challenges to effective regulation in China, outlining the major advances made in implementing effective energy efficiency programs in the past several years. These include targeted programs for both large and small enterprises, specific goals for government officials, and the development of energy statistics infrastructure. It also addresses U.S. competitiveness concerns in relation to the introduction of U.S. cap-and-trade policies, and specific opportunities for enhanced climate change cooperation between the two countries.

Comparison of Chinese and U.S. Energy Statistics

China’s Energy and Climate Policy

China’s energy and climate change policy is based on its own assessment of national interest as outlined both in its 2007 National Climate Change Program and 2008 Climate Change White Paper. China’s climate policy meshes with concerns about energy security, pollution abatement and the cost of energy itself, as well as the impacts of climate change and China’s international reputation.

Section 1 outlines China’s National Climate Change Program, the key components of which are:

Reducing energy intensity per unit GDP by 20 percent between 2006 and the end of 2010,
Increasing non-fossil fuel-based and renewable energy to 15 percent of the energy mix by 2020, and
Increasing total forest cover in China to 20 percent by the end of 2010.

China’s approach is diverse and includes targets and quotas, industrial and equipment standards, energy taxes and financial incentives and penalties. While China has gained some experience with carbon markets through the Clean Development Mechanism (an offset mechanism under the Kyoto Protocol), given China’s institutional strength, as demonstrated by other policies, the country will likely use a variety of tools to continue to implement its climate change policy.

China’s National Climate Change Program

China’s National Climate Change Action Program, published in June 2007, provides for three major mitigation efforts that, in combination, reduce greenhouse gas emissions:

Reducing the energy intensity of GDP by 20 percent over the five years 2006 through the end of 2010.
Increasing alternative energy in the fuel mix to 15 percent by 2020.
Increasing forest cover to 20 percent of China’s land mass by the end of 2010.

The national program is more than a mitigation program. It also contains support for climate science and for preparedness and adaptation. China’s scientists have been active in the global effort to understand climate change and are increasingly involved in developing technical approaches to both mitigation and adaptation.

Although these policies may not provide the environmental certainty of a cap-and-trade system, they can drive emissions reductions and may be more suited to the current development of China’s financial markets and enforcement infrastructure.

U.S.-China Competitiveness Concerns and Cooperation Opportunities

This brief addresses the concern in the United States about potential transfer of carbon-intensive jobs to China. While a carbon cost will not be a major factor in most sectors in the United States, some sectors could be affected. However, this concern can be addressed through adjustments to the United States’ domestic allowance system under cap-and-trade legislation, by coordinated action under an international agreement, or by trade measures. Trade measures are unlikely to be an attractive option as they increase costs for downstream users, threaten export markets and potentially damage international negotiations.

Comprehensive U.S. climate legislation could spur further improvements in China’s climate change programs and policies. Creating incentives in the United States for clean technologies will help drive down the prices of these technologies, making them much easier for China and other major emitters to adopt. The United States can also collaborate with China in areas ranging from research and development to enforcement infrastructure to help China move its own policies forward. Finally, U.S. legislation can encourage China to do more as it positions itself as a global leader.

This brief outlines a number of bilateral and multilateral venues for enhanced cooperation. In the bilateral sphere, the new U.S.-China Memorandum of Understanding to Enhance Cooperation on Climate Change, Energy and the Environment, signed at the first meeting of the revamped Strategic and Economic Dialogue (S&ED) in Washington, D.C. in July 2009, provides a coherent framework for this cooperation. The new MOU incorporates the Ten Year Energy and Environment Framework developed under the previous U.S. presidential administration, provides a framework for cooperative projects and creates a new coordinating committee for both countries’ energy and environment agencies. The challenge will be to follow through on coordination and delineate clear goals and timetables. Many of the structures set up under the previous U.S. administration, not just bilaterally, but also multi-laterally, such as the Asia Pacific Partnership (APP) for Clean Development and Climate and the Major Economies Forum (MEF) have real potential to bring together key players, but they need more sharply defined goals and missions, and the United States will need to clarify funding. All of these programs can support domestic policies in each country as well as both countries’ efforts to reach a global agreement at Copenhagen in December.

To continue reading, download the full report.

Small Companies, Big Impacts

Maggie Barron — Mon, 19 Oct 2009 11:37:18 -0400

The New Ventures directors answer questions about what small, sustainable companies can do to boost local economies and protect the environment.

One company supplies solar lanterns to communities without electricity. Another refurbishes discarded copy machines and resells them to companies that couldn’t otherwise afford them. Another turns coffee waste into ethanol. Small and medium enterprises (SMEs) are the engines of local economies. They drive innovation, spur equitable growth, create jobs, and supply poor communities with better products and services. But many small entrepreneurs have trouble bringing their ideas to fruition, and most will fail within the first few years. For sustainable SMEs – those that manufacture and market environmentally friendly products and serve low income communities – the challenges can be particularly daunting.

WRI created New Ventures to help sustainable SMEs build their capacity, learn key management skills, and connect with investors. Working in six of the worlds’ emerging economies – Brazil, China, Colombia, India, Indonesia, and Mexico – New Ventures helps these countries develop their economies while protecting their environment.

I recently sat down with the six New Ventures country directors at their annual meeting in Washington, DC and asked them to explain why these small companies can have such a big impact:

What challenges do small and medium enterprises (SMEs) face?

Sanjoy Sanyal, India: In the developing world, SMEs lack one very critical resource: credit and financial resources to grow. They may also have access challenges, such as access to markets, access to the right kind of talent, but fundamentally the lack of access to credit and financial resources can be a debilitating obstacle.

Diyanto Imam, Indonesia: There’s also the challenge of capacity building. In terms of technical knowledge, these people know what they are doing. They know how to develop efficient machines, they know how to create a formula for an organic pesticide or herbicide. But many of them don’t know how to run a company, they don’t know how to develop a balance sheet, or they don’t even know what a balance sheet is.

Diyanto Imam

They don’t have the business skills to begin with, and for green SMEs in particular, they also need to educate their customers about their products. Most people in Indonesia don’t really differentiate between green products and conventional products. They equate green products with a premium price and don’t understand the other benefits.

Andre Carvalho, Brazil: In Brazil, it’s very difficult to attract investment. Many companies don’t know how to market themselves. They don’t know what “green” means exactly, or they’re green and they don’t even know it. These companies need investment, they need resources, they need networking opportunities, and they need media attention.

Why is it so important to help SMEs?

Sanjoy Sanyal, India: In developed countries like the US or in Europe, SMEs contribute a substantial percentage of the gross domestic product. So vibrant SMEs, when they’re well managed, have the ability to radically reshape a country’s economics. At the same time they have these challenges. So it’s really fertile ground for intervention.

Diana Gaviria, Colombia: It’s not only important to help SMEs, it’s important to help green SMEs. In many ways, in our country, SMEs are the motor of the economy, and by having green SMEs that are successful, we’re promoting more sustainable societies and showing the world in general that having a sustainable business model is something not only viable but that can also promote economic development.

Can helping SMEs also help the poor?

Andre Carvalho, Brazil: Yes, definitely. SMEs can work more directly with smaller suppliers than big companies can. The majority of suppliers to big companies have to be big themselves in order to keep up. If we help SMEs develop, they can act as suppliers to big companies and also develop relationships with smaller and local suppliers and bring more business to them. The business model is more inclusive.

Andre Carvalho

Diyanto Imam, Indonesia: They provide employment, which is particularly good for Indonesia because for the last thirty years, the center of economic activity has been in the capital in Jakarta. 70% of the money circulates in Jakarta, and that’s not good for the economy. So SMEs can really help develop the economies of smaller cities.

Sanjoy Sanyal, India: Most of our SMEs have base-of-the-pyramid strategies, where they either provide services to poor communities or low-cost products. They do help the poor, not necessarily because they are small, but because of the nature of the business they do.

Sanjoy Sanyal

The type of companies we work with are the ones that sell solar lanterns, or energy efficient cooking stoves for poorer people, poorer women in particular. These products help bolster local economies in both a socially and environmentally constructive way.

What does New Ventures do to help?

Weijia Ye, China: We help sustainable SMEs grow by getting them the right type of funding. We work with them to develop their business plans and help them network with a range of mentors whom they could not access by themselves.

Rodrigo Villar, Mexico: We are also trying to convince people that being an entrepreneur is better than just having a regular job. We don’t really have any entrepreneurs in Mexico. There is a negative connotation to what “businessman” means there; usually it makes people think of rich men who have stolen money. So no one wants to be an entrepreneur. Everyone wants to get a university degree and then work for a big company. And when you talk about environmental entrepreneurs, it’s even harder. We have to convince people to go into environmental areas and industries, because they can make a profit and help their society develop.

Diana Gaviria

Diana Gaviria, Colombia: One of the most important things we do is act as an honest broker and help these companies get to investors and institutions that can aid them in their process of acceleration. We’re trying to promote a climate where individuals of high net worth can invest in companies rather than just big institutions that come in and do all these very demanding due diligences and long processes for riskier business.

What are some examples of the companies in the New Ventures portfolio?

Sanjoy Sanyal, India: One company that comes to mind is called Sumaya HMX Systems. They make energy efficient air conditioning systems. India and large parts of the developing world are hot and tropical, and air conditioning is by now a mandatory requirement for most workplaces, but at the same time they consume loads of energy, and are a big source of carbon emissions. This company uses a technology that allows adaptive cooling – a more efficient cooling system – which brings the temperature to only a couple of degrees above what you’d expect in a conventional air conditioning system. It’s still comfortable, but it obviates a lot of the energy usage and carbon emissions in more conventional AC systems. It’s a great technology; it’s very useful and appropriate for large parts of both the developing world and the developed world. I think New Ventures’ intervention in this company was at a very interesting point. We were able to get the company a corporate investor, which took on a simple majority stake in this company, and helped the innovation reach a very large audience because of their marketing and technical service operation.

Diana Gaviria, Colombia: In Colombia we work with a man who had his own water treatment company that mainly served affluent neighborhoods. He wanted more out of his business, and so he investigated technologies and came up with one that would provide water to communities that currently don’t have any access to water at a very low cost, much less than what people were already having to pay. When he first came to us we weren’t sure if his proposal was viable. He wanted the communities to manage the whole operation, so he not only wanted to sell to them but he wanted them to be involved in the management of the business. We had many discussions with him and finally we were convinced. And so with the help of students from the Cornell MBA program and business mentors, we put together a viable business model, where he is able to produce portable water treatment plants that can be run and operated in local communities.

Rodrigo Villar

Rodrigo Villar, Mexico: We work with a company called Biofabrica Siglo XXI. They came to us four years ago. The owner of this company was an agronomist, he didn’t have any experience with business, and he was using this technology to change chemical fertilizer into biological fertilizers. So we helped him with the business plan, and now, four years later, this company is worth $7 million, and over 200,000 hectares are using his bio-fertilizers instead of the chemical ones, and he was able to drop the price of his product too, so he continues to get new clients.

How is the economic crisis impacting your country?

Weijia Ye, China: It’s different for different industries. In general it’s hard to say “Now it’s ending.” I would be pretty cautious and wait another half year or year. This crisis is so different from previous ones because no one can predict it. Some of them are doing pretty well, but it doesn’t mean it’s the end of the crisis. I think the current financial crisis is sending a very strong, clear signal that there is something fundamentally wrong with this current regime of the market economy.

Rodrigo Villar, Mexico: Between the economy, the H1N1 flu scare, and the drug problems, it’s been a tough year for us. But a recession can be a good time for entrepreneurs. Companies are growing. If they can make it work now, they’ll grow even more as the economy recovers.

Can green companies be competitive in the current economy?

Sanjoy Sanyal, India: These are early days. But I think there clearly is an understanding that yes, green companies can be competitive. A lot of it is coming from the fact that, while the US is still struggling with its economy, it is still clearly signaling to the world that businesses need to develop a more sustainable model. So whether it’s Walmart or a Cisco, people are saying that we need to incorporate energy efficiency and climate into our business thinking. Another thing the US is signaling to the world, which I think emerging economies are picking up on, is the fact that consumers are willing to vote with their wallets that they would like to spend more on goods and services that have a clearly professed environmentally positive, or at least an environmentally neutral effect.

Andre Carvalho, Brazil: Six years ago the community of investors in Brazil thought that sustainable business was only something very small, and that it couldn’t be scaled up. But New Ventures has been showing them that there are a lot of opportunities, and showcasing successful fair trade models that are part of a new history that’s being written right now. We are showing the mainstream that there are other ways to think about community development.

Weijia Ye, China: We want our SMEs not only to be producing green products, but also to have strong values. I believe that the future of the world Weijia Yedepends on all companies becoming sustainable. There’s a call for a new generation of enterprises, which should be different from Henry Ford’s generation. Because at the time, if you look at the management of these original industries, they were quite brutal. We’re at the stage where we should not be doing the same things as we did before. We are ready to develop new models.

What motivates you in your work at New Ventures?

Diyanto Imam, Indonesia: You get to meet these great individuals with ideas, with fire in the belly. They have amazing passion. I like to meet with these entrepreneurs simply because they are passionate about what they do. They have this belief that they can change the environment and affect the people around them in a good way. The spirit is there. In Indonesia, life is tough. But these people see opportunities.

Weijia Ye, China: My wish is for the next generations of big companies to be fundamentally different from current versions. They should not be developing Corporate Social Responsibility plans only when they become big. They should have these plans in their DNA from the very beginning. It should be incorporated into their way of doing business. These small companies we work with have the right core values now, and when they grow they will be part of the next generation of business.