But in this recent hubbub, let’s not lose sight of the fact that well-designed programs that marry public policy and market forces can be very powerful in solving ecological problems. The shining success is clearly the EPA’s Acid Rain program that has virtually solved the acid rain problem at a fraction of the projected cost and has been the model for Kyoto’s cap and trade design.   So rather than dismiss offsets entirely, let�??s understand their role in the fight against global warming and improve on today�??s market-based approaches.

Transparency, Choice and Value

It�??s challenging to birth a voluntary carbon market where there has been, by and large, no regulatory framework. In the absence of federal leadership on Kyoto and due to an evolving variety of certification standards, there have been several models that have evolved to develop a voluntary carbon market in the US, both exchange and broker-based.  To mitigate the challenges highlighted in the recent articles and improve the pace of market development, we need new approaches that bring three key elements to the equation �?? transparency, choice and value.

The problem highlighted in Mr. Ball�??s article is a lack of additionality �?? namely people are getting paid for something they�??re already doing, or, as the landfill owner in the article put it: �??It seemed a little suspicious that we could get money for doing nothing.�??

While additionality is the symptom, the lack of transparency is the root cause. A buyer cannot determine the quality of the credit without understanding the project that generated it and the standards and protocols certifying the offset.  If the offset is co-mingled with offsets from a variety of projects, the task gets even harder.

A second challenge is a lack of choice: any given broker or exchange may only have a handful of projects or project types for a buyer to evaluate.  With less choice, there will be less market activity. 

Finally, the value of the offset tends to be opaque.  There really isn�??t a published market price for offsets because they have differing value based on the project generating them (type, certification standard, credit risk, delivery risk, etc). The lack of a pricing mechanism where a buyer can be confident that they�??re getting a transparent, market price for a specific credit is also a drag on the pace of market development.

Like the launch of the Regional Greenhouse Gas Initiative �?? the US‘ first mandatory cap and trade program, offsets are fulfilling an important role in bringing market approaches to increase the velocity of capital from greenhouse gas mitigator to project operator.

Let’s not let flaws in some of the early business models cause us to abandon our efforts to solve the most challenging environmental problem of our generation.  Rather, let�??s improve on these early models to create more efficient and effective market mechanisms.  

Phil Adams, President

World Energy Solutions, Inc. (www.worldenergy.com)

Worcester, MA �?? September 30, 2008 �?? World Energy Solutions, Inc. (TSX: XWE) today announced it has successfully administered the first-in-the-nation auction for carbon dioxide (CO2) emissions allowances on behalf of the Regional Greenhouse Gas Initiative (RGGI). According to RGGI, Inc., 12,565,387 allowances were sold at the auction at a clearing price of $3.07 per allowance, netting the six RGGI states that offered allowances in this pre-compliance auction $38,575,783 in proceeds. The auction occurred on September 25, 2008.

In a previously released statement, Pete Grannis, Commissioner of the New York State Department of Environmental Conservation and Chair of the Regional Greenhouse Gas Initiative, Inc. said: �??The 10 RGGI states have demonstrated great leadership in coming together to offer this first carbon cap-and-trade system, and the smooth completion of the initial auction is proof that the RGGI is leading the nation in the battle against climate change. RGGI�??s example shows that an open and competitive carbon market can be implemented.�?? (The complete RGGI, Inc. press release can be read at: http://www.rggi.org/docs/rggi_press_9_29_2008.pdf)

Added Jonathan Schrag, Executive Director of the Regional Greenhouse Gas Initiative, Inc.: �??We are grateful that the auction administered by World Energy Solutions ran flawlessly and that the monitoring conducted by Potomac Economics concluded that the auction was robust. We are very fortunate to have two top-notch firms administering and overseeing our auctions.�??

�??We are honored to be part of this historic and seminal event,�?? said Richard Domaleski, CEO of World Energy. �??I am very proud of our team and the performance of our award-winning World Green Exchange®.�??

The Bush Administration’s major air pollution initiative, regulating the emission of sulfur dioxide, nitrogen oxide and other major pollutants, was struck down by a federal appeals court. The ruling came as a bit of a surprise, as many utilities had been planning on entering the cap-and-trade market that the initiative would have created.

Ironically, a spokeswoman for North Carolina Attorney General Roy Cooper, who filed the suit, stated that Cooper did not agree with the ruling. When he first filed the suit, Cooper said that loopholes in the rule would actually allow emissions from neighboring states’ power plants to pollute North Carolina’s air.

In addition, on the same day the head of the EPA said the Clean Air Act was the wrong tool for regulating greenhouse gas emissions, and that Congress needed to be responsible for passing such regulations.

Also on Friday the ten Northeast and Mid-Atlantic States participating in the Regional Greenhouse Gas Initiative (RGGI) issued a preliminary release of technical materials for market participants interested in bidding in their first-in-the nation auction of carbon dioxide (CO2) allowances this September.

And earlier in the week the EU reached a provisional agreement to include airlines in their Emission Trading Scheme (ETS), beginning in 2012. Currently only 3 percent of all carbon dioxide emissions in the EU are generated by aviation. However, without new carbon emission regulations this percentage should increase over the next decade, as power producers lower their carbon emissions and air travel in the region increases.

Japan�??s largest utility, Tokyo Electric Power Co (TEPCO), announced that it is building its first wind farm, according to Reuters. The 11 wind turbines, total capacity of 18.37 megawatts, are scheduled to start commercial operations in October 2011, and are projected to reduce carbon emissions by 12,000 tonnes per year.

Financial News discusses the increase in the European Union carbon emissions trading from $24.4 billion in 2006 to $50 billion in 2007. Increased investing and a better market infrastructure have continually helped the market to grow, along with a rise in permit prices after the European Commission, which issues carbon dioxide quotas, allocated fewer permits.

To schedule a meeting with World Energy at Carbon Expo, Booth F-26 in Hall 11.1, please contact:

Ken Bertino
Senior Vice President, Environmental Markets
World Energy
kbertino@worldenergy.com
+1.215.221.4684

ClimateBiz reports that Merrill Lynch is launching Merrill Lynch Green and Gold, a carbon offset service that will enable companies to develop and manage climate related strategies. Supported by ICF International, the service is aimed at companies in the Americas, Asia and Europe who wish to reduce emissions with voluntary offsets.

AIG has announced that it completed $4 million in funding for carbon sequestering or reduction projects in the United States and China. Once complete, the projects will produce 620,000 metric tons of carbon offsets, which equal the amount of carbon attributed to AIG�??s global operations in 2006.

Phil�??s session is titled �??REC Market Issues That Need to Be Resolved: Finding Value through the Transaction Process,�?? and takes place on Wednesday April 2nd at 3:00 p.m. ET. Stop by if you are attending, and if you are not, you can register here!

To learn the best practices on selling green credits that Hal gained from his experience, you can register for the webinar here.

The Associated Press takes a look at a Maryland bill that proposes an initiative to use funds generated from the state�??s involvement in RGGI for electricity rate relief instead of promoting energy efficiency. This bill would repeal the Maryland Renewable Energy Fund with the Maryland Strategic Energy Investment Program, but opponents to the bill believe that investing in energy efficiency programs will save more money long-term.

According to Reuters, U.S. officials will meet this week to interpret Section 526 of the Energy Independence and Security Act, which bars large federal fuel buyers from using fuel made from coal if it contains more carbon than fuel made from crude oil. This act has hindered federal agencies, such as the Air Force, from embracing less expensive nonpetroleum fuel sources.

Phil also talks about last week�??s announcement that RGGI selected the World Green Exchange to provide the auction platform for the compliance based auction initiative.

What are your thoughts on the state of these markets and the value World Energy brings?