The World Bank, a international organization funded by 187 different nationa that primarily provides low cost loans to developing countries, has for several years been very active on the global warming front, continuing that pattern this month with its latest annual report on cap and trade activity on a global basis, and also planning to call for high taxes on bunker jet fuels.

We will summarize the report first, a lengthy document that would make a major Supreme Court decision easy to get through by comparison, but we will do our best. To download the full report, go to: State and Trends of the Carbon Market 2011.

As we have repeatedly noted on TheGreenSupplyChain.com, the most important issue for US companies with regard to the supply chain sustainability is whether a formal cap and trade or carbon tax regime is eventually put in place. According to the World Bank report, while total cap and trade activity flatlined in 2010 worldwide after several years of strong growth, numerous initiatives both globally and in the US presage more cap and trade programs in coming years.

2010 trading in the value of carbon permits under cap and trade programs "stalled" at a value of about $142 billion, slightly below 2009's figure, but still up substantially from the $11 billion total in 2005. But of that amount, some 97% came from Europe's cap and trade program (EU Emissions Trading Scheme) Carbon permit trading in the rest of the world is to date almost nonexistent.

The report says that the stall in carbon permit activity is unfortunate given that greenhouse gas "emission levels continued their seemingly inexorable rise" in 2010.

The report notes that the relative failures of the two recent global climate summits in Cancun (2009) and Copenhagen (2010) means global the potential for binding global agreements have been set back, and that the Kyoto accord (which was not approved in the US and China) will expire next year without a direct succession plan.

The report, however, does positively note the commitment of developed economies at Cancun to contribute $100 billion towards a fund that will help developing economies to abate carbon emissions, but also observes that how that funding will actually be delivered remains a uncertain.

In addition, even in the absence of global accords, the World Bank sees progress in the efforts of many individual countries and regions, and that "the emergence of a fragmented but workable international carbon market that could further evolve through linking and acceptance of similar levels of ambition" between different countries launching individual programs.

These initiatives include cap-and-trade schemes, baseline and credit mechanisms, renewable energy and energy efficiency certificates, carbon taxes, subsidies, and emission standards. But the report notes that "In many cases, multiple policy approaches are being used that may be complementary and also sometimes contradictory, and which often have different costs and benefits accruing at different times and geographical scales."

Those country-specific efforts include:

Australia: The government will start putting a tax on carbon in July of 2012, but the measure must pass the legislature again before that regulation is put in place. The plan is to start small and evolve into a carbon trading mechanism. There are also a number of state based initiatives, including New South Wales Greenhouse Gas Reduction Scheme (GGAS), which began on January 1, 2003. It is one of the first mandatory greenhouse gas emissions trading schemes in the world. It involves offset projects for electricity generation.

Canada: Has announced a series of general commitments but without a lot of specifics or teeth to date. One exception is tough new rules for coal-powered electricity plants. Again, there are numerous provincial efforts, ranging from an emerging cap and trade regimes in a number of provinces to a law in Alberta that mandates energy intensity decreases of 12% for industry.

Europe: Despite the most stringent and active greenhouse gas initiatives, with a commitment to reduce GHGs by 20% versus 1990 levels by 2020, total emissions actually increased by 3.5% in 2010, partially driven by economic recovery. Europe’s Roadmap for 2050, however, commits to reducing GHGs by 85-90% by mid-century. the EU ETS (Emissions Trading Scheme) Directive provides for a centralized EU-wide cap on emission allowances, which will reduce each year by 1.74% of the average annual level of the previous Phase II cap. Somewhat contradictorily from the other target, his cap will deliver an overall reduction of 21% below 2005 verified emissions by 2020, it is claimed.

While EU permits have largely been given away to date, the new ETS Directive now says that at least 50% of allowances will be auctioned off starting in 2013, compared with just about 3% in Phase II. In most EU Member States, there will be 100% auctioning for the power sector.

Notably for the supply chain, however, due to international competitiveness and "leakage"
concerns relative to industry leaving the region, industrial sectors will be allocated allowances for free on the basis of product benchmarks. The benchmarks will be set on the basis of the average of the top 10% most greenhouse gas–efficient installations in the EU for similar products.

Sectors deemed at significant risk of relocating production outside of the EU because of the
carbon costs will receive 100% of the benchmarked allocation for free. Sectors not deemed at significant risk of carbon "leakage" will receive 80 percent of their benchmarked allocation for free in 2013, declining to 30% in 2020 and 0% in 2027.

However, the report also notes that EU cap and trade markets have recently been plagued by financial irregularities and fraud, delivering setbacks.

Japan: In March 2010, the government of Japan introduced the “Basic Act on Global Warming Countermeasures" proposal, but there has been strong push back against the ETS components and it is now in limbo. Without that, the rest of the program is in serious question. However, the World, Bank believes that a carbon tax and the establishing a feed-in tariff for all renewable energy sources may pass into law in 2011.

Tokyo and several other prefectures have passed their own requirements for cap and trade exchanges.

New Zealand: An existing, modestly functioning ETS program is currently under a review mandated in the original law. The review is to determine if the ETS is functioning efficiently and effectively. Recommendations from the review process will be forwarded to the Minister for Climate Change by
September 2011.

China: The country has set a carbon-intensity reduction target (CO2 emissions per unit GDP) of 17% and aims to cut energy intensity by 16% by 2015. However, it is doubtful this would result in an actual reduction in GHG emissions from 2005 levels given its rapid GDP growth.

The report says China "may: introduce an emissions trading scheme in six regions in 2013 and that this again may be expanded to a national scheme by 2015.

South Korea: During 2010, the Republic of Korea enacted its Framework Act on Low Carbon, Green Growth. This act establishes a legal framework for setting GHG and energy reduction targets and provides for GHG emissions reporting. It also establishes the right to implement a cap-and-trade scheme for the purposes of reducing GHG emissions and sets up fuel use and GHG emission standards for automobiles. The act has met resistance from industry groups concerned about the cost implications of cap and trade policies.

Consequently, the implementation of the cap and trade scheme originally planned for commencement
in 2013 has been postponed until 2015.

The report also notes activity in Brazil, India and other countries.

Activity at the State Level in the US

With no movement at the federal level on cap and trade expected through 2012, the focus is primarily at the state level, especially the program in California, where a cap and trade scheme is going to start in 2012.

Below is a graphic taken from the report that summarizes a number of state-based programs currently active at some level in the US.

One conclusion from all this is clear: at the US level and a global level, as these iniatives move forward there will be a dizzying array of programs and requirements that companies and their supply chains will have to navigate, with a bevy of lawyers and emission experts necessarily in tow.

A Tax on Transport Fuels?

Separately, a World Bank executive said this week the organization was going to push for a tax on bunker (ship) and jet fuels as a mechanism to reduce their use and hence associated carbon emissions.

“We are looking at carbon emissions-based sources … including bunker fuels and aviation fuels, that would be internationally coordinated albeit nationally collected,” Andrew Steer, World Bank special envoy for climate change, said this week.

Some believe this is in part the result of pressure or collaboration of the World Bank with various green groups, which have already targeted ocean shipping before, including convincing the International Maritime Organization (IMO), the United Nations’ maritime regulatory body, to ban ships using bunker fuel in the Antarctic starting in July, and are lobbying for a similar ban in the Arctic region as well.

The World Bank say the money raised would be used to offset the damage from droughts and other alleged impacts of global warming. The recommendations will be made in a report to G20 nations to be delivered in October.

We will keep an eye on this issue here.

What are your reactions to the World Bank report? What do you think of a large tax on bunker and jet fuels? Let us know your thoughts at the Feedback button below.

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