Many Look To Tax Credits in Voluntary Emissions Efforts.

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Author: Buckley, Bruce

CLEAN AIR

Many public and private U.S. entities are voluntarily pushing for emissions reductions through major infrastructure investments or market-based systems for buying and selling emissions credits. The latter, say many officials, may become mandatory.

A total of 226 entities voluntarily reported to the U.S. Dept. of Energy that they took on 2,154 projects to address emissions reductions in 2004. DOE's report, released last week, states that direct emissions reductions in 2004 increased 2.8% from 2003 while indirect emissions reductions increased by 12.6%.

Alcoa is proactive in the trend of voluntary action. It has worked with several voluntary programs, including the federal Climate Leaders program. Randy Overbey, Alcoa president of primary metals development, says the firm is keeping a close eye on cap-and-trade while engaging in its own greenhouse gas reduction efforts.

In 2002, Alcoa reported that it reduced emissions by 25% from a 1990 baseline. Overbey says the firm made the biggest reductions at its smelters through process controls and equipment investments. "Some plants have required substantial investment in order to get the process control equipment we need," he says.

Overbey says Alcoa is installing state-of-the-art process controls at new facilities, including the Fjardaál smelter under construction in Reydarfjordur, Iceland. Alcoa announced March 1 that it will begin feasibility studies for a 250,000-tonne-per-year smelter in northern Iceland powered by geothermal energy.

More than 131 private and public entities have joined the Chicago Climate Exchange (CCX), a voluntary market-based system for buying and selling emissions credits. The state of New Mexico joined late last year.

Mike Storey, energy leader for Dow Corning, says his firm joined CCX, in part, as a learning process. CCX began in 2003, before the European Union emissions trading scheme launch in 2005. "CCX was ahead of the game," he says. "Some of what we learn with CCX we'll use in Europe."

CCX works off emissions baselines. Member baselines are set by the average of annual emissions between 1998 and 2001. Gases covered under CCX include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.

During Phase I of CCX, which covers 2003 to 2006, members are legally bound to reduce greenhouse emissions by 1% below baseline in 2003, increasing to 4% by 2006. Those who do not meet those targets must buy credits and those that exceed targets can sell credits. Phase II calls for a 6% reduction by 2010.

CCX has not been as onerous as mandatory exchanges in other parts of the world. A ton of emissions on CCX has generally traded at around $2, while the European Climate Exchange rates recently reached more than $30 per ton.

"Voluntary programs [enable] innovation and creative engineering," says Edan Dionne, director of corporate environmental affairs at IBM, a CCX charter member. "I'm not saying regulation isn't necessary, but when you have to do things a particular way, it may or may not be the most cost-efficient way."

Nine eastern states have adopted the Regional Greenhouse Gas Initiative, and California recently tried to use such a system to limit greenhouse gas emissions of the state's electric utilities. These are signs that cap-and-trade could eventually become mandatory in the U.S., says Storey.

Samuel Thernstrom, a scholar at the American Enterprise Institute, rejects that notion. "It's been difficult to implement. The cost of credits is very high and trading is very low," he says. "There's a stronger argument that a more economically efficient way to reduce emissions would be through a carbon tax."

But "it's hard to change behavior with taxes," counters Richard Sandor, chairman and CEO of CCX. "If you don't set it exactly right you have to continually adjust it and the political process simply isn't fast enough to do that. A free market approach is infinitely superior."

PHOTO (COLOR): Emitting Energy. Alcoa's Iceland smelter will use process controls to reduce emissions.

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By Bruce Buckley