FEW: Implications of carbon cap-and-trade

By Erin Voegele | June 03, 2009
Report posted June 17, 2009, at 8:30 p.m. CST

This year's International Fuel Ethanol Workshop and Expo featured a two-part break-out session on carbon designed to provide attendees with an overview of the current status of U.S. carbon regulations, as well as provide them with answers to how ethanol producers may be impacted in the future. The high attendance rate of the session, titled "Capitalizing on Carbon," demonstrated the desire of ethanol producers to better understand this new aspect of their industry.

Lee Tharp, Aquaterra Environmental Solutions Inc.'s senior project manager, opened his presentation by asking how many attendees believe in man-made global warming. Regarding the future likelihood of a federal carbon cap-and-trade system, Tharp said it doesn't matter if you believe in global warming or not. "Whether you believe in it - or you are absolutely against it - it doesn't matter," he said. "This is going to have to be part of your business model in the future, or you probably won't survive."

"We stand poised for the first time ever to have a federal regulatory approach on greenhouse gas emissions," said Dave Crass, a partner with Michael Best & Friedrich LLP, referring to the pending Waxman-Markey climate change legislation. The Waxman-Markey bill is very comprehensive, he said. For this reason it touches on the jurisdiction of many committees in the U.S. House of Representatives, and may undergo significant mark-ups. According to Crass, the U.S. Senate is also addressing climate change legislation.

Crass said the idea of a carbon cap-and-trade system is not going to die, even if federal lawmakers are unable to pass a bill. "If congress can't do it, [President Barack Obama's] administration is going to," he said. "Congress and the [U.S.] EPA are sort of in a little race to implement climate change regulation. If congress can't agree on an approach, then the Obama administration is going to press forward with these regulatory approaches."

Beau Griffey, an account executive at US Energy Services Inc., explained to session attendees how a carbon cap-and-trade system will work. "Essentially cap-and-trade is just an administrative approach to controlling a pollution issue," he said. "Essentially…it is a soft tax. Regardless of what the politicians are saying, cap-and-trade is a soft tax."

Unlike the life cycle emissions pathways developed for California's low carbon fuel standard and the EPA's rulemaking for the second stage of the renewable fuels standard, a cap-and-trade system does not account for the "field to wheels" emissions of a transportation fuel. "Cap-and-trade deals first and foremost with the point of combustion," Griffey said. For ethanol producers, this means it will deal primarily with the fuel used to power the ethanol plant.

Griffey said it is going to be important for ethanol producers to understand what their emissions levels are. "Measuring your risk and quantifying your market opportunities are very critical to being an effective participant [in a cap-and-trade program], and not getting whacked with penalties or alternative compliance payments."

"Depending on your project, depending on your industry sector and your place in it, you really need to look at these changes as potential business opportunities, and begin the work of evaluating your carbon footprint - establishing some sort of baseline and determine if there are projects you can monetize and take advantage of these opportunities as you move forward," Crass said.