SOIL CARBON AND CLIMATE CHANGE NEWS

From Kansas State University's:

Consortium for Agricultural Soils Mitigation of Greenhouse Gases

(CASMGS)

http://soilcarboncenter.k-state.edu

Charles W. Rice, K-State Department of Agronomy, National CASMGS Director

(785) 532-7217 cwrice@ksu.edu

Scott Staggenborg, K-State Department of Agronomy (785) 532-7214 sstaggen@ksu.edu

Steve Watson, CASMGS Communications (785) 532-7105 swatson@oznet.ksu.edu

June 14, 2005

No. 42

General:

* Current Status Of Worldwide Carbon Markets

National:

* Western U.S. States Taking Action On Global Warming

* Northeast States Lead Regional Global Warming Initiative

* Private Sector Moves To Reduce Greenhouse Gas Emissions

International:

* Greenhouse Gas Emissions Trade Growing Sharply

* Canadian Farmers To Receive Cash To Fight Global Warming

Science:

* Carbon Dioxide Continues To Rise

* Antarctic Glaciers In Retreat From Climate Change

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Current Status of

worldwide Carbon Markets

A wide array of different markets and types of carbon transactions have developed since the Kyoto Protocol entered into force on Feb. 16, 2005. The Kyoto Protocol calls for industrialized countries that have ratified the treaty (so-called Annex B countries) not to exceed certain greenhouse gas (GHG) emissions targets during the first commitment period, between 2008 and 2012. As a result, industrialized Kyoto countries have now imposed GHG emission limits on many of their industries, through allocations.

Most of the carbon trading activity worldwide is occurring within the European Union (EU), where a cap-and-trade system is in effect. The EU's cap-and-trade scheme imposes limits on CO2 emissions from about 12,000 factories and power stations. Firms exceeding their limits must buy extra permits from companies which have undershot their CO2 ceilings, or buy credits from energy-efficient projects being developed in non-industrialized countries -- or face financial penalties.

Canada and Japan have ratified Kyoto, and are still awaiting approval of climate mitigation plans from their respective governments. The ultimate deadline for Canada and Japan to decide the role of emissions trading in their countries is the Kyoto compliance period beginning in 2008.

The U.S. has not ratified Kyoto, is not bound by its restrictions, and thus has no mandatory cap-and-trade system to drive carbon credit trading. There is a voluntary trading market in place in the U.S. (the Chicago Climate Exchange) and many states and individual companies are now setting their own limits on greenhouse gas (GHG) emissions. In addition, the U.S. government has initiated several voluntary programs and research efforts to address global warming.

The U.S. and Australia are expected to remain out of Kyoto, but there is some domestic trading of carbon credits in those countries, outside of the Kyoto-approved trading schemes. For traders, this means different carbon credit types would trade in different regimes. Carbon credit values are likely to be lower in the U.S. and Australia than Kyoto-compliant tons, but so are transaction costs.

There are currently two basic types of carbon transaction markets, with total carbon credit exchange volume now about the same in each type of market. One is the market for “emission reductions,” which are project-based. The other is the trading of “emissions allowances,” which occurs within trading systems such as the EU Emissions Trading Scheme (EU ETS) and the Chicago Climate Exchange.

1. Project-based transactions. Public and private entities from industrialized countries that must reduce GHG emissions can contribute to GHG-reduction projects in non-industrialized countries and receive emission reduction (ER) credits. These projects fall into two broad categories: Clean Development Mechanism (CDM) projects and Joint Implementation (JI) projects. Japan, several EU countries, the World Bank, and a series of private carbon funds are all purchasers of such project-based credits.

The number of CDM and JI projects under development has increased substantially in the last 12 months. Most CDM projects underway so far are concentrated in India, Brazil, and Chile. Poorer and smaller countries have seen little activity to date. Types of projects include hydrofluorocabon reduction, methane and N20 capture from animal waste, hydro power, biomass energy, and landfill gas capture. There have been very few traditional energy efficiency or fuel switching projects.

A European Union CDM executive board must approve the actual issuance of certified ERs from CDM project, and so far the board has not approved any project-based credits since it is not yet known whether these projects will actually work as advertised. It remains to be seen whether those who have put money into CDM projects to date will actually receive any carbon credits for their money. This is the “risk of non-issuance.” In general, ER credit transactions are less transparent than market-traded prices.

2. Allowance markets. The compulsory cap-and-trade scheme in Europe caps CO2 emissions and allows companies to buy and sell allowance credits depending on whether they exceed or undershoot their limits.

There are four active markets for GHG allowances as of May 2005: the EU ETS, the UK ETS (in Great Britain), the New South Wales trading system (in Australia), and the Chicago Climate Exchange (in the U.S.). The EU ETS is the largest of these markets, even though it is just in the pilot phase from 2005-2007. It will enter its first phase from 2008-2012. Trading volumes on these exchanges have increased dramatically over the past year.

Industrialized, Kyoto countries in the EU can only purchase carbon allowance credits on the Europe-wide market. In other words, EU countries cannot buy carbon allowance credits from the U.S. The other two main industrialized Kyoto countries, Canada and Japan, have not yet finalized their rules for carbon allowance credit trading.

Currently, the price per ton of CO2 equivalents is about twice as high on allowance-based markets than project-based markets. Part of the reason for this is that the carbon credits purchased on the allowance-based markets are a sure thing, while those purchased on project-based markets are dependent on getting final approval from the CDM executive board.

Several European energy exchanges have started up emissions trading platforms as they look to tap a potentially huge commodity market in the EU ETS. These energy exchanges include:

* The European Climate Exchange (ECX). ECX futures contracts are listed by and traded on the International Petroleum Exchange (IPE). ECX is a wholly owned subsidiary of the U.S.-based Chicago Climate Exchange.

* The Norwegian power bourse Nord Pool.

* Germany's European Energy Exchange (EEX).

* Several over-the-counter brokers.

* Spain's SENDECO2 and the Dutch firm New Values are also jointly planning to launch an exchange, further increasing competition.

Volumes in CO2 allowances have picked up sharply since the European Union officially launched its ETS trading scheme in January as part of its bid to meet Kyoto Protocol targets on cutting greenhouse gas emissions.

Establishing schemes in Canada and other parts of the world similar to the European Union's emissions trading system is important to the ultimate development of the worldwide carbon market. So far American participation is a missing link in the market's development, despite the voluntary market of the Chicago Climate Exchange and interest by some states in developing an allowance credit trading system.

One big question for emission trading markets is what will happen after 2012, the end of the current Kyoto period. The G8 summit coming up this summer in Britain will address this issue.

Note: Parts of this article were based on a new report was issued last month called “State and Trends of the Carbon Market 2005,” written by two officials of the World Bank: http://carbonfinance.org/Router.cfm?Page=DocLib&Dtype=28&ActionType=ListItems

-- Steve Watson swatson@oznet.ksu.edu

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WESTERN U.S. STATES TAKING ACTION

ON GLOBAL WARMING

California is the latest in a series of state governments to take action to reduce global warming in the U.S. The California Energy Commission's Climate Change Advisory Committee is pondering setting up an emissions trading scheme to reduce greenhouse gas emissions.

In early June, California Gov. Arnold Schwarzenegger spoke at the United Nations World Environment Day conference and disclosed a plan to set goals for reducing California’s emissions of greenhouse gases.

Schwarzenegger’s plan calls for reducing the state’s emissions of greenhouse gases to 2000 levels by 2010, 1990 levels by 2020, and 80 percent below 1990 levels by 2050.

Under the governor’s executive order, the secretary of California’s Environmental Protection Agency will be charged with overseeing efforts to meet those goals, and will report on the state’s progress in January and every six months after that.

Oregon and Washington are considering similar ideas. Oregon Governor Ted Kulongoski aims to introduce California’s vehicle emissions standards in the state, and has also set out tough emissions reduction targets for Oregon.

The governor has decided to bypass the legislature and will form a task force to figure out how to adopt the standards, which would also raise fuel efficiency.

A report by the Oregon Governor's Advisory Group on Global Warming last week said that it would cut greenhouse gas emissions in the state by 18 per cent by 2020 and 28 per cent by 2030.

-- Steve Watson swatson@oznet.ksu.edu

**********

NORTHEAST STATES LEAD REGIONAL

GLOBAL WARMING INITIATIVE

Nine northeast states have announced a new initiative to help reduce global warming.

The plan offers a new, market-based strategy that will modernize the electric power system using clean, efficient technology to reduce the heat-trapping pollution responsible for global warming.

Participating states are Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. Maryland, the District of Columbia, Pennsylvania, and five Canadian provinces are close observers in the process.

Known as the "Regional Greenhouse Gas Initiative," the plan will establish limits on carbon dioxide emissions and create a trading system allowing companies that beat the standards to sell their extra credits to other firms, opening up a win-win opportunity and lowering overall compliance costs.

Each participating state will have its own emissions limit, and will regulate only the power plants located within its boundaries. The coalition will likely first agree on an overall regional pollution limit, and then assign a portion of that amount to each state. Interstate trading will occur when a state agrees to recognize allowances issued by other states.

The program would allow states outside of the Northeast to participate as well, and could be extended to cover not just power plants but all stationary global warming pollution sources, and additional greenhouse gases such as methane and sulfur dioxide.

For more information, see: www.rggi.org

-- Natural Resources Defense Council, March 28, 2005

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PRIVATE SECTOR MOVES TO

REDUCE GREENHOUSE GAS EMISSIONS

General Electric Chairman Jeffrey Immelt recently announced recently announced that GE plans to reduce greenhouse gas (GHG) emissions by one percent over the next seven years and increase energy efficiency 30 percent by 2012. By doing so, GE joins a growing roster of U.S. and multinational companies that are taking their own initiative to implement a GHG emissions reduction policy.

Power companies such as American Electric Power Co., Cinergy Corp., Duke Energy Corp., and Exelon Corp. have also either implemented voluntary GHG emissions plans or have made public statements about the need for national action to mandate GHG emissions reductions. Paul Anderson, CEO of Duke Energy, said that the US should introduce a tax on CO2 emissions to limit global warming. Energy utility Cinergy said it would cut its emissions by five per cent by 2010 and recently agreed to be bought by Duke Energy, a major nuclear power generator, allowing for the decommissioning of Cinergy's coal plants that are over 50 years old.

Companies such as Dow Corning, DuPont, Bayer Corporation, Motorola Inc., Ford Motor Co., Mead/Westvaco Corp., IBM, and International Paper have joined the Chicago Climate Exchange. General Motors Corp. and Eastman Kodak Co. are part of the EPA’s voluntary Climate Leaders Initiative.

Institutional investors, such as state and city pension funds from California, Connecticut and New York City, and major banks, such as J.P. Morgan Chase & Co., have also recently made proposals to address global warming. J.P. Morgan Chase officials said they will "work with clients to develop new financial products that facilitate emissions reductions, conduct research into the financial implications of the rising cost of carbon, and deploy investment capital to businesses that reduce or mitigate greenhouse gases." Company officials also plan to lobby for a national approach on greenhouse gases, encourage major emitters to develop carbon mitigation plans and annually report emissions from the power sector projects it funds.

Part of the reason for the increase in corporate activity on GHG emissions is shareholder pressure to take action.

-- Steve Watson swatson@oznet.ksu.edu

**********

Greenhouse gas emissions

trade growing sharply

Trade in carbon dioxide (CO2) permits surged this year as the European Union launched an emissions scheme and the Kyoto Protocol on climate change came into force, according to a World Bank study issued in May.

Dealing volumes in the first three months of 2005 were 3.5 times higher than in the whole of last year. This year's growth comes after a five-fold increase in 2004, the study showed.

"The carbon market is responding to the ratification of the Kyoto Protocol and to the beginning of operation of the European Union's emissions trading scheme," World Bank economist Franck Lecocq said on presentation of the study during a carbon trade fair in Cologne.

Further growth was extremely likely in the coming years, he said.

Prices for European allowances have nearly tripled since January, trading on Wednesday at around 16.70 euros a tonne.

Brokerage Evolution Markets, which helped the World Bank collate its report, said current trading volumes were "just the tip of the iceberg."

Evolution's president Andrew Ertel said that of the 12,000 companies covered by the mandatory EU scheme, only 50 to 70 had started actively trading.

"We see new companies come in every single day...next year there may be several hundred million tonnes traded within the year," said Ertel.

Trading in project-based CO2 permits -- credits generated by emissions-reducing projects in developing countries -- so far in 2005 amounted to 43 million tonnes, the World Bank said.

Governments and companies buy the permits and use them toward meeting their CO2 reduction goals.

-- Reuters News Service, May 11, 2005

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Canadian farmers to receive cash

to fight global warming

After eight years of negotiations, the Canadian federal government has signed a $1-million agreement that will pay farmers to keep carbon dioxide in their land by not tilling.

The three-year pilot project covers 210 farmers across the country, with 100 of them in Saskatchewan.

Zero-till farming has been a common practice on the prairies as a means to prevent soil erosion. More recently, it's been promoted as a way to help Canada meet its international commitment to reduce greenhouse gas emissions.

Scientists believe the accumulation of greenhouse gases in the atmosphere – largely carbon dioxide – is causing the planet to heat up at an unnatural rate.

Zero-till farming helps keep more carbon dioxide locked up in the soil.

John Bennett, a spokesman for the Saskatchewan Soil Conservation Association, said agriculture could reduce Canada's cost of compliance for its Kyoto targets by between 40 and 60 per cent.

"So it's very important that farmers understand they make a tremendous contribution to the targets the nation has," he said.

Bennett said farmers in the pilot project will be paid anywhere from $2 to $5 (Canadian) per acre to keep the carbon dioxide in the land.

-- Canadian Broadcasting Corporation, April 8, 2005

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Carbon dioxide

continues to rise

Carbon dioxide increased in the atmosphere by about 1.5 parts per million (ppm) per year in 2004, according to David Hofmann, director of the NOAA Climate Monitoring and Diagnostics Laboratory in Boulder, Colo.

This rate of increase is lower than that in 2001-2003. The increase in 2002 was 2.43 ppm; the increase in 2003 was 2.30 ppm. This annual increase was higher than the long-term average annual CO2 increase of approximately 1.5 ppm.

Included in the global average carbon dioxide measurements are those from the NOAA Mauna Loa Observatory in Hawaii where the CO2 record is the world's longest continuous observations of atmospheric carbon-dioxide levels, having begun in 1958.

Global combustion of fossil fuels and other materials places almost 7 billion tons of carbon, in the form of CO2, into the atmosphere each year. On average, Earth's oceans, trees, plants and soils absorb about one-half of this carbon. The balance remains in the air and is responsible for the annual increase.

Most of the variability in the year-to-year CO2 uptake is related to natural processes, including droughts and fires as well as such factors as global temperatures, rainfall amounts and volcanic eruptions.

Understanding these processes is key to forecasting annual CO2 increases, thus providing important information for future CO2 management. NOAA's Carbon Cycle Research Program, which includes surface-, ocean- and space-based measurements of CO2 and other important atmospheric gases, is aimed at developing a comprehensive picture of how CO2 is stored and released. The carbon-cycle studies are a part of NOAA's Climate Program, an integral part of the U.S. Climate Change Science Program.

"Reducing scientific uncertainties of carbon sources and sinks is a priority for the Climate Change Science Program, as carbon dioxide is the single largest forcing agent of climate change," said James R. Mahoney, NOAA deputy administrator and CCSP director.

NOAA scientists have been tracking CO2 levels around the world for more than 25 years. The oldest record comes from the Mauna Loa Observatory, which is located atop a Hawaiian volcano. There, Charles Keeling began CO2 measurements in 1958. Following NOAA's formation in 1970, measurements continued at Mauna Loa and began at other places around the world. There are now more than 60 monitoring sites worldwide.

Each year since global measurements of CO2 began, the amount of carbon dioxide in the atmosphere has increased.

Scientific measurements of levels of CO2 contained in cylinders of ice, called ice cores, indicate that the pre-industrial carbon dioxide level was 278 ppm. That level did not vary more than 7 ppm during the 800 years between 1000 and 1800 A.D.

Atmospheric CO2 levels have increased from about 315 ppm in 1958 to 378 ppm at the end of 2004, which means human activities have increased the concentration of atmospheric CO2 by 100 ppm or 36 percent.

For complete details, see:

http://www.noaanews.noaa.gov/stories2005/s2412.htm

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Antarctic Glaciers in Retreat

From Climate Change

Most of the glaciers on the Antarctic peninsular are in headlong retreat because of climate change, according to a new study published in the journal Science.

An in-depth study using aerial photographs spanning the past half century of all 244 marine glaciers on the west side of the finger-like peninsular pointing up to South America found that 87 percent of them were in retreat -- and the speed was rising.

"Regional warming is the strongest single factor in this retreat, and there is growing evidence that this is due to global warming," scientist David Vaughan of the British Antarctic Survey (BAS) told a news conference.

"The peninsular could end up looking like the Alps if the glaciers retreat far enough from the sea," he said.

Fellow BAS researcher Alison Cook, who spent three years studying thousands of old aerial photographs, said they clearly showed a general glacial retreat which had accelerated sharply in the past five years.

Scientists have noted before the shrinkage and breakup of some of Antarctica's giant sea ice shelves, but the new study is the first comprehensive look over a long period at the state of the glaciers that flow into the sea.

Scientists have predicted that global temperatures could rise by up to two degrees centigrade this century, pushing the planet into the unknown with rising sea levels and an increase in extreme weather events threatening millions of lives.

Most of them agree that human activities that produce greenhouse gases like carbon dioxide contribute to this global warming -- although there is deep disagreement over the degree. Carbon dioxide is emitted by burning fossil fuels in cars, power plants and factories.

-- Reuters News Service

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UPCOMING CONFERENCES (all dates are 2005 unless otherwise noted)

August 2-11

Carbon Cycle and Climate Symposium

Beijing, China

Conference website: http://www.iamas2005.com

Contact: Ying Ping Wang – Yingping.wang@csiro.au

September 26-30

7th International CO2 Conference

Broomfield, CO

For more information: http://www.cmdl.noaa.gov/info/icdc7/

November 13-17

Greenhouse 2005: Action on Climate Control

Melbourne, Australia

For more information: http://www.greenhouse2005.com

Contact: Paul Holper paul.holper@csiro.au

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