BIOMASS INTEL

As details emerge about the final days in Copenhagen, the mood heading into 2010 is cautiously blue.  Much was made about the importance of a binding agreement coming out of COP-15 to shore up international governance around climate change, but in the weeks leading up to the December conference world leaders preemptively backed away from a formal agreement in favor of a two-step approach.

Although the nonbinding accord that emerged offers some hope for emissions verification, wealth transfer, and deforestation prevention, it is light on emissions reductions and consensus, which all add up to not quite the first step many had envisioned.

With many questioning the efficacy of kicking around a Senate bill this year, the EPA sitting on a newly minted tailoring rule, and no consensus for world governance around climate change or plans for a post 2012 regime (the year Kyoto is set to expire), what’s next for greenhouse gas (GHG) regulation?

It is difficult to say.  Predicting the outcome of pending legislation is made particularly challenging by the myriad changes and proposals as well as the political theater that will effect the outcome.  On the international stage, UN negotiations remain inherently drawn out processes, and as was recognized coming out of Copenhagen, participation among all nations may stymie well-meaning efforts to build widespread consensus.

As was the case leading up to Copenhagen, the world response to climate change and GHG regulation will largely be dictated by what happens in the US.  As the world’s leading economy and one of the leading emitters, US participation is a necessary condition of world governance.  More importantly, without the US on board, the Chinese won’t have any reason to join the party.  Unfortunately, US commitment hinges on Chinese participation as well, and so goes the chicken or egg dance.

The Senate takes center stage

Accordingly, the Senate will have an important role to play later this year in dictating the mood heading into post-Copenhagen UN conferences like Mexico City in December, 2010.  But many remain skeptical about the Senate’s ability to pass cap and trade this year.

With a health care debate still raging and the economy hurting, Politico reports that top democrats are urging the White House to jettison cap and trade for 2010.  Still, others argue that China’s commitment (although watered-down) to opening their books on their rising emissions and allowing a transparent review of their progress toward their emission pledge should temper Senate rhetoric around the chicken or egg issue.  Even if the Senate takes up cap and trade this year, it is unlikely to emerge with a bill by Mexico City, which raises many questions about the future of international cap and trade.

EPA poised for Plan B

In the absence of congressional action around climate change, it is possible that the EPA could step in and impose regulatory measures to curb GHGs through its tailoring rule.  To date, this approach has not been advocated by the Obama Administration, but remains a way around bipartisan deadlock in the Senate as well as an effective way to demonstrate US commitment to proactive measures, at least in the eyes of the international community.

But this approach has many drawbacks, and if acted upon, could hold up a regulatory regime in court battles for the next several years (see Biomass Intel’s analysis here).  A regulatory approach would also limit the size and scope of cap and trade, handicapping ambitious economy-wide efforts in order to avoid the negative implications of a government run regime.

United Nations a difficult Democracy

On the international stage, many are questioning the format for future talks around climate change, specifically, whether all nations should be given a platform for direct diplomacy.  The diplomatic deadlock that led to an all-night session on the last day of the conference and prevented a binding agreement out of Copenhagen was in many ways precipitated by the democratic nature of the United Nations process.  While this isn’t to say that the ideals of egalitarianism is a bad thing — in fact, most contend that this is where the United Nations is particularly effective — but when important and time-sensitive issues are at stake, some left Copenhagen suggesting that an exclusive process may be necessary to move climate change diplomacy forward.

So what’s at stake?

The persistence of uncertainty around greenhouse gas regulatory regimes, both within the UN and the US, has paralyzed the power and auto industries of late.  In the absence of federal legislation or a binding climate change treaty, it is only with the help of renewable portfolio standards in the power sector and emerging law carbon fuel standards that any pathway through the next decade emerges.  These efforts, which have begun to take shape under state law in the US, offer the only actionable targets for fuel markets (both for power and transportation).  Without federal action or international consensus, it is through these mechanisms that these sectors will peg continuing efforts to integrate renewable energy solutions, like biomass and biofuels.

The danger in delaying on cap and trade (or cap and anything) is that any future efforts will have to integrate disparate, emerging sub-national standards.  This isn’t necessarily a bad thing as Governor Shwarzenegger articulated in Copenhagen, indeed, the path to regulatory consensus around GHG emissions may be through the state legislative houses and local governments.  But industry needs some level of harmonization to enable the kind of long-term planning necessary when implementing expensive power and fuel projects.

Do you have an opinion on cap and trade and how it relates to the biomass and biofuels industries?  Share your views below.

Image: Flickr/Leo Reynolds