Mark Havel and Max DuBuisson of the Climate Action Reserve attended events held as part of Climate Week NYC. The schedule for Tuesday consisted of Carbon Forum North America, organized by the International Emissions Trading Association (IETA) and held at the offices of Morgan Stanley in Manhattan. The venue for the event is notable, as it is an indication of the economic vitality of carbon markets that such a large investment firm is taking a serious interest. The attendees at this event included numerous representatives of state and provincial governments, as well as industry, NGO and carbon professionals.

The various speakers and panels throughout this event were all focused on issues related to the U.S. EPA’s proposed rules for regulating greenhouse gas (GHG) emissions from power plants under Section 111(d) of the Clean Air Act. These rules are still in a proposed form, but they are extensive, so there was much in-depth discussion on the mechanics of the program and the potential impacts on the power sector and GHG emissions.

The morning began with a discussion between analysts of various organizations. This was a great way to get a sense of the market’s projections for how the impacts of these new GHG rules would unfold. One notable assessment was that the program would cost the U.S. approximately $9B annually if each state figures out compliance on its own, without coordination or trading between states. On the other hand, this figure could be less than $2B annually if all states work together. The consensus was that the final result will be somewhere in between, as different states have different levels of willingness, but that this fact will motivate increased cooperation among states. There was discussion of the possibility of additional states joining the two major cap-and-trade programs which are already underway (AB32 in CA and the Regional Greenhouse Gas Initiative (RGGI) in the Northeast).

Later discussions included power industry representatives and state regulators. The impact of these rules will be felt differently by different power companies. For example, Pacific Gas & Electric is already subject to AB32 and thus will not have to take additional steps to reduce emissions to comply with the EPA rules. On the other hand, American Electric Power is in a situation where they do not currently operate under GHG emission restrictions, and much of their power is provided by coal. They will feel much more pressure when complying with these rules. The industry had two major problems with the proposed rules: (1) they think the timeline for initial compliance is impossible, based on the expected pace of final rulemaking by EPA, and (2) they disagree with a number of the assumptions used to calculate each state’s obligation, and would like to see the EPA revisit this issue.

The afternoon included some discussion of how the current cooperative structures work, and how these could potentially be expanded or adapted to include more U.S. states. There was widespread agreement among panelists and attendees that state-level cooperation is needed to reduce the uncertainty and cost associated with GHG regulation. In fact, one industry representative conceded that they would prefer a Waxman-Markey-style national cap-and-trade program over the current proposed regulation. While it is unlikely that anything of that scale could be achieved by the U.S. Congress in the near future, pressure for an alternative to the EPA rules may grow as implementation gets going.

The final discussion included panelists who had participated in the UNFCCC negotiation process. They spoke of their experience with the Kyoto Protocol, whereby the CDM framework for credit trading between nations was not specifically included, leading to a delay in implementation until a later summit where additional language was added. Based on this experience, they are proposing that the next international climate agreement contain specific text allowing the trading of credits between nations. Paul Bodnar from The White House posed the provocative suggestion that nations should not wait for an international climate agreement. He suggests that perhaps it would be more productive for nations to move forward with bilateral emission reduction agreements, which should be easier to achieve, and potentially more effective, than a major, international agreement. This spurred some spirited discussion amongst the panelists, and helped provide a window into not only how the UNFCCC process works, but also the fatigue with this process that is felt amongst some of the nations.

Wednesday morning began with a carbon-pricing event organized by IETA and the International Carbon Action Partnership (ICAP) and hosted by the law firm of Latham & Watkins, with keynote addresses from Quebec, Germany, Norway, South Korea, State of New York (RGGI), and the World Bank, which all agreed that putting a price on carbon is necessary to achieve a working international agreement on climate change mitigation. The World Bank emphasized that it is poised and willing to help nations who wish to move forward with carbon pricing.

With agreement on a high level that a carbon price is necessary, the next panels delved deeper into how that price should work. A carbon price needs to be strong, predictable, and rising. Using market-based approaches drives down costs of meeting emissions reduction goals, and allows market participants, such as energy companies, to achieve more than would be economically feasible without the carbon market.

States and provinces with a carbon price have started to see the benefits of their systems. California’s “boring” cap-and-trade program (boring is a good thing as that indicates strength and stability) has generated $800M in revenue to date. Massachusetts has seen a proliferation of green tech start-ups, in part due to the state’s participation in RGGI. In British Columbia, the carbon tax windfall was used to reduce personal income tax.

Wednesday afternoon involved an event focused specifically on regional climate action, hosted by the law firm of Baker & McKenzie. Oregon and Washington are looking closely at what California is doing (all three states are part of the Pacific Coast Collaborative, which also includes Alaska and British Columbia). And other regional opportunities abound. For example, four private companies are planning a large wind power project in Wyoming that will send electricity through Utah to serve southern California.

Linking programs achieves significant benefits associated with larger markets, including greater trade activity, price stability, lower costs, and more options for compliance. But linkage comes with its share of difficulties. Panelists cited that linking cap-and-trade schemes may be difficult due to potential differences in quantity, quality and/or governance/politics. Nevertheless, reports convey that Northeastern states successfully linked under RGGI, and California and Quebec’s linked programs are looking to further expand their partnerships geographically.

Overall, the atmosphere at Climate Week NYC 2014 was one of “bullishness” on carbon trading, which is not something we have experienced in recent years. Attendees and speakers believe that whether the proposed EPA rules are the final form it will take, we can expect some regulation of GHG emissions in the U.S. to begin soon. On the other hand, notably absent from these events were the governments of states which will likely fight the EPA on such regulation. It is safe to say the mood in those states is probably a bit more “bearish.”