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International court rules against Koch Industries in carbon pricing case
An international tribunal ruled that Canada is not obligated to compensate Koch Industries for the losses it claimed after the cap-and-trade program was canceled in Ontario.
In short:
- Koch Industries sought compensation for over US$30 million in losses following the termination of Ontario’s cap-and-trade program by the Doug Ford government in 2018.
- The case, which hinged on whether emissions credits qualify as investments, was dismissed by the International Centre for Settlement of Investment Disputes.
- This ruling comes after a four-year legal battle, highlighting Koch Industries' history of opposing environmental policies through legal means.
Key quote:
“We don’t know for sure but if the case was tossed out on jurisdiction then it’s likely that the tribunal agreed with Canada that Koch’s purchase of emissions credits in Ontario does not qualify as an investment.”
— Stuart Trew, director of the Canadian Centre for Policy Alternatives’ trade and investment research project
Why this matters:
Critics argue that the Ford government's decision to cancel the cap-and-trade program was ill-considered and pushed the financial burden onto all Canadians, with federal government resources now being used to defend against the Koch family claim. This has sparked discussions on the implications for future environmental policy adjustments, as lawsuits such as this one could deter governments from implementing new or modified environmental policies due to fear of litigation.
Peter Dykstra: Clearing up some myths about the seven—yes, seven—Koch brothers.
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A new strategy for western states to adapt to long-term drought: Customized water pricing
Even after January’s storms, California faces a water-scarce future. An economist and an engineer propose a way to test higher water prices as a conservation strategy without hurting low-income users.
Why pricing carbon is still more theory than reality
While the concept of carbon pricing may have broad support, the actual working of such systems have proved hugely controversial in Canada, Australia and other countries.
Newsletter
A sea change in fuel prices is imminent
Much of the hand-wringing about cleaner fuel has to do with things we encounter daily - trains, planes and automobiles. But possibly the most significant issue, and certainly the most immediate one, is far out at sea.
Sask. introduces climate change preparation plan for farmers and communities
The Saskatchewan government is partnering with Natural Resources Canada to help farmers and communities prepare for climate change.
Three things Christine Lagarde can do to cement her legacy on climate.
Managing Director Lagarde has positioned the IMF as an important and credible voice in the debate about climate change. Now it’s time for the Fund to expand and institutionalize this new role, helping poor and vulnerable countries understand and confront the macroeconomic and financial risks of climate change.
WASHINGTON DC, Oct 11 2017 (IPS) - The International Monetary Fund (IMF) and climate change do not often appear in the same headline together. Indeed, environmental issues have been, at most, peripheral to the Fund’s core functions. But now economists inside and outside the IMF are beginning to understand that climate change has significant implications for national and regional economies, and so it’s worth reconsidering the Fund’s role in addressing the climate challenge.
To her credit, Managing Director Christine Lagarde has boldly injected the IMF’s voice into the global debate on policy responses to climate change and has identified a number of roles the Fund can play.
The Fund has conducted valuable work on how carbon emissions can be reduced through market prices that reflect the negative externalities of those emissions. In particular, the Fund has become a leading voice for quantifying and streamlining or eliminating fossil fuel subsidies, as well as for introducing carbon-pricing mechanisms.
What is still missing, however, is a bigger role for the IMF in enabling countries to prepare and manage the potential impacts of climate change. There are three things the Fund could do, building on its current efforts, that would make a big difference:
1. Deepen Research on Macroeconomic and Financial Impacts of Climate Change
In a climate change debate that has become heavily politicized, the Fund’s technical and nonpartisan voice is uniquely valuable. Few questions are as important as understanding the possible effects of a changing climate on the world’s economies, especially the most vulnerable ones.
The Fund has recently started to make important contributions in this area. In a paper published last year, the IMF started to look into the implications of climate change on so-called “small states”. And last week, the Fund devoted for the first time a whole chapter of its flagship World Economic Outlook to the impacts of weather shocks on economic activity.
Building on these foundations, the Fund should focus its research capabilities on a key question, namely whether climate change is having have a “level effect” or a “growth effect” on per capita income. If the former, then climate change will only destroy a given amount of income over time (think of damaged bridges and buildings) but not affect the capacity of the economy itself to grow. If the latter, then climate change is also harming the drivers of growth themselves, such as the productivity and availability of workers, the productivity of agriculture, and the flow of investment. The economy’s growth rate will slow as a result, and losses will compound year after year, leaving an economy significantly worse off than if only level effects applied.
Getting better answers to this question is essential for policymakers making decisions about how much to spend today to avoid damage tomorrow.
2. Formally Incorporate Climate Change Into Policy Dialogue
One of the Fund’s core functions is macroeconomic surveillance. This function brings Fund staff into regular policy dialogues (called Article IV consultations) with financial authorities in virtually every country in the world.
Financial authorities have a key role to play in preparing for climate change, as they are charged with budget planning and managing fiscal and financial risks. The Fund should bring climate risk into the dialogue as a formal part of its consultations, not just with small states, but with a much larger set of vulnerable countries as well, including systemically-significant ones.
This year, in collaboration with the World Bank, the Fund launched the first Climate Change Policy Assessment (CCPA) during the Article IV consultations for the Seychelles. The assessment focused on policy options to reduce vulnerability to climate change; the Seychelle authorities found it to be very useful. More CCPAs are planned – a small handful per year – but this is simply not fast enough given the urgency and gravity of the challenge.
The Fund should formalize CCPAs as a routine part of Article IV consultations for a broad swathe of vulnerable, low-income countries. This will require investing in staff capacity and training, including in the Fund’s Monetary and Capital Markets Department, which can help countries identify how climate risks and opportunities could affect their financial systems. Maximizing synergies with the World Bank on the CCPAs will also be necessary.
3. Treat Expenditures on Climate Resilience as Investments
Countries facing a balance-of-payments crisis often draw on IMF resources and enter into a program relationship with the IMF. One of the trickiest elements when negotiating such a program is how to treat different categories of spending and where to cut to restore fiscal balance. How should the Fund treat expenditures designed to provide financial protection against extreme weather events? These include, for example, deposits into a national reserve fund, premium payments on sovereign insurance against natural disasters, or the costs of issuing catastrophe (“cat”) bonds.
Protecting some of these expenditures from program-mandated cuts is fully appropriate, as they are designed to provide a measure of fiscal protection to the government in the aftermath of an extreme weather event. For instance, the Fund might treat cat bond issuance costs and insurance premiums as investments with potential upside, rather than as expenditures, thereby exempting them from cuts.
Managing Director Lagarde has positioned the IMF as an important and credible voice in the debate about climate change. Now it’s time for the Fund to expand and institutionalize this new role, helping poor and vulnerable countries understand and confront the macroeconomic and financial risks of climate change.
“This article was originally posted at World Resources Institute’s Insights blog”
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Disappointment and hope in Perry's Texas.
Count the power sector in Rick Perry's home state among those unimpressed with the Energy secretary's proposal to redefine competitive markets.
AUSTIN, Texas — Count the power sector in Rick Perry's home state among those unimpressed with the Energy secretary's proposal to redefine competitive markets.
Prominent voices in Texas electricity unloaded yesterday on the Department of Energy's recent directive to the Federal Energy Regulatory Commission that may serve as a lifeline to struggling coal and nuclear plants. Yet leaders here also tended to hold out hope that DOE's push will lead to U.S. power market reforms they see as more compatible with competition.
Recognition of a disconnect ran through the Gulf Coast Power Association's fall conference as Texans mentally contrasted a Perry who carried a free-market mantra as governor with a Perry whose name is attached to a federal plan that could disrupt organized electric markets.
Perry's letter to FERC seeking change has caused waves since its emergence last week (Energwire, Oct. 2). While Texas' main power market is regulated primarily by the Public Utility Commission of Texas (PUC), the proposal from Perry remains jarring for those here pondering the national implications of DOE's plan.
"It's just profoundly disappointing that the man who presided and actively oversaw and protected the best competitive market in the country signed that letter," Pat Wood III, a former chairman of both FERC and the PUC, said in an interview.
CEO Robert Flexon of Dynegy Inc. said the proposal is counter to the competitive marketplace, even if his power company might see some benefits from the plan. "If you're going to do that, just re-regulate," he said. "Just re-regulate everything."
"I think it is a dreadful policy proposal," said Alison Silverstein, a consultant who was involved in a recent grid study for DOE. She said the DOE plan "appears to have immense cost implications for the market, for reliability and for customers" without obvious benefits to those segments.
The approach promoted by DOE could benefit coal and nuclear plants because it talks of compensation for "fuel-secure" generation sources that have 90-day fuel supplies on-site. DOE discussed the idea of fully valuing the reliability and resiliency of on-site fuel.
The plan was a topic of interest yesterday morning as Flexon and Mauricio Gutierrez, CEO of NRG Energy Inc., were among those on a panel moderated by Wood.
The former FERC chairman began a discussion of the DOE proposal by referring to a "Christmas turd." He did say DOE had concerns about competitive markets not properly pricing attributes Perry deemed worth paying to have.
Later, Wood said it's possible that FERC could use this as an opportunity to fix markets that need fixing. He wasn't sure about a 60-day turnaround mentioned by DOE, but Wood said something could happen in less than six months.
A 'call to action'?
In an interview, Wood described the DOE proposal as a "call to action" that would lead to an aggressive upgrade to power markets.
So Wood isn't disappointed that Perry is seeking action, but he indicated this particular proposal besmirches Perry's reputation after a 14-year run as governor that helped to foster a new approach to electricity. Competitive wholesale and retail power markets are in place in much of Texas despite price spikes, capacity market discussions and an expansion of the grid over the years.
"He took the baton, his team and all his appointees, and they ran with it and that's why we have this great market today," Wood said.
Wood pointed out that Perry is now working under President Trump, who has made his sentiments about coal clear. But Wood seemed to favor a more neutral approach and said markets exist to serve customers better than an earlier system.
"The nation's always solved stuff through ingenuity and technology, and I would not ever want to restrict any power solutions to designated companies or fuels or technologies," he said.
Flexon told the crowd that a subsidy war is alive and well, from wind to nuclear to possible additions from the DOE plan. The proposal involves "nothing more than just a new subsidy entering the space," Flexon said.
Although Dynegy is a fairly large coal-fueled generator, Flexon said he's not supportive of the DOE plan because policy should be technology-neutral. But he said energy price formation needs to be improved.
Flexon also assured Wood — Dynegy's chairman — that "if somebody's going to pay us cost of service with a return if we have 90 days of inventory, we'll find ways to get 90 days of inventory" at coal plants.
"This is designed to counter the efficiency of the marketplace and to save assets that should be exiting the market," Flexon said.
Dynegy has been criticized for an effort in Illinois that would change pollution standards, possibly allowing the company to avoid some new pollution controls at coal-fueled plants (Energwire, Oct. 3). But Flexon defended the company's stance in an interview, saying the proposal in that state is intended to aid efficiency and allow less pollution.
NRG's Gutierrez said the grid in Texas showed reliability and resiliency in the aftermath of Hurricane Harvey. But he also called for price formation changes in energy markets while emphasizing to the crowd a need to be neutral in terms of fuel and technology.
"The concept of just and reasonable return for generation assets, we're all for that," Gutierrez said, adding that it needs to be in the context of a competitive solution.
Silverstein also was here yesterday, saying in an interview that the DOE letter "will certainly force FERC into action to do something to protect competitive wholesale markets."
Yet she said "there is no way that plants subsidized to this degree are consistent with competitive markets, nor are they consistent with parity of treatment to other plants and other investments."
Watching FERC
Silverstein added: "So I think FERC is going to have to do some scrambling to come up with an alternative, and they are now on a clock."
If she were FERC's chairwoman, Silverstein said her response after 60 days would be declining to adopt the DOE proposal and moving in a different direction to accomplish certain goals.
Curt Morgan, CEO of Vistra Energy Corp., said during an interview he thought Perry had been challenged by the administration to come up with something that could support coal and nuclear. But Morgan said the plan has issues, from implementation to legal to protocol.
In the end, he said it could accelerate reforms from markets that want to move ahead with their own approaches.
"I think FERC's going to have to do something," he said, suggesting "a collaborative effort" with system operators. Morgan said some changes also are possible in Texas' main power market, but he suggested a deliberate approach.
John Berger, CEO of Sunnova Energy Corp., offered a perspective from a residential solar company. He said there's a need for market restructuring and argued it's not true that solar and batteries will move slowly.
But what about potential help for coal and nuclear from DOE's plan?
"I'm not into picking winners and losers, even if he was to pick solar," Berger said of Perry during an interview.
So Berger might not agree on Perry's exact approach, though he did agree on a focus on resiliency and potential changes in the power system around the country.
But Bill Peacock, a vice president of research at the Texas Public Policy Foundation, said the DOE proposal attempts to address a problem caused by renewable subsidies by turning to subsidies for coal and nuclear.
"We think the direct way to deal with this is just to eliminate renewable energy subsidies and the regulations that make coal" more expensive for generation, he said.
Peacock didn't seem hopeful the DOE proposal would help to jump-start a debate that leads to positive reform.
"If this jump-starts anything, it's likely to be more subsidies," he said.
Flexon said in an interview that the DOE proposal could stimulate a discussion around fixing other things in the marketplace in terms of the most efficient way to form prices. This could play out in markets such as one managed by PJM Interconnection, whose region runs from the Mid-Atlantic to parts of the Midwest.
"I really think it'll get PJM and the other markets to really update energy price formation tariffs," Flexon said.
Yet Flexon suggested the DOE proposal could create a "death zone" for a generator with a system that's partly regulated and partly competitive. In that situation, competitive parties could get crushed, he said.
The Dynegy CEO told the crowd that the investment community has lost confidence in the competitive market. That has affected companies such as Dynegy that aren't traditional utilities.
"We can compete with anybody on price," Flexon said. "It's just hard to compete on subsidies."
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