... They're sounding an alarm that greenhouse
gases measured in the atmosphere can be double what companies
and nations estimate on the ground...comments our way
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Climate Change Math in Treaties Flawed by Suspect Calculations
2010-11-23 00:00:01.0 GMT
By Natalie Obiko Pearson
Nov. 23 (Bloomberg) -- Euan Nisbet, a University of London
earth sciences professor who has traveled the world testing the
air for greenhouse-gas pollution, makes his way to a rocky
outcropping on the eastern coast of Hong Kong Island on a sunny
November afternoon. He takes out a battery-operated pump
connected to a thin tube and a plastic bag to capture traces of
the wind.
"This is a good day for collecting samples," says Nisbet,
61, looking out to sea. "There's a good, strong breeze blowing
in from the mainland. It's the breath of China."
Hooking up his air-sucking device, Nisbet says the world
puts too much faith in government estimates of carbon dioxide,
methane and other heat-trapping gases blamed for climate change,
Bloomberg Markets magazine reports in its January issue. That's
because companies and countries base emissions calculations on
the raw materials that go into a factory or power plant; they
don't check the pollution that comes out.
"It's like going on a diet without weighing yourself,"
explains Ray Weiss, a geochemistry professor at the Scripps
Institution of Oceanography in California, whose article with
Nisbet in the June issue of Science argues for measuring the
atmosphere.
"We're counting all the calories, believing the bottom-up
calculations are right and not making any effort to test by
getting on the scale."
How Do We Measure?
As the world turns to climate treaties and emissions-
trading markets to tame global warming, scientists and
regulators are clashing over a key question: How do we measure
the pollution we're trying to reduce?
Companies use bottom-up calculations and report their
emissions estimates based on inputs: how much coal a plant
burns; how much oil a factory consumes; how much lime is added
to cement. Countries tabulate these estimates and add nationwide
figures: how many vehicles drive within their borders; how much
waste people plow into landfills; even how many methane-belching
sheep graze in pastures.
Nisbet, Weiss and dozens of researchers say this bottom-up
approach doesn't reveal what we really need to know -- what's
happening in the air. They're sounding an alarm that greenhouse
gases measured in the atmosphere can be double what companies
and nations estimate on the ground.
In the case of one heat-trapping gas called sulfur
hexafluoride (SF6), countries report that output has plummeted
since 1995 based on their counts of military radar systems,
electrical equipment and factories that use it to soundproof
windows, all of which can release the gas. Scientists say
measuring the air shows levels have surged since at least 2000.
'Centuries or Millennia'
Getting the measurement right is crucial because SF6 traps
23,900 times more heat per molecule than carbon dioxide and
lingers for up to 3,200 years, the U.S. Environmental Protection
Agency says.
"These gases lead to climate change for centuries or
millennia, so there's a finite amount you can ever put in the
atmosphere," says Stephen Pacala, director of Princeton
University's environmental institute. "For every release, you're
taking something from some subsequent person."
Making sure the numbers add up is important for a more
immediate reason: They underpin the only international climate
treaty that sets mandatory limits for greenhouse gases. That
192-country pact, known as the Kyoto Protocol, went into effect
in 2005 and set emissions targets for 38 of the countries that
signed on. Nations will gather in Cancun, Mexico, beginning Nov.
29 for annual United Nations-led climate talks.
'Fault Lines'
Today, $141 billion worth of credits that help countries
meet their Kyoto goals are changing hands in global emissions
markets. And business is booming in offsets -- the right for
countries and companies that still pollute too much to claim
credit for green projects elsewhere. All of these efforts are
based on bottom-up calculations being accurate.
"We have to get the emissions numbers right early on," says
Shakeb Afsah, a former World Bank environmental economist who
founded data-analysis company Performeks LLC. "We've seen how
the cumulative effect of small errors that accumulated in the
financial markets have blown up as little cracks turned into
fault lines."
Traders and regulators say Europe's carbon market, called
the Emissions Trading System, and the United Nations' offset
market, called the Clean Development Mechanism, are making a
real dent in greenhouse emissions. From $570 million a year in
2004, the global carbon market may surge to as much as $1.4
trillion worth of transactions by the end of the decade,
Bloomberg New Energy Finance says.
Cap and Trade
Trade in carbon options contracts alone soared to almost
$10.6 billion in 2009. Traders looking to profit from buying or
selling options for EU credits or UN offsets accounted for more
activity than buyers actually trying to meet Kyoto caps, the
World Bank says.
The European Union is betting on cap and trade. The 15
countries who were EU members at the time the pact was adopted
in Kyoto, Japan, say the system has already helped them: They've
surpassed their goal of trimming emissions in the five years to
2012 by an average of 8 percent compared with 1990 levels. As of
2008, the now 27-nation EU reported to the UN that emissions had
dropped 11.3 percent below 1990 amounts. Endesa SA, Spain's
second-biggest utility and the top user of UN offsets in the EU
market in 2008, says it has cut emissions at its Spanish plants
by 5 percent annually since 2005. The EU has set internal
targets in addition to Kyoto goals.
'It Is Working'
"It is working," says James Cameron, vice chairman of
Climate Change Capital Ltd., a London fund manager that has
invested more than $1 billion in carbon credits. "This system is
only there to take tons of carbon out of the atmosphere; it has
no other purpose," says Cameron, who declines to say how much
the fund has profited. "It has propelled some very, very good
investments." Wind farms in China are among them, Bloomberg data
show.
Jean-Pascal van Ypersele, vice chairman of the
Intergovernmental Panel on Climate Change, a UN-led network of
scientists, says companies and countries use tried-and-true
formulas to calculate emissions. Carbon dioxide is the main
greenhouse gas traded in the EU market and burning coal, oil and
other fuels accounts for most of the emissions from human
activities. CO2 is relatively simple to calculate, he says.
Auditors and expert panels review and sign off on the numbers
companies and countries report.
'Easy to Monitor'
"Emissions from burning fossil fuels are quite easy to
monitor and quantify because burning 1 kilogram of carbon is
going to provide 3.7 kilograms of CO2; that's the law of
chemistry," van Ypersele says. "As long as you know how much
carbon is present in the fossil fuel you burn, you automatically
know the amount of CO2."
If there are discrepancies between emissions reduction
figures, it may be because countries that calculate them don't
all follow one set of rules, van Ypersele says.
The Kyoto Protocol requires just 38 developed countries of
the 192 in the pact to submit emissions numbers using stringent
guidelines. The U.S. has refused to ratify Kyoto. And fast-
growing polluters such as China and India can use looser
calculations that aren't audited, the treaty's terms say.
"That's not a technical problem," van Ypersele says. "It's
a political problem."
India, the second-biggest earner of UN offsets, claims more
than 550 green projects -- from methane-trapping landfills to
bricks made without coal-fired kilns. The UN says these projects
have eliminated the equivalent of 80 million tons of CO2 from
the air. India isn't required to verify those calculations:
Nobody takes a measurement device to a plant or assesses the air
across polluted cities to say CO2 levels have come down.
Climate Talks
Countries at global climate talks in Copenhagen in 2009
failed to make any progress toward setting universal standards,
and the issue is likely to remain a stumbling block at the UN
Climate Change Conference in Cancun that starts next week.
Matthias Jonas, a physicist at Austria's International
Institute for Applied Systems Analysis, has studied emissions
numbers that do adhere to UN guidelines. He says he's skeptical
about the gains European countries are claiming. Estimates based
on fuel consumption, forest cover and other bottom-up factors
are riddled with inaccuracies, and the margins of error are too
wide to be useful, Jonas says.
Thin Air
"All the emissions we're accounting for so far under the
Kyoto Protocol are based on what we think the atmosphere sees by
standing on the ground," Jonas says. "Real verification would be
with a measurement device sitting in the atmosphere and saying,
yes, what you have estimated is true and we can confirm by
measuring what the atmosphere has received."
With billions of dollars riding on markets that are
literally based on thin air, emissions trading has to be
especially transparent, says Pieter Tans, a Boulder, Colorado-
based senior scientist with the National Oceanic and Atmospheric
Administration.
A metric ton of CO2 was trading at 15.08 euros on London's
European Climate Exchange on Nov. 22, after recovering from a
record low of 1 euro cent on Nov. 30, 2007, amid oversupply.
The EU's climate commissioner, Connie Hedegaard, said in
May that the bloc should set stricter emissions targets to boost
the price to 30 euros to encourage a faster low-carbon shift. In
the UN offset market, a company that can claim it cuts one ton
of SF6 out of the atmosphere can get credits worth 298,272 euros
at the Nov. 22 price. Goldman Sachs Group Inc., Electricite de
France SA, the Spanish government and several hundred others
have bought offsets to counter their own emissions or profit
from trading them.
'Losing Faith'
"As soon as emissions become worth a lot of money, I start
losing faith in self-reported numbers regardless of who signs
off on them," Tans says. "We need something more objective --
like checking what's actually appearing in the atmosphere.
That's what really counts and requires a serious enhancement of
the present capabilities."
If the U.S. creates a nationwide cap-and-trade market,
carbon could become the world's most widely traded commodity,
says Bart Chilton, a commissioner at the U.S. Commodity Futures
Trading Commission.
Results of the November midterm elections may have killed
federal cap-and-trade for at least two years, says Ethan
Zindler, who heads clean-energy policy at Bloomberg New Energy
Finance. Still, 10 states, including New York, New Jersey and
Massachusetts, run a mandatory cap-and-trade system to cut CO2
emissions from the power industry. California has proposed
statewide cap and trade.
'Pseudo-Commodity'
Joseph Mason, a banking professor at Louisiana State
University who specializes in financial crises, says carbon is
unique because it isn't backed by a commodity such as gold or
oil that can be seen and touched. Carbon credits get their value
with people having faith in them, he says.
"We really are setting up a market from scratch here for
this hybridized pseudo-commodity of our own making," he says.
Anything that raises doubts about the integrity of
emissions reductions could potentially damage the market, Mason
says.
"If you're selling oil, you're actually transferring
something tangible," says Gregg Marland, a staff scientist at
the U.S. Department of Energy's Oak Ridge National Laboratory.
"If somebody lies, somebody loses," he says. "In a CO2
transaction, you can lie and both win." The seller gets paid,
and the buyer has his credit for compliance. "We're going to
create a situation where both sides can win by cheating,"
Marland says.
Acid Rain Success
U.S. success in reducing acid rain shows how tracking what
comes out of a factory -- along with what goes in -- can pay
off. The EPA began requiring companies to continuously measure
the sulfur dioxide and nitrogen oxides coming from their
smokestacks in 1995. They reported as often as every hour in the
world's first large-scale emissions-trading effort.
By 2006, the U.S. had cut sulfur dioxide emissions by 40
percent and nitrogen oxides by almost 50 percent, a 2007 EPA
assessment found. The smokestack measurements proved the most-
accurate and comprehensive data collected by any U.S. agency.
"The quality of emissions monitoring plays an important
role in determining the market efficiency, investor confidence
and ability to meet the emissions-reduction target," Sam
Napolitano, director of the EPA's Clean Air Markets division,
said in the July 2007 report.
'Estimates Are All Guesses'
One recent carbon study shows how far off estimates can be.
Afsah's Performeks compared emissions calculated by the
Netherlands Environmental Assessment Agency with those
calculated by BP Plc. Both collect energy data and supply it to
the public. The difference between the two sets of estimates for
23 nations added up to 2 billion metric tons of CO2 -- more than
what Russia, the world's third-largest emitter, spewed from
burning fossil fuels in 2008.
The gap shows how widely results can vary depending on how
calculations are tweaked and what statistics go into the number
crunching, Afsah says.
Even an early supporter of bottom-up calculations says he
now sees the drawbacks.
"When it comes down to it, these estimates are all
guesses," says John Bosch, who retired from the EPA in 2009
after 38 years. Bosch's team designed ways to estimate pollution
from oil refineries and petrochemical plants.
'Everybody in the Game'
Bosch says he left to become a consultant because he was
frustrated regulators didn't require precise measurements. New
laser-based instruments make policing emissions possible, he
says.
"In the real world, there are huge motivations for everyone
to low-ball emissions," Bosch says. Regulators want to report
progress, and polluters want to pay less for permits, he says.
"Everybody is in the game."
Scientists say studies published in 2010 support their call
for better verification of bottom-up figures. Measurements of
methane, the most common greenhouse gas after CO2, gathered in
Los Angeles with a laser-based analyzer were a third greater
than estimates the California Air Resources Board calculated
using UN guidelines, according to the January 2010 journal
Atmospheric Environment. Bottom-up calculations may
underestimate natural-gas pipeline leaks and miss other sources
entirely, the study found.
Researchers who looked at perfluorocarbons in the air
around China, Japan, the Koreas and Taiwan found that levels of
the gas, emitted in making aluminum and semiconductors, may be
97 percent higher than calculations from bottom-up approaches.
'Strong Underestimation'
Ingeborg Levin at Germany's Heidelberg University and 13
international researchers compiled airborne measurements of SF6
from 1978 to 2009. The data from Antarctica, Sweden and other
far-flung locales show 80 percent of emissions in the past
decade can't be accounted for. This suggests a "strong
underestimation" in what developed countries report to the UN, a
March study in Atmospheric Chemistry and Physics, the journal of
the European Geosciences Union, said.
"My suspicion is that the companies and accounting people
are too optimistic," says Levin, who has a doctorate in physics.
"There can be unknown leakages and pathways. But the atmosphere
sees everything."
Mark Lewis, managing director of global carbon research at
Deutsche Bank AG, says traders don't have the expertise to
second-guess how emissions markets have been designed. They have
to believe experts have set up a system that achieves real
pollution cuts.
'Doing Their Job'
"I assume the scientists are doing their job correctly and
the market can then get on and do its job, which is to deliver
emissions reductions at the least cost," Lewis says. "There's no
reason why you need to understand the science or even believe in
it to trade in the market."
The EU and UN markets are audited by experts who inspect
logbooks, cross-check production data against fuel invoices and
interview workers.
Auditing doesn't guarantee accuracy, Afsah says. When he
worked at the World Bank, Afsah examined environmental data at
thousands of factories. He found air measurements always
deviated from bottom-up estimates -- no matter how rigorously
they were audited.
"Every auditor audited Enron's accounts, and it still blew
up," he says, likening estimates of what goes into a factory to
a black box where numbers get lost. "There's no substitute for
actual measurements."
'Subprime Carbon Crisis'
Measuring gases in the air would require a global network
such as the stations that report weather patterns. So far,
countries haven't been inclined to shell out the money. That
leaves a loose band of air checkers spread thinly around the
planet.
In India, D.V. Borole, a retired government researcher,
treks to a bluff in Goa on the west coast once a fortnight. He
gathers samples at one of just six sites in the nation of 1.2
billion to study heat-trapping pollutants.
A bare-bones atmospheric system would be about $65 million
a year to run, says Leonard Barrie, director of research at the
World Meteorological Organization. Building a worldwide network
would cost roughly $5 billion, says Michael Woelk, CEO of
Sunnyvale, California-based measurement equipment maker Picarro
Inc. He says the money is worth it.
"There's a misunderstanding that self-reported emissions
are accurate and fail-safe," he says. "They aren't."
Sloppy emissions estimates today could mean a nasty
correction for the economy down the line, Woelk says.
"How can we know if cap and trade is working to reduce
emissions if we don't understand the actual composition of the
air?" he says. "We're essentially setting up a subprime carbon
crisis."
'Revolution in Observations'
Laser analyzers from Picarro and Los Gatos Research Inc. in
Mountain View, California, are cheap and make fast, accurate,
continuous measurements, Barrie says.
"In the next 5 to 10 years, we expect to see a revolution
in observations," he says.
Nisbet, the professor sampling air in Hong Kong, has seen
how testing the atmosphere can make a difference. His data on
methane were used in an early study that detected discrepancies
between air-based measurements and bottom-up estimates.
That study found that methane from human activities in
France, Germany and the U.K. in 2001 was 50 percent to 90
percent higher in the air than what the countries had first
reported to the UN. Germany, in the meantime, increased its
estimate by 68.5 percent, which more closely matched what the
air showed.
'We Can Measure It'
Nisbet says the bottom-up calculations that underpin
today's emissions markets and climate pacts have one big selling
point: They're consistent.
"You can do the paperwork again and again and again and
you'll get the same thing," he says. "It's like if you ask
someone again and again for their tax return, it'll be the same.
It might be true, it might not. Who knows?"
Measuring the air has its flaws: It's not easy and it's not
as precise.
"You don't always get the same result," Nisbet says. "But
it's what's really there. It's there because we can measure it."
For Related News and Information:
Bloomberg New Energy Finance Carbon Model Page: CARX <GO>
Most-read alternative energy stories: MNI ALTNRG <GO>
Top renewable energy stories: TOP ENV <GO>
Climate-change news: NI CLIMATE <GO>
Top environment stories: GREE <GO>
--With assistance from Ewa Krukowska in Brussels and John Duce
in Hong Kong. Editors: Gail Roche, David Ellis
To contact the reporter on this story:
Natalie Obiko Pearson in Mumbai at +91-22-6612-9107 or
npearson7@bloomberg.net
To contact the editors responsible for this story:
Neil Western at +852-2977-6453 or nwestern@bloomberg.net or
Michael Serrill at +1-212-617-6767 or mserrill@bloomberg.net
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