Sunday, November 22, 2009

Missed Opportunity for Carbon Offset Credits for Wind Farm Landowners

What does cap and trade and carbon emissions mean to the wind farm industry as this bulging billion dollar wind energy market is blowing through America?

Carbon future market liquidity may have a huge impact on wind energy farms if Congress enacts climate change legislation. In short, wind power producers would get more money…more money…and more money for electric power generation.

In America, its farming as usual as Congress is trying to pass forceful legislation requirements to cap or limit suspected harmful green house gas (GHG) emissions that are supposedly responsible for global warming. This may set the stage for the U.S. carbon trading market and other sources of revenue growth for renewable energy.

To help add fuel to the fire, the U.S. EPA recently mandated a greenhouse gas reporting system that requires large emitters to report CO2 emissions starting next year. This rule laid the framework for annual reporting for any businesses that emit 25,000 tons or more of CO2 into the environment. It sets the precedent in quantifying the total amount carbon emissions and future market trading allowances for the U.S. in order to meet the proposed limits to cut carbon dioxide emissions.

The future U.S. carbon trading program may be similar to the government’s (Clean Air Act of 1990) cap and trade program since it was designed to reduce air pollution emissions related to Nitrous Oxides (NOx) and Sulfur Oxides (SOx) for acid rain and ozone reduction. Currently, these allowances are trading in open markets during November of 2009 at $105 per ton for seasonal NOx and $71 per ton for SOx, as CO2 trades at $3.18 to $3.38 per ton, respectively. Over time, the allotted allowances for CO2 become stricter, allowing less and less pollution, until the ultimate reduction goal is met (i.e. - 20% by 2020 and 80% by 2050 from 2005 baseline levels).

Overseas, it also appears that the U.S. carbon trading market is following in the foot steps of the European Union’s (E.U.) cap and trade market system that has been in operation during the last 4 years. This Emission Trading Market is progressively gaining momentum as trading of carbon offsets future contracts have seen a 36% increase year-over-year. Current credit futures are trading in U.S. dollars between $19 and $27 per ton, as reported on the European Climate Exchange (EXC) during October of 2009.

Moreover, the E.U. and the U.N. are also pushing for global climate change reform that will require key nations to progressively cap or limit specific GHGs that are supposedly responsible for global warming. This outcome will play out at the U.N.’s Climate Change Conference in Copenhagen that is slated for early December of 2009, as Mr. Obama is eagerly waiting to sign an energy treaty that would create a redistribution of wealth to third world countries.
Lastly, if cap and trade is enacted by Congress, the U.S. carbon offset trading market may greatly enhance each wind energy producer’s revenue portfolio as offsets or other trading allowances related to green energy credits are assigned a monetary market value and/or traded worldwide. This could easily equate into an additional $45/mega watt hour of power production per turbine or an extra $98,550 in revenue.

However, this may also present itself as just another missed opportunity for those landowners that did not actively negotiate additional payments for wind energy carbon offset credits before signing the wind energy contract. Contractually, this may also become a big legal issue for the landowners or farmers that are preparing for future carbon offset payments for no till farming practices related to carbon sequestering, as the release of all carbon offset rights may have become the property of the wind developer.

Therefore, it is wise to review what the wind energy contract may say about the management of carbon offsets.

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