October 22, 2015 by Rohan Nongpiur
With significant carbon trading experiences under the European Union Emissions Trading Scheme (EU-ETS) scheme, as well as presence in other carbon markets around the world, Statkraft is an experienced hand in the carbon space. With its recent entry into North America, Statkraft aims to further leverage their global experiences into a diverse market that is increasingly providing numerous opportunities. CaliforniaCarbon.info caught up with newly-appointed US Managing Director Patrick Pfeiffer for a quick interview, and discussed issues ranging from underlying decisions behind Statkraft’s entry into North America and the value it aims to bring to the WCI market, to its future plans for other markets, opportunities associated with the Clean Power Plan, and expectations for Paris.
CaliforniaCarbon.info: How does Statkraft aim to bring their experience from the EU ETS to WCI carbon market?
Patrick Pfeiffer: The first step is entering the market. There is one camp that says we can do a lot of research, hire policy experts, academics and study, and there’s another camp that says yes that is important but let’s simultaneously and concurrently enter the market and transact commercially. The best way I think, to understand the U.S. environmental markets, is to get involved early in a commercial yet prudent manner. Having boots on the ground in the United States really gives us the opportunity to not only focus on the markets that we are there for, but also take note of opportunities in the ancillary markets that could be important to the future growth of Statkraft.
CC.info: What is the current team size and how is it expected to grow in the near future?
PP: Currently the team is one, but the great thing is that there is a group of greater than 20 individuals in the Amsterdam office and 4000 people worldwide, with expertise that is extremely important to the US business. While it’s just myself currently, I look to rely on the expertise and success of my counterparts in Europe as we create the business. The full breadth of the US environmental markets cannot fully be covered by just one person, so I think it is always a good exercise to have a build-out strategy in place.
CC.info: How are the California and EU markets different?
PP: California has had some luxury in the creation of its market in that it has been able to study the markets that have come before it. The European market was the first centralized carbon market in the world; mistakes that were made there were able to be avoided or recognized as California shaped its own program. Simultaneously, California also had the benefit of looking at local and regional emissions trading programs that it has been spearheading for the last 20-30 years. So the combination of being able to study the markets that came before it and also its intimate knowledge of local and sub-regional markets allowed California to create very strong regulations.
CC.info: What value does Statkraft aim to bring to WCI?
PP: I could see Statkraft wearing a number of hats in the U.S. environmental markets. Teaming up with a company like Statkraft, who has not only the industry knowledge but also commercial capabilities can be beneficial to offset project developers. Currently, these developers face a tough, lengthy, and uncertain process for the production of their product. Teaming up with Statkraft, who understands the nuances of project development as well as key performance targets, can help developers manage the sometimes unpredictable nature of their business. Since offsets are a key cost-reducing compliance option for regulated entities, it is important that we grow and support the space. Further, Statkraft has significant experience helping regulated companies achieve their compliance objectives in the most cost-effective way possible, thus it would make sense for us to work with U.S. companies in the same manner.
CC.info: Do you feel that long-term certainty is required for a robust market in the WCI?
PP: If you look at the major regulated sectors under AB32, they are not viewing cap-ex at 1, 3, or 5-year timeframes. They are building refineries, they are building power-plants, even renewable energy facilities; when you are pencilling out one of those, you are looking 15-25 years out. So I think in order to most efficiently and successfully continue to build the new energy economy, you can’t have a program that stops ten years from now. It has to be a long 20-30 plus year commitment that engages its stakeholders early and throughout. If you look at the intent of the program, it’s not necessarily all about reducing NOx, SOx, or carbon, but it’s really about how we can best transition to the new low-carbon economy and incentivize new low-carbon energy sources.
CC.info: Did the increase in liquidity this year influence Statkraft’s entry in any way?
PP: I think it’s a good sign when your contemporaries in Europe are active in the United States as well. While I don’t necessarily think there is a liquidity target that said ‘below this we can’t enter, above this we can enter’, I think it was more the qualitative momentum we saw in the United States, not only in the cap-and-trade program but across all sectors of the economy. There have been improvements and leadership outside the Cap and Trade sector. For example you see unregulated corporations taking voluntary actions to reduce their carbon emissions. There has also been an increase both in renewable energy production and use on the voluntary and regulated fronts. So I think it’s the array of options across the economy which really incentivized Statkraft to enter the United States. Our focus is initially on California, Quebec, RGGI and the renewable energy credit markets.
CC.info: Are there any other carbon markets that Statkraft is looking to enter in the near term?
PP: Statkraft, being a global company, has its eyes on every burgeoning potential carbon regime. While I can’t speak to the next physical office being set up, I can mention that where there is a carbon price, there is a good chance that Statkraft is currently active or quite close to being active.
CC.info: What are the opportunities and challenges from the Clean Power Plan and what are your expectations for Paris?
PP: For the Clean Power Plan, once states come around to the fact that they probably have to take part in the program, I am actually extremely interested to see how states choose to participate. I think there are a lot of opportunities if states choose to link with existing programs. It seems that the barrier to entry becomes quite low if states adopt existing markets, as it reduces the amount of resources they have to devote towards creating their own rules and policies.
As for Paris, I am quite motivated by momentum to date. The last time I felt this much momentum on the carbon markets was when Waxman-Markey was on the table in the US for federal legislation, when you would go to a renewables and carbon conference and the energy was quite rich. With almost weekly releases of INDCs for some time now, I am starting to feel that energy again – maybe there is a chance for a more global carbon market in the future.
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