carbon market mechanisms cap & trade vs. carbon tax mike pritchard climate science, sio
TRANSCRIPT
Carbon Market Mechanisms
Cap & Tradevs.
Carbon Tax
Mike Pritchard
Climate Science, SIO
Outline How much is a ton of CO2? Cap or Tax? Carbon cap & trade in practice
EU-ETS CDM in practice Recommendations for Cali
How much should a tCO2 cost?
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The Past
How much is a ton of CO2?Combustion: CxHy xCO2 +
yH2O12 g/mol 44 g/mol
1 lb 4 lb
60 lb 240 lb6 lb/Gallon
~9 tanks of gas 1 tCO2 1 credit
= =
Cap & Trade “Cap” - impose a limit on the rate of
cumulative CO2 emission “Allowance”: The right to emit a specific
amount “Trade” - transfer of an allowance
Buyer penalized for producing emissions in excess of allowance
Seller rewarded for mitigating emissions Market reduces CO2 emissions at a low cost.
Carbon Tax Pretty much what it sounds like. Tax rate must be adjusted as
economies evolve to achieve net emissions reductions
The Debate: Tax or Cap? Cap & Trade is a “quantity” instrument
Fixes the quantity of CO2 output Pro: Concrete environmental outcome Con: Price uncertain, fluctuating
Difficult for companies to plan ahead, especially if price is volatile
Con: Potentially large enforcement Many trades: complicated monitoring
The Debate: Tax or Cap? Carbon Tax is a “price instrument”
Fixes the price of CO2 output Pro: Long-term planning. Pro: Less overhead? Con: Ensure environmental outcome
Net output could vary with total economic activity Have to sell “tax increases”
Cap & Trade in practice….
EU ETS First large carbon economy pilot project
Phase I lessons Protectionism by local government Free allowances
Some are necessary to ease transition Too many devalue/destabilize the currency
The market is growing fast…
Carbon trading market: 2005: 9.4 billion euros 2006: 22.5 billion euros
80% of this is the EU-ETS
CDM: The Clean Development Mechanism
www.hedweb.com/animimag/pig.jpg
CDM in action: Bunge Agricultural
commodities Overseas effluent
capture Electrical co-
generation
Profit from carbon sale via CDM Farmer gets a cut
The CFC Gold Rush HCFCs
10,000 times the global warming potential of CO2.
Pollution outvalues product!? Credit for less than
€1 Sold for €11
Some Recommendations for Cap &Trade in California External offsets Special attention to industry, transport
Utilities selling imported (i.e. coal-generated) electricity suffer an allowance
Phased-in “free” vs. “auction” allowances Attention to data sufficiency
How much should carbon cost? For stabilization at 550 ppm CO2-eq by 2100
Between 20-80 US$/tCO2 by 2030 between 30-155 US$/tCO2 by 2050
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Summary 1 tCO2e is
9 tanks of gas Cap vs. tax An international scheme is needed $/tCO2 for stabilization?
On the order of $80-150