developments in us climate policies: the effects of cap and trade on international market...
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Developments in US Climate Policies: The Effects of Cap and Trade on
International Market
“Comparing North American and European approaches to climate change”
at Wilfrid Laurier University 09/28/2007
Toshi Arimura RFF, George Mason University and Sophia University
(with Dallas Burtraw, Alan Krupnick,Karen Palmer, RFF)
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209/28/2007@WLU
Outline
1. Developments in State/Regional Programs1. RGGI
2. California and Western States
3. CCX
2. Developments in Federal Policy Cap and Trade Proposals in Congress
3. Concluding Remarks
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1.Developments in State/Regional Programs
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409/28/2007@WLU
Backgrounds on US environmental policies
State governments often implement environmental policies before the federal government does
California is known to be the leader
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509/28/2007@WLU
States with GHG Emissions Targets (PEW Center, Feb ‘07)
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1.1.The Regional Greenhouse Gas Initiative ( RGGI )
Cap and trade programs among 10 states in north eastern part of US
Electric Power Sector Starting in 2009. Current Emission Level in
2015 10% Reduction by 2019 ( 35% reduction
compared with BAU) Banking
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709/28/2007@WLU
RGGI
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RGGI
The economy in this region amounts to 20% of US GDP
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CO2 CapState Cap 2004 State Cap 2004
9 States
150.6 143.3 NJ 22.9 21.1
CT 10.7 9.8 DE 7.6 7.5
ME 5.9 4.7 MD n/a 32.0
NH 8.6 8.8 MA 26.7 26.4
VT 1.2 0.4 RI 2.7 2.2
NY 64.3 62.2 PA n/a 130.5
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Allowance Allocation
100% auction in many states (VT, NY, ME, MA, CT) : Contrast to EU
At least, 25% of the revenue for energy efficiency and clean technology, new technology.
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Offset
Up to 3.23% of allocations (50% of emission reduction)
Trigger Prices Up to 5% if the allowance prices reaches $7 10% if the price reaches $10 CDM credits or projects in other regions are
permitted if the price reaches $10
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CO2 Prices and Impacts on Economy
Carbon Prices : RGGI RGGI: $5 in 2024 w/o Federal Cap HAIKU ( RFF): $4 in 2010 and $11 in 2024
Electricity Prices From +0.5% to +5% in RGGI model 3% in RFF model
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1309/28/2007@WLU
Impacts on International Market
The price does not reach $10 until 2019. The demand for CDM is limited during the
Kyoto commitment period. However, with banking, there may be
demand for CDM before 2019.
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Influences on Federal Cap and Trade Programs
RGGI can serve as a Platform for federal programs
Recent emphasis on auction in federal proposals
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1.2. California and Western States
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US versus CA: Electricity Consumption per capita
(CA Climate Change Portal)
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CO2 Emission per capita by state(CA Climate Change Portal)
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1809/28/2007@WLU
AB32 ( California Global Warming Solutions Act )
1990 emission level by 2020 Details are discretion to CA Air Resource
Board Market-based approach as an option. Market Advisory Board recommend the
mixture of auction and free allocation Link to EU ETS?
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1909/28/2007@WLU
New Movements in Western states
Cap and trade proposals among 6 western states (Arizona, California, New Mexico, Oregon, Utah and Washington ) and 2 Canadian provinces (British Columbia and Manitoba)
15 percent below 2005 levels by 2020 The western six states account for 20% of
US GDP.
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1.3. Chicago Climate Exchange
Only existing market of GHG in US Voluntary market Emitters in US, Canada and Mexico More than 50 members Phase I(2003-2006), Phase II(2007-2010) 6% reduction in 2010 Offsets and Trade of CER
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2.Cap and Trade Proposalsin US Congress
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Movements in Congress
The number of bills, resolutions, and amendments addressing global climate change and GHG emissions reached 106 in the 109th Congress
At least, 9 cap and trade proposals in the 110th Congress
Trend Targets in longer term Auction (Influence of RGGI) Convergence among proposals in 110th Congress
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(at least) 9 Cap and Trade Proposals (as of August 2007)
Sanders/Boxer (S309) Feinstein/Carper (S317) Lieberman/McCain (S280) Kerry/Snowe (S.485) Alexander/Lieberman (S.1168) Bingaman/Specter (S.1766) Waxman (H.R.1590). Udall/Petri Draft Lieberman/Warner Draft
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2409/28/2007@WLU
Regulated Entities
Absolute Cap (intensity target in earlier B/S ) Scope
Electricity Sector : Feinstein/Carper, Alexander-Lieberman
Economy Wide: Others
Downstream vs. Upstream Downstream vs Upstream + Downstream (L/M) Discretion of EPA
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2509/28/2007@WLU
Emission Targets in Federal Proposals
0
2,000
4,000
6,000
8,000
10,000
1990 1995 2000 2005 2010 2015 2020 2025 2030
Mill
ion
metr
ic to
ns C
O 2 e
qu
ivale
nt
Historical Data (1990-2005) Business as Usual ProjectionsBingaman-Specter (S. 1766) Udall-Petri (May draft)Lieberman-McCain (S. 280) Kerry-Snowe (S. 485)Sanders-Boxer (S. 309) Waxman (H.R. 1590)Historical Electricity Emissions BAU Electricty ProjectionsFeinstein-Carper (S. 317) Alexander-Lieberman (S. 1168)Bingaman/Specter(January Draft)
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Characteristics of Allowance Allocation
Mixture of free allocation and auction. More emphasis on auction. The share of
auction increases over time (B/S &F/C) Technology Program Allocation to state governments
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Example of Allocation: Bingaman/Specter
53% free to industry (with phase out); 24% auctioned to support R&D, transition
assistance, adaptation; (increases to 53%) 9% to states. 14%: set aside allowances
8% for CCS (carbon capture and sequestration) 5% agricultural sequestration 1% early reduction
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2809/28/2007@WLU
Usage of the Auction Revenue in Bingaman/Specter
The usage of auction revenue: among 24% : 12% for technology 8% for adaptation 4% for Low-Income Assistance
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Impacts on International Markets
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3009/28/2007@WLU
Programs for Developing Countries
Fund for low carbon technology deployment in developing countries (Bagman/Specter)
10% of allowances for technology in developing countries (Udall/Petri)
Support for low-carbon and efficiency technologies in developing countries (Sanders/Boxer)
10% auction revenue for international climate change relief measures (Lieberman/Warner)
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3109/28/2007@WLU
International Credits/Offsets
CDM: Feinstein/Carper, Old B/S Projects in Developing Countries:
Lieberman/McCain JI: Feinstein/Carper Foreign credits: Bingaman/Specter,
Lieberman/Warner
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Indirect Linking to foreign markets
Developing Countries:CDM projects and non-CDM projects
US Federal
Market
RGGI
CA & Western 6 States
EUETS
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3309/28/2007@WLU
US Importer Requirements(Bingaman/Specter)
Bulk, energy-intensive imports from countries w/o comparable policy require permits after 10 years.
Two cases If a country does not have a comparable policy.. If a country has a comparable policy, then… In either case, this requirement can increase the
demand for foreign credits, CDM
Lieberman/Werner has a similar idea
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3409/28/2007@WLU
Two Carbon Tax proposals.
Stark (H.R. 2069) : $3/CO2 ton, rising $3 annually.
Larson (H.R. 3416): $16.5/ CO2 ton, rising 10% plus inflation annually.
Tax applied to fossil fuel imports; fossil fuel exports are exempt.
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Contrasts to EU ETS
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Price Stability and Cost Containment
Borrowing: Lieberman/McCain, Lieberman/Werner
Safety Valve Price (B/S and U/P) $12 rising annually. (initially $7 in B/S draft)
Banking
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Carbon Market Efficiency Board(Lieberman/Warner)
Modeled after FRB to oversea the allowance market
The board can permit more flexible borrowing in emergency to mitigate impacts to economy.
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Technology Programs
Mixture with other regulatory approach Revenue of the auction for technology
program Carbon Capture Sequestration : B/S Fund for geological sequestration (S/B) Zero emission clean coal Generation (F/S)
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Other Regulation
Cap and trade proposal with other regulatory measures Energy Efficiency (S/B, K/S) RPS ( K/S) Vehicle Emission Standard ( S/B,K/S )
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Carbon Price and Impacts to Economy
Udall/Petri
(109th Congress)
EIA
Lieberman/ McCain
EIA
Bingaman/Specter
NCEP
Emission Cap
Based on the average emissions from the
previous three years before the bill
2004 level in 2012.
1990 level in 2020.
20% below 1990 level
in 2030.
2012 level in 2012.
2006 level by ’20.
1990 level by ’30
Price ($2005/ CO2
TOE)
Reach Safety Valve price $6.76 in 2018
$14 to $31 in 2020.
$31 to $58 in2030
$5.5in 2012.
$24 in 2030
GDP -0.16% to -0.21%
in 2030.
-0.3% to -0.5%
in 2030
+0.12%
in 2030
Electricity Price
+5.66% to +6.34%
in 2020
+ 10% in 2020
+21% in 2030
+7% in 2020
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3. Concluding Remarks
Despite the deviation from Kyoto Protocol, the state governments are starting cap and trade programs
Discussion on federal level cap and trade programs
Despite the lack of an international agreements, the US markets will be indirectly linked to cap and trade programs in international markets.
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Some extras
if time left
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4309/28/2007@WLU
Programs for Low Income People
Funds and incentives for mitigating effects on poor (L/W, L/M)
Energy Assistance Fund: up to $6 billion per year (auction revenue) to low income households (B/S)
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Domestic Offsets
Agricultural and Biological sequestration. (Feinstein/Carpe, Lieberman/McCain, Sanders/Boxer, Kerry/Snowe)
Experience in CCX
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Credits for Early Actions
1% allowance allocation from 2012 to 2020 (Bagman/Specter)
Credit for reductions before 2012 (Lieberman/McCain ) Goal to “recognize and reward early reductions” (Kerry-
Snowe) 8% of allowances for early action in 2012, phasing to zero
in 2020 (Lieberman/Warner) Credit for reductions from 2000-2010, limit 10% of cap
(Feinstein/Carper) Bonus allowances to first 30 new or modified coal-fired
utilities meeting new performance (Alexander/Lieberman)
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4609/28/2007@WLU
New Entrants
Pool of allowances for new entrants employing clean and efficient technology (Bingaman/Specter)
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Adaptation
Fund to provide adaptation assistance for workers and communities and to help mitigate effects of climate change on fish and wildlife habitats (F/C )
Allowances to mitigate economic costs of the act (L/M ) Allowances to communities and companies that are
disproportionately adversely affected by global warming or the transition to a lower carbon economy (S/B )
Funds for adaptation (L/W, K/W) Climate Adaptation Fund (including wild life
conservations) (B/S)