Regulatory Approaches to Address U.S. Greenhouse Gas Emissions

Rebecca StanfieldShriver Center Climate Change

SymposiumSeptember 30, 2009

NRDC… NRDC – a national, non-profit

environmental advocacy organization, with 1.2 million members nationwide, including 24,000 here in Illinois.

Regulatory tools to address global warming: Cap and trade; EPA emission standards for cars and major

stationary sources; Clean energy and energy efficiency standards

and incentives; A combination of all three of these approaches

will achieve the best outcome. Carbon tax is another approach, will touch on

some pros and cons.

How does cap and trade work? Simple example – CAA Title IV Acid Rain program:

• Problem: Sulfur and nitrogen oxides from power plants drifting eastward and killing forests and aquatic ecosystems;

• Set pollution reduction goal – (from 18.9 mt/year to 8.9 mt/year) based on best available science at the time;

• Initially 110 big plants, now about 1000 plants under the cap;

• Allowed the market to determine which units were controlled or retired;

• Goal achieved in 2007, three years ahead of schedule, at about a quarter of the estimated cost.

Applying this approach to carbon emissions – similar, but there are some major differences: A lot more kinds of sources – not just EGUs but also

refineries, manufacturing facilities, and other sources. Scale - Volume of emissions is much greater and

therefore the value generated with the creation of allowances is enormous – (4.6 billion tons x $15/ton is $69 billion in early years) • Use of allowance value to invest in adaptation, clean

energy research and deployment, training, and protection of consumers is critical;

• Need for controls to prevent fraud and abuse is much greater.

A much wider array of compliance strategies, including the use of offsets in the forest and ag sectors.

American Clean Energy and Security Act – cap and trade PLUS complementary policiesTitle 1: Clean Energy Subtitle A - Combined RE/EE standards – 20% by

2020, w/ up to one-quarter met with ee; Subtitle B – CCS incentives; Subtitle C – Clean vehicle and fuel incentives and

standards; Subtitle D – State SEED accounts for managing

allowances to be used for ee/re deployment. Plus – policies to promote deployment of smart grid

technology, upgrade transmission, and much more.

ACES Continued… Title II – Energy Efficiency

• Subtitle A – Buildings – better building codes; retrofit programs; building labeling;

• Subtitle B – Lighting and appliance standards; • Subtitle C – Transportation efficiency –

standards for heavy-duty trucks, non-rd engines, plus fleet incentives, etc.

• Subtitle D – Industrial efficiency standards and incentives;

ACES Continued… Title III – Economy wide cap covering

84% of all emissions - • 3% below 2005 by by 2012• 17% below 2005 by 2020• 42% below 2005 by 2030• 80% below 2005 by 2050

Allowance distribution (WRI)-

If you have a cap, why do you also need programs to deploy clean energy solutions? Cost of meeting the cap is much, much

lower with the complementary programs, mainly driven by the efficiency components.

MGA modeling - allowance price cut in half when you add aggressive ee standards.

Efficiency is cheap, but the market barriers are high…

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Other components of this administration’s approach - Auto fuel-economy and emission

standards – Average 250 g/mi and 35.5 mpg for cars and light duty trucks by 2016.

American Reinvestment and Recovery Act – roughly $70 billion for weatherization, efficiency, transit and clean energy investment.

Comprehensive approach of ACES + ARRA + Auto standards yields a better outcome for America - Science based emission reductions; At a cost we can afford (14-20 cents per

day per household); With greater economic development and

job creation benefits than BAU; And enhanced energy security.

What about a carbon tax? Main problem - No certainty about how much carbon

reduction will be achieved. Set a price, and hope that it drives reductions that are consistent with the science.

Equally complicated to enforce and administer. No better at creating a source of revenue to invest in

clean energy. Value of allowances in early years is about $70 billion/year.

Political baggage even heavier; Unlikely to be the cornerstone of a federal climate

policy, but may be used at state or municipal levels to supplement.