what is cap and trade? what do legislative proposals currently in congress say about it? brent...
TRANSCRIPT
What is cap and trade? What do legislative proposals
currently in Congress say about it?
Brent SohngenDepartment of Agricultural, Environmental &
Development [email protected]
“Cap-and-Trade” System• Sets a limit on CO2 emissions• Allows large emitters to trade CO2 amongst themselves• Allows additional supply from land based sources…
COCO22COCO22
• Overall cap set• Individual cap set (Firms
get permits)• Firms can trade permits
depending on their emissions.Init Em 1000 t CO2 2000 t CO2
Initial Emission = 3000 t CO2
Total Cap = 2700 t CO2
Cap 900 t CO21800 t CO2
Emit 700 t CO2 2000 t CO2
Trade sell 200 buy 200
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COCO22
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“Cap-and-Trade” System
Credits for sale = 200 t CO2
COCO22COCO22
Init Em 1000 t CO2 2000 t CO2
Initial Emission = 3000 t CO2
Total Cap = 2700 t CO2
Cap 900 t CO21800 t CO2
Emit 700 t CO2 2000 t CO2
Trade sell 200 buy 200
• Sets a limit on CO2 emissions• Allows large emitters to trade CO2 amongst themselves• Allows additional supply from land based sources…
Debate on land-based credits• Role of land-based options and importation of
credits– Scientific uncertainties have been resolved.– Land-based can provide 30% of carbon
abatement– Can reduce costs by 40%.– National land-based program and international
component are complements, not substitutes.• National program will be less efficient without an
international program.
Cap and Trade Pros and Cons
• Pros– A cap actually will limit
emissions.– Establishes clear price
signal ($/ton CO2).– Imposes stringency of
market on abatement decisions (investments will flow to “best” alternatives).
– Reduces costs.**
• Cons– Creates a difficult
negotiation over “rights” for permits
• Auction or free allocation?
• Who gets free permits?– Can be very stringent– May be too costly if it
turns out that abatement costs are high.
Climate Policy Update• United Nations Process Continues….
– In the Kyoto Protocol commitment period now (2008-12)• Markets active in Europe & Australia• International trading through Clean Development Mech.
– Continuing negotiation over successor treaty• Still much debate about what will emerge from Copenhagen…• US is working hard to reduce expectations….
• US Policy is very active– Regional initiatives (CA, RGGI)– Supreme Court decision (Massachusetts vs. US EPA) and
EPA response– Energy legislation– We have moved from 95-0 on Byrd-Hagel in 1997 to
Waxman-Markey (h.r. 2454) passing the House last spring.
Key issues in Waxman-Markey (HR 2454)
• Carbon Cap and Trade System2020 17%2030 42%2050 80%
• Permit Allocation– Designed to limit electricity price increases
• Offsets– Up to 2 billion t CO2, with 1 billion t from outside the US
• Renewable Portfolio Standards– 20% of electricity from renewables by 2020
Senate Action: Kerry-Boxer
• Introduced recently for discussion this fall
• Not clear if the “stars” will align, but renewed hope after Kerry-Graham Op-Ed in the NY Times this past Sunday– Nuclear– Clean coal– Border tax adjustments**
Summary• Cap and Trade works by limiting overall emission (e.g.,
putting a cap in place)– Reduces costs relative to other methods of achieving the
same goal.
• Land based offsets are likely to be part of the system in the US, both domestic and international.– Scale differs between House and Senate so far.
• Policy is moving forward with or without federal legislation.
• Important future questions about the role of nuclear, coal, renewables, and border tax adjustments.