Ec 1661 / API 135 Section Climate Change III: Sub-National Policy, Global Policy

1. Ec 1661 / API 135 SectionClimate Change III: Sub-National Policy, Global Policy Gabe Chan April 22, 2011

2. Sub-National Climate Policy

3. The National Context • No national carbon policy likely to emerge from Congress before 2013 • EPA was granted authority to regulate GHGs under the clean air act by the SCOTUS in 2007 • But the action is moving to the state and regional level

4. Massachusetts vs. EPA • In April 2007, the SCOTUS ruled on MA vs. EPA • MA joined by 11 other states, local governments, NGOs • Consideration of 4 GHGs from the transportation sector • The Clean Air Act was the legal framework • 5-4 ruling (along party lines) would give EPA the authority to regulate GHGs from tailpipe emissions • The ruling covered three key issues: • Whether MA had standing to challenge the EPA • Whether EPA has authority to regulate GHGs • Whether it was wise to regulate GHGs under the CAA given other policy efforts (Pew Center on Global Climate Change)

5. Massachusetts vs. EPA • Standing: • EPA’s refusal to regulate CO2 has led to “actual” and “imminent” harm to the state of Massachusetts, mainly in the form of rising sea-levels along the state’s coast • Acknowledged that regulating GHGs from motor vehicles alone will not reverse global warming, but domestic action can play a role in slowing or reducing warming • Authority: • The Court found that CO2 fits within the CAA’s broad definition of an air pollutant: “EPA identifies nothing suggesting that Congress meant to curtail EPA’s power to treat greenhouse gases as air pollutants.” • Conflict with other policy efforts: • The Court found EPA’s argument that regulating emissions from the transportation sector “might hamper the President’s ability to persuade key developing nations to reduce emissions” to be insufficient. • “A reduction in domestic emissions would slow the pace of global emissions increases, no matter what happens elsewhere.” (Pew Center on Global Climate Change)

6. Massachusetts vs. EPA • Under this new authority, EPA has moved ahead with establishing new CAFE standards • Other policies are in the pipeline: e.g. new source performance standards for power plants • Politically, this ruling has been used as a threat to Congress to force it to establish a market-based policy which would preempt (command and control) regulation under the CAA • Discussion: • Why wouldn’t [Republicans, Democrats, Congress, etc.] want to allow EPA to regulate GHGs?

7. Sub-national Climate Policy (Pew Center on Global Climate Change)

8. Sub-national Climate Policy (Pew Center on Global Climate Change)

9. Sub-national Climate Policy • Regional Greenhouse Gas Initiative (RGGI) • 11 states have signed a pact and implemented state-level policy to cap emissions from the electric power sector • trading of emissions across states • emissions, not carbon content of fuels capped • 100% auctioning (revenue mostly for climate projects) • leakage a major concern: best estimate is 50% leakage (esp. from PA to NY) • What drives this leakage? • marginal abatement cost relative to marginal generation cost and allowance price in regulated vs. unregulated regions • but policy is weak and other cost containment mechanisms (domestic and international offsets) are available

10. Sub-national Climate Policy • The RGGI cap is not binding (b/c of the recession and cheap natural gas), so why isn’t the permit price zero? (RGGI)

11. Sub-national Climate Policy • California’s AB32 would cut CA’s GHG emissions to 1990 levels by 2020 with 33% of electricity from renewables and updated vehicle standards • 85% of emissions would be covered (economy-wide) • linkage to the Western Climate Initiative (inter-state/province trading)

12. National – Sub-national Interactions • Problematic: • If state policy varies in its stringency, then the states more stringent than the Federal policy encourage emission increases in other states (leakage) • specific allocations could be made to states, but then marginal costs of abatement are not equated and so the policy is not cost effective • Benign: • If Federal policy is more stringent than state policy, state-policy is non-binding and just becomes irrelevant • more formal arrangements to harmonize systems could also make state policy irrelevant

13. National – Sub-national Interactions • Positive: • State policy could be used to complement Federal policy by addressing additional market failures • e.g. building codes to address principal-agent problem, • urban congestion policy and city planning to provide a public good • State’s as a laboratory to try new policy • States can pressure the Federal government to harmonize policy at a more stringent level • e.g. CA pressured the Federal government on auto standards, threatening regulation which would have required auto manufacturers to produce specifically CA-compliant vehicles

14. Global Policy Architectures

15. Three Categories of Architectures • Targets and Timetables (top down) • as in Kyoto, an international agreement could be forged to give all countries emission targets in all years • Harmonized National Policies • similar to other international policies: countries agree to take actions that are more or less comparable • Independent National Policies (bottom up) • portfolio of domestic commitments, permit system linkage • free-rider problem looms large

16. Portfolio of Domestic Commitments • Also discussed under the “schedule approach” and “pledge and review” • Countries pledge to domestic policy • in reality, all enforcement mechanisms lie at the national level, so domestic commitment goes straight to the institutional level where enforcement is feasible • Little incentive to bring about sufficient stringency, but this approach could serve as a bridge to further strategies • marathon, not sprint, approach (important when considering the long-term scientific, economic, and administrative nature of the problem)

17. Policy Linkage • With linkage under any approach, cost containment mechanisms propagate • banking, borrowing, price ceilings/floors • may require more sophisticated harmonization efforts • The CDM could provide an important link to harmonize domestic policies

18. COP-15: Copenhagen • Last-minute direct negotiations among key leaders • Takes the portfolio of domestic commitments approach • expands coalition of meaningful commitments beyond Annex I to all major emitters • lengthened time-frame of action • A political, not legal, document produced • Important provisions: • framework for real cuts in emissions by all emitters • framework for monitoring/verifying emissions • large funds for developing countries

19. COP-16: Cancun • Made the Copenhagen accord “actionable” • Emission targets for 80+ countries • MMV • Green climate fund ($100 bil / year through 2020 from developed to developing countries) • would likely take place through international offset mechanisms (e.g. CDM), thereby leveraging private capital through FDI • Reducing Emissions from Deforestation and Forest Degradation (REDD+) an important short-term goal • Technology transfer

20. Alternative Venues • Major Economies Forum • initiated by Bush, continued and renamed by Obama • includes 90% of emissions • G-20 • typically for financial policy domestic harmonization • Bilateral, multilateral • e.g. U.S.-China, U.S.-India • UNFCCC • At a minimum, Kyoto and CDM have institutional momentum • International legitimacy