MBIs (Market-Based Instruments) for CO2

MBIs (Market-Based Instruments) for CO2 Gary Flomenhoft, Fellow Gund Institute January 31, 2008

MBIs-govt or market? • No company will voluntarily add costs to its operation. Only government can do it to the market as a whole.

Why • Account for hidden costs-”true cost pricing” • Stimulus to producers and consumers (price-signal)-behavior change • Can raise revenue to target issues • Ecological efficiency-maximize production/throughput

What? • Emissions-powerplants, industry, cars, aircraft, houses, offices, agriculture • Increasing waste generation • Resource depletion • Renewable resource use • Land use

Types of MBIs • Tradable permits-emissions or wildlife • Environmental taxes • Environmental charges • Environmental subsidies and incentives • Liability and compensation schemes

1. Cap-distribute-trade • Europe EUETS system-2005, 2008-2012Kyoto goals= 6-21% below base yr (1990) • 11,000 installations: powerplants and industrial heat sector • 2.15 billion tonnes = 50% of EU CO2 • 95+% Allowances given away, 5%vol auction • Other gasses 20% of GHG (no transport) • Jan 25, 2008 price-E21.03=$31.01/tonne

1. Cap-distribute-trade • New England RGGI system-2009 • Goal 2009-2015 cap then -10% 2015-2018 • 807 Powerplants only (+218 PA) • 184 million tons = 184/700 =26.3% of CO2 • 100% Allowances auctioned • 25% of revenue to benefit consumers (except VT 100% to consumers)

1. Cap-distribute-trade • Vermont RGGI system-June, 2008 auction • 1 Powerplant only-Berlin (2 other wood chips) • 1.2 million tons = 2% of CO2 • 100% Allowances auctioned • 100% of revenue to benefit consumers

2. Environmental Taxes-CO2 • Germany 4% of total, US .9% of total • Carbon • Fuels • Vehicle sales • Vehicle registration • Other GHG emissions

2. Fuel Taxes-VT • Carbon-0 • "Fuel Gross Receipts Tax” = .5% on retail sales of fuel • "Electric Energy Tax” = 3.5% of appraised value • "Utilities Gross Receipts Tax” = .3-.5% gross revenue • Estimated Revenue from Sales Tax on Commercial Energy use = 5% • Diesel Tax = $.26 commercial, $.17 cars • gasoline tax = $.19 + .01 tank fee = $.20 • Vehicle sales = 6% of purchase price • Vehicle registration = based on type, size, weight, and purpose of vehicle = $54M

2. Fuel Taxes-Germany: 90% of ecotaxes • road toll = 14c/km • Electricity = 2.1c/kWh • Natural gas = .06c/kWh • Fuel oil = 6.2c/l = 23.46c/gallon • Diesel = 47.2c/l = $1.79/gallon • Gasoline = 65.6c/l = $2.48/gallon • 55% increase in 1999: • 89% recycled to reduce payroll taxes • 9%- Environment Projects: 2% admin • Renewable Energies • Less CO2 in buildings • Tax break bio-fuels

3. Environmental Charges • London Congestion charge • 5£ then in July 2005 8£ • Traffic congestion -30% • Taffic volume - 15% • Public transit improved • Better air quality

4. Subsidies & incentives-EU • “Cohesion Funds” = Environment projects helping to achieve the objectives of the EC treaty • priority to drinking-water supply, treatment of wastewater and disposal of solid waste. Reforestation, erosion control and nature conservation measures are also eligible. • b) Transport infrastructure projects establishing or developing transport infrastructure as identified in the Trans-European Transport Network (TEN) guidelines.

4. Subsidies & incentives-EU • “Feed-in Tariffs” /kWh for PV Europe = .63-78c Ontario = .42c Wash/CA = .52-.54c Also have feed-in tariffs for wind, hydro, biogas VT feed-in tariffs= 0, net metering only

4. Subsidies & incentives-EU 1991 “Feed-in Tariffs” Results: Germany has 52% of PV in world w/ same sun as Anchorage, AK 35,000 employed. 2715 MW installed US has 360 MW installed or 13% of Germany Germany 82M, US 300M people Germany: 150,000 employees in RE 107,000 FF & nuclear

Liability and compensation • Insurance, re-insurance • Oil spill funds-bonds

Bottom Line • US emissions 1990-2005 +16.3% • GDP+55% • NE 1990-2000 emission + 10.5% • EU-15 1990-2005 emissions -2%, EU25 -11% • GDP+35% on target for -8% emissions by 2012 • Germany -22% emissions by 2012

MBIs (Market-Based Instruments) for CO2