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Developments in US Climate Policies: The Effects of Cap and Trade on International Market

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

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Developments in US Climate Policies: The Effects of Cap and Trade on International Market

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  1. 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)

  2. Outline • Developments in State/Regional Programs • RGGI • California and Western States • CCX • Developments in Federal Policy Cap and Trade Proposals in Congress • Concluding Remarks 09/28/2007@WLU

  3. 1.Developments in State/Regional Programs

  4. Backgrounds on US environmental policies • State governments often implement environmental policies before the federal government does • California is known to be the leader 09/28/2007@WLU

  5. States with GHG Emissions Targets (PEW Center, Feb ‘07) 09/28/2007@WLU

  6. 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 09/28/2007@WLU

  7. RGGI 09/28/2007@WLU

  8. RGGI The economy in this region amounts to 20% of US GDP 09/28/2007@WLU

  9. CO2 Cap 09/28/2007@WLU

  10. 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. 09/28/2007@WLU

  11. 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 09/28/2007@WLU

  12. CO2 Prices and Impacts on Economy • Carbon Prices：RGGI • RGGI: $5 in 2024w/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 09/28/2007@WLU

  13. 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. 09/28/2007@WLU

  14. Influences on Federal Cap and Trade Programs • RGGI can serve as a Platform for federal programs • Recent emphasis on auction in federal proposals 09/28/2007@WLU

  15. 1.2. California and Western States

  16. US versus CA: Electricity Consumption per capita(CA Climate Change Portal) 09/28/2007@WLU

  17. CO2 Emission per capita by state(CA Climate Change Portal) 09/28/2007@WLU

  18. 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? 09/28/2007@WLU

  19. 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. 09/28/2007@WLU

  20. 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 09/28/2007@WLU

  21. 2.Cap and Trade Proposalsin US Congress

  22. 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 09/28/2007@WLU

  23. (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 09/28/2007@WLU

  24. Regulated Entities • Absolute Cap (intensity target in earlierB/S ) • Scope • Electricity Sector : Feinstein/Carper, Alexander-Lieberman • Economy Wide: Others • Downstream vs. Upstream • Downstream vs Upstream + Downstream (L/M) • Discretion of EPA 09/28/2007@WLU

  25. 09/28/2007@WLU

  26. 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 09/28/2007@WLU

  27. 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 09/28/2007@WLU

  28. 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 09/28/2007@WLU

  29. Impacts on International Markets

  30. 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) 09/28/2007@WLU

  31. International Credits/Offsets • CDM: Feinstein/Carper, Old B/S • Projects in Developing Countries: Lieberman/McCain • JI: Feinstein/Carper • Foreign credits: Bingaman/Specter, Lieberman/Warner 09/28/2007@WLU

  32. Indirect Linking to foreign markets US Federal Market EUETS RGGI Developing Countries: CDM projects and non-CDM projects CA & Western 6 States 09/28/2007@WLU

  33. 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 09/28/2007@WLU

  34. 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. 09/28/2007@WLU

  35. Contrasts to EU ETS

  36. 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 09/28/2007@WLU

  37. 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. 09/28/2007@WLU

  38. 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) 09/28/2007@WLU

  39. 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） 09/28/2007@WLU

  40. Carbon Price and Impacts to Economy 09/28/2007@WLU

  41. 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. 09/28/2007@WLU

  42. Some extras if time left

  43. 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) 09/28/2007@WLU

  44. Domestic Offsets • Agricultural and Biological sequestration. (Feinstein/Carpe, Lieberman/McCain, Sanders/Boxer, Kerry/Snowe) • Experience in CCX 09/28/2007@WLU

  45. 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) 09/28/2007@WLU

  46. New Entrants • Pool of allowances for new entrants employing clean and efficient technology (Bingaman/Specter) 09/28/2007@WLU

  47. 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) 09/28/2007@WLU

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