1 / 26

California’s Carbon Market: Choices and Challenges

California’s Carbon Market: Choices and Challenges. James Bushnell University of California at Davis. Outline. California’s carbon market one year in The economic theory of cap-and-trade And why it (mostly) doesn’t fit carbon markets Things to look for going forward

keren
Download Presentation

California’s Carbon Market: Choices and Challenges

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. California’s Carbon Market: Choices and Challenges James Bushnell University of California at Davis

  2. Outline • California’s carbon market one year in • The economic theory of cap-and-trade • And why it (mostly) doesn’t fit carbon markets • Things to look for going forward • Key Takeaway: Price Collars are Really Important in Carbon Markets!

  3. The Carbon Market: One year in

  4. The Carbon Market: One year in

  5. The Carbon Market: One year in

  6. California Allowance Prices

  7. Theory of Cap and Trade • Market based environmental regulation • Regulator sets how much pollution is allowed • The “market” decides who reduces pollution and how they do it. • Preferred to taxes in settings where we are more worried about hitting a specific emissions target than the costs of hitting that target.

  8. Regulator decides how much?

  9. Regulator decides how much?

  10. Market decides who and how?

  11. Climate and cap-and trade theory • Should not take quantity targets too literally • Local action to reduce global pollutant • All targets to date well short of what is needed • Much talk of adding a consistent cost of GHG emissions to business planning and consumer activity • But caps are a bad way to do that • Key question: what is the best way to build forward momentum for reducing global GHG? • Key Takeaway: Price Collars are Really Important in Carbon Markets!

  12. Supply of Allowances Allowance Price $50 Price Containment Reserve $40 125 mmTons 125mmTons $10.5 Offsets Cap (less Reserve) 0 2380 mmTons

  13. Demand for Allowances Allowance Price $50 $40 $10.5 BAU emissions 0 ~2700 mmTons

  14. Demand for Allowances Allowance Price $50 $40 Complementary Policies $10.5 ~ 200 - 400 mmTons BAU emissions 0 ~2700 mmTons

  15. Demand for Allowances Allowance Price $50 $40 Electricity, Gasoline, and Natural Gas Demand Response ~ 40-60 mmTons Complementary Policies $10.5 ~200 – 400 mmTons BAU emissions 0 ~2700 mmTons

  16. Supply and Demand Allowance Price $50 Price Containment Reserve $40 125 mmTons $20 $10.5 Offsets 125 mmTons Cap (less Reserve) 0 GHG Emissions 2380 mmTons

  17. Supply and Demand Allowance Price $50 Price Containment Reserve $40 125 mmTons $20 $10.5 Offsets 125 mmTons Cap (less Reserve) 0 GHG Emissions 2380 mmTons

  18. Possible Distributions of Allowance Price Probability Price = X 0 $10.50 $50 $40 Allowance Price

  19. 2006-07: EU Carbon price crashes

  20. California Allowance Prices

  21. Things to Look for Going Forward • End of Phase I (2013 – 2014) • Reporting of electricity imports • What happens if there is a positive shock to emissions before 2020? • The importance of transportation • Policy supporting the price-containment reserve • What will happen post 2020? • Banking of allowances supports minimum prices • Relationship with rest of US?

  22. Summary • Price Collars are Really Important in Carbon Markets! • A good price-collar makes up for a lot of flaws in any cap and trade market • Stable non-trivial carbon prices best way to steer investment and consumption on to a low carbon trajectory

  23. Thank You! Special Thanks and Apologies to the websites of Environmental Defense Fund SNL Financial Carbon Policy Initiative

More Related