CLIMATE CHANGE SOLUTIONS

1. CLIMATE CHANGE SOLUTIONS Cap-and-Trade with Offsets vs. Carbon Fees with Rebates By Laurie Williams and Allan Zabel

2. Speaking Out as Parents, Citizens and a Married Couple Education and Work Experience Our personal opinions are also presented on our website: www.carbonfees.org • Laurie - B.A. Yale University, J.D. UC Berkeley • Allan – B.A. UC Santa Cruz, J.D. UC Berkeley • Environmental Enforcement Attorneys for 20+ years at US EPA Region IX, San Francisco • Allan has worked extensively on Cap-and-Trade and Offset issues. Disclaimer – Our presentation is based on our personal opinions only and does not reflect U.S. EPA or U.S. government position

4. What is Cap-And-Trade? • Cap on Emissions from Covered Sources • Set Number of Emissions Credits • Declines Annually • Until Reaching Environmental Goal • Trade – Credits Can be Bought and Sold

5. What Is the Acid Rain Program? • “Poster Child” for Cap-and-Trade • ExistingCoal-Fired Power Plants • Burning Coal with SO2 = Acid Rain • Acid Rain killed fish and forests • Highly Accurate Emission Measurements • Needed Reductions in SO2 Emissions

6. What the Acid Rain Program Accomplished • 43% Reduction in SO2 Emission in 12 Years • Fuel Switch: Low-Sulfur Western Coal substituted for High-Sulfur Eastern Coal • Little New Infrastructure or Innovation • A Few New Rail Lines, • Minor Burner Modifications • Slightly more efficient scrubbers (90 vs 99%) • Declining Cap Worked – “Proof of Concept”

7. How is Climate Change Different from Acid Rain? • Need for New Clean Energy Revolution • Massive New Infrastructure • Extensive Innovation • Complexity (not a simple fuel switch) • Not Tweaks to Existing Facilities

8. Too Many Credits Given Out

9. Inaccurate Measurement

10. Outside Offsets

11. Outside Offsets – An Interactive Set of Problems • Additionality • Not Beyond Business-As-Usual • Activity Shifting Leakage • Perverse Incentive to keep polluting activity legal • Complexity • Inaccurate Measurement • No enforceable standards • Fraud

12. What is Additionality? • Reductions beyond what is legally required, and • Reduction beyond what “would have happened anyway”

13. Carbon Offsets: Forestry Preservation Example

14. Bonus for What You Would Have Done Anyway

15. A Different Forest is Cut

16. Refrigerant By-Product Offset Example

17. Carbon Offset is Twice as Profitable As Refrigerant

18. Two Perverse Incentives in Refrigerant Example • Incentive to keep the damaging activity legal – so that it will be additional. • Incentive to create additional greenhouse gases, unneeded refrigerant to make money on the by-product offsets.

19. Summary ofCap-and-Trade With Offsets Weaknesses • Deception – Shows progress while allowing degradation • Unproductive Costs – Huge Bureaucracy, Offset Profiteers and Market Manipulation • Delay in Clean Energy Investments • Demonstrated by European Experience with Kyoto – Price Volatility, Few Greenhouse Gas Reductions, Billions in Windfall Profits for Utilities

21. Two Critical Elements of the Real Solution • Clean Energy must become cost competitive with fossil fuel energy within a known time frame • The energy people need remains affordable

22. Alternative to Cap-and-Trade with Offsets What are Carbon Fees with Rebates? • Market Mechanism – Raise price of Fossil Fuels above Clean Energy. • Gradually phased in • Insure Clean Energy becomes competitive with Fossil Fuel Energy within 10 years • Point of extraction or importation - already measured for sale and taxation • Carbon Fees Trust Fund – Rebate

33. Have We Used Fees To Cut Emissions Before? • Yes - a U.S. Tax on Ozone-Depleting Substances, “CFCs” • Required Substitutes Not Modification of Existing Facilities • Substitutes were More Expensive but Available • 37% Reduction in First Year of the Tax

34. What are Other Critical Measures? • Ban on New Coal-Fired Power Plants • Efficient Energy Superhighway • Carbon-Fee-Equivalent Tariffs and Rebates – also called “border adjustments’ • Energy Efficiency Standards • Green Job Training