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Climate Change: The North American Policy Landscape

Climate Change: The North American Policy Landscape. Sustainable Operations Summit November 20, 2008. RGGI: Scope, Targets and Participants. Market-based emissions trading system size: ~188 m s/t (~9% of EU ETS) Goals: Stabilize absolute emissions 2009 - 2014

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Climate Change: The North American Policy Landscape

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  1. Climate Change:The North American Policy Landscape Sustainable Operations SummitNovember 20, 2008

  2. RGGI: Scope, Targets and Participants Market-based emissions trading system size: ~188 m s/t (~9% of EU ETS) Goals: Stabilize absolute emissions 2009 - 2014 10% below 2005 by 2019 (-2.5%/year) Emissions measured in short tons (st) = (.9 metric ton) Observers: PA, DC, and Eastern Canadian Provinces

  3. Key Design Features: Scope and Allocation Scope: Power Sector only > 25 MW capacity Regulated at the source (power plants) Allocation: almost 100% auction Min 25% of state-wide cap most states going for 100% (Delaware 60%) Use of proceeds for renewable energy, energy efficiency and public benefit Auction Design Held quarterly Reserve price announced at $1.86 First auction scheduled September 25, 2008

  4. The Western Climate Initiative AK Participants Arizona (AZ) British Columbia (BC) California (CA) Manitoba (MB) Montana (MT) New Mexico (NM) Ontario (ON) Oregon (OR) Quebec (QC) Utah (UT) Washington (WA) Canada MB* SK BC ON QC WA MT OR ID USA WY NV UT CO Participants KS CA Participant (Large importer of electricity) NM AZ Participant (Large exporter of electricity) BC Mexico Observers SO CH CO NL TM

  5. The Western Climate Initiative Common GHG reduction goal set in August 2007: 15% absolute reductions below 2005 levels by 2020 Objective: “regional market-based multi-sector mechanism” New member jurisdiction must: Have Climate Action Plan and state/provincial target Adopt CA vehicle tailpipe standards (court case) Join The Climate Registry

  6. The Newcomer: the Midwestern Accord • Announced November 15, 2007 • Target • 60-80% below current level by 2050 • Who’s in? • 22% US pop, 27% US emissions • Scope • power and key industries (cement, steel, etc.) • Timeframe • July 2008: establish states targets & sign MOU • Nov 2008: design program, model rule • Mid-2011: start program! Midwestern Climate Pact MB* Participants Observers ON * Also participant to WCI MN WI SD MI IA OH IN IL KS

  7. Legislation at the Federal Level

  8. The most successful bill so far: Lieberman-Warner Made it to Senate floor in June, but was not passed Would impose economy-wide cap-and-trade program in US Aims to achieve about 70% reduction in GHG emissions from current levels by 2050 Covers roughly 80% of US economy (including transportation) Trading would start in 2012, with cap at 5.8 billion allowances Mix of auctioning and direct allocation

  9. The Implications of the Recent Election Obama administration supports strong cap-and-trade legislation Economy-wide caps 80% reductions from 1990 baseline by 2050 100% auctioning Offsets still unclear Renewable Portfolio Standard perhaps more likely in the short term Political headwinds to cap-and-trade Financial crisis makes expensive policies more difficult Some lost Republican seats were moderates (Sununu, Warner) Need to woo “Sweet Sixteen” senators Later start date potentially helps regional regimes

  10. Questions?

  11. RGGI Key Design Features: Offset Triggers • Default regime: price < $7/ton, up to 3.3% domestic offsets • 1st OffsetTrigger • IF • price ≥ $7/ton for 12 months • THEN • up to 5% offsets allowed (RGGI / Domestic US only) • 2nd Offset Trigger • IF • price > $10/ton for 12 months • THEN: • compliance period extended by an additional year • up to 10% offsets allowed • international offsets allowed • Note: 2005 dollars, would have to be adjusted based on CPI + 2% • Pros: keep the price low • Cons: creates price distortion, keeps offset prices artificially high

  12. Key RGGI Design Features: Eligible Offsets Offset Types (domestic) Landfill gas (methane) capture/burning Sulfur hexafluoride (SF6) capture/recycling Afforestation Energy efficiency: reduction or avoidance of CO2 emissions due to end-use Agricultural manure management operations (avoided emissions) Geographic origin RGGI States Other US states that sign MOU with RGGI International: CDM/JI, EU ETS under certain conditions

  13. WCI: Key Design Feature: Scope doubles in 2015

  14. Emissions trajectory for total WCI In 2016 ~344 In 2013 ~124 mt

  15. WCI Key design features: offsets domestic and international (CERs, not ERUs) offsets allowed limit: 49% of total emissions reductions from 2012-2020 may come from offsets and allowances from other trading systems (RGAs, EUAs, etc.)

  16. Midwest: Expected Design Features Recommendations July 2008: Testing scenarios 15, 20, or 25% below 2005 level by 2020 Long term target 60-80% below current levels by 2050 Design to be announced by May 2009 Subcommittees have started meeting regularly Scope could be 52 to 89% (depending on transportation) Design likely to be inspired from WCI Offsets likely to play prominent role All participants active providers of agricultural offsets to CCX North Dakota leading for CCS, partnership with Weyburn oil field, Canada Should “enable” linkages to other regional schemes or global market

  17. Lieberman Warner: Key Design Features • Regulating the Market: the Carbon Market Efficiency Board • A Central Bank for the carbon market • Can adjust borrowing and banking rules if warranted • Allowances/auction proceeds to go to: • “transition assistance” for carbon-intensive industries • low-and middle-income energy consumers • energy technology deployment • adaptation efforts in the US and abroad • Competitiveness: a carbon import fee • After 8 years if other large emitters have not taken targets • Importers of energy intensive good surrender allowances • Equal treatment between domestic and imported good

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