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Emerging Policy & Technical Solutions

Emerging Policy & Technical Solutions. Andrew E. Huemmler University of Pennsylvania May 5, 2008 The Academy of Natural Sciences Partnership for the Delaware Estuary. January 16-18, 2008   Washington, DC Ronald Reagan Building and International Trade Center. More than 1200 attendees

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Emerging Policy & Technical Solutions

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  1. Emerging Policy & Technical Solutions Andrew E. Huemmler University of Pennsylvania May 5, 2008 The Academy of Natural Sciences Partnership for the Delaware Estuary

  2. January 16-18, 2008   Washington, DCRonald Reagan Building and International Trade Center More than 1200 attendees science, academic, policy

  3. Outline • Problem Statement • Emerging Solutions • Economic • Cost Benefit analysis • How much will it cost? • Policy • Carbon tax • Cap & Trade • Lieberman-Warner Bill in U.S. Congress • Technical • Feasible solutions? – Stabilization Wedges

  4. Problem Definition Global Warming Climate Change Dangerous Anthropogenic Interference in the Climate System Catastrophic Climate Disruption

  5. Climate Change “Solutions” • Mitigate • slow down climate change • Adapt • Suffer • Reduce GHGs in atmosphere • Reduce CO2e emissions

  6. The Stern Review (2006)

  7. current trend currenttrend >2- 5o Celsius Pass 450 ppm in ~2035 450ppmstabilization 450ppm stabilization 382 ppm today <2oC Pre-industrial average: 280 ppm There is a narrow window of opportunity for action to contain the threat of impending severe warming US needs to cut emissions 30% by 2030, 80% by 2050 and negotiate a global post-2012 agreement current trend currenttrend Doniger (NRDC) to Bali, December 2007

  8. The Stern Review (Oct 2006) The Economics of Climate Change

  9. Cost-Benefit of Stabilisation Stern Review (2006) • Extreme weather could • reduce global GDP by 1%. • 2° - 3° C temp rise could • reduce global economic output by 3%. • If temperatures rise by 5° C, • up to 10% of global output could be lost • …with poor countries losing more. • Worst case: • Global consumption per head would fall 20%.

  10. To stabilize at manageable levels…would cost… • 1% of GDP • at 500-550ppm CO2e

  11. …certain principles that must guide its deliberations: This growth package must be big enough to make a difference in an economy as large and dynamic as ours -- which means it should be about 1 percent of GDP. President George W. Bush on the Economic Stimulus Act of 2008

  12. Critiques of Stern ReviewThe Economist; December 4, 2006 • Discount rates typically 3-5% per year. • A typical discount rate would assign almost no current value to benefits accruing in 100 years. • So why spend money today on something with no apparent value today? • Stern uses a discount rate of 0.1% per year • How can we say that our great-great-great-grandchildren are worth less than we are worth ourselves? • A stronger case for spending money now.

  13. Policy to reduce emissions should be based on three essential elements: 1. carbon pricing, 2. technology policy, 3. removal of barriers to behavioural change. Establishing a carbon price, through tax, trading or regulation, is an essential foundation for climate-change policy. Creating a broadly similar carbon price signal around the world,and using carbon finance to accelerate action in developing countries, are urgent priorities for international co-operation

  14. “Cap & Trade” or a Carbon Tax? • Most economist prefer……?????? • Uniform tax on all CO2e emissions • Applied upstream to the few producers • Sellers of coal • Producers / importers / sellers of oil • Tax (cost) impacts flow downstream to consumers • Price of CO2e is known

  15. Carbon Tax Certainty? • Price • Correct Price • Emission Reductions • Government Revenue I can emit CO2e if I’m willing to pay for it.

  16. Cap & Trade • U.S. invention • Emission allowances for SO2 • Included in Clean Air Act Amendments 1990 • Implemented in 1995 • U.S. introduced “cap & trade” into text of Kyoto Protocol • against will of the European Union! Pew Charitable Trusts, 1990

  17. RGGI AB32 Source: NRDC

  18. Lieberman – WarnerClimate Change Cap-and-Trade BillAmerica’s Climate Security Act • GHG emissions cap on: • Electric power, industrial, transportation • 75% of total GHG emissions covered • Facilities that emit 10,000 t CO2e annually • Transportation sector regulated upstream • Fuel producers & importers, non-fuel chemicals • Higher efficiency standards for commercial and residential sources not covered VanNess Feldman Issue Alert October 22, 2007

  19. Targets and Timetables • Cap at 2005 levels starting in 2012 • Decline: • 15% by 2020 • 70% by 2050 • 1.8% reduction per year VanNess Feldman Issue Alert October 22, 2007

  20. Initial Market Price = $15 / ton Both firms seek to return to full production Price rises to <$20 / ton as Firm A sells to Firm B BAU 1000 tons CO2e 10% reduction 900 A B $20/t MCA MCA = $20 Firm purchases EAs from market for 10% of its production MCA = $10 Firm spends $10/t internally to reduce 20% CO2e emissions

  21. Initial Emission AllowancesWho Gets Them? • Upstream vs. Downstream? • Economy-Wide or Heavy-hitting Sectors? • Allocation (Grandfathering) • Auction

  22. 2/3 to ¾ of reductions expected from Electricity sector on economy-wide, least-cost basis.

  23. Grandfathering Allowances • SO2 program granted allowances based upon historic emissions. • What year to use for baseline? • Increase emissions now to receive more allowances later? • Major transfer of wealth to some electric utilities • Under some allocation schemes, some utilities would receive more value in Emission Allowances than existing enterprise value. • Coal-fired fleets

  24. Auctioning Emission Allowances • RGGI going to 100% auction model • Concerns that high carbon companies (e.g. coal plants) that spend money on EAs will be less able to invest in carbon-reducing technologies. • Concerns that speculators will “complicate” markets in early stages Evolution Markets LLC

  25. Proposed Allocation • Administered by the EPA • For 2012 5.2 billion allowances • 76% allocated at no cost • 24% auctioned • By 2036 2.9 billion allowances • 27% allocated at no cost • 73% auctioned VanNess Fledman Issue Alert October 22, 2007

  26. Allocations, 2 • Electric Power and Industrial Facilities • From 2012 to 2016 • 20% of year’s allowances allocated free of charge to covered facilities, based upon historic emissions • After 2016, declines by 1%/yr to zero in 2036 • Load-Serving Entities (electric distribution companies) • 10% of allowances allocated to LSE based upon electric sales • LSEs can sell allowances upstream to “dirty” providers • LSEs can purchase clean energy and sell allowances to market • Proceeds must be used to benefit ratepayers, specifically low-income protection and promoting end-use energy efficiency VanNess Feldman Issue Alert October 22, 2007

  27. Allocations, 3 • Early Action • In 2012 EPA to award 5% of allowances to covered facilities for actions taken since 1994 to reduce GHG • States • A minimum of 5% of each year’s allowances would be allocated to state governments…with an additional 1-4% depending upon various actions taken by state, e.g., “de-coupling.” VanNess Feldman Issue Alert October 22, 2007

  28. Safety Valve • Avoid cooling the atmosphere…and melting down the economy. • Resources from future growth needed to address climate change. • If t CO2e price rises above “safety valve” limit, more Emission Allowances issued • How many? • At safety valve price? • At auction? • Borrowing from / Banking to Future • Greater use of Offsets

  29. Offsets • Facilities could cover up to 15% of their obligation in any given year with allowances generated through domestic offset projects. • Up to 15% can be covered by offsets purchased from the international market provided country of origin has a GHG cap. • EPA must certify. • Additionality • Would project have happened anyway? • Verification • If an offset tree falls down in the forest… • Is it still an offset?

  30. Stabilization Wedges: Solving the Climate Problem for the Next 50 Years with Current Technologies Science August 13, 2004: Vol. 305. no. 5686, pp. 968 – 972 S. Pacala, Department of Ecology & Evolutionary Biology, Princeton R. Socolow, Dept. of Mechanical & Aerospace Engineering, Princeton Humanity can solve the carbon and climate problem in the first half of this century simply by scaling up what we already know how to do.

  31. Princeton UniversityCarbon Mitigation Initiative • To get on track to avoiding dramatic climate change, the world must avoid: • emitting about 200 billion tons of carbon, or • eight 25 billion ton "wedges," over the next 50 years. http://www.princeton.edu/wedges

  32. The Stabilization Triangle Billions of Tons Carbon Emitted per Year Current path = “ramp” 16 Stabilization Triangle Interim Goal Historical emissions 8 Flat path 1.6 0 1950 2000 2050 2100

  33. Stabilization Wedges Billions of Tons Carbon Emitted per Year 16 GtC/y Current path = “ramp” 16 Eight “wedges” Goal: In 50 years, same global emissions as today Historical emissions 8 Flat path 1.6 0 1950 2000 2050 2100

  34. A “solution” to the CO2 problem should provide at least one wedge. What is a “Wedge”? A “wedge” is a strategy to reduce carbon emissions that grows in 50 years from zero to 1.0 GtC/yr. The strategy has already been commercialized at scale somewhere. 1 GtC/yr Total = 25 Gigatons carbon 50 years

  35. Nuclear Fission (1) 15 Wedge Strategies in 4 Categories Energy Efficiency & Conservation (4) 16 GtC/y Renewable Fuels & Electricity (4) Fuel Switching (1) Stabilization Stabilization Triangle Triangle CO2 Capture & Storage (3) 8 GtC/y Forest and Soil Storage (2) 2007 2057

  36. Photos courtesy of Ford Motor Co., DOE, EPA Efficiency Produce today’s electric capacity with double today’s efficiency Double the fuel efficiency of the world’s cars or halve miles traveled Average coal plant efficiency is 32% today There are about 600 million cars today, with 2 billion projected for 2055 Use best efficiency practices in all residential and commercial buildings E, T, H / $ Replacing all the world’s incandescent bulbs with CFL’s would provide 1/4 of one wedge Sector s affected: E = Electricity, T =Transport, H = Heat Cost based on scale of $ to $$$

  37. AEH Top Ten Energy Projects #1

  38. Biofuels Scale up current global ethanol production by 30 times Photo courtesy of NREL Using current practices, one wedge requires planting an area the size of India with biofuels crops T, H / $$

  39. Natural Sinks Eliminate tropical deforestation OR Plant new forests over an area the size of the continental U.S. OR Use conservation tillage on all cropland (1600 Mha) Conservation tillage is currently practiced on less than 10% of global cropland B / $ Photos courtesy of NREL, SUNY Stonybrook, United Nations FAO

  40. Solar Electricity Install 20,000 square kilometers for dedicated use by 2054 Photos courtesy of DOE Photovoltaics Program A wedge of solar electricity would mean increasing current capacity 700 times E / $$$

  41. Stone Harbor, New Jersey

  42. Wind Electricity Install 1 million 2 MW windmills to replace coal-based electricity, OR Use 2 million windmills to produce hydrogen fuel Photo courtesy of DOE A wedge worth of wind electricity will require increasing current capacity by a factor of 30 E, T, H / $-$$

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