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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)
Outline
1. Developments in State/Regional Programs
1. RGGI
2. California and Western States
3. CCX
2. Developments in Federal Policy
Cap and Trade Proposals in Congress
3. Concluding Remarks
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1.Developments in State/Regional
Programs
Backgrounds
on US environmental policies
 State governments often implement
environmental policies before the federal
government does
 California is known to be the leader
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States with GHG Emissions Targets
(PEW Center, Feb ‘07)
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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
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RGGI
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RGGI
The economy
in this region
amounts to
20% of US
GDP
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CO2 Cap
State
9
States
CT
Cap
2004
State
Cap
2004
150.6
143.3 NJ
22.9
21.1
10.7
9.8 DE
7.6
7.5
ME
5.9
4.7 MD
n/a
32.0
NH
8.6
8.8 MA
26.7
26.4
VT
1.2
0.4 RI
2.7
2.2
NY
64.3
62.2 PA
n/a
130.5
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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.
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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
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CO2 Prices and Impacts on Economy
 Carbon Prices：RGGI
 RGGI: $5 in 2024 w/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
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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.
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Influences on Federal Cap and Trade
Programs
 RGGI can serve as a Platform for federal
programs
 Recent emphasis on auction in federal
proposals
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1.2. California and Western States
US versus CA:
Electricity Consumption per capita
(CA Climate Change Portal)
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CO2 Emission per capita by state
(CA Climate Change Portal)
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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?
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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.
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1.3. Chicago Climate Exchange
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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
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2.Cap and Trade Proposals
in US Congress
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
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(at least) 9 Cap and Trade Proposals
(as of August 2007)
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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
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Regulated Entities
 Absolute Cap (intensity target in earlier B/S )
 Scope
 Electricity Sector : Feinstein/Carper, AlexanderLieberman
 Economy Wide: Others
 Downstream vs. Upstream
 Downstream vs Upstream + Downstream (L/M)
 Discretion of EPA
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Emission Targets in Federal Proposals
10,000
Million metric tons CO
2 equivalent
8,000
6,000
4,000
Historical Data (1990-2005)
Bingaman-Specter (S. 1766)
Lieberman-McCain (S. 280)
Sanders-Boxer (S. 309)
Historical Electricity Emissions
Feinstein-Carper (S. 317)
Bingaman/Specter(January Draft)
Business as Usual Projections
Udall-Petri (May draft)
Kerry-Snowe (S. 485)
Waxman (H.R. 1590)
BAU Electricty Projections
Alexander-Lieberman (S. 1168)
2,000
0
1990
1995
2000
2005
2010
2015
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2020
2025
2030
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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
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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
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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
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Impacts on International Markets
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)
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International Credits/Offsets
 CDM: Feinstein/Carper, Old B/S
 Projects in Developing Countries:
Lieberman/McCain
 JI: Feinstein/Carper
 Foreign credits: Bingaman/Specter,
Lieberman/Warner
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Indirect Linking to foreign markets
US Federal
Market
EUETS
RGGI
CA & Western
6 States
Developing Countries:
CDM projects and
non-CDM projects
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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
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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.
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Contrasts to EU ETS
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
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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.
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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)
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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）
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Carbon Price and Impacts to Economy
Udall/Petri
(109th Congress)
EIA
Lieberman/ McCain
EIA
Bingaman/Specter
NCEP
Emission
Cap
Based on the average
emissions from the
previous three years
before the bill
2004 level in 2012.
1990 level in 2020.
20% below 1990 level
in 2030.
2012 level
in 2012.
2006 level by ’20.
1990 level by ’30
Price
($2005/ CO2
TOE)
Reach Safety Valve
price $6.76 in 2018
$14 to $31 in 2020.
$31 to $58 in2030
$5.5in 2012.
$24 in 2030
GDP
-0.16% to -0.21%
in 2030.
-0.3% to -0.5%
in 2030
+0.12%
in 2030
Electricity
Price
+5.66% to +6.34%
in 2020
+ 10% in 2020
+21% in 2030
+7%
in 2020
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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.
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Some extras
if time left
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)
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Domestic Offsets
 Agricultural and Biological sequestration.
(Feinstein/Carpe, Lieberman/McCain,
Sanders/Boxer, Kerry/Snowe)
 Experience in CCX
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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” (KerrySnowe)
 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)
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New Entrants
 Pool of allowances for new entrants
employing clean and efficient technology
(Bingaman/Specter)
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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)
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