Transcript cap and trade

A CAP-AND-TRADE SYSTEM TO REDUCE CLIMATE CHANGE
Charles F. Wurster PhD: Chemistry, Stanford, 1957
Professor Emeritus of Environmental Sciences
State University of New York at Stony Brook
Board of Trustees, EDF, 1967-present
Some History:
Environmental Defense Fund (EDF), 1967-present,
www.edf.org
Full-time staff, 1967: 0
Members, 1967:
0
2008: 325
2008: 500,000
Offices, 1967:
0
2008: 13
Budget, 1967:
0
2008: $110,000,000
1970’s: Economic argument, IT PAYS TO POLLUTE.
Strategy: Hire economists, change the equation to
IT PAYS NOT TO POLLUTE
1980’s: Acid rain, much research but no action to abate
SO2.
SO2 + H2O = H2SO4 (sulfuric acid)
NOx + H2) = HNO3 (nitric acid)
1988: EDF formulates Cap-and-Trade system for SO2,
convinces George H. W. Bush, becomes part of Clean
Air Act of 1990.
1990’s: Implementation of Cap-and-Trade for SO2:
1.
Entity (corporation, industry, region) granted “Cap” to emit CO2, less than
formerly.
2.
Entity must have permits for emissions, severe penalty for emissions that
exceed cap.
3.
Entity is not told how to meet cap, which opens door to innovation. Differs for
each entity.
4.
Permits are marketable, Chicago Board of Trade.
5.
Entities that abate below their cap can sell their extra permits to entities that
cannot meet their cap.
Incentives: Profitable to abate SO2 below their cap,
sell their extra permits for extra profit.
Costly not to abate to meet cap, must then
buy extra permits for extra emissions beyond
their cap. Both have incentive to abate SO2.
Schedule: 25% reduction by 1995; 50% reduction by 2000.
Real World Example:
Available permits, 1995
Costs of Abatement
Abatement by each entity
ENTITY A
75%
Low
50%
ENTITY B
75%
High
0%
A sells 25% of its extra permits to B. Both meet requirement.
Results through 1990’s:
1.
All targets met or exceeded, no enforcement problems.
2.
Original cost estimates by industry: $2,400/ton SO2 abated.
3.
Actual costs, market prices of permits: $100-$300.
4.
Cap-and-Trade selected cheapest and best technologies for
abatement. These can also be marketed.
APPLYING CAP-AND-TRADE TO CARBON DIOXIDE
1992: United Nations Framework Convention on Climate Change
Signed by G. H. W. Bush, Rio de Janeiro, Brazil.
11 Dec 1997: Kyoto Protocol adopted, contains Cap-and-Trade.
16 Feb 2005: Russia + 190 countries ratify Kyoto, bringing the
Treaty into force. USA abstains, opposes treaty. Developing
countries not included.
Kyoto expires in 2012, must be extended to all countries, tighter
limits in greenhouse gas emissions.
Forests must be included as important carbon sinks,
which has great biodiversity benefits.
What about a Carbon Tax? Would it work? How about subsidies?