Deregulation and Cap/Trade

Gary Flomenhoft,

Energy Policy Week 2

Deregulation

• Vertical Integration

• FERC regulates wholesale electricity

• PUCs regulate retail rates

Deregulation

Deregulation

• Horizontal structure

• Generators

• Transmitters

• Distributers

• Marketers

Deregulation

Deregulation-CA

1. 3 IOUs required to sell generation=40%

2. Customers given choice of suppliers

3. Utilities purchase power wholesale

4. Daily Auction-highest accepted bid

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Deregulation-CA

Deregulation-by State

MBIs-govt or market?

• No company will voluntarily add costs to its operation. Only government can do it to the market as a whole.

Types of MBIs

1. Tradable permits-emissions or wildlife

2. Environmental taxes

3. Environmental charges

4. Environmental subsidies and incentives

5. Liability and compensation schemes

1. Cap-distribute-trade

• Europe EUETS system-2005, 2008-2012Kyoto goals= 6-21% below base yr (1990)

• 11,000 installations: powerplants and industrial heat sector

• 2.15 billion tonnes = 50% of EU CO2• 95+% Allowances given away, 5%vol auction• Other gasses 20% of GHG (no transport)• Jan 25, 2008 price-E21.03=$31.01/tonne• Link on lecture page

1. Cap-distribute-trade• Kyoto system

• The Kyoto Protocol is a 1997 international treaty which came into force in 2005, which binds most developed nations to a cap and trade system for the six major greenhouse gases.[25] (The United States is the only industrialized nation under Annex I which has not ratified and therefore is not bound by it.) Emission quotas were agreed by each participating country, with the intention of reducing their overall emissions by 5.2% of their 1990 levels by the end of 2012. Under the treaty, for the 5-year compliance period from 2008 until 2012,[26] nations that emit less than their quota will be able to sell emissions credits to nations that exceed their quota.

• It is also possible for developed countries within the trading scheme to sponsor carbon projects that provide a reduction in greenhouse gas emissions in other countries, as a way of generating tradeable carbon credits. The Protocol allows this through Clean Development Mechanism (CDM) and Joint Implementation (JI) projects, in order to provide flexible mechanisms to aid regulated entities in meeting their compliance with their caps. The UNFCCC validates all CDM projects to ensure they create genuine additional savings and that there is no carbon leakage.

• The Intergovernmental Panel on Climate Change has projected that the financial effect of compliance through trading within the Kyoto commitment period will be 'limited' at between 0.1-1.1% of GDP among trading countries.[27] By comparison the Stern report placed the costs of doing nothing at five to 20 times higher.[28]

1. Cap-distribute-trade

• New England RGGI system-2009• Goal 2009-2015 cap then -10% 2015-2018• 807 Powerplants only (+218 PA)• 184 million tons = 184/700 =26.3% of CO2• 100% Allowances auctioned• 25% of revenue to benefit consumers (except VT

100% to consumers)• Link on lecture page

1. Cap-distribute-trade

• Vermont RGGI system-June, 2008 auction

• 1 Powerplant only-Berlin (2 other wood chips)

• 1.2 million tons = 2% of CO2

• 100% Allowances auctioned

• 100% of revenue to benefit consumers