Climate Change Policy: What Is Achievable and What Are the Options
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Transcript of Climate Change Policy: What Is Achievable and What Are the Options
Climate Change Policy: What Is Achievable and What Are the Options
Billy Pizer
January 23, 2008
Let's Get Serious About Climate Change Policy: What’s Really
Achievable at What Cost? Billy Pizer
January 23, 2008
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Five Questions
How do we quantify global, long-term goals and what do they mean?
What we know about costs of these goals? What does cost-benefit analysis say? What are other countries doing and what are
the choices for U.S. policy? What are the choices for international
architecture?
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Impacts of Climate Change
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Likely global warming from stabilization at different greenhouse gas concentrations
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Best estimate
Lower end of likely range
Note: "Likely" is defined as greater than a 66% probability of occurrence. Source: IPCC Fourth Assessment Report.Projections for 2100
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Impacts of Climate Change
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Equivalent Ways of Saying the Same Thing
CO2 equivalent concentration
(parts per million by volume)
CO2 concentration
(parts per million by volume)
Radiative forcing
(watts per meter squared)
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Emission Stabilization Scenarios
IPCC Scenario Exercise
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Scenario Storylines
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EMF Baselines
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Baselines & Goals
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Ways to think about costs Loss of income
Typically expressed as a percent of future income – “a 1% loss of GDP in 2030”
GDP is growing, perhaps almost 3% per year But per capita GDP is only growing by half that. And median GDP is only growing by half that again –
or about 0.7% Big or small? All existing environmental regulation ~2%
Prices Impacts on industry and jobs
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CO2 prices?
Average monthly electricity bill ~ $80
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Annual cost of $10 CO2 price
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Industry Impacts
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2030 CO2 Prices to Stabilize$
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CCSP Estimated Prices for
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$/to
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IGSMMERGEMiniCAM
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A Word on Negative Costs
Energy efficiency gains that are already “cost effective” Why not already done? Will CO2 pricing create incentives to do these
actions now? If not, what will?
Spillovers from new technologies New carbon saving technologies lead to other
discoveries with net benefits. Why does other research not do the same thing?
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Summary on Costs
would require $25/tCO2 prices in 2030 and cost less than 1% of income.
would require $50-100/tCO2 prices in 2030 and cost less than 1-2% of income.
We know very little about what it would cost to stabilize at
All estimates assume perfect implementation over time, countries, sectors; otherwise, more expensive
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Bill Nordhaus Estimates Costs and Benefits
My best estimate ($/ton CO2): $21 $27 $33 $40 $49 (x 1.82 and converting to CO2)
Distribution of Emissions
Likely to see important transitions in relative emissions across countries
Will have profound implications for distribution of emission reductions
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European Union
Emissions Trading Scheme (ETS) for energy activities (including electric power), iron & steel, minerals, pulp and paper. “warm-up” phase: 05-07, Kyoto: 08-12
~12,000 installations covering 46% of CO2 emissions
25 Member States (MS) propose allocation and cap in National Allocation Plans (NAP)
Price around 20-25 €/ton. Changes post 2012.
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Canada Emissions trading for Large
Final Emitters (LFE): oil & gas, electricity, mining, manufacturing (proposed early 2005)
Intensity-cap: emission limit indexed to output.
Safety valve: extra allowances at C$15/tCO2
Early 2006 program was on hold
Alberta started similar provincial program in 2007.
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New Zealand
Carbon tax at NZ$15-25 / tCO2 in 2007, aligned to international carbon price (announced 2002)
Vulnerable energy intensive industries can opt for voluntary agreement instead.
Agricultural methane and N2O (more than half NZ emissions) excluded.
Abandoned 12/05. May pursue emissions trading.
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Japan
Existing efficiency and renewable programs.
Voluntary commitments by industry.
Discussed possibility of ¥2,500-3,000 / tC tax ($5-6 / tCO2), but did not pursue.
Public and private programs to buy offsets.
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Australia
Did not ratify Kyoto, turned around in 2007
New South Wales trading program since 2003 for power plants.
Australian states pursued regional cap and trade.
New government is pursuing national emissions trading.
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Comparison of Emission Reduction Goals in Legislative Proposals in the 110th Congress (as of October 29, 2007)
This graph depicts emissions targets from some of the major climate change bills in Congress. Targets are based on comparison with historical year emissions. Kerry-Snowe, Sanders-Boxer, and Waxman specify future emissions as a percentage of 1990 emissions. For Lieberman-Warner, Lieberman-McCain, Udall-Petri, and Bingaman-Specter, emission targets for covered sectors are related to historical emissions for those sectors, and total emissions are assumed to match those in the corresponding historical year.1 Bill contains flexibility mechanisms which allow actual emissions to rise above the target.
Historical Emissions (1990-2005)
Business-As-Usual Projections (AEO 2006)
Bingaman-Specter1 (S. 1766)
Sanders-Boxer (S. 309)
Kerry-Snowe2 (S. 485)
Lieberman-McCain (S. 280)
Udall-Petri1 (May draft)
Waxman(H.R. 1590)
Historical Electricity Emissions (1990-2005)
BAU ElectricityProjections (AEO 2006) Alexander-Lieberman
(S. 1168)
Feinstein-Carper (S. 317)
Lieberman-Warner (S. 2191)
2 The Kerry-Snowe target is overlaid by others: it is nearly identical to Sanders-Boxer before 2020 and to Lieberman-Warner from 2020-2030.
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Who’s Regulated Allowance Allocation Price Stability Offsets Technology Competitiveness
Lieberman-Warner (S. 2191)
Economy-wide cap: large sources downstream at emitter; transport emissions at refinery; F-gas producers and importers. (75% of US GHG emissions covered.)
40% free to industry (including electric generators; with phase out); 10% to electricity consumers; 24% auctioned to fund technology deployment, transition assistance, and adaptation; 12% set aside for CCS and sequestration; 9% to states; 5% for early action.
“Climate Fed” with discretion to increase use of borrowing and offsets and temporarily expand cap. Borrowing: up to 15% of allowances, for no more than 5 years.
Up to 15% of obligation can be met with domestic sequestration, and another 15% through international allowances and credits.
Technology deployment incentives for zero- and low-carbon generation, advanced coal, cellulosic biomass, and advanced vehicles (55% of auction revenues)
Bulk, energy-intensive imports from countries w/o comparable policy require permits after 2020.
Bingaman-Specter (S. 1766)
Economy-wide cap: coal and process emissions at emitters; oil refiners, NG processors, and oil/NG importers; and F-gas producers and importers.
53% free to industry (with phase out); 24% auctioned to support R&D, transition assistance, adaptation; 14% set aside for CCS and sequestration; 9% to states.
$12/metric ton CO2 safety valve, rising at 5% per year above inflation.
Unlimited domestic offsets including methane and SF6. Limits on international offsets (10% of cap) and domestic agricultural offsets (5% of cap).
Detailed technology development programs funded from allowance auction revenues (12-26% of auction revenues).
Bulk, energy-intensive imports from countries w/o comparable policy require permits after 8 years.
Udall-Petri (May draft and staff
talks)
Economy-wide cap: primarily upstream sources (e.g., producers and importers of fuels).
20% free to industry. 80% auctioned to support RD&D; developing country engagement; adaptation, dislocation aid; sequestration; debt reduction.
$12/metric ton CO2
safety valve, rising at 2-8% per year above inflation.
Unlimited geological sequestration offsets. 5% of allowances set aside to fund biological sequestration and 1% for CCS projects.
Establishes ARPA-E to fund technology advancement projects (24% of auction revenues).
Inaction by developing countries can justify delay in safety valve escalation.
Lieberman-McCain (S. 280)
Economy-wide cap: large downstream at emitter; transport emissions regulated at refinery.
Discretion of EPA, with guidance for some free allocation and an auction to fund R&D, transition assistance, adaptation measures.
Borrowing: up to 25% of allowances, for no more than 5 years.
Up to 30% of obligation can be met with domestic sequestration projects and international offsets.
Revenues from some auctioned allowances used for RD&D.
K erry -S now e (S. 485)
USDA sets rules for domestic biological sequestration.
Waxman (H.R. 1590)
Economy-wide cap: point of regulation at discretion of EPA.
Discretion of the President with guidance from the EPA. No provisions.
No provisions.
Sanders-Boxer (S.309) Economy-wide cap: EPA has discretion to implement a market-based allowance program to achieve cap.
Vehicle emission rules; efficiency & renewable standards for electric generation; additional bill-specific mandates.
Feinstein-Carper (S. 317)
85% free to industry, based on generation (updated annually), and phased out by 2036.
Borrowing up to 10%, for no more than 5 years.
International offsets up to 25% of cap; extensive domestic biological offsets.
Distributes auction revenues to multitude of technology programs.
Alexander-Lieberman
(S. 1168)
Electricity-sector cap: power plants. (S. 1168 also covers utility SO2, NOX, and mercury emissions.) 75% free to industry, based on heat
input. No provisions.
Domestic offsets in five categories, including methane, SF6, efficiency, and forest sequestration.
NSPS for CO2 emissions from new electric generation units.
No provisions.
Stark (H.R. 2069)
100% revenues to US Treasury. $3/metric ton CO2, rising $3 annually.
Tax refunds for fuel CO2 sequestered downstream: CCS, plastics.
No provisions.
Larson (H.R. 3416)
Economy-wide tax: fossil fuels taxed by CO2 content at the point of production and import. 1/6 of revenues to R&D, 1/12 to industry
transition assistance (with phase out), remainder to payroll tax rebates.
$16.5/metric ton CO2, rising 10% plus inflation annually.
Tax refunds for domestic sequestration and HFC destruction projects.
1/6 of tax revenues up to $10 billion annually goes to clean energy technology R&D.
Dingell (Summary of
draft)
Economy-wide tax: fossil fuels taxed by CO2 content at point of production and import. Also, tax on gasoline (but diesel exempt).
Revenues used to expand EITC and help fund entitlement programs. Gas tax revenues go to highway trust fund (40% mass transit, 60% roads).
$15/metric ton CO2, rising at inflation. $0.5/gallon gasoline tax (in addition).
No provisions. No provisions.
Tax applied to fossil fuel imports; fossil fuel exports are exempt.
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Read the Full Report
Read or download the full report, Assessing U.S. Climate Policy Options:
www.rff.org/cpfreport
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Key US Policy Questions
Cap level and offset rules. Emphasis on prices versus quantities. …coverage, allocation, competitiveness,
technology…
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Global Scenario: US-CAP Led Absolute Targets starting 2010
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Gt C
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Emissions from Trop. Def.Rest of Non-Annex IChina & IndiaRest of Annex IUS2 degrees: 1.5% decline/yr2.5 degrees: 1.5% decline/yr
Derive National Target
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Use of Offsets Dramatically Affects Price
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SO2 Current Vintage Allowance Price
$0.00
$200.00
$400.00
$600.00
$800.00
$1,000.00
$1,200.00
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$1,800.00
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allo
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ton
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Proposed CAIR(more stringent cap in 2010)
Supplemental proposal
Final CAIR FIP released
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NOx OTC Current Vintage Price
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EUA Spot Price [€/ton], September 2005 – September 2006
(OTC Market)
16.13
27,18
29,75
11,05
21,90
8.95€ 8€ 9
€ 10€ 11€ 12€ 13€ 14€ 15€ 16€ 17€ 18€ 19€ 20€ 21€ 22€ 23€ 24€ 25€ 26€ 27€ 28€ 29€ 30€ 31€ 32
9/15
/200
59/
22/2
005
9/29
/200
510
/6/2
005
10/1
3/20
0510
/20/
2005
10/2
7/20
0511
/3/2
005
11/1
0/20
0511
/17/
2005
11/2
4/20
0512
/1/2
005
12/8
/200
512
/15/
2005
12/2
2/20
0512
/29/
2005
1/5/
2006
1/12
/200
61/
19/2
006
1/26
/200
62/
2/20
062/
9/20
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16/2
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2/23
/200
63/
2/20
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9/20
063/
16/2
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3/23
/200
63/
30/2
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4/6/
2006
4/13
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64/
20/2
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4/27
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11/2
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5/18
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25/2
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6/1/
2006
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6/15
/200
66/
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6/29
/200
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13/2
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7/20
/200
67/
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8/3/
2006
8/10
/200
68/
17/2
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8/24
/200
68/
31/2
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9/7/
2006
9/14
/200
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Pric
e [€
/to
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Quantitative Targets and Prices
Arguments for targeting both. Quantitative targets connect better to
environmental outcome, but require long-horizons and global participation to be meaningful by themselves.
Prices connect better to technology development and, in a national program with relatively short-term markets, to long-term goals.
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Straw Proposal
Emissions trading with offsets and a target price of $25/ton CO2 in 2020.
Price floor and ceiling at ±50% of this price, respectively ($12 and $37).
All prices should rise over time at 5%. Possibly additional mechanisms to promote
stability within the ±50% band.
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A bottom-up approach Initial agreement on policy commitments in key countries.
No restriction on form of commitment, no non-compliance provisions (but still possible to ratchet up commitments)
Common authority for international credits (projects, policy reform, REDD).
Nations free to choose when and whether to link systems, but all encourages to make use of international credits.
Rolling 5-year reviews of domestic policies modeled after OECD country reviews; focus on mitigation, technology, and developing country engagement.
Annual meetings to discuss reviews, coordinate action, adjust commitments. Major round of reviewing and new commitments every five years, with an emphasis on holding countries publicly accountable for achieving or not achieving prior commitments.
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Strengths of bottom-up approach
Focuses international effort where value is highest: promoting, evaluating, coordinating action versus regulating.
Opens the door to encourage a much wider range of domestic actions—taxes, technology, and sectoral policies.
Can and should evolve towards top-down through increased coordination, gradual harmonization, and eventual linking.
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Strengths of top-down approach
Top-down means: domestic actions developed after and under the guidance of an international agreement—presumably targets and timetables—with non-compliance provisions.
Ability to regulate global emission level, to assign responsibility for emission reductions, and to create incentives for international compliance.
Promotes international emissions trading to encourage least-cost emission reductions.
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Summary Environmental concerns would encourage
450 CO2e.
Economic analysis difficult <550 CO2e.
Crude benefit analysis suggests 650 CO2e.
prices Income loss
650 CO2e $25 <1%
550 CO2e $50-100 1-2%
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Summary (2)
National governments pursuing a variety of policies. Current prices in the 15-30 $/ton range.
Sensible US policy will need to target prices and quantities until policies are effectively longer-term and global. Could be a cap with price floor and ceiling.
Variety of international architectures possible; unclear what will be most successful at encouraging lower emissions. Key question: what will get China engaged?