The Pie in the Sky: Emissions Allowances Under Power Plant Legislation
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Transcript of The Pie in the Sky: Emissions Allowances Under Power Plant Legislation
The Pie in the Sky: Emissions Allowances Under Power
Plant Legislation
David Doniger
Policy Director, NRDC Climate Center
Sustainable Energy Institute
February 28, 2005
Time for Real Reductions• President’s air pollution plan weakens public health
protections of Clean Air Act, does not stop rising global warming pollution
• Public knows industry self-policing will not work– 75 percent of Americans favor “mandatory controls on
carbon dioxide and other greenhouse gas emissions” (Gallup poll)
• Business and political leaders know carbon caps are inevitable and needed to end uncertainty
• Huge cost of delaying carbon caps. Time to act is now
Carbon Cap Proposals
• Major proposals in Congress:– Four-pollutant power sector bills (Jeffords-
Collins-Lieberman, Carper-Chafee)
– McCain-Lieberman, covering CO2 and other global warming pollutants from power sector, major industry, and transportation
• All bills use “cap-and-trade” approach from acid rain program
Basics of Cap-and-Trade
• Emissions cap of X million tons• X million “emissions allowances”• Each covered source continuously monitors
emissions and annually turns in one allowance for each ton of pollution
• Allowances are tradeable – Control costs revealed in allowances’ market
price– High-cost sources buy; low-cost sources sell
Allowance Allocation is Crucial
• Cap-and-trade programs are efficient – they help minimize program resource costs.
• But for carbon they can cause large wealth transfers.Allowance market values can greatly exceed program
resource costsAllowance value is passed on to consumers in
electricity and product prices It really matters who gets the allowances
• Allowance allocation has not gotten the attention it deserves
Windfall Profits for Industry?…
• Research by RFF, others, shows “grandfathering” all allowances to industry leads to massive windfall profits – at consumer expense.– Power sector carbon allowances worth >13 times more
than power industry assets are reduced.
– Only 7.5% of all allowances needed to offset power industry asset reductions.
– Greater grandfathering leads to tens of billions of dollars in unjust enrichment
…Or Protection for Consumers, Workers, and Communities?
• The allowance to pollute is a public resource.• Allowances for tradable pollutants should be used
to incentivize technology deployment and protect consumers, not unjustly enrich generators.
• Use slices of the allowance pie to accomplish specific public purposes, e.g.: – Promote efficiency, renewables, and cleaner generation– Assist vulnerable workers and communities – Protect consumers
Key Concepts from Jeffords and McCain-Lieberman Bills
• Some allowances allocated directly to power sector – Mix of forward- and backward-looking, output and
input bases
• Major share of allowances allocated to a Climate Change Credit Corporation – a public trustee.
• CCCC/trustee uses allowances for defined public purposes.
Promoting New Technology
• Allocate a slice of the allowance pie to incentivize efficiency, renewables, and cleaner generation
• Allocations could be based on electricity output (lbs/MWh) for first 10 years of facility life– Megawatt-hours generated for renewables– Negawatt-hours “generated” by efficiency– New cleaner fossil sources also receive output
allocations (e.g., CHP, combined cycle gas, coal gasification (IGCC))
– Extra allocation to incentivize geologic sequestration
Transition Assistance
• Slice of allowances for “just transition” assistance.– Adversely affected workers in specific
industries– Disproportionately affected communities– Most electricity-intensive industries
Protecting Consumers
• Protecting consumers against excessive cost increases– In competitive model, electricity costs rise by
more than carbon-control costs. – Who gets this windfall? Consumers or
shareholders?– Allocating allowances (or allowance proceeds)
for consumer rebates can offset excess electricity cost increases
62%
20%
6%
10%
1.6%
ResidentialConsum ersEE/RE/CleanerGenerationTransitionAssistanceExisting Gens
Bio- & Geo-Sequestration
Example: Allowance Distribution in
Clean Power Act – 2008
78%
20%
1.6%
ResidentialConsum ers
EE/RE/CleanerGeneration
Bio- & Geo-Sequestration
Example: Allowance Distribution in Clean Power Act – 2018
Future Directions?
• Global warming pollution problem not going away
• Industry’s business problem – uncertainty –not going away
• Solutions must be both efficient and equitable
• Allowance allocations are a key tool to meet both objectives