RFF Feature: The Coming US Carbon Market
RFF experts have developed several background memos on cap-and-trade and carbon tax systems to provide informative overviews and highlight current work, available data, and potential research limitations.
Click here to read the rest of this feature.
NRDC’s EPA/GHG Proposal is Impressive. But Tough Legal Battles Are Likely
EPA (in cooperation with states) has extensive Clean Air Act authority to regulate GHG emissions from the large installed base of existing fossil-fuel power plants. Over the past few years, it has sent contradictory signals about how and even whether it intends to use this authority. At RFF, we’ve written about what EPA can do to cost-effectively use these tools (specifically, performance standards under Section 111 of the statute). But NRDC has been in this game even longer – they were first to petition EPA back to regulate back in 2008. This week, they released their comprehensive plan. The report and summary are here, and the Post’s Brad Plumer hits the key points here. Dallas has posted his views too.
The plan is technically impressive, well-thought out, and moderate in most respects. These virtues come partly from the proposal’s inclusion of almost any option for reducing emissions – efficiency improvements at power plants, demand-side energy efficiency, fuel switching from coal to gas or biomass, and new renewables. From a policy point of view, that’s great. But that flexibility carries legal risk. Whatever EPA does (including nothing), it faces a legal battle. If it adops NRDC’s proposal, I think that battle will be tough. Deciding whether that risk is worth the payoff won’t be easy.
Energy Independence – What Then? (Part Three: The Broad Goal of North American Energy Independence)
This post is the third in a four-part series on energy independence and its significance (or insignificance) See below for links to all four posts. - ed.
In its recently-issued World Energy Outlook, the International Energy Agency (IEA) underscored the likelihood and significance of North America becoming “a net oil exporter around 2030.” Here, we ponder why a North American perspective on energy, and especially the prospect of self-sufficiency in oil, is meaningful. After all, when it comes to production and trade in, say, grains or wood products, we do not hesitate to separately analyze trends for the US and Canada rather than emphasizing their aggregate impact.
It’s hard to lose sight of the many factors shaping the strong relationship between the two countries. The long shared border, common resource-producing regions, democratic institutions, culture, language, and military interests all play their part. Interconnected electric transmission flows give both countries joint incentive ensuring integrity of the grid. And overall, trade and investment undergird strong economic ties.
But for energy (in particular for oil), there are two interconnected areas of importance: security and trade.
NRDC’s Clean Air Act GHG Plan
The Natural Resources Defense Council (NRDC) has proposed the first comprehensive plan to regulate greenhouse gas emissions from stationary sources under the Clean Air Act.
The plan would have the EPA assign emission rate standards for existing coal and gas fired power plants. States could allow facilities to average their emissions rate. The emissions rate at the state level would be the generation-weighted average of power produced in that state, and the EPA would require improvement by reducing the acceptable emissions rate for each type of generation over time. In this way, states that have relatively dirtier generation sources would receive a more generous standard, but they would also be required to achieve emissions reductions more rapidly over time. The proposal also would allow states to take credit for investment in renewable energy and energy efficiency. Finally, states could propose to participate in interstate trading of credits to achieve the required improvements.
In brief, the plan resembles a clean energy standard with the amendment that credit would also be given for energy efficiency.
Beyond the specifics of NRDC’s proposal, the plan makes two substantial contributions. First, the NRDC proposal illustrates forcefully the value of a flexible, incentive-based approach to implementing the regulations. Flexibility allows industry to look beyond a narrow set of engineering measures to identify the least-cost opportunities for emissions reductions throughout their operations. Flexibility also has environmental rewards, because as flexibility reduces costs it enables the EPA and the states to identify more stringent efficiency targets.
Aiming Low: The Ambition Deficit in Global Emissions Reductions
As in Durban, a notable concern at this COP is the “ambition deficit”—that is, the significant gap between the Intergovernmental Panel on Climate Change’s recommended level of emissions reductions—those required to limit global temperature rise to 2°C—and the level of emissions reductions currently committed to by countries worldwide.
In other words, everyone is aiming low on an issue that many believe requires countries to aim extremely high.
Recent French commentary on the negotiations put some numbers on the gap, noting that “according to the lowest stabilisation scenario of the Intergovernmental Panel on Climate Change (IPCC), the developed countries should reduce their emissions by 25% to 40% in 2020 compared with 1990 to limit the rise in mean global temperature to 2°C. Recent analyses suggest that the current commitments of Annex I Parties would result in a global reduction of emissions of between 11% and 16% by 2020 compared with the 1990 level.”
How to encourage countries to increase their level of ambition has been a point of discussion and debate in both the negotiations and the side events associated with the COP. The United Nations Environment Program (UNEP) released a report a few weeks ago providing some tangible suggestions, but underneath all of them is the driving sense that countries simply need to aim higher.
COP 18 Surreality
Every year during the Conference of the Parties (COP) for the UNFCCC, Saturday night is reserved for what’s called the NGO party, where negotiators and civil society participants blow off some stream after a week filled with excitement, frustration and trepidation, and mentally prepare themselves for another week of sleepless nights. This year’s party was at a seaside resort an hour and a half south of Doha, the host city. Partygoers rode a stream of never-ending buses through the city and out through the desert, past not one, but two oil refineries and a chemical plant. As methane flares helped light the way for the buses, some of which at least ran on natural gas, the surreality of the situation was not lost on many.
That’s how it goes at this year’s COP. The meeting has a strange mix of subtle irony and unnecessary complexity. First, it is being held in Qatar, the largest per capita emitter of greenhouse gases. For two weeks, delegates are shuttling around Doha, a city that grew out of the desert with the help of large revenues from oil and natural gas extraction. Qatar controls 13% of global natural gas reserves, and oil and gas activities are responsible for 50% of Qatari GDP. An economy built on fossil fuels is one of the primary reasons Doha can host a world conference on climate change.
This Week in the RFF Library Blog
Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy. Check out this week’s highlights below:
Monetary Emissions Trading Mechanisms
…We use insights from dynamic mechanism design in monetary economics to derive properties of optimal dynamic emissions trading mechanisms. We argue that efficient tax policies must be “state-contingent”, and we demonstrate an equivalence between such state-contingent taxes and emissions trading. — via Rice University, Baker Institute for Public Policy
Market Based Climate Mitigation Policies In Emerging Economies
Used by governments for decades, market-based policies are mechanisms to control environmental pollution at various leverage points. They work by changing relative prices – raising the cost of emissions-intensive activities and/or lowering the cost of lower-emitting alternatives – to provide producers and consumers with a financial incentive to adopt the latter. — via The Pew Center on Global Climate Change
Road Transport: Unlocking Fuel-saving Technologies in Trucking and Fleets
Existing technologies that improve the fuel efficiency of trucks could save owners over $26,000 per vehicle and reduce CO2 emissions by 624 million tonnes, according to new research. — via Energy Efficiency News
Global Climate Risk Index 2013: Who Suffers Most From Extreme Weather Events? Weather-related Loss Events in 2011 and 1992 to 2011
…The United States was among the 10 countries most affected by climate change in 2011, as it was battered by tornadoes, hurricanes and scorching temperatures. — via Germanwatch
CO2 Enhanced Oil Recovery
The U.S. Chamber’s Institute for 21st Century Energy has issued a new report detailing the contribution that a groundbreaking technique is making on American oil field production—with the promise of much more. — via U.S. Chamber of Commerce
For more from the RFF Library Blog, click here.
RFF on the Issues
Market-based Success in California?
The California Air Resources Board was “delighted” with the results of the state’s first carbon auction. Others also touted this market-based program as a success, and potentially a “model for the nation.”While such market-based environmental policy approaches are not new, some programs have had more success than others. Next week, at RFF’s final First Wednesday Seminar of 2012, panelists will review lessons learned from successful and unsuccessful applications of market-based policy, and discuss its desirability and feasibility for the future. Register today for “Whither Markets for Environmental Regulation of Air, Water, and Land?” on December 5 at RFF.
While International Climate Negotiations Continue, the World’s Ninth Largest Economy Takes an Important Step Forward
This post originally appeared on Robert Stavins’s blog, An Economic View of the Environment.
A little more than two weeks ago, while some 195 nations prepared to meet in Doha, Qatar, for the Eighteenth Conference of the Parties (COP-18) of the United Nations Framework Convention on Climate Change (UNFCCC) in an ongoing effort to hammer out a durable scheme of effective international cooperation, the ninth largest economy in the world took an important step forward to achieve its own ambitious greenhouse gas reduction goals. I’m referring to the CO2 cap-and-trade allowance auction held by the State of California (which ranks just below Brazil and just above India in the size of its economy) on November 14, 2012.
The Design
Under the California auction design (a single-round, sealed-bid, uniform price auction), all allowances are sold at the same price, no matter what the specific bid submitted. This is done by awarding the first allowances to the highest bidder, then the next highest bidder, and so on until all allowances (or bids) are exhausted. The bid for the last allowance becomes the price of all allowances sold in the auction. The auction had two parts: a current auction of 2013 vintage allowances, and advance auction of 2015 vintage allowances.
New Issue of Resources Magazine
Image: Resources for the Future
The latest issue of Resources magazine is now available online. This issue explores the changing landscape of US energy policy, with features by Resources for the Future president Phil Sharp and others including:
Managing the Risks of Shale Gas: The Latest Results from RFF’s Initiative
Kristin Hayes
RFF is helping policymakers, experts, and the public better understand the complex process of shale gas development as it unfolds across the country.
Will Natural Gas Vehicles Be in Our Future?
Alan J. Krupnick
High costs, reduced cargo space, and range issues are likely to make switching to natural gas a tough sell for passenger vehicles, while prospects are brighter for heavy-duty trucks.
Does Speculation Drive Oil Prices?
James L. Smith
Research on the forces behind the 2004–2008 dramatic spike in oil price challenges the common perception that excessive speculation in the futures market is to blame.
Clean Air Regulations & the Electricity Sector
Karen Palmer, Dallas Burtraw, Anthony Paul, Blair Beasley, and Matt Woerman
Two historic air pollution regulations will not have nearly the dramatic repercussions that some predict—research suggests that only a few coal generators will be forced to retire and retail electricity prices will increase only slightly.
To view all articles from this issue of Resources, click here.
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