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Cap and Trade: What’s the Deal? by Jeff Burkhart July 8, 2009 Liberty Lecture Series #1 Walla Walla Tea Party Patriots presents.

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Presentation on theme: "Cap and Trade: What’s the Deal? by Jeff Burkhart July 8, 2009 Liberty Lecture Series #1 Walla Walla Tea Party Patriots presents."— Presentation transcript:

1 Cap and Trade: What’s the Deal? by Jeff Burkhart July 8, 2009 Liberty Lecture Series #1 Walla Walla Tea Party Patriots presents

2 Topics Introduction Assumptions What is it? How does it work? Highlights of the Waxman-Markey bill Possible effects Alternatives Q&A

3 Introduction About Jeff and Andrea Burkhart

4 (509) ½ N. 2nd Avenue, Suite 200 Walla Walla, WA Jeff Burkhart Business / Commercial Estate Planning Torts / Insurance Elder Law Andrea Burkhart Water Law Real Estate Construction Estate Planning

5 Introduction About Jeff and Andrea Burkhart About the Walla Walla Tea Party Patriots Kudos to leadership Education Legislative activism Values

6

7

8 Assumptions For today’s Liberty Lecture

9 Assumptions Global warming is real. It is bad. It is caused by the greenhouse effect. Source: source:

10 Assumptions Global warming is real. It is bad. It is caused by the greenhouse effect. Man-made greenhouse gases are a major culprit of global warming. Data source:

11 Assumptions Global warming is real. It is bad. It is caused by the greenhouse effect. Man-made greenhouse gases are a major culprit of global warming. Reducing man-made greenhouse gases will reduce global warming.

12 Why make these assumptions?

13 The Goracle has spoken! Image source:

14 Cap and Trade What the heck is it?

15 Cap Government establishes a limit, or cap, on the amount of a pollutant that can be released into the atmosphere. Companies receive credits that allow them to release a certain amount. Credits for CO2 are issued in units of metric tons 2204 pounds A volume of 25 by 10 by 2 meters – about an Olympic-sized swimming pool

16 Trade Companies that reduce their emissions will have excess credits. They can then sell these credits to other companies that can’t or won’t reduce their own emissions. Over time, the government gradually reduces the “cap” thereby reducing the total amount of the pollutant released into the atmosphere.

17 Cap and Trade in Pictures Let’s say the government allocates 5 credits to a given industry. Image source:

18 Cap and Trade in Pictures Company A buys (or is given) 3 credits, and Company B buys (or is given) 2. Image source:

19 Cap and Trade in Pictures Later, the government lowers emissions standards, so only 4 credits are available. Image source:

20 Cap and Trade in Pictures Company B has reduced its emissions, so it has an excess credit. Image source:

21 Cap and Trade in Pictures Company A has not reduced its emissions. Due to the lower cap for the industry, it needs another credit. Image source:

22 Cap and Trade in Pictures Company A can buy Company B’s excess credit. Through a credit exchange marketplace. Image source: Alternatively, Company A could mitigate or purchase offsets.

23 Mitigation Do something good to make up for doing something bad. Plant trees Plant winter crops Change tillage practices (to reduce fertilizer) Sequester carbon

24 Offsets Credits purchased that represent funding of mitigation and emission reductions Purchase an non-covered person’s reduction Invest money in a trust to buy more forest land Most offsets rules TBD by the EPA Will include international options Anybody wanna buy some forest in Nairobi?

25 It’s not new Kyoto Protocol – international treaty (U.S. is not a member) – member states voluntarily adopt a cap-and-trade program for CO2 – Kyoto will expire in Something will replace it….more on that later. European Union Emissions Trading System – Mandatory for members – Regulates carbon emissions Regional carbon cap-and-trade programs in U.S. – Regional Greenhouse Gas Initiative – several Northeastern states and Canadian provinces signed a compact to establish a cap and trade program. – Western Climate Initiative – Washington, Oregon, California, Arizona, New Mexico, and two Canadian provinces signed a compact to establish a cap and trade program. – *Note: Waxman-Markey would expressly supersede any state or regional cap and trade program.

26 It’s not new 1990 Clean Air Act – Established a cap and trade program for sulfur dioxide and nitrogen oxide, pollutants that cause acid rain. – Sulfur dioxide emissions are down 41% since the 1990’s – The program is generally considered quite successful – The actual cost of reduction amounted to ¼ of the predicted cost.

27 Highlights of the Waxman-Markey climate bill

28 Who are Waxman and Markey? Congressman Edward Markey (D), representing the Seventh Congressional District of Massachusetts Congressman Henry Waxman(D), representing the Thirtieh Congressional District of California

29 What it’s called Waxman-Markey aka H.R aka American Clean Energy and Security Act aka ACES

30 Highlights Sets cap on greenhouse gas emissions – Baseline: 2005 levels – 3% reduction by 2012; – 83% reduction by 2050 Establishes emission allowances – 29% auctioned first year; – 17% auctioned in 2019; – up to 70% auctioned in 2031; – rest given away

31 Other Provisions Requires utilities to have a portfolio of 20% renewable energy sources and energy efficiency by 2020 – 6% by 2012 – Washington gets 72% of its electricity from hydropower and 2% from other renewable Hydropower only qualifies as renewable if fish passage and other environmental factors are met – U.S. portfolio now: 50% coal, 20% nuclear, 15% natural gas, 6% hydropower, 6% petroleum, 2% renewable Source:

32 Other Provisions Mandates new energy efficiency standards for homes and appliances Establishes Carbon Storage Research Corporation – Created by referendum submitted to utilities – Non-governmental corporation established for research and development of carbon sequestration – Funded by mandatory assessments on utilities Anticipated budget of $1 billion per year

33 Other Provisions Gives tax credits and/or rebates to low- income electricity consumers “Cash for clunkers” provision Expanded government programs in EPA, DOE, Commodity Futures Trading Commission

34 Who voted for it? Which WA Congressmen voted for this? More like which didn’t: Doc Hastings and Cathy McMorris Rodgers. All the folks on the west side voted for it.

35 Possible Effects Economy and Environment on the

36 Effects on the Economy Increased energy costs, especially over time – Cost of purchasing allowances – Cost of meeting 20% non-carbon energy mandate by 2020

37 Effects on the Economy Widely varying estimates of impact – from $80 per household to over $3,000 per household, per year Congressional Budget Office has previously estimated that a cap and trade program for carbon would cost each household $1,600 per year

38 Effects on the Economy However, it is assumed Waxman- Markey will have less impact because – Less cost increase due to ability to purchase offsets – Revenues will be redistributed to energy consumers – Mandate: Utility providers who get free allowances must pass on the savings to consumers

39 Effects on the Economy It is critical to recognize that increased energy costs are the point of cap and trade legislation. – “Price increases would be essential to the success of a cap-and-trade program because they would be the most important mechanism through which businesses and households would be encouraged to make investments and behavioral changes that reduced CO2 emissions.” Terry Dinan, Congressional Budget Office, testifying before Congress on March 12, 2009.

40 Effects on the Economy It is critical to recognize that increased energy costs are the point of cap and trade legislation. Electricity prices would necessarily skyrocket. Barack Obama, San Francisco Chronicle interview, January Increased energy costs are the point.

41 Effects on the Economy Impacts to manufacturing – Goods will cost more to produce – Job loss – Efficiency costs Accounting Reporting

42 Effects on the Economy Cost benefit analysis appears poor – One analyst has calculated that Waxman-Markey will cost ten times more than the environmental benefits. Source:

43 Effects on the Environment Agricultural exemption problematic from environmental perspective – Agriculture responsible for approximately ¼ of nation’s GHG emissions

44 Effects on the Environment Offsets as a reduction strategy is problematic environmentally and economically – Emitters don’t have to change their behavior if they invest in carbon reduction strategies – Unlimited banking buy cheap carbon allowances now, save them for later – Availability of offsets will make carbon allowances less valuable – therefore, they will generate less revenue for government – Offsets may not result in true emissions reductions

45 Effects on the Environment Geologic sequestration – Potentially hazardous Groundwater contamination Asphyxiation – Waxman-Markey’s emphasis on geologic sequestration could actually encourage coal energy Because “clean coal” will be heavily subsidized by the government

46 Effects on the Environment Geologic sequestration – “The goal of carbon sequestration is to permanently store the carbon dioxide, permanent meaning very, very long-term, geological time periods.'' - Sally Benson, Professor, Department of Energy Resources Engineering, Stanford University. Sounds like… Yucca Mountain!

47 But, will it work? Analyst using MAGICC (U.S. Government climate modeling program) predicts that the effect of Waxman-Markey in 100 years will be … - 0.1º Celsius. This may explain why … Even Greenpeace opposed Waxman-Markey. Source:

48 Winners and Losers

49 Winners Credit Exchanges – Existing trading enterprises from Europe (Kyoto signatories) – Gore’s company – Wall Street Waxman-Markey is just first step into joining into an international cap and trade credit exchange market under the Kyoto protocol. Kyoto will expire in 2012 New global agreements will come out of Copenhagen in December 2009.

50 Winners Enviromental funds and groups will get money from companies buying offsets. Companies doing alternative energy technologies, like wind and solar “Green jobs” But, every “green job” created with government money in Spain over the last eight years came at the cost of 2.2 regular jobs, and only one in 10 of the newly created green jobs became a permanent job. Source:

51 Winners Federal Government EPA

52 Winners Agriculture – Even though U.S. agriculture is huge CO2 source – N2O (fertilizers) – Methane (livestock ) – Gets a free pass, allowed unlimited GHG emissions Regulations, if any, will come from the USDA – AND, plant mass is counted as a valuable “mitigator” Forest and farm land values will rise

53 Winners Americorp – Huge grants to study green energy jobs will probably go there. And, oh yeah…

54 Winners $25 Billion more for car companies

55 Losers

56 Coal Companies Nuclear power industry – Waxman-Markey specifically defines Nuclear power as not renewable Tech – 2% of U.S. electricity is used by data centers

57 Losers All consumers of electricity – Prices will go up, only questions are how much, and how fast

58 Alternatives to Cap and Trade Nuclear power Carbon tax Gasoline tax Or…

59 Do Nothing.

60

61 Cap and Trade: What’s the Deal? by Jeff Burkhart Liberty Lecture Series #1 Walla Walla Tea Party Patriots

62 Cap and Trade: What’s the Deal? by Jeff Burkhart Liberty Lecture Series #1 Walla Walla Tea Party Patriots


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