1. Energy Law and Policy for a New Era Competing Energy Policies A Spectrum of Choices Jason Eisdorfer October 10, 2008

2. A spectrum of policies Complementary measures and policies can be diffuse: more directed but less integrated? A cap w/o trade can cover the electricity sector, but what about transport, IP, ag, etc.? A cap and trade can cover many sectors with some degree of integration, but at what cost? A carbon tax gives arguably the greatest coverage, but at what carbon reduction? 2

3. Complementary measures and policies Measures in the electricity sector – Renewable energy standard – Emissions portfolio standard – Feed-in tariff – Public purposes charge for e.e. and r.r. – Energy efficiency patient capital –local bonding authority – Energy performance standards – Building codes to net zero homes and businesses 3

4. Complementary measures and policies Policies in the electricity sector: utility regulation in the age of carbon – ROE not blind to type of resource; offer reward/disincentive based on resource GHG emissions – Reduce risk of recovery of IGCC investment – Reduce risk of recovery of coal plant closing – Decoupling profit from sales 4

5. Complementary measures and policies Beyond the electricity sector – Lay the groundwork for connecting the electricity and transportation sectors: plug hybrid electric cars into the electricity grid – Land use – Industrial process – Transportation – Forestry/agriculture 5

6. CAP A hard declining cap on GHG, no trading A cap is easy, trading is hard This is relatively true for the electricity sector – This is integrated resource planning on steroids Utilities have been engaged in IRPs for 25 years Not a stretch to plan retirement and replacement of high GHG emitting resources over 20 years – Electric utilities have a number of tools, ex. e.e., r.r., DSM, distributed generation, cogen, etc. Not very easy for other sectors w/ less experience and fewer reduction options 6

7. Cap and Trade Single design can cover many sectors Set a declining cap and let the market determine the price Trading allowances between sectors finds the lowest cost reductions in theory Offsets can find reductions outside the capped sectors and jurisdictions 7

8. Cap and Trade Currently in the lead politically: not a tax Significant implementation issues – Not very effective at state level; will regional do? – Where is the point of regulation (who’s covered)? – Use of offsets; standards re additionality, etc. – Distribution of allowances: auction or free or both Huge potential redistribution of wealth What to do with the revenues? – The market for allowances started on a Thursday 8

9. Carbon Tax Set the price of carbon, let the market decide the rate of carbon reduction Greatest coverage. But what is the tax that is big enough to change behavior? What other taxes are reduced? Less complicated than cap and trade theoretically, but have you ever seen the Federal Tax Code? What is the political reaction at the state/provincial level as opposed to federal? 9