Jonathan Pershing Director, Climate, Energy and Pollution Program World Resources Institute Context Setting: United States IISD-WRI Workshop Exploring the Challenges and Opportunities for Establishing a North American Emissions Trading System November 14-15, 2007

2 US Emissions State Action Regional Action Federal Action Business Action Looking Forward Key Points

3 US Emissions

GHG Emissions Source: IPCC, AR4, 2007

US GHG Emissions Source: WRI, Submission to US Senate, April 2006

US Emissions by Gas Source: USEPA: April 2007, US GHG Inventory

State GHG Emissions

State Per Capita Emissions

9 State Action

States with Biofuel Mandates Source: WRI, CAIT Ethanol Mandates Biodiesel Mandates

Renewable Energy Mandates Source: Pew Climate Center

Stakeholder initiatives on climate change States with climate change advisory groups or commissions, by initiator Legislature Governor/Agency NGO 2006

Stakeholder initiatives on climate change are becoming the norm States with climate change advisory groups or commissions, by initiator Legislature Governor/Agency NGO 2007

Climate Action Plans Source: Pew Climate Center, July 2007

States with GHG targets: 30% of US Emissions CA: 2000 levels by 2010; 1990 levels by 2020; 80% below 1990 levels by 2050 FL: 2000 levels by 2017; 1990 levels by 2025; 80% below 1990 levels by 2050 IL: 1990 levels by 2020; 60% below 1990 levels by 2050 NJ: 1990 levels by 2020; 80% below 2006 levels by 2050 HI: 1990 levels by 2020

State action will reduce national emissions Business as Usual (99% above 1990 levels) U.S. emissions if all current state targets are met (56% above 1990 levels)

Key states to watch: Alaska –Observer to Western Climate Initiative (WCI) –Hard hit by climate change, big oil state Florida –Considering joining Regional Greenhouse Gas Initiative (RGGI) –GHG targets on par with California Illinois –Big coal, corn state –Governor strongly considering cap and trade Utah –Big coal state –Participant in WCI, legislature not behind Governor

18 Regional Action Linking State Programs

The Climate Registry today: Uniform GHG reporting across 40 states

States involved in emissions trading program/design Regional Greenhouse Gas Initiative (and observers) Western Climate Initiative (and observers) State-based GHG trading is expanding

10 States Power Plants Emissions source- based like EU ETS Stabilize emissions through 2014; 10% Reduction by % Below 1990 Levels by 2019 NE Regional Greenhouse Gas Initiative Source:

Quantitative Limit on Offsets: The RGGI “Offsets Valve” –Initial 3.3% limit on offset use –$7 trigger increases to 5.0% –$10 trigger increases to 10% Offsets—5 Initial Types with Clear Requirements : –Natural Gas, Propane, Heating Oil Efficiency; –Land to Forest; –Landfill Gas Capture & Combustion; –Methane Capture from Animal Operations; & –SF 6 Leak Prevention. –Add additional types over time as appropriate. Geography: Initially inside the United States; but recognition of CDM Offset Credits above $10 RGGI Offsets

Allocations –States agreed to propose minimum 25% “public benefit allocation” in MOU –Most states will auction 100%, including Connecticut, Maine, Massachusetts, New Jersey, New York, and Vermont –Delaware, Maryland, New Hampshire, & Rhode Island yet to decide Auction Design in Progress RGGI Allowance Distribution

3-year compliance period. Emissions from combustion of sustainably harvested biomass or bio-fuel not subject to compliance requirement. No cost-containment mechanism beyond offsets component Linking with other mandatory caps desired Other RGGI Features

Legislation in 5 of 10 States Rulemakings underway Program Launches January 2009 First Auction in 2nd Quarter 2008 RGGI Status

RGGI Update: Is the cap tight enough? RGGI region emissions by state Source: PointCarbon Emissions drop 20 million tons below 2009 cap

Emissions drop largely due to high oil prices Annual emissions variability in the RGGI Region

Western Climate Initiative 6 U.S. States + 2 Canadian Provinces-- AZ, CA, NM, OR, WA, UT, BC & MB Observers include: Colorado, Idaho, Kansas, Nevada, Wyoming, Ontario, Quebec; Saskatchewan; Sonora, Wyoming August 2007: regional reduction goal August 2008: design of a “regional market- based, multi-sector mechanism”

WCI member requirements and goals Requirements –Economy-wide GHG reduction goal –Multi-sector action plan to meet goal –Climate Registry membership –Adoption of CA vehicle standards Goals –Set regional GHG reduction target –By 2008, establish a multi-sector cap and trade program to help meet the goal

Aug. 07: WCI set regional target 15% below 2005 levels by % below BAU 15% below 2005 levels

Key Considerations for WCI “Multi-sector” Cap-and-Trade--will sectors be phased in? Electricity sector--will WCI take an emissions-source approach, a load- based approach, or a hybrid approach? How will offsets be incorporated into the program design?

The Midwest is a big emitter Midwest India GHG Emissions = 1.8 billion tonnes CO2e 27% of U.S. GHG emissions 5% of global GHG emissions 24 votes in the Senate 100 votes in the House of Representatives

Midwest Governor’s Association is poised to jumpstart regional action Midwest Governor’s Association Energy Summit: November in Milwaukee Focus on regional initiatives for biofuels, energy efficiency, renewables and CCS Regional agreement to set GHG targets and construct a Midwest cap and trade program is on the table Gov. Jim Doyle (D-WI) MGA Chair Gov. Tim Pawlenty (R-MN) MGA Former Chair

Midwest states played a key role in Climate Registry development ECR CCAR WRAP LADCO

Potential linking of state emissions trading programs Regional Greenhouse Gas Initiative (and observers) Western Climate Initiative (and observers) Midwest could link state efforts, increase pressure on Washington Midwest Governor’s Initiative (and observers)

Midwest action could double state GHG reductions Business as Usual (99% above 1990 levels) U.S. emissions if all current state targets are met (56% above 1990 levels) U.S. emissions with Midwest action (13% above 1990 levels)

37 Federal Action

Popular Opinion Is Shifting

110 th Congress: Climate Bill Comparison Lieberman-Warner

Lieberman Warner: The Bill to watch Potential emission reductions under S. 2191

Allocation distribution under S and beyond

Auction allocation distribution (percent of total allocations)

State allocation distribution (percent of total allocations)

Winning and Losing States Per capita allocations: power plants and & covered industry sources only Per Capita TCO2e U.S. National Average = 7.39 State per capita allocation is higher than national average State per capita allocation is lower than national average CA NY CT Source: Clean Air Watch analysis NJ

45 Business Action

USCAP Proposal Call for a cap and trade program Establishment of a national GHG inventory and registry Credit for early action Aggressive technology research and development Policies to discourage new investments in high-emitting facilities Policies to accelerate deployment of zero and low-emitting technologies and energy efficiency Alcan Inc. Alcoa American International Group, Inc. (AIG) Boston Scientific Corporation BP America Inc. Caterpillar Inc. Chrysler LLC ConocoPhillips Deere & Company The Dow Chemical Company Duke Energy Natural Resources Defense Council The Nature Conservancy NRG Energy, Inc. PepsiCo Pew Center on Global Climate Change PG&E Corporation PNM Resources Shell Siemens Corporation World Resources Institute Xerox Corporation DuPont Environmental Defense Exelon Corporation Ford Motor Company FPL Group, Inc. General Electric General Motors Corp. Johnson & Johnson Marsh, Inc. National Wildlife Federation US CAP Members’ Market Capitalization: ~$2 trillion

USCAP Recommended Reductions

48 Looking Forward

The Democratic Presidential Candidates Obama 80% reduction by % auction Co-sponsor of Sanders-Boxer Co-sponsor of Lieberman- McCain in 2007 Clinton 80% reduction by % auction Co-sponsor of Sanders-Boxer Co-sponsor of Lieberman - McCain in 2007

The Republican Presidential Candidates McCain Authored bill to reduce emissions 65% by 2050 First high-profile Republican to address climate change (2003 bill with Lieberman; re- introduced in 2005 and 2007) Has made climate change among top three campaign issues Giuliani Has not ruled out cap and trade but prefers voluntary measures Has said he believes the earth is warming, but has not said definitively that humans are causing it Romney Willing to consider a cap only if enacted globally Introduced climate plan as Gov of MA to reach a goal of 1990 levels by 2010 (largely voluntary) Withdrew MA from RGGI in 2005 due to cost concerns

Issues to Watch Additional state policies Multi-state “national” climate registry--”The Climate Registry” Midwest Regional Potential WCI design How do state efforts inform the federal debate in Washington, DC? –Preemption? –Derogations? International processes, including ICAP, EU- ETS and UNFCCC

Jonathan Pershing World Resources Institute