1. Developments in US Climate Policies: The Effects of Cap and Trade on International Market “Comparing North American and European approaches to climate change” at Wilfrid Laurier University 09/28/2007 Toshi Arimura RFF, George Mason University and Sophia University (with Dallas Burtraw, Alan Krupnick, Karen Palmer, RFF)

2. 209/28/2007@WLU Outline 1.Developments in State/Regional Programs 1.RGGI 2.California and Western States 3.CCX 2.Developments in Federal Policy Cap and Trade Proposals in Congress 3.Concluding Remarks

3. 1.Developments in State/Regional Programs

4. 409/28/2007@WLU Backgrounds on US environmental policies  State governments often implement environmental policies before the federal government does  California is known to be the leader

5. 509/28/2007@WLU States with GHG Emissions Targets (PEW Center, Feb ‘07)

6. 609/28/2007@WLU 1.1.The Regional Greenhouse Gas Initiative （ RGGI ）  Cap and trade programs among 10 states in north eastern part of US  Electric Power Sector  Starting in 2009. Current Emission Level in 2015  10% Reduction by 2019 ( 35% reduction compared with BAU)  Banking

7. 709/28/2007@WLU RGGI

8. 809/28/2007@WLU RGGI The economy in this region amounts to 20% of US GDP

9. 909/28/2007@WLU CO 2 Cap StateCap2004StateCap2004 9 States 150.6143.3NJ22.921.1 CT10.79.8DE7.67.5 ME5.94.7MDn/a32.0 NH8.68.8MA26.726.4 VT1.20.4RI2.72.2 NY64.362.2PAn/a130.5

10. 1009/28/2007@WLU Allowance Allocation  100% auction in many states (VT, NY, ME, MA, CT) ： Contrast to EU  At least, 25% of the revenue for energy efficiency and clean technology, new technology.

11. 1109/28/2007@WLU Offset  Up to 3.23% of allocations (50% of emission reduction)  Trigger Prices  Up to 5% if the allowance prices reaches $7  10% if the price reaches $10  CDM credits or projects in other regions are permitted if the price reaches $10

12. 1209/28/2007@WLU CO 2 Prices and Impacts on Economy  Carbon Prices ： RGGI  RGGI: $5 in 2024 w/o Federal Cap  HAIKU （ RFF): $4 in 2010 and $11 in 2024  Electricity Prices  From +0.5% to +5% in RGGI model  3% in RFF model

13. 1309/28/2007@WLU Impacts on International Market  The price does not reach $10 until 2019.  The demand for CDM is limited during the Kyoto commitment period.  However, with banking, there may be demand for CDM before 2019.

14. 1409/28/2007@WLU Influences on Federal Cap and Trade Programs  RGGI can serve as a Platform for federal programs  Recent emphasis on auction in federal proposals

15. 1.2. California and Western States

16. 1609/28/2007@WLU US versus CA: Electricity Consumption per capita (CA Climate Change Portal)

17. 1709/28/2007@WLU CO 2 Emission per capita by state (CA Climate Change Portal)

18. 1809/28/2007@WLU AB32 （ California Global Warming Solutions Act ）  1990 emission level by 2020  Details are discretion to CA Air Resource Board  Market-based approach as an option.  Market Advisory Board recommend the mixture of auction and free allocation  Link to EU ETS?

19. 1909/28/2007@WLU New Movements in Western states  Cap and trade proposals among 6 western states (Arizona, California, New Mexico, Oregon, Utah and Washington ) and 2 Canadian provinces (British Columbia and Manitoba)  15 percent below 2005 levels by 2020  The western six states account for 20% of US GDP.

20. 2009/28/2007@WLU 1.3. Chicago Climate Exchange  Only existing market of GHG in US  Voluntary market  Emitters in US, Canada and Mexico  More than 50 members  Phase I(2003-2006), Phase II(2007-2010)  6% reduction in 2010  Offsets and Trade of CER

21. 2.Cap and Trade Proposals in US Congress

22. 2209/28/2007@WLU Movements in Congress  The number of bills, resolutions, and amendments addressing global climate change and GHG emissions reached 106 in the 109 th Congress  At least, 9 cap and trade proposals in the 110 th Congress  Trend  Targets in longer term  Auction (Influence of RGGI)  Convergence among proposals in 110 th Congress

23. 2309/28/2007@WLU (at least) 9 Cap and Trade Proposals (as of August 2007)  Sanders/Boxer (S309)  Feinstein/Carper (S317)  Lieberman/McCain (S280)  Kerry/Snowe (S.485)  Alexander/Lieberman (S.1168)  Bingaman/Specter (S.1766)  Waxman (H.R.1590).  Udall/Petri Draft  Lieberman/Warner Draft

24. 2409/28/2007@WLU Regulated Entities  Absolute Cap (intensity target in earlier B/S )  Scope  Electricity Sector : Feinstein/Carper, Alexander- Lieberman  Economy Wide: Others  Downstream vs. Upstream  Downstream vs Upstream + Downstream (L/M)  Discretion of EPA

25. 2509/28/2007@WLU

26. 2609/28/2007@WLU Characteristics of Allowance Allocation  Mixture of free allocation and auction.  More emphasis on auction. The share of auction increases over time (B/S &F/C)  Technology Program  Allocation to state governments

27. 2709/28/2007@WLU Example of Allocation: Bingaman/Specter  53% free to industry (with phase out);  24% auctioned to support R&D, transition assistance, adaptation; (increases to 53%)  9% to states.  14%: set aside allowances  8% for CCS (carbon capture and sequestration)  5% agricultural sequestration  1% early reduction

28. 2809/28/2007@WLU Usage of the Auction Revenue in Bingaman/Specter  The usage of auction revenue: among 24% :  12% for technology  8% for adaptation  4% for Low-Income Assistance

29. Impacts on International Markets

30. 3009/28/2007@WLU Programs for Developing Countries  Fund for low carbon technology deployment in developing countries (Bagman/Specter)  10% of allowances for technology in developing countries (Udall/Petri)  Support for low-carbon and efficiency technologies in developing countries (Sanders/Boxer)  10% auction revenue for international climate change relief measures (Lieberman/Warner)

31. 3109/28/2007@WLU International Credits/Offsets  CDM: Feinstein/Carper, Old B/S  Projects in Developing Countries: Lieberman/McCain  JI: Feinstein/Carper  Foreign credits: Bingaman/Specter, Lieberman/Warner

32. 3209/28/2007@WLU Indirect Linking to foreign markets Developing Countries: CDM projects and non-CDM projects US Federal Market RGGI CA & Western 6 States EUETS

33. 3309/28/2007@WLU US Importer Requirements (Bingaman/Specter)  Bulk, energy-intensive imports from countries w/o comparable policy require permits after 10 years.  Two cases  If a country does not have a comparable policy..  If a country has a comparable policy, then…  In either case, this requirement can increase the demand for foreign credits, CDM  Lieberman/Werner has a similar idea

34. 3409/28/2007@WLU Two Carbon Tax proposals.  Stark (H.R. 2069) : $3/CO2 ton, rising $3 annually.  Larson (H.R. 3416): $16.5/ CO2 ton, rising 10% plus inflation annually.  Tax applied to fossil fuel imports; fossil fuel exports are exempt.

35. Contrasts to EU ETS

36. 3609/28/2007@WLU Price Stability and Cost Containment  Borrowing: Lieberman/McCain, Lieberman/Werner  Safety Valve Price (B/S and U/P) $12 rising annually. (initially $7 in B/S draft)  Banking

37. 3709/28/2007@WLU Carbon Market Efficiency Board (Lieberman/Warner)  Modeled after FRB to oversea the allowance market  The board can permit more flexible borrowing in emergency to mitigate impacts to economy.

38. 3809/28/2007@WLU Technology Programs  Mixture with other regulatory approach  Revenue of the auction for technology program  Carbon Capture Sequestration ： B/S  Fund for geological sequestration (S/B)  Zero emission clean coal Generation (F/S)

39. 3909/28/2007@WLU Other Regulation  Cap and trade proposal with other regulatory measures  Energy Efficiency (S/B, K/S)  RPS （ K/S)  Vehicle Emission Standard （ S/B,K/S ）

40. 4009/28/2007@WLU Carbon Price and Impacts to Economy Udall/Petri (109 th Congress) EIA Lieberman/ McCain EIA Bingaman/Specter NCEP Emission Cap Based on the average emissions from the previous three years before the bill 2004 level in 2012. 1990 level in 2020. 20% below 1990 level in 2030. 2012 level in 2012. 2006 level by ’20. 1990 level by ’30 Price ($2005/ CO2 TOE) Reach Safety Valve price $6.76 in 2018 $14 to $31 in 2020. $31 to $58 in2030 $5.5in 2012. $24 in 2030 GDP-0.16% to -0.21% in 2030. -0.3% to -0.5% in 2030 +0.12% in 2030 Electricity Price +5.66% to +6.34% in 2020 + 10% in 2020 +21% in 2030 +7% in 2020

41. 4109/28/2007@WLU 3. Concluding Remarks  Despite the deviation from Kyoto Protocol, the state governments are starting cap and trade programs  Discussion on federal level cap and trade programs  Despite the lack of an international agreements, the US markets will be indirectly linked to cap and trade programs in international markets.

42. Some extras if time left

43. 4309/28/2007@WLU Programs for Low Income People  Funds and incentives for mitigating effects on poor (L/W, L/M)  Energy Assistance Fund: up to $6 billion per year (auction revenue) to low income households (B/S)

44. 4409/28/2007@WLU Domestic Offsets  Agricultural and Biological sequestration. (Feinstein/Carpe, Lieberman/McCain, Sanders/Boxer, Kerry/Snowe)  Experience in CCX

45. 4509/28/2007@WLU Credits for Early Actions  1% allowance allocation from 2012 to 2020 (Bagman/Specter)  Credit for reductions before 2012 (Lieberman/McCain )  Goal to “recognize and reward early reductions” (Kerry- Snowe)  8% of allowances for early action in 2012, phasing to zero in 2020 (Lieberman/Warner)  Credit for reductions from 2000-2010, limit 10% of cap (Feinstein/Carper)  Bonus allowances to first 30 new or modified coal-fired utilities meeting new performance (Alexander/Lieberman)

46. 4609/28/2007@WLU New Entrants  Pool of allowances for new entrants employing clean and efficient technology (Bingaman/Specter)

47. 4709/28/2007@WLU Adaptation  Fund to provide adaptation assistance for workers and communities and to help mitigate effects of climate change on fish and wildlife habitats (F/C )  Allowances to mitigate economic costs of the act (L/M )  Allowances to communities and companies that are disproportionately adversely affected by global warming or the transition to a lower carbon economy (S/B )  Funds for adaptation (L/W, K/W)  Climate Adaptation Fund (including wild life conservations) (B/S)