Carbon Markets:
Focus on RGGI
Elet Callahan
Faculty Director, Sustainable Enterprise Partnership
Professor of Law & Public Policy, Whitman School, SU
SURE
November 4, 2010
Regulatory Options
• Prescriptive regulation
• aka “command and control”
• Information-based approaches
• Market-based approaches
• Price-based: taxes
• Quantity-based: allowance trading
“Carbon Markets”
• “Carbon trading”
• Trading of GHG emissions allowances
Cap and Trade: Objectives
• Intended to promote economically efficient
achievement of emission control goals
• Reduces regulatory oversight, involvement
Cap and Trade: Mechanics
• Set aggregate limit on emissions for regulated
sources
• Create emissions “allowances” equal to the limit
• Regulated sources must have an allowance for each
unit of stuff emitted
• Allowances may be obtained by:
• Purchase
• Reduction of own emissions
• Devilish details
Plant A and Plant B each emit 100,000 tons of CO2 per year.
Plant A is able to reduce its emissions for $5 per ton. Plant B is
able to reduce its emissions for $15 per ton.
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Command & Control Approach
Mandatory 10% reduction
Cost to A: $ 50,000
Cost to B: $ 150,000
Total cost $200,000
Total reduction 20,000 tons
Plant A and Plant B each emit 100,000 tons of CO2 per year.
Plant A is able to reduce its emissions for $5 per ton. Plant B is
able to reduce its emissions for $15 per ton.
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Cap & Trade Approach
Market price for 1-ton allowance: $10
A reduces 20,000 tons, sells allowances
B does not reduce, purchases allowances
Revenue to A: $100,000
($200,000 sale - $100,000 cost to reduce)
• Cost to B: $200, 000
• Total cost $100,000
• Total reduction 20,000 tons
Plant A and Plant B each emit 100,000 tons of CO2 per year.
Plant A is able to reduce its emissions for $5 per ton. Plant B is
able to reduce its emissions for $15 per ton.
•
•
•
•
•
Command & Control
Mandatory 10% reduction
Cost to A: $ 50,000
Cost to B: $ 150,000
Total cost $200,000
Total reduction 20,000 tons
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Cap & Trade
Market price for 1-ton
allowance: $10
A reduces 20,000 tons, sells
allowances
B does not reduce,
purchases allowances
Revenue to A: $100,000
Cost to B: $200, 000
Total cost $100,000
Total reduction 20,000 tons
U.S. Regional GHG Agreements
Pew Center on Global Climate Change
RGGI
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First mandatory GHG cap-and-trade program in U.S.
Applies to fossil fuel-fired power plants
Caps CO2 at 188 million tons/year through 2014
All allowances auctioned
Proceeds used for energy-efficiency, deployment of
renewable energy, other programs
• Approximately $730 million in proceeds through
first 9 quarters
Can a regional program make a
difference?
Does cap and trade have a
future at the U.S. federal level?
111th Congress
• June 2, 2009: American Clean Energy and Security
Act of 2009 (Waxman – Markey) passed House
• Senate unable to pass comprehensive climate and
energy bill
• 113th Congress?
Plant A and Plant B each emit 100,000 tons of CO2 per year.
Plant A is able to reduce its emissions for $5 per ton. Plant B is
able to reduce its emissions for $15 per ton.
•
•
•
•
Cap & Trade Approach
Market price for 1-ton allowance: $10
A reduces 20,000 tons, sells allowances
B does not reduce, purchases allowances
Revenue to A: $100,000
($200,000 sale - $100,000 cost to reduce)
• Cost to B: $200, 000
• Total cost $100,000
• Total reduction 20,000 tons
California Proposition 23
“Suspends implementation of Air Pollution Control
Law (AB 32) requiring major sources of emissions to
report and reduce greenhouse has emissions that
cause global warming, until unemployment drops to
5.5 percent or less for full year.”