Carbon Strategies in the U.S. 2001-2009


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Carbon Strategies in the U.S. 2001-2009

  1. 1. <ul><li>Carbon Mitigation: The U.S. Voluntary Approach vs. the European Emissions Trading Scheme </li></ul>Andrew Collier Carlos Rymer Hao Zh u ang Kubilay Kavak Environmental Strategies Spring 2007
  2. 2. Agenda <ul><li>Global Climate Change </li></ul><ul><li>The US Voluntary Approach </li></ul><ul><li>-Overview </li></ul><ul><li>-Advantages and Disadvantages </li></ul><ul><li>The European Union Emissions Trading Scheme </li></ul><ul><li>-Overview </li></ul><ul><li>-Advantages and Disadvantages </li></ul><ul><li>Discussion </li></ul>
  3. 3. Why Address Greenhouse Gas Emissions (GHGe)? <ul><li>The rapid increase in the global mean temperature has been largely due to the buildup of GHGs in the atmosphere. </li></ul><ul><li>-Projections indicate that during the 21st century, global climate change will: </li></ul><ul><ul><li>Raise sea levels (affecting millions) </li></ul></ul><ul><ul><li>Shift ecosystems (causing major extinctions) </li></ul></ul><ul><ul><li>Melt existing glaciers (affecting agriculture) </li></ul></ul><ul><ul><li>Desertify arid regions </li></ul></ul><ul><ul><li>Intensify rainfall in certain areas </li></ul></ul><ul><ul><li>Bleach coral reefs </li></ul></ul><ul><ul><li>Disrupt economic activity (significantly) </li></ul></ul>
  4. 4. Some Strong Evidence
  5. 5. Some Strong Evidence
  6. 6. - There are many causes of global warming, but the most important of them is fossil fuels. 21 st Century Projections
  7. 7. Kyoto Protocol - In 1997, industrialized nations began ratifying the Kyoto Protocol. - In 2001, the U.S. pulled out of the treaty, claiming it would hurt its economy. - The United States established a policy whereby GHGe could be voluntarily reduced. - The Kyoto Protocol entered into force on February 16th, 2005.
  8. 8. The U.S. Voluntary Approach - The Bush Administration has set a goal of reducing the nation’s GHG intensity by 18% by the year 2012 on a voluntary basis. <ul><li>- The approach is based on the following: </li></ul><ul><ul><li>√ Established partnerships, </li></ul></ul><ul><ul><li>√ Funding R&D for clean energy technologies, </li></ul></ul><ul><ul><li>√ Promoting scientific research, </li></ul></ul><ul><ul><li>√ Increasing fuel economy standards, </li></ul></ul><ul><ul><li>√ Providing tax incentives for renewable energy </li></ul></ul><ul><ul><li>and energy efficiency, and </li></ul></ul><ul><li>√ Establishing a voluntary GHG registry </li></ul>
  9. 9. Partnerships and Voluntary Programs <ul><li>Government agencies and the Administration have partnered with industries and companies to reduce GHG intensity. These include: </li></ul><ul><ul><li>√ ClimateVISION </li></ul></ul><ul><ul><li>√ Climate Leaders </li></ul></ul><ul><ul><li>√ SmartWay Transport </li></ul></ul><ul><ul><li>√ Energy Star </li></ul></ul><ul><ul><li>√ Asia-Pacific Partnership in Clean Development and Climate </li></ul></ul>
  10. 10. Carbon Offsets Market <ul><ul><li>- To facilitate voluntary GHGe reductions, a voluntary market for carbon offsets has emerged. </li></ul></ul><ul><ul><li>- Under this market, individuals or companies can purchase carbon credits. </li></ul></ul><ul><ul><li>- Carbon credits fund the creation of additional projects that reduce GHGe. </li></ul></ul>
  11. 11. Questions to Consider <ul><li>What are the primary advantages of President Bush’s voluntary policy to reduce carbon emission intensity by 18%? </li></ul><ul><li>What are the disadvantages of this approach? </li></ul><ul><li>What kind of adjustments are needed? </li></ul>
  12. 12. Climate VISION <ul><li>From Interview with Stephen Eule, Director Office of Climate Change Policy, U.S. Department of Energy </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>Cost-effective </li></ul></ul><ul><ul><li>Preparation & Credit </li></ul></ul><ul><ul><li>Responsible Corporate Citizen </li></ul></ul>
  13. 13. Future Mandatory Policy? <ul><li>“ Prediction is very difficult, especially about the future.” (Niels Bohr) </li></ul><ul><li>“ I’ll have to gaze into my crystal ball here…the good thing about my job is that I don’t have to gaze into a crystal ball. I’m just going to leave that question be.” </li></ul>
  14. 14. Climate VISION, Electric Power <ul><li>Larry Mansueti, Federal Agency Leads, Department of Energy </li></ul><ul><li>Advantages : </li></ul><ul><ul><li>Preparation & Experience </li></ul></ul><ul><ul><li>May Delay Need for Mandatory Policy </li></ul></ul><ul><ul><li>Research Developments & Technologic Advances </li></ul></ul>
  15. 15. <ul><li>Disadvantages </li></ul><ul><ul><li>No Guarantee It Will Work </li></ul></ul><ul><ul><li>Uninterested Congress </li></ul></ul><ul><li>Science vs. Ethics </li></ul><ul><ul><li>Impact Citizens Greatly </li></ul></ul><ul><ul><li>Leave Decision Up to Congress </li></ul></ul>Drawbacks
  16. 16. Climate Leaders <ul><li>From Interview with Jim Sullivan, Climate Leaders, U.S. Environmental Protection Agency </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>Allows companies to look for cost effective strategies across all operations - even internationally, whereas, a mandated program would be limited to just what is mandated </li></ul></ul><ul><ul><ul><li>Freedom to create change </li></ul></ul></ul><ul><ul><ul><li>Broader Coverage </li></ul></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>“ As part of the administration, I can’t say anything about that.” </li></ul></ul><ul><ul><li>Coverage: Many companies under the voluntary policy are not taking action </li></ul></ul>
  17. 17. Climate Leaders (continued) <ul><li>Number of Climate Leaders Partners: 109 </li></ul><ul><li>Number of Partners with publicly announced greenhouse gas (GHG) reduction goals: 59 </li></ul><ul><li>Number of Partners who have achieved their goal: 5 </li></ul><ul><li>EPA estimates that GHG reductions by Climate Leaders Partners will prevent over 10 million metric tons of carbon equivalents per year. These reductions are equivalent to the annual emissions of nearly 7 million cars. </li></ul>
  18. 18. <ul><li>The combined U.S. annual GHG emissions of Climate Leaders Partners represent more than 8 percent of total annual U.S. GHG emissions. </li></ul><ul><li>More than 50 percent of the organizations that partner with EPA in Climate Leaders are members of the Fortune 500. Total annual revenue of Climate Leaders Partners represents over 9 percent of the U.S. Gross Domestic Product (2005). </li></ul>
  19. 19. Summary of Advantages <ul><li>Green Business Image </li></ul><ul><li>National Green Stewardship & Responsibility </li></ul><ul><li>Technological Development </li></ul><ul><li>Tax Incentives for Renewable Energy, Hybrid Vehicles, and Deployment Partnerships </li></ul><ul><li>USDA Incentives for Sequestration </li></ul><ul><li>Conservation of Tropical Forests and Land-sinks </li></ul>
  20. 20. Summary of Disadvantages <ul><li>Emissions Are Not Actually Decreasing </li></ul><ul><li>“ Rich-gentleman’s Club?” </li></ul><ul><li>Lack of Regulatory Pressure </li></ul><ul><li>Emissions to grow 11% above 2002 levels by 2012. </li></ul><ul><li>Offsets & Land-sinks </li></ul><ul><ul><li>Additionality </li></ul></ul><ul><ul><li>Permanence </li></ul></ul><ul><ul><li>Leakage </li></ul></ul>
  21. 21. What Should be the Focus? Renewable Energies? Science? Technology? Transportation? Taxation? Mandates? Government Support? Education?
  22. 22. European Union Emission Trading Scheme (EU-ETS) <ul><li>180 countries signed the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 </li></ul><ul><li>Kyoto Protocol signed 1997, come into effect in Feb. 16, 2005, and EU established ETS. </li></ul><ul><li>EU-ETS is the first large-scale greenhouse gas (GHG) emissions trading program in the world. </li></ul><ul><li>Covers around 12,000 installations in 25 countries and 6 major industrial sectors </li></ul><ul><li>Represents half of total CO 2 emission from EU-25 countries </li></ul>
  23. 23. Timeline for EU-ETS <ul><li>The first phase (2005-2007): </li></ul><ul><ul><li>Focuses only on CO 2 and on a range of large installations in key industrial sectors. </li></ul></ul><ul><ul><li>The overall cap is made up of individual country caps set by each nation’s national allocation plan (NAP). </li></ul></ul><ul><li>The second phase (2008-2012) </li></ul><ul><ul><li>Involves tighter overall caps (in line with wide target under Kyoto Protocol) </li></ul></ul><ul><ul><li>May be expanded to other GHGs, additional sources, and more sectors </li></ul></ul>
  24. 24. Structure (continue) <ul><li>Monitoring </li></ul><ul><ul><li>Registry banking system exists for 25 nations </li></ul></ul><ul><li>Compliance </li></ul><ul><ul><li>fines exists for non-compliance (40 Euro/TCO2 ,2005-2007; 100Euro/TCO2 from 2008 onwards) </li></ul></ul><ul><li>Banking allowance </li></ul><ul><ul><li>Banking of excess reductions (i.e., allowances) for future years is allowed within the first compliance period </li></ul></ul>
  25. 25. “ F lexible Mechanisms” Under Kyoto: CDM / JI <ul><li>P roject-based credit-trading mechanisms </li></ul><ul><li>P ermit Annex B countr ies to earn credits by engaging in a project that helps another party decrease its GHG emissions </li></ul><ul><li>CDM : industrialized countries vs. developing countries </li></ul><ul><li>JI : industrialized countries vs. industrialized countries </li></ul><ul><li>During first phase, no limit on CDM credits </li></ul><ul><li>For second phase, each NAP should decide how many JI and CDM credits it will be allowed </li></ul>
  26. 26. CDM, PDDs by Volume, Mt 0 100 200 300 400 500 600 700 China India Brazil Korea South Africa Mexico Argentina Nigeria Chile Thailand PointCarbon. Nov. 2006
  27. 27. JI PDDs by Volume, MT 0 5 10 15 20 25 30 35 40 Germany Russian Federation Ukraine Romania Bulgaria Czech Republic Hungary Poland New Zealand Estonia Slovakia Lithuania PointCarbon. Nov. 2006
  28. 28. Advantages of the ETS A trading market has some general advantages: <ul><li>Flexibility of pollution sources to reduce their emissions </li></ul><ul><li>Inducing the lowest overall cost </li></ul><ul><li>Pressure on emission quantity </li></ul><ul><li>Adjustable to inflation or sudden fluctuation in economy </li></ul><ul><li>Superior to pollution tax in many ways </li></ul>
  29. 29. Advantages of the ETS (Cont.) Specifically the ETS has the following advantages: <ul><li>Possibility for creating a low transaction cost and a high volume market </li></ul><ul><li>Stiff penalties (much greater than permit prices) </li></ul><ul><li>Avoiding difficulty of enforcing a tax system in the EU due to different economic structures among nations </li></ul><ul><li>Bankable permits for CDM projects (can also be seen as a disadvantage!) </li></ul><ul><li>The transparency in monitoring and reporting, and third-party certification </li></ul>
  30. 30. Disadvantages of the ETS <ul><li>Only-CO2 coverage during first phase / potential danger of shifting to other GHGs </li></ul><ul><li>Emissions from transportation are not covered </li></ul>√ Between 1990 and 2003, EU-15 GHG emissions from domestic transport increased by 24 % √ Emissions from domestic transport are projected to increase by 31 % from 1990 levels by 2010 √ The average CO 2 emissions of new passenger cars were reduced by about 12 % from 1995 to 2003, but 16 % more cars were sold in the same period and offset any efficiency gains
  31. 31. Disadvantages of the ETS (Cont.) <ul><li>Complicated governmental decision-making </li></ul><ul><li>Fear about generous initial allocations </li></ul><ul><li>Distrust between member states for installation coverage </li></ul>
  32. 32. Disadvantages of the ETS (Cont.) <ul><li>Risk of political pressure over the national governments </li></ul><ul><li>Allocation method: limited auctions </li></ul><ul><li>Complex registry system to administer: Possible rise in transaction cost </li></ul>
  33. 33. Disadvantages of the ETS (Cont.) <ul><li>Critiques for CDM and JI : Verification, monitoring, and scientific uncertainty </li></ul><ul><li>Limited availability of CDM projects </li></ul>
  34. 34. Recommendations for ETS as a Strategy <ul><li>Transportation </li></ul><ul><ul><li>The major source of GHG emissions in Europe </li></ul></ul><ul><ul><li>Vehicle sales have risen by 34% since 1990 in Europe </li></ul></ul><ul><ul><li>Political opposition & economic constraints </li></ul></ul>
  35. 35. Recommendations for ETS as a Strategy <ul><ul><li>Government agreement to significantly reduce GHG emissions </li></ul></ul><ul><ul><li>Government involvement in making the rules </li></ul></ul><ul><ul><li>Intervention from government as supplementary approach: taxation, subsidies </li></ul></ul><ul><li>Governments’ Commitment </li></ul>
  36. 36. Recommendation for ETS as a Strategy <ul><ul><li>Secure Reporting System </li></ul></ul><ul><ul><li>Science-Backed Reductions </li></ul></ul><ul><ul><li>Check System on Compliance </li></ul></ul><ul><ul><li>Avoidance of Countries with no Enforcement </li></ul></ul><ul><li>Effective Monitoring </li></ul>
  37. 37. EU-ETS <ul><li>R educe CO2 emissions by 8% by 2012 </li></ul><ul><li>R egistry : mandatory -based </li></ul><ul><li>Advantages: has quantifiable impacts on GHG emissions ; providing incentives for a much faster transition to new technologies </li></ul><ul><li>Reduce GHG intensity by 18% by 2012 </li></ul><ul><li>R egistry : voluntary-based </li></ul><ul><li>Advantages: receiving experience, and prepare for more stringent reduction goals </li></ul>Comparison of Approaches US voluntary
  38. 38. Discussion Topics <ul><li>Cultural Differences: U.S. vs. Europe </li></ul><ul><li>Rich Gentleman’s Club </li></ul><ul><li>Taxation </li></ul><ul><li>Domestic vs. International Carbon Trading </li></ul>
  39. 39. Questions? Note : We apologize if the pictures below offend anyone in the audience.