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Carbon Pricing: Options for Oregon

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Presentation by The Climate Trust's Executive Director, Sean Penrith, at the Northwest Legislators Carbon Policy Forum. Presentation includes: the basics of cap, tax and dividend; real world performance; Oregon's choices; and implications for the region and compliance with the Clean Power Plan.

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Carbon Pricing: Options for Oregon

  1. 1. Potential Policy Pathways for Oregon Sean Penrith Executive Director The Climate Trust 9/24/15 INVEST WITH PURPOSE
  2. 2. Topics • Targets • Real world performance • Oregon’s choices • Implications for the region & compliance with Clean Power Plan
  3. 3. Carbon Market and Special Purpose Fund Management Experience • Managed over $43 million in carbon financing for greenhouse gas emission reduction projects and seven national programs. • Over 18 years of experience in domestic voluntary & compliance carbon markets. History • The Oregon Legislature established the Oregon Carbon Dioxide Standard in 1997, requiring power plants to mitigate a portion of their GHG emissions. • To date, all new Oregon plants have elected to pay The Climate Trust to manage this compliance obligation. The Climate Trust is currently managing $22 million from this program. 3
  4. 4. TCT Portfolio
  5. 5. Strong Oregon Focus TMF Biofuels, Boardman OSU, Corvalis Roseburg LFG, Douglas County Astoria Committed $6,141,754 to Oregon-based digester projects forecast to deliver 741,054 credits. The projects are: 1. Farm Power Tillamook- Tillamook 2. Farm Power Misty Meadow- Tillamook 3. JC Biomethane- Junction City 4. RES Lochmead- Junction City 5. RES Oak Lea- Aumsville 6.Roseburg LFG- Roseburg 7. TMF Three Mile Canyon Farms- Boardman
  6. 6. Currently $0.50 of every dollar committed is kept in Oregon under the CO2 Std.
  7. 7. 2015 Draft Report “Oregon’s emissions in 2020 projected to be ~11 MMTe in excess of the 51 MMTe state goal established by Legislature for that year. By 2035, absent significant additional intervention, the gap (between business-as-usual emissions and a linear trajectory to the 2050 goal) is likely to exceed 30 MMTe.”
  8. 8. The Climate Trust’s carbon pricing research • Comprehensive primary and secondary peer reviewed research published 2014 [report] • Examined five existing mechanisms around the world
  9. 9. Research Context 3 concerns: • Isolation from or integration with surrounding C&T states • Alignment with state goals • Progress made towards real & credible CO2 reduction (in time) 2 research questions: • What might happen if Oregon chooses a tax? • What might happen if Oregon chooses cap & trade? C&T? C&T ? Indices tracked
  10. 10. Carbon pricing as a tool Carbon Pricing 101: Decision criteria: Does the state want certainty on price, or certainty of CO2 reductions? 1. Carbon Taxation: Regulated price on each ton of CO2 emitted, but emissions are allowed to fluctuate 2. Cap & Trade: Place a “cap” or limit on total permissible emissions, but prices per ton of CO2 are allowed to fluctuate
  11. 11. Key findings Once passed, program survivability was determined by built-in flexibility to withstand political turnover and effective holistic program design to achieve results across all indicators.
  12. 12. The Climate Trust’s carbon pricing research • Impacts on key indices: • Takeaway messages: • Design for maximum impact across all four indices • Manage revenue responsibly and link revenue to GHG reduction • Consider complimentary policies • Plan for political turnover • Begin simply and increase complexity over time • Prioritize flexibility, transparency, and validity
  13. 13. Current status of these systems: California • Emissions are down by 3.8% for covered entities • CA grew its economy 6.6% between 2010 and 2013 • C&T auction revenue passed $1.6B mark • CA attracted $21B in clean energy investment capital since signing of AB32 • 491,000 jobs added (3.3% growth; national 2.5%) • 25% of program revenue targeted at disadvantaged communities • California leads the nation with the highest total manufacturing output ($239B) of any state
  14. 14. Current status of these systems: BC • Tax has reduced emissions 5-15% depending on modeling used • BC’s economy has outperformed the rest of Canada during the time the tax has been in effect • Tax frozen at $30/ton since 2013 • Because they stopped raising the tax, revenue is falling behind – more is being returned! • $1B/year tax revenues offset other taxes, but has created doubt on environmental benefit this approach achieves Credit: Sightline Institute Sources: “BC’S CARBONTAX SHIFTAFTER FIVE YEARS: RESULTS An Environmental (and Economic) Success Story”, Sustainable Prosperity 2013 “British Columbia’s Revenue-Neutral Carbon Tax: A Review of the Latest “Grand Experiment” in Environmental Policy”, Sustainable Prosperity, Nicholas Institute at Duke University and University of Ottowa, 2015
  15. 15. Current status of these systems: RGGI • Emissions from power plants down 40% since 2010, half of this attributed directly to RGGI • Total economic gains to region of $2.9B in RGGI’s first six years • 30,200 job-years added to region in RGGI’s first six years • Total revenue raised so far over $2.2B, nearly all reinvested in clean energy, renewables, jobs, etc. • Consumers have saved a cumulative $341M on electricity and $118M on gas and oil • Most recent auction cleared at $6.02, raising $152M • 6 of 8 RGGI states subject to the CPP are set to achieve their 2030 targets by 2020! Credit: Sightline Institute Expenditure of RGGI proceeds: Sources: “The Economic Impacts of the Regional Greenhouse Gas Initiative on Ten Northeast and Mid-Atlantic States”, The Analysis Group 2011 “The Economic Impacts of the Regional Greenhouse Gas Initiative on Nine Northeast and Mid-Atlantic States”. The Analysis Group 2015 Auction results from RGGI.org, Sept. 2015
  16. 16. Current status of these systems: EU ETS • The EU grew its GDP by 45% between 1990 and 2012, while reducing emissions 19% • EU has set an emission reduction target of 40% by 2030 and has proposed changes to the ETS to help meet this goal: • Allowances will be held off the market in instances of oversupply (back loading) • Cap will decline faster after 2020 (2.2% per year) Sources: EU ETS pages of the European Commission website, http://ec.europa.eu/clima/policies/ets/index_en.htm
  17. 17. Common approaches to climate mitigation Pros Cons Regulation • Emission reduction is prioritized • More expensive than market based solutions, due to lack of abatement flexibility • Subject to repeal due to political turnover Carbon Tax • Easy to understand • May utilize existing administration structures • Emission reductions not assured • Can be regressive if designed incorrectly • Needs legislative approval to increase over time • Difficult to harmonize throughout the region Cap and Trade • Emission reductions assured • Revenue raised can be reinvested in low- carbon economic development • Cost-containment mechanisms are built in • Enables lowest cost attainment through trading • Requires effective administration and oversight • Complexity around integration with existing policies and use of revenues derived Fee and Dividend • Creates “stickiness” to prevent against repeal • Social equity is questionable if everyone receives same amount • Dividend distribution may not contribute to development of low carbon economy Sources: “Markets versus Regulation: The Efficiency and Distributional Impacts of U.S. Climate Policy Proposals”, MIT May 2014
  18. 18. Oregon’s Choices 1) Cap & Trade (HB3470): Modeled after California’s AB32 • Gives ORS 468A.205 greenhouse gas reduction goals the mandate it needs (10 % below 1990 levels by 2020 and 75 %below 1990 levels by 2050). • Applies the best available science. • Consolidates Oregon laws, rules and policies about emissions into a comprehensive framework. • Mandates emission reductions which are real, quantifiable, verifiable and enforceable. • Requires least cost implementation strategies. • Provides protections that impacts do not fall disproportionately on low income communities. • Authorizes a market-based trading and auction program similar to California law AB32. • While opponents of cap & trade argue that its complexities are a disadvantage, this same complexity may contribute to increased difficulty in repealing a cap & trade program once in place.
  19. 19. Oregon’s Choices 2) Carbon Tax (and dividend): • Sends comprehensible market-based message to consumers, people understand "tax.” • Taxation is generally perceived as easier to administer because it can utilize portions of existing tax structures. • Can choose to remits funds back to citizens designed to build support (stickiness). • Offers price certainty to aid industry planning (Note, the price of carbon under the EU ETS--the most volatile system we examined--was no more volatile than that of fossil fuels commodities like oil or natural gas). • It is notable that there are not yet any multi-jurisdictional carbon tax schemes; the complexity of writing interlocking tax code for jurisdictions within a region may have prevented this type of scheme to date. • A tax design has to contemplate pricing that will assure attainment of state’s GHG reduction goals. • Targeted reinvestment of (a portion) tax proceeds should build a clean economy/jobs.
  20. 20. Bear in mind…. • Neither C&T or tax on its own is likely to reduce emissions enough to meet the dramatic emission reduction targets needed. • California’s AB32 was never a bill specifically about cap-and-trade. It was a comprehensive bundle to meet its GHG reduction goals. • A ‘market based’ mechanism was also a requirement under AB32, though not specified. • All revenue from AB32’s cap & trade must, by law, be used to reduce greenhouse gas emissions • AB32’s decreasing cap with floor price + cost containment reserve => benefits of cap with price certainty/stability. • Some European countries, like Sweden, are using taxes as an element of complementary policy, to cover sectors not covered by cap and trade. • Good program design can shield against the risk of gaming or market manipulation.
  21. 21. Implications: Regional Market • Oregon, Washington, California, and BC have pledged to align their carbon policy efforts • Quebec announced new carbon reduction of a 37% reduction below 1990 levels by 2030, the most ambitious such target in Canada. Linking with Ontario ETS • The West Coast represents the world’s 5th largest economy • By 2017, ¼ of the world’s emissions will be priced in some form!
  22. 22. Implications: Compliance with Clean Power Plan Emission Standards Plan – state places federally enforceable emission standards on affected electric generating units (EGUs) that fully meet the emission guidelines - can be designed to meet the CO2 emission performance rates or state goal (rate- based or mass-based goal) State Measures Plan - state includes, at least in part, measures implemented by the state that are not included as federally enforceable emission standards - designed to achieve the state CO2 mass-based goal - includes federally enforceable measures as a backstop Credit: IETA and EPA • States have flexibility to design their own compliance strategies with the CPP • Choice of rate or mass based approach • Emissions trading is encouraged • Many states already exploring interstate trading programs as a method of compliance
  23. 23. Oregon can price carbon in a way that reduces emissions, contributes to low-carbon economic growth, provides well-paying jobs, and increases social equity.
  24. 24. Central closing question: Is there a time to acknowledge that a ‘competitive disadvantage’ relative to other jurisdictions pales in the face of planetary disadvantage if we continue to procrastinate?
  25. 25. THANK YOU!Sean Penrith 503-238-1915 spenrith@climatetrust.org Links: A. “An Evaluation of Potential Carbon Pricing Mechanisms for the State of Oregon” http://climatetrust.org/wp-content/uploads/2014/07/An-Evaluation-of-Potential-Carbon-Pricing-Mechanisms-for-the-State-of- Oregon.pdf B. “Achieving Carbon Revenue Leverage” https://climatetrust.box.com/s/4r9024k54fyxgbtlpufp C. Draft Oregon Global Warming Commission Report http://www.keeporegoncool.org/meeting/oregon-global-warming-commission- meeting-%E2%80%93-september-2015 D. Markets versus Regulation: The Efficiency and Distributional Impacts of U.S. Climate Policy Proposals http://globalchange.mit.edu/files/document/MITJPSPGC_Rpt263.pdf

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