Ca cap and trade presentation


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  • Image to give you a general idea on how cap and trade works.
  • CO – carbon monoxide, NO2 –nitrogen dioxide, SO2 sulfur dioxide, Hydrocarbons (CH4 – methane and C3H8 - propane), particulate matter (PM such as NO-3 - nitrate and SO2-4 - sulfate), and photochemical oxidants (O3 – ozone)
  • Command and control criticized for being too rigid, inefficient, and not sensitive to the technological disparities and geographic differences in industry throughout the country.Therefore allowance trading was Allowance trading essentially ended in 2010 when EPA issued the Transport Rule.
  • Emissions credits were distributed per year to sum of about 8.95 million tons of SO2 per year.110 plants required to reduce SO2 emissions by 2.5 lbs/million British Thermal Units in phase 1The remainder had to reduce SO2 emissions by 1.2 lbs/million British thermal units in Phase 2
  • Ohio Valley – epicenter for manufacturing reduced acid rain as shown.
  • The European Union took note of the implementation of the acid rain program and initiated emissions trading for carbon and other GHG.In 1992, countries joined an international treaty, the United Nations Framework Convention on Climate Change,Gorge W. Bush actually de-signed the legally binding emissions trading agreement that Al Gore signed.
  • Just like the acid rain program it establishes overall caps and credits to change but on a much more complicated basis. EU ETS – Target power producers and energy-intensive manufacturers.Cap-and-trade system on major energy producing and consuming manufacturers to reduce 40 percent of the GHG emissions in the European UnionJI – Annex 1 invests tech in Annex 1 or 2 for Emissions Reduction Units (ERUs)CDM – Annex 1 invests tech in developing country for Certified Emissions ReductionsJoint implementation (JI) under Article 6 provides for Annex I Parties to implementprojects that reduce emissions, or remove carbon from the atmosphere, in other Annex IParties, in return for emission reduction units (ERUs).The Clean Development Mechanism (CDM) defined in Article 12 provides for Annex IParties to implement projects that reduce emissions in non-Annex I Parties, or absorbcarbon through afforestation or reforestation activities, in return for certified emissionreductions (CERs) and assist the host Parties in achieving sustainable development andcontributing to the ultimate objective of the Convention.Emissions trading, as set out in Article 17, provides for Annex I Parties to acquire unitsfrom other Annex I Parties. These units may be in the form of AAUs, removal units(RMUs), ERUs and CERs.AAUs, RMUs, ERUs and CERs are the basic accounting units of the “assigned amount”of each Annex I Party referred to in the provisions of Article 3 of the Protocol. Each unit isequal to one metric tonne of emissions (in CO2-equivalent terms). AAUs are issued onthe basis of the assigned amount pursuant to Article 3.7 and 3.8 while RMUs are issuedon the basis of land use, land-use change and forestry (LULUCF) activities (oftenreferred to as “sinks”) under Articles 3.3 and 3.4. In accordance with Article 3.10 and3.11, the issuance of ERUs results in the cancellation of either AAUs or RMUs, in orderthat no overall impact on a Party’s assigned amount is felt. Finally, CERs are theadditions to assigned amount referred to in Article 3.12.Source: Based on UNFCCC text ( (from Allen Consulting Group and UNFCCC text)IET – Annex 1 pays for Annex 1 or 2’s emissions credits
  • Over supply of permits and credits can lead to price collapse.Just the same: Lack of demand for permits due to recession can also depress price.
  • Regulated entities forced to remit their allowances based on what they used.
  • 2009 was the peak. Recessions are good for green house gas emissions due to lower productivity.
  • 2009 was the peak. Recessions are good for green house gas emissions due to lower productivity.
  • 2009 was the peak. Recessions are good for green house gas emissions due to lower productivity.
  • 2009 was the peak. Recessions are good for green house gas emissions due to lower productivity.
  • 2009 was the peak. Recessions are good for green house gas emissions due to lower productivity.
  • Similar to the way they manipulate currency. Or corporations do stock repurchase.Even in a global recession, there are regions that do still prosper and produce. But that tax won’t necessarily bring in more revenue. Rather businesses will adjust to meet their growth targets, even if it means lower productivity (good for environment, bad for private sector jobs)
  • Ca cap and trade presentation

    1. 1. California Cap and Trade Lessons from Kyoto for the Future David Ulrick Fanfan July 25, 2013
    2. 2. A Great Unifier • "We're in one world. We've got one big problem and we'll all have to work on it. And what's beautiful and exciting about climate change is no one group can solve the problem - not the United States, not California, not Japan, not China - we all have to do it. This is a great unifier." California Gov. Jerry Brown – UC Berkeley Class of 1961
    3. 3. Contents History and Background Kyoto Emissions Trading System California Cap and Trade Linkage and Moving Forward
    4. 4. History and Background - Executive order by U.S. President Richard M. Nixon to form the the United States Environmental Protection Agency (EPA). The EPA’s mandate was to set standards on the emissions of CO, NO2, SO2, Hydrocarbons (CH4 and C3H8), particulate matter (PM such as NO-3 and SO2 -4), and photochemical oxidants (O3)
    5. 5. History and Background – cont. - Command-and-control approach did not provide the environmental certainty necessary for serious carbon reductions. - U.S. President George H. W. Bush proposed legislation that would establish the acid deposition control. To reduce NO2 and SO2 by 50% of 1980 levels by 2000 through a market based initiative. EMISSIONS TRADING
    6. 6. History and Background – cont. - Caps took effect in 1995 - Phase 1 – started in January 1, 1995 (identified 110 power generating plants) - Phase 2 – started in January 1, 2000 (all fossil fired units)
    7. 7. History and Background – cont. - The first emissions trading program was remarkably successful in accomplishing environmental goals. - Reduced acid rain concentrations by over 50% in just 10 years.
    8. 8. Kyoto – European Union Emissions Trading System - U.S. President George H. W. Bush signs international treaty - countries will consider how to limit the rise in global temperatures and the resulting climate change. – Rio Earth Summit 1992 On December 11, 1997, UNFCCC adopts the Kyoto Protocol in Kyoto, Japan. – signed by U.S. Vice President Al Gore. Under U.S. President George W. Bush, The United States refused to ratify thus removing the world’s largest carbon polluter at the time from the agreement.
    9. 9. Kyoto – European Union Emissions Trading System - Caps and credits just like Acid Rain program - Countries and their historical role in carbon pollution were identified rather than just power generation plants. • Divided into Annex 1, Annex 2 with binding targets, • Developing countries with non-binding targets Flexible Mechanisms Joint Implementation: Annex 1  Annex 1 or 2 Clean Development Mechanism: Annex 1  Developing Country International Emissions Trading: Annex 1 TRADES with Annex 1 or 2
    10. 10. Kyoto – European Union Emissions Trading System Noticeable drop in carbon emissions since implementation. (Some blame recession)
    11. 11. Kyoto – European Union Emissions Trading System Others call it a failure because China and developing nations increased pollution.
    12. 12. Kyoto – European Union Emissions Trading System - Trade allowed on the secondary markets into investment portfolios. - Flexible mechanisms led to even greater COST UNCERTAINTY. - Price of 1 ton of Carbon Dioxide did not prove profitable for investors although environmental goals were achieved. - Price collapse when excess of permits revealed (BLUE) - Sensitive to global recession that brought demand down. (RED)
    13. 13. Kyoto – European Union Emissions Trading System
    14. 14. California Cap-and-Trade: Lessons Learned - Same as before: Caps, credits, emissions trading between polluters and pollution reducers. - Reduce total GHG to 1990 levels by 2020. - Compliance took effect January 2013 – large electrical power plants and large industrial plants. In 2015 extends to fuel distributors. - Covers 360 businesses and 85% of the California’s GHG emissions. - Differences from KYOTO: - Limited to regulated emitters on the open market. And banks as participating entities for future use. - Credits allocated based on normal business’s operating production rather than historical pollution (which rewarded the heaviest emitters) - Stricter compliance officers for verifying offset projects. - Establishes price floor of $10 with 5% over inflation increase annually. - Set limits on the amount of offsets can be used (8%)
    15. 15. California Cap-and-Trade: - cont. MMT CO2e = Million Metric Ton of Carbon Dioxide Equivalent 2009 was the peak – total emissions started decreasing since then.
    16. 16. California Cap-and-Trade: - cont. Ref. California Cap and Trade Program Summary – Center for Climate and Energy Solutions Jan. 2013
    17. 17. California Cap-and-Trade: - cont. Ref. California Cap and Trade Program Summary – Center for Climate and Energy Solutions Jan. 2013
    18. 18. California Cap-and-Trade: - cont. Ref. California Cap and Trade Program Summary – Center for Climate and Energy Solutions Jan. 2013
    19. 19. Linkage and Moving Forward Main problem with linkage is the uncertainty in the price of carbon dioxide. Policy and regulation differences can easily be considered when looking for price conversion factors among regional cap and trade programs. Cost abatement factors for corporate entities and businesses is a major factor in the price sensitivity for CO2. Therefore focusing linkage on manipulating the price is key. Recommendation
    20. 20. Linkage and Moving Forward – cont. Federal governments and international organizations (UN, Arab League, etc.) with advice from knowledgeable personnel in their respective central banks should be allowed to purchase those credits for conversion into other cap- and trade-programs based solely on monetary value. Will bring outside revenue to the State especially in times of recession. - Subject to currency risk (Downside) Price floor at $10 brings some form of economic certainty similar to a carbon TAX.