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.

1. Potential Policy
Pathways for Oregon
Sean Penrith
Executive Director
The Climate Trust
9/24/15
INVEST WITH PURPOSE

2. Topics
• Targets
• Real world performance
• Oregon’s choices
• Implications for the region & compliance with
Clean Power Plan

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. TCT Portfolio

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. Currently $0.50 of every dollar committed is kept in Oregon under the CO2 Std.

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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