ca cap and trade presentation

California Cap and TradeLessons from Kyoto for the Future

David Ulrick FanfanJuly 25, 2013

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

ContentsHistory and Background

Kyoto

Emissions Tradi

ng Syste

m

Californi

a Cap and Trad

e

Linkage and Moving

Forward

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)

The Clean Air Act Extension of 1970

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.

1990 Amendments to the Clean Air Act of 1970

EMISSIONS TRADING

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)

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.

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.


- 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

Overall goal to reduce CO2 emissions by 5.2% from 1990 levels by December 31, 2012

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


Noticeable drop in carbon emissions since implementation. (Some blame recession)

http://wattsupwiththat.com/2011/11/09/what-hath-kyoto-wrought/


Others call it a failure because China and developing nations increased pollution.

http://www.mpg.de/6678112/carbon-dioxide-climate-change


- 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)


In terms of American dollars

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%)

http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm

California Cap-and-Trade: - cont.MMT CO2e = Million Metric Ton of Carbon Dioxide Equivalent

2009 was the peak – total emissions started decreasing since then.

California Cap-and-Trade: - cont.

Ref. California Cap and Trade Program Summary – Center for Climate and Energy Solutions Jan. 2013

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

Linkage and Moving Forward – cont.

The Role of Government

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.

RECOMMENDATION

THANK YOU!

ca cap and trade presentation

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