MBIs (Market-Based Instruments) for CO2

Gary Flomenhoft,

Fellow Gund Institute

January 31, 2008

MBIs-govt or market?

• No company will voluntarily add costs to its operation. Only government can do it to the market as a whole.

Why1. Account for hidden costs-”true cost

pricing”

2. Stimulus to producers and consumers (price-signal)-behavior change

3. Can raise revenue to target issues

4. Ecological efficiency-maximize production/throughput

What?

1. Emissions-powerplants, industry, cars, aircraft, houses, offices, agriculture

2. Increasing waste generation

3. Resource depletion

4. Renewable resource use

5. Land use

Types of MBIs

1. Tradable permits-emissions or wildlife

2. Environmental taxes

3. Environmental charges

4. Environmental subsidies and incentives

5. Liability and compensation schemes

1. Cap-distribute-trade

• Europe EUETS system-2005, 2008-2012Kyoto goals= 6-21% below base yr (1990)

• 11,000 installations: powerplants and industrial heat sector

• 2.15 billion tonnes = 50% of EU CO2• 95+% Allowances given away, 5%vol auction• Other gasses 20% of GHG (no transport)• Jan 25, 2008 price-E21.03=$31.01/tonne

1. Cap-distribute-trade

• New England RGGI system-2009

• Goal 2009-2015 cap then -10% 2015-2018

• 807 Powerplants only (+218 PA)

• 184 million tons = 184/700 =26.3% of CO2

• 100% Allowances auctioned

• 25% of revenue to benefit consumers (except VT 100% to consumers)

1. Cap-distribute-trade

• Vermont RGGI system-June, 2008 auction

• 1 Powerplant only-Berlin (2 other wood chips)

• 1.2 million tons = 2% of CO2

• 100% Allowances auctioned

• 100% of revenue to benefit consumers

2. Environmental Taxes-CO2

• Germany 4% of total, US .9% of total

• Carbon

• Fuels

• Vehicle sales

• Vehicle registration

• Other GHG emissions

2. Fuel Taxes-VT

• Carbon-0

• "Fuel Gross Receipts Tax” = .5% on retail sales of fuel

• "Electric Energy Tax” = 3.5% of appraised value

• "Utilities Gross Receipts Tax” = .3-.5% gross revenue

• Estimated Revenue from Sales Tax on Commercial Energy use = 5%

• Diesel Tax = $.26 commercial, $.17 cars

• gasoline tax = $.19 + .01 tank fee = $.20

• Vehicle sales = 6% of purchase price• Vehicle registration = based on type, size, weight, and purpose of vehicle = $54M

2. Fuel Taxes-Germany: 90% of ecotaxes

• road toll = 14c/km • Electricity = 2.1c/kWh• Natural gas = .06c/kWh• Fuel oil = 6.2c/l = 23.46c/gallon• Diesel = 47.2c/l = $1.79/gallon• Gasoline = 65.6c/l = $2.48/gallon• 55% increase in 1999:• 89% recycled to reduce payroll taxes• 9%- Environment Projects: 2% admin

– Renewable Energies– Less CO2 in buildings– Tax break bio-fuels

3. Environmental Charges

• London Congestion charge

• 5£ then in July 2005 8£

• Traffic congestion -30%

• Taffic volume - 15%

• Public transit improved

• Better air quality

4. Subsidies & incentives-EU

• “Cohesion Funds” = Environment projects helping to achieve the objectives of the EC treaty

• priority to drinking-water supply, treatment of wastewater and disposal of solid waste. Reforestation, erosion control and nature conservation measures are also eligible.

• b) Transport infrastructure projects establishing or developing transport infrastructure as identified in the Trans-European Transport Network (TEN) guidelines.

4. Subsidies & incentives-EU

• “Feed-in Tariffs” /kWh for PV

Europe = .63-78c

Ontario = .42c

Wash/CA = .52-.54c

Also have feed-in tariffs for wind, hydro, biogas

VT feed-in tariffs= 0, net metering only

First Year Renewable Tariffs in US$/kWhAll Conversions from the Euro.

Wind PV Hydro BiogasAustria 0.1081 0.6589 0.2428Brazil 0.0791 0.0559 0.0698California 0.5000Czech Republic 0.1235 0.6635France 0.1175 0.7878 0.0786 0.1289Germany 2008 0.1149 0.6385 0.1055 0.1551Italy 0.7878Minnesota C-BED 0.0480Ontario 0.1103 0.4195 0.1103 0.1103Portugal 0.1132 0.0000 0.1175South Korea 0.8114Spain (2007 RD) 0.1049 0.6308 0.1872Turkey 0.0716Washington State 0.5400Note: See specific sheets for qualifications.

4. Subsidies & incentives-EU

1991 “Feed-in Tariffs” Results:Germany has 52% of PV in world w/ same sun as

Anchorage, AK

35,000 employed. 2715 MW installedUS has 360 MW installed or 13% of GermanyGermany 82M, US 300M people

Germany:150,000 employees in RE107,000 FF & nuclear

Liability and compensation

• Insurance, re-insurance

• Oil spill funds-bonds

Bottom Line

• US emissions 1990-2005 +16.3%• GDP+55%

• NE 1990-2000 emission + 10.5%

• EU-15 1990-2005 emissions -2%, EU25 -11%• GDP+35% on target for -8% emissions by

2012• Germany -22% emissions by 2012