Overview of Carbon Markets and US Federal Proposals to Regulate GHGs

American College of Construction Lawyers and Princeton University Joint Symposium November 6, 2009

Jean-Philippe Brisson

Climate Action Reserve [email protected]

Carbon Market Drivers Scientific Data Energy Efficiency “Green” Jobs Energy Security Risk Adjusted Cost Governmental response in the form of new policies and regulations Carbon markets created by the adoption of cap-and-trade programs

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International, Regional and National Responses

International

1992 UNFCCC and 1997 Kyoto Protocol

Canada

2007 Alberta program

United States

RGGI effective 2008, California AB-32 scheduled operation in 2012; multiplicity of proposals at federal level .

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Europe

EU ETS cap-and-trade program started in 2005

Japan

Japanese industry has accepted to meet voluntary targets

Australia

Operational for 2010?

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Global Carbon Market Trends

Global Carbon Market Trends

Allowance Offset TOTAL

World Bank, State and Trends of the Carbon Market 2009 (May 2009)

2006 MT CO2e 1,134 611 1,745 US $ Million 24,699 6,536 31,235 2007 MT CO2e 2,108 876 2,984 US $ million 49,361 13,646 63,007 2008 MT CO2e 3,276 1,535 4,811 US $ million 92,589 33,487 126,345 5

• • • • Four Key Developments in the US

Massachusetts v. EPA

(2007) – Carbon dioxide is a “pollutant” – EPA intends to finalize • Finding that GHGs are pollutants that “endanger public health and welfare” • GHG emission standards for new motor vehicles – Implications of making GHGs “pollutants subject to regulation” • PSD requirements for new or modified “major sources” Rise of state and regional programs Emergence of tort lawsuits against emitters – – –

Connecticut v. AEP Native Village of Kivalina v. Exxon Mobil Comer v. Murphy

Federal legislation

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Federal Legislation • 110 th Congress – Ten proposals introduced – Lieberman-Warner • reported out of Senate EPW Committee December 5, 2007 • Considered by full Senate in June 2008 • 111 th Congress – Waxman-Markey (American Clean Energy Security Act) • Adopted by the House of Representatives June 26, 2009 – Kerry-Boxer (American Clean Energy Leadership Act) • Reported out of Senate Committee November 5, 2009

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Introduction to Cap-and-Trade

Emissions Cap Entities within the cap can buy, sell, bank or borrow allowances to cover their actual emissions Additional Reductions of Emissions Outside the Cap to Create Offsets $ $ $ Offsets California redwood forest Project New York methane capture at landfill Brazil project under Kyoto?

Marginal abatement cost is lower than allowance price for same environmental benefit ALLOWANCES within the Cap The “Right” or “Authorization” to Emit” OFFSETS outside the Cap Project-based Emissions Reductions 8

• • • • • • • Federal Legislation – Key Design Elements “Economy-wide” cap-and-trade program – 20% below 2005 by 2020; 42% below 2005 by 2030; 83% below 2005 by 2050 Use of domestic and international offsets permitted – Results in cost containment Allocation of allowances – Utilities, for ratepayers – Energy-intensive, trade-sensitive industry – Promotion of clean energy, energy efficiency – Promotion of carbon capture and sequestration (CCS) Border tax for energy-intensive imports from uncapped countries Allowance reserve for moderating volatile allowance prices Limited preemption of state and regional cap-and-trade programs Preclusion of EPA GHG regulation under the Clean Air Act (Waxman Markey only)

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US Carbon Market Relative to Existing Market 6000 5000 4000 3000 2000 1000 0 RGGI California AB-32 Canada EU Offsets Allowances Kerry-Boxer

Potential Cost of Waxman-Markey • Economic analysis ran by Environmental Protection Agency and Congressional Budget Office – Key differences in methodologies

Allowance Price Annual Household Cost Annual Economy-Wide Cost billions $ Future Gasoline Price Increase Source

EPA CBO EPA CBO EPA CBO EPA

2020

$16 $22 $49-61 $175 $100 $22 $0.13

(2015)

2030

$26-27 NA $99-312 NA $100-200 NA $0.25

2050

$69-70 NA $123-174 NA $500-700 NA $0.69

Source: Pew Center on Global Climate Change, Climate Policy Memo #3: Cost of the American Clean Energy and Security Act of 2009 Found to Be Small According to Government Analyses (June 2009).

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Potential Impact on Large US Emitter • Assumption – Annual GHG emissions of 100 million MTCO2e

Potential Annual Cost of Compliance Number of free allowances given to emitter Allowance Price 100 million 50 million 25 million $10

$0 $500 million $750 million

$30

$0 $1,500 million $2,250 million

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Climate Action Reserve Statistics • Account-holders: 150 • Total projects listed and registered: 89 • Climate Reserve Tonnes issued: 1.65 million Chicago Climate Futures Exchange Climate Reserve Tonne Futures – Dec 2009 Delivery $7.00

$6.50

$6.00

$5.50

$5.00

$4.50

$4.00

$3.50

Day

Offset Projects Listed with the Climate Action Reserve