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.
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
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
Notas do Editor
Three compliance options
1. Cogeneration, 2. Applicant sponsored projects, 3. Monetary Pathway
All eight facilities have used the Monetary Pathway
3,069 MW in capacity + two gas storage facilities
TCT projects in Morrow, Benton, Douglas, and Clatsop (proposed) counties
The California Cap-and-Trade Program is an integral part of AB 32. It sets a statewide limit on sources responsible for 85 % of California’s GHG emissions. The program is designed to provide covered entities the flexibility to seek out and implement the lowest-cost options to reduce emissions.
The Cap-and-Trade portion of the AB 32 Climate Change program is estimated to be responsible for 16% of all emissions reductions projected from AB 32 measures.
Sources:
“Carbon Market California: A comprehensive analysis of the Golden State’s cap and trade program, year 2”, Environmental Defense Fund 2015
“The economic case for California’s landmark clean energy law (AB32)”, Oregon Environmental Council 2015
According to RGGI, proceeds from all of the program’s CO2 allowance auctions exceed $2.2 billion. The money is reinvested in energy efficiency, renewable energy, direct bill assistance, and greenhouse gas abatement programs.
Moreover, a report by the Brattle Group examining likely effects of price volatility to small businesses under the California cap and trade system found that fuel and electricity prices have shifted by much larger amounts historically than businesses could expect them to shift under a carbon price, even in an extreme carbon pricing scenario
Only 18 of 80 megatons of California’s CO2e reduction by 2020 will come from the cap & trade program, while the remaining 62 megatons will come from complementary policies.
Over 75 per cent of Canadians will live in a province with carbon pricing once Ontario gets its system running.