Discussion of Carbon Management

Transcription

1 March 22, 2018 Discussion of Carbon Management Vermont Law School Professor Scott s Air Pollution Class David Farnsworth Senior Associate The 50 State Street, Suite 3 Montpelier, Vermont United States dfarnsworth@raponline.org raponline.org

2 Managing Carbon Today s Topics What We Mean by Putting a Price on Carbon What actually is the Job we are trying to do? Public Policy 101 (A 2-Minute Graduate Course) Why Being Cost-Effective is Really Important Why the RGGI Cap-and-Invest Example is Worth Understanding 2

3 A Price on Carbon Tax it by the ton or Require the purchase of allowances for each ton emitted (Cap-and-Trade) 3

4 Cap-and-Trade Allowances (permits to emit) sold or traded as part of a larger market-based system 4

5 Carbon Pricing A Cornerstone of Carbon Mitigation But, it is not a complete solution on its own. 5

6 Summing Up the Parts Combining Policy Instruments for Least-Cost Climate Mitigation Strategies Christina Hood, International Energy Agency, September Paying attention to the cost of decarbonization and endeavoring to lower it as much as possible, makes it easier to reach emissions goals. With the money not spent on more expensive approaches, policy makers can take on even more ambitious goals: Avoiding tons of CO2 for $5 is preferable to avoiding them for $10. $5 solution is both more affordable than the $10 alternative, and Could inform a decision to adopt more aggressive goals. 6

7 Summing Up the Parts -- Christina Hood Policies should: Secure abatement actions as broadly as possible, including abatement from different sectors of the economy. This means securing all marginal abatement cost across all sectors of the economy, including demand-side solutions. If cheap opportunities are neglected in some sectors, more expensive actions will be needed elsewhere, increasing the total economy wide cost of emission reductions. Encourage innovation especially regarding clean technologies to continue to further lower abatement costs. Effectively accommodate uncertainty because it isn t possible to foresee changes to economic conditions or predict all abatement opportunities with any accuracy. Policies that build in flexibility, e.g., power planning that reviews all available resources or carbon pricing, have a greater likelihood of securing lowest-cost portfolio of abatement options. 7

8 Carbon Management = Mitigating Carbon Emissions Effective carbon mitigation involves putting a price on carbon and coordinating that with other clean-energy policies and practices, e.g.: -Energy Efficiency; -PV and Wind; -Bldg. Efficiency Disclosure; and -Energy Planning and Land-Use Planning 8

9 Carbon Mitigation We re talking a Combo Platter 9

10 Managing Carbon Tonight s Topics What We Mean by Putting a Price on Carbon What actually is the Job we are trying to do? Public Policy 101 (A 2-Minute Graduate Course) Why Being Cost-Effective is Really Important Why the RGGI Cap-and-Invest Example is Worth Understanding 10

11 Carbon Management is About the Economy To reach carbon reduction goals, economies around the world need to move from from carbon-intensive technologies and practices toward those that are cleaner and more efficient. 11

12 Let s Consider an Analogy 12

13 Turning the Economy Around is like Turning an Oil Tanker Around Mr. Chapin 13

14 But Big Ships Have Grown More Maneuverable: Bow-Thruster 14

15 Policies like Cap-and-Trade are like a Bow-Thruster 15

16 Can Carbon Policies Help Maneuver the Economy like a Bow-Thruster Moves a Ship? 16

17 Managing Carbon Today s Topics What We Mean by Putting a Price on Carbon What actually is the Job we are trying to do? Public Policy 101 (A 2-Minute Graduate Course) Why Being Cost-Effective is Really Important Why the RGGI Cap-and-Invest Example is Worth Understanding 17

18 If we need to change the economy, then we need to understand Public Policy 18

19 Public Policy 101 ID Barriers 19

20 Public Policy 101 Get Past Barriers 20

21 Public Policy 101 Once Beyond the Barrier: Use Your Lever to Move a Stone 21

22 Public Policy 101 Sometimes It Feels Like This 22

23 Public Policy 101 Levers: Carrots and Sticks 23

24 Public Policy 101 Recap ID barriers Get past them ID levers and use them to move a rock (In this example, carbon is the rock) Levers can look like sticks or carrots 24

25 Managing Carbon Today s Topics What We Mean by Putting a Price on Carbon What actually is the Job we are trying to do? Public Policy 101 (A 2-Minute Graduate Course) Why Being Cost-Effective is Really Important Why the RGGI Cap-and-Invest Example is Worth Understanding 25

26 Why Being Cost-Effective is Really Important This is not difficult Forget the economists term, Cost-Effective for a sec We all understand, Bang for the Buck or Juice for the Squeeze Same thing This is how public policies are measured and evaluated 26

27 But it is important. Even though you could, would you fuel your car with 25 year-old scotch? 27

28 Question: Why Not? Answer: It wouldn t be cost-effective. Because you can do the same thing for less. Keep this concept in mind when you think about getting rid of tons of carbon 28

29 Managing Carbon Tonight s Topics What We Mean by Putting a Price on Carbon What actually is the Job we are trying to do? Public Policy 101 (A 2-Minute Graduate Course) Why Being Cost-Effective is Really Important Why the RGGI Cap-and-Invest Example is Worth Understanding 29

30 US Federal Carbon Program US Environmental Protection Agency s (EPA) Clean Power Plan withdrawn by Trump Administration April 28, Remember that Federalism establishes a relationship between the federal government and state governments where, if the federal government isn t doing something, States still may be able to. 30

31 US State-Level Carbon Programs California et al Regional Greenhouse Gas Initiative Maine, New Hampshire, Vermont, New York, Massachusetts, Connecticut, Rhode Island, Delaware, and Maryland Soon, maybe, NJ and VA 31

32 RGGI Cap-and-Invest 32

33 RGGI Basics RGGI is nine separate state programs that look alike and coordinate: Cap is made of emissions from all 9 states Cap based on historical emissions Shared auction platform, allowance tracking system, and allowance market monitor 33

34 RGGI Covers fossil-fired electric generating units 25 megawatts and larger Start date of January 1, 2009 Three-year compliance periods Periodic Program Reviews Allowance Prices - $4/ton Cap declines 2.5% per year 34

35 RGGI Mechanics in Brief Quarterly regional CO 2 allowance auctions Allowances issued by each state Compliance at the state level One allowance market - Allowances tradable across the multi-state region Allowances issued by any state can be used for compliance in any RGGI state Auction proceeds invested by individual states Enforcement (Non-compliance 3X Allowances, still liable for state sanctions) 35

36 RGGI States: Pollution Reductions with Economic Growth 36

37 RGGI Investment RGGI states distribute 90% of allowances by auction Around $3 billion in auction proceeds through 38 auctions (Dec. 2017) 37

38 A Sidebar When RGGI Was Being Designed ( ) 38

39 A Key Early Program Design Question: Is CO 2 Like SO 2? EPA Acid Rain Program SO 2 Free Allowances Scrubber and low-sulfur coal Available Affordable RGGI CO2 Free Allowances? Carbon Capture and Storage and low-carbon coal? Available? Affordable? 39

40 But there are Ways to Reduce CO 2 in the Energy Sector Energy Efficiency Renewable Energy Demand Response Other 40

41 Efficiency is the lowest-cost carbon mitigation 41

42 Can RGGI Coordinate with These Programs? RGGI modeled increased efficiency investment and concluded The cheapest way to scrub a ton of CO2 today is to avoid emitting it in the first place 42

43 Annual Carbon Dioxide Emissions Saved (Million Tons) Illustration Pricing Alone versus Smart Investment Annual CO 2 Emissions Saved by: Increasing Rates 3%; and Increasing Rates 3% to Fund Energy Efficiency (Ohio Example) Annual carbon dioxide emissions avoided from raising rates 3% and funding EE Annual carbon dioxide emissions avoided from raising rates 3% Cumulative CO 2 emissions avoided from raising rates 3% and funding EE, : 402 million tons Cumulative CO 2 emissions avoided from raising rates 3%, : 65 million tons 0.00 Year 43

44 The Slide Demonstrates Price Effect and Investment Results If you put a price on electricity (3% increase, just like a tax) you will get some reduced emissions. (The BLUE) But, if you use the same amount of money (the 3%) and invest it wisely here, in established efficiency programs you get much more reduction in emissions (About 7X) (The RED) A tax on carbon or price on carbon (allowances) will produce the price effect. But, investment is also important. 44

45 We re Back from the Sidebar: The Role of Revenue Recycling One of RGGI s most important design decisions was to auction allowances (rather than give them away for free) and To invest auction proceeds in energy efficiency and other clean energy programs. 45

46 The Role of Revenue Recycling the Invest Part RGGI auctions raised nearly $1B in its first 3 years, and the same in the next three years. States invest in existing clean energy and other programs: 1 st Compliance Period -- Net benefits: $1.6B. 2 nd Compliance Period -- Net benefits: $1.3B. This was cost-effective, with a benefit/cost ratio of about 1:6 in the first three years and 1:3 in the second three-year compliance period. 46

47 Cap-and-Invest: The Role of Revenue Recycling Today, 60% of RGGI auction revenue dedicated to EE programs: Saving consumers money, Reducing emissions, and Delivering economic benefits 47

48 Cap-and-Invest Program Reductions come, not so much from the program s price on carbon, but from investing the program proceeds. 48

49 Cap-and-Invest Program Reductions come, not so much from the program s price on carbon, but from investing the program proceeds. 49

50 Some Conclusions Putting a price on carbon (here, with cap-and-trade) must be part of a larger carbon strategy that includes complementary policies like EE, RE, and Planning Is a ton a ton? You have to ask: Are we getting the cheapest tons first? A $10 a $5 Why pay more than you have to? Remember the big picture 50

51 Can Cap+Trade Maneuver the Economy? 51

52 Can Cap-and-Invest Do an Even Better Job? 52

53 You Still with Me? 53

54 Q&A/Discussion 54

55 About Your Presenter David Farnsworth David Farnsworth advises regulators on clean energy and environmental policy and regulation. Prior to working with RAP, he served as a hearing officer and staff attorney with the Vermont Public Service Board from 1995 to He was co-chair of the National Association of Regulatory Utility Commissioners (NARUC) Staff Subcommittee to the Committee on Energy Resources and the Environment from 2004 to 2005; and vice-chair of the NARUC Staff Subcommittee to the Committee on Natural Gas from 2000 to He has also worked internationally as a regulatory consultant providing training on legal and policy issues to relevant ministries and regulatory commissions in China, Slovakia, Romania, Mozambique, Swaziland, and Tanzania. 55

56 About RAP The is an independent, non-partisan, non-governmental organization dedicated to accelerating the transition to a clean, reliable, and efficient energy future. Learn more about our work at raponline.org David Farnsworth, Esq. Senior Associate The Regulatory Assistance Project 50 State Street, Suite 3 Montpelier, VT United States dfarnsworth@raponline.org raponline.org