Comparison of Legislative Climate Change Targets in the 110 th Congress, September 17, Stabilize at ppm

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1 14,000 12,000 Cmparisn f Legislative Climate Change Targets in the 110 th Cngress, September 17, 2007 Millin metric tns CO2e 10,000 8,000 6,000 4,000 2,000 Histrical emissins Stabilize at ppm Business as usual Bingaman-Specter range with price cap (prjected nly thrugh 2030) Bingaman-Specter n price cap McCain Olver-Gilchrest Warner draft utline Bingaman-Specter cnditinal target Kerry-Snwe Sanders-Bxer, Waxman Fr a full discussin f underlying methdlgy, assumptins and references, please see WRI des nt endrse any f these bills. This analysis is fr cmparative purpses nly. Data pst-2030 may be derived frm extraplatin f EIA prjectins. This dcument is current as f September 17, The authrs update this analysis when necessary t incrprate the latest legislative prpsals and prfessinal analyses.

2 Cmparisn f Cumulative Emissins Budgets under Legislative Climate Change Targets in the 110 th Cngress September 17, ,000 Additinal Allwances Ptentially Purchased Under Price Cap Years: Millin metric tns CO2e 135,000 90, ppm Stabilizatin 450ppm Stabilizatin Uncapped Emissins Capped Emissins 0 Business As Usual Warner Bingaman- Specter McCain Olver- Gilchrest Sanders- Bxer, Waxman Kerry- Snwe 420,000 Millin metric tns CO2e 336, , ,000 84,000 Cnditinal Target Years: ppm Stabilizatin 450ppm Stabilizatin Uncapped Emissins Capped Emissins 0 Business As Usual Warner Bingaman- Specter (w/ price cap) McCain Olver- Gilchrest Sanders- Bxer, Waxman Kerry- Snwe Fr a full discussin f underlying methdlgy, assumptins and references, please see WRI des nt endrse any f these bills. This analysis is fr cmparative purpses nly. Data pst-2030 may be derived frm extraplatin f EIA prjectins.

3 ASSUMPTIONS AND METHODOLOGY OF COMPARISON OF LEGISLATIVE CLIMATE CHANGE TARGETS IN THE 110 TH CONGRESS SEPTEMBER 17, 2007 Fr mre infrmatin, g t

4 The Wrld Resurces Institute s analysis f emissins targets and cumulative emissins budgets attempts t fairly and accurately represent explicit carbn caps in Cngressinal climate prpsals. Emissins frm regulated sectrs are calculated based n the text f the respective draft legislatin. Fr sectrs that are nt cvered by the legislatin, emissins are estimated t cntinue t grw. This analysis is nt a prjectin f actual emissins under the varius prpsals nr is it an analysis f ecnmic impacts resulting frm the enactment f these plicies. Cmparisn f Legislative Climate Change Targets in the 110 th Cngress (Figure 1) cmpares targets fr legislative prpsals f mandatry cap and trade prgrams fr greenhuse gas emissins. Althugh this chart is a revisin f a similar analysis riginally released during the 109 th Cngress and updated thrugh May f this year, several significant changes have been made. Mst imprtantly, new legislative prpsals, intrduced by Senatrs Bingaman and Specter, and Lieberman and Warner have been incrprated. Furthermre, the analysis has been expanded t reflect the varying levels f emissins cverage f the different prpsals. Finally, all underlying histrical and prjected emissins data have been updated t the mst recent data available. Figure 1 Figure 2 Cmparisn f Cumulative Emissins Budgets under Legislative Climate Change Targets in the 110th Cngress (Figure 2) ffers a different perspective n the same data. This chart depicts the cumulative greenhuse gas emissins budgets fr the prpsals ver tw different time perids. While the speed with which emissins reductins are implemented is an imprtant determinant f the efficacy f climate change legislatin, cumulative emissins reductins are an essential indicatr f the envirnmental stringency f a plicy prpsal. Time perids f and were chsen t evaluate hw ambitius the prpsals are in bth the shrt and lng term. General assumptins Many assumptins have had t be made t undertake this analysis. Assumptins have been made t simplify the analysis and shuld nt be taken as statements f fact. In many situatins, these assumptins highlight cntentius issues which must be reslved t ensure the envirnmental integrity f a marketbased apprach t addressing the real threat f climate change. Fr this analysis, WRI assumes that: All prpsals are enacted in Where annual data are unavailable, years between targets r prjectins are interplated using a simple linear frmula. 2

5 Only explicit mandatry caps are met cmplementary plicies and financial incentives fr additinal greenhuse gas (GHG) reductins beynd mandatry caps d nt reduce emissins. Cmplementary plicies aimed at reducing the emissins frm capped sectrs and entities, such as increased fuel ecnmy standards r renewable electricity standards, may affect the price f emissins allwances but wuld nt lwer ecnmy-wide GHG emissins belw the mandated cap. Cmplementary plicies aimed at reducing the emissins f uncapped sectrs and entities, such as financial incentives fr bilgical sequestratin, are nt accunted fr unless tied t explicit quantities f emissins reductins. As a result, this analysis culd be cnsidered cnservative since sme additinal emissin reductins wuld be expected frm such plicies. Bills will impact nly capped sectrs. Bills with caps r reductin targets that explicitly apply t 100 percent f U.S. emissins are taken at face value. Bills that define which sectrs r entities will be capped are assumed t impact nly cvered sectrs. Due t a lack f sufficiently detailed prjectin data by activity, emissins frm the rest f the ecnmy are assumed t increase at the Annual Energy Outlk (AEO) 2007 reference case business as usual (BAU) rate f emissins grwth fr the entire ecnmy between 2006 and As a result, this analysis attempts t evaluate the impact f varying amunts f cverage, nt the types f emissins cvered. This shuld be cnsidered a cnservative estimate as many nn-cvered sectrs currently are prjected t grw at slwer rates as cmpared with the verall ecnmy. Offsets will be real, permanent and additinal. This representatin assumes ffsets represent a real reductin in ttal glbal GHG emissins and, as a result, GHG emissins wuld remain under the cap level. Thus, in this analysis, ffsets have n impact n the visual representatin f the cap-line. Brrwing and banking will nt allw increases in cumulative GHG emissins. Annual emissins may stray abve r belw the cap, but cumulative GHG emissins ver the life f the prgram wuld be the same with r withut brrwing r banking Althugh brrwing and banking may allw actual emissins in a given year t differ frm a bill s stated cap, this analysis assumes n changes t the cap. Price caps, while prviding price certainty, ptentially cmprmise a bill s envirnmental integrity and create uncertain emissins reductins. This analysis shws the effects f the price cap under the prpsal by Senatrs Bingaman and Specter The upper bund f the range is infrmed by ptential emissins reductin cst curves fr the price cap as derived frm the Energy Infrmatin Administratin s (EIA) Natinal Energy Mdeling System (NEMS) mdel utputs The lwer bund f the range is determined by the caps identified in the text f the bill If, independent f ther cmplementary plicies and assumptins, the upper-bund were t dip belw the lwer bund, it is assumed that the price cap wuld nt take effect and the lwer bund wuld cntinue t effectively represent the emissins cap. It is likely that such a situatin wuld lead t vercmpliance and banking f emissins allwances t be used in later years. Hwever, as stated abve, this analysis assumes n banking. Bill methdlgy Kerry-Snwe The bill language stipulates a declining cap, t cver 100 percent f U.S. emissins starting in The chart reflects the text f the language - annual reductins frm 2010 thrugh 2020 that bring ecnmy-wide emissins dwn t 1990 levels by 2020, 3

6 then annual 2.5 percent reductins frm 2021 thrugh 2029 and 3.5 percent annual reductins frm 2030 thrugh 2050 Sanders-Bxer and Waxman Emissins are reduced linearly t reach 1990 levels by Frm there, emissins are reduced linearly t reach 80% belw 1990 levels by Althugh the text f Representative Waxman s prpsal is smewhat different frm the Sanders-Bxer prpsal, staff cnfirms that the cap is intended t fllw an identical trajectry. Accrding t ur analysis this straight line trajectry is equal t an average annual reductin f apprximately 5.2 percent. McCain and Gilchrest-Olver Bingaman-Specter The texts f bth bills stipulate annual caps fr cvered sectrs t be adjusted by: Subtracting 2000 levels f emissins frm exempted surces (unquantifiable emissins within cvered sectrs 8.3 percent f ecnmy emissins); Subtracting the 2012, 2020, 2030 and 2050 estimated emissins frm nncvered entities (entities frm cvered sectrs that emit less than 10,000 mmt CO 2 e 5.2 percent f ecnmy emissins) fr each cap perid fllwing a captightening. This adjusted cap is applied t emissins frm nn-exempt, cvered entities within cvered sectrs (73.9 percent f 2004 ttal US emissins). The remaining 26.1 percent f emissins are allwed t grw at the AEO 2007 BAU rate f grwth fr GHG emissins (n average, 1.29 percent per year) A thrugh discussin f emissins cverage under the McCain-Lieberman prpsal can be fund in a mem frm the EPA t the EIA dated 3/6/07 titled Emissins that Fall under the Cap under S.280 Cap n cvered sectrs is derived frm legislative language. The bill is calculated t cap 85.6 percent f 2004 ttal US emissins, based n mdel utput data frm a June 2007 run f NEMS cnducted fr the Natinal Cmmissin n Energy Plicy. The remaining 14.4 percent f ecnmy emissins grw at the AEO BAU ecnmy emissins annual grwth rate (n average, 1.29 percent per year). The text f the bill requires that, by 2030, if the five largest trading partners have enacted cmparable plicies, the President, based n findings frm an interagency review, will recmmend t Cngress mre stringent targets t reduce ttal (100 percent) U.S. emissins at least 60 percent belw 2006 levels. This cap is shwn n the chart as the cnditinal target Withut significant cmplementary plicies, it is highly likely that the bill s price cap will be triggered, thus breaching the envirnmental integrity f the cap. As a result, a shaded regin is used t represent the emissins reductins pssible at the price cap value fr carbn. This analysis is based n ptential mitigatin curves derived frm the Energy Infrmatin Agency s January 2007 analysis, Energy Market and Ecnmic Impacts f a Prpsal t Reduce Greenhuse Gas Intensity with a Cap and Trade System Warner Draft Cap n cvered sectrs fr 2012, 2020, 2030, 2040 and 2050 is taken frm the anntated table f cntents released by the Senatrs in August Cap is assumed t fllw a straight-line decrease between target years, as stated in discussins with Senate staff. Cvered sectrs under the cap are assumed t be respnsible fr 80 percent ttal US emissins, based n the anntated table f cntents. The remaining 20 percent f ecnmy emissins grw at the AEO BAU ecnmy emissins annual grwth rate (n average, 1.29 percent per year). A mre detailed analysis will be released after the final text f the bill becmes available. 4

7 Stabilizatin Stabilizatin lines fr atmspheric CO 2 equivalent cncentratins f 450 and 550 parts per millin are derived frm van Vuuren and den Elzen et al These curves represent reductins the U.S. wuld need t achieve in tandem with immediate and significant cmmitments frm all industrialized cuntries and the eventual cperatin f all majr develping cuntry emitters t prevent atmspheric greenhuse gas cncentratins frm exceeding 450ppm r 550 ppm based n the multi-stage scenari used in this study. Data surces: Histrical emissins frm cme frm the EPA s U.S. Inventry f Greenhuse Gas Emissins and Sinks Emissins prjectins thrugh 2030 cme frm the Energy Infrmatin Agency's (EIA) Annual Energy Outlk 2007 (Table 15) and are extraplated frm that reprt fr at the average annual rate frm r 1.29%. BAU is ecnmy-wide and cntains all GHGs. Analysis f cverage f prpsed caps is based n the EPA s 2007 Inventry f U.S. Greenhuse Gas Emissins and Sinks: , The Natinal Cmmissin n Energy Plicy s June 2007 Ecnmic Analysis f Updated Cmmissin Recmmendatins as well as an EPA mem t the EIA dated March 6, 2008 with the subject Emissins that Fall under the Cap under S.280 Ptential mitigatin curves fr specific prices are derived frm the Energy Infrmatin Agency, Energy Market and Ecnmic Impacts f a Prpsal t Reduce Greenhuse Gas Intensity with a Cap and Trade System, January Stabilizatin curves are derived frm van Vuuren and den Elzen et al, Stabilising greenhuse gas cncentratins at lw levels: an assessment f ptins and csts, Netherlands Envirnmental Assessment Agency, Fr a discussin f the multi-stage scenari and underlying assumptins see page 207. This analysis was cmpleted by Jhn Larsen and Rbert Heilmayr at the Wrld Resurces Institute. The authrs wuld like t thank the ffices f Representatives Gilchrest and Waxman and Senatrs Bingaman, Bxer, Kerry, Lieberman, Sanders and Warner as well as analysts at the Wrld Resurces Institute, the Natinal Cmmissin n Energy Plicy, the Pew Center n Glbal Climate Change, Resurces fr the Future and the Unin f Cncerned Scientists fr their help in reviewing this analysis. Please cntact Jhn Larsen ( ) r Rbert Heilmayr ( ) with any questins. 5

8 Table 1: Estimated emissins cverage f climate change prpsals Kerry- Snwe Cverage Des nt define what sectrs r entities will be regulated. EPA is required t achieve emissins reductins n par with reducing all U.S. GHG emissins in accrdance with stated targets and timetables. Emissins frm cvered sectrs (percent f all emissins, 2004) Emissins frm uncvered surces in cvered sectrs (percent f all emissins, 2004) Emissins frm exempted entities in cvered sectrs (percent f all emissins, 2004) 100 N/A N/A Sanders- Bxer Des nt define what sectrs r entities will be regulated. EPA is required t achieve emissins reductins n par with reducing all U.S. GHG emissins in accrdance with stated targets and timetables. 100 N/A N/A McCain Emissins frm the electric pwer, transprtatin, industrial and cmmercial sectrs Olver- Gilchrest Emissins frm the electric pwer, transprtatin, industrial and cmmercial sectrs Bingaman- Specter Warner Petrleum refineries, natural gas prcessrs, facilities that use mre than 5,000 tns f cal per year, aluminum smelters, manufacturers f adipic r nitric acid, hdrflurcarbns, perflurcarbns, sulfur hexafluride r nitrus xide Emissins frm the electric pwer, transprtatin and industrial sectrs N/A 80 N/A N/A 6