Tag: cap-and-trade schemes

The Governor of California, Jerry Brown, has issued an executive order to cut greenhouse gas emissions 40% from 1990 levels by 2030 (a 44% cut on 2012 levels). This matches the target set by the EU. It is tougher than that of the US administration, which has set a target of reducing emissions in the range of 26 to 28 percent below 2005 levels by 2025.

The former Governor of California, Arnold Schwarzenegger, had previously set a target of reducing emissions 80% below 1990 levels by 2050. Brown’s new target can be seen as an interim step toward meeting that longer-term goal.

There are several means by which it is planned to meet the Californian targets. These include:

a focus on zero- and near-zero technologies for moving freight, continued investment in renewables including solar roofs and distributed generation, greater use of low-carbon fuels including electricity and hydrogen, stronger efforts to reduce emissions of short-lived climate pollutants (methane, black carbon and fluorinated gases), and further efforts to create liveable, walkable communities and expansion of mass transit and other alternatives to travelling by car.

Some of these will be achieved through legislation, after consultations with various stakeholders. But a crucial element in driving down emissions is the California’s carbon trading scheme. This is a cap-and-trade system, similar to the EU’s Emissions Trading Scheme.

The cap-and-trade rules came into effect on January 1, 2013 and apply to large electric power plants and large industrial plants. In 2015, they will extend to fuel distributors (including distributors of heating and transportation fuels). At that stage, the program will encompass around 360 businesses throughout California and nearly 85 percent of the state’s total greenhouse gas emissions.

Under a cap-and-trade system, companies must hold enough emission allowances to cover their emissions, and are free to buy and sell allowances on the open market. California held its first auction of greenhouse gas allowances on November 14, 2012. This marked the beginning of the first greenhouse gas cap-and-trade program in the United States since the group of nine Northeastern states in the Regional Greenhouse Gas Initiative (RGGI), a greenhouse gas cap-and-trade program for power plants, held its first auction in 2008.

Since January 2014, the Californian cap-and-trade scheme has been linked to that of Quebec in Canada and discussions are under way to link it with Ontario too. Also California is working with other west-coast states/provinces, Oregon, Washington and British Columbia, to develop a co-ordinated approach to greenhouse gas reductions

To achieve sufficient reductions in emissions, it is not enough merely to have a cap-and-trade system which, through trading, encourages an efficient reduction in emissions. It is important to set the cap tight enough to achieve the targeted reductions and to ensure that the cap is enforced.

In California, emissions allowances are distributed by a mix of free allocation and quarterly auctions. Free allocations account for around 90% of the allocations, but this percentage will decrease over time. The total allowances will decline (i.e. the cap will be tightened) by 3% per year from 2015 to 2020.

At present the system applies to electric power plants, industrial plants and fuel distributors that emit, or are responsible for emissions of, 25,000 metric tons of carbon dioxide equivalent (CO2e) per year or more. The greenhouse gases covered are the six covered by the Kyoto Protocol ((CO2, CH4, N2O, HFCs, PFCs, SF6), plus NF3 and other fluoridated greenhouse gases.

Articles

California governor orders aggressive greenhouse gas cuts by 2030 Reuters. Rory Carroll (29/4/15)
California’s greenhouse gas emission targets are getting tougher Los Angeles Times, Chris Megerian and Michael Finnegan (29/4/15)
Jerry Brown sets aggressive California climate goal The Desert Sun, Sammy Roth (29/4/15)
California’s Brown Seeks Nation-Leading Greenhouse Gas Cuts Bloomberg, Michael B Marois (29/4/15)
California sets tough new targets to cut emissions BBC News, (29/4/15)
California’s New Greenhouse Gas Emissions Target Puts Obama’s To Shame New Republic, Rebecca Leber (29/4/15)
Governor Brown Announces New Statewide Climate Pollution Limit in 2030 Switchboard, Alex Jackson (29/4/15)
Cap-and-trade comes to Orego Watchdog, Chana Cox (29/4/15)
Cap and trade explained: What Ontario’s shift on emissions will mean The Globe and Mail, Adrian Morrow (13/4/15)
California’s Forests Have Become Climate Polluters Climate Central, John Upton (29/4/15)
States Can Learn from Each Other On Carbon Pricing The Energy Collective, Kyle Aarons (28/4/15)

Executive Order
Governor Brown Establishes Most Ambitious Greenhouse Gas Reduction Target in North America Office of Edmund G. Brown Jr. (29/4/15)
Frequently Asked Questions about Executive Order B-30-15: 2030 Carbon Target and Adaptation California Environmental Protection Agency: Air Resources Board (29/4/15)

Californian cap-and-trade scheme
Cap-and-Trade Program California Environmental Protection Agency: Air Resources Board (29/4/15)
California Cap and Trade Center for Climate and Energy Solutions (January 2014)

Questions

  1. Explain how a system of cap-and-trade, such as the Californian system and the ETS in the EU, works.
  2. Why does a cap-and-trade system lead to an efficient level of emissions reduction?
  3. How can a joint system, such as that between California and Quebec, work? Is it important to achieve the same percentage pollution reduction in both countries?
  4. What are countries coming to the United Nations Climate Change conference in Paris in November 2015 required to have communicated in advance?
  5. How might game theory be relevant to the negotiations in Paris? Are the pre-requirements on countries a good idea to tackle some of the ‘gaming’ problems that could occur?
  6. Why is a cap-and-trade system insufficient to tackle climate change? What other measures are required?

At the end of two weeks of often acrimonious wrangling between representatives from 193 countries, an agreement – of sorts – was reached at the climate change summit in Copenhagen. What was this agreement? It was an ‘accord’ brokered by the USA, China, India, Brazil and South Africa.

This Copenhagen Accord contains three elements. The first is a recognition of the need to prevent global temperatures rising by more than 2 degrees Celsius above pre-industrial levels. The second is a commitment by developed countries to give $30bn of aid between 2010 and 2012 to developing countries for investment in green technology and to mitigate the effects of climate change. In addition, a goal was set of providing $100bn a year by 2020. The third is for rich countries to give pledges on emissions reductions and for developing countries to give pledges on reducing emissions increases. Developed countries’ pledges will be scrutinised by the UN Framework Convention on Climate Change, while developing countries will merely be required to submit reports on their progress in meeting their pledges.

But this is only an accord. It has no legal status and was merely ‘recognised’ by the countries at the conference. What is more, the target of limiting temperature rises to 2C does not contain a date by which temperature rises should peak. Also, as countries are not required to submit targets for emissions until February 2010, it is not clear how these targets will be kept low enough to meet the temperature target and there is no identification of penalites that would apply to countries not meeting their pledges.

Not surprisingly, reactions around the world have been mixed. The following podcasts and articles look at these reactions and at the economic mechanisms that will be required to meet the 2C limit

Podcasts and videos

Recriminations after Copenhagen summit (video) BBC News, David Loyn (21/12/09)
Copenhagen special: Climate change talks end in failure Guardian podcast (19/12/09)
Where do we go after Copenhagen? BBC Today Programme (21/12/09)

Articles

What was agreed and left unfinished in U.N. climate deal Reuters of India Factbox (20/12/09)
Copenhagen deal: Key points BBC News (19/12/09)
Copenhagen deal reaction in quotes BBC News (19/12/09)
Copenhagen climate summit fails green investors BBC News, Damian Kahya (22/12/09)
Why did Copenhagen fail to deliver a climate deal? BBC News (22/12/09)
Copenhagen climate accord: Key issues BBC News (19/12/09)
Harrabin’s Notes: After Copenhagen BBC News, Roger Harrabin (19/12/09)
Copenhagen climate conference: Who is going to save the planet now? Telegraph, Louise Gray (21/12/09)
Copenhagen’s One Real Accomplishment: Getting Some Money Flowing New York Times, James Kanter (20/12/09)
Copenhagen climate summit: plan for EU to police countries’ emissions (including video) Telegraph, James Kirkup, and Louise Gray (19/12/09)
The road from Copenhagen Guardian, Ed Miliband (UK Secretary of State for Energy and Climate Change) (20/12/09)
Carbon Prices Tumble After ‘Modest’ Climate Deal Bloomberg, Mathew Carr and Ewa Krukowska (21/12/09)
Copenhagen deal causes EU carbon price fall BBC News (21/12/09)
Have the hopes of environmentalists been dashed? Financial Times, Clive Cookson (21/12/09)
EU reflects on climate ‘disaster’ Financial Times, Joshua Chaffinin (22/12/09)
China not to blame on climate China Daily, Zhang Jin (23/12/09)
Selling a low-carbon life just got harder Times Online, Jonathon Porritt (21/12/09)
Better than nothing The Economist (19/12/09)
Copenhagen has given us the chance to face climate change with honesty Observer, James Hansen (27/12/09)

Questions

  1. What incentives exist for countries to agree to tough pledges to reduce emissions?
  2. Was the very limited nature of the Copenhagen Accord a Nash equilibrium? Explain.
  3. Is the carbon price a good indicator of the effectiveness of measures to curb emissions?
  4. Must any agreement have verifiable targets for each country of the world if it is to be successful in curbing carbon emissions?
  5. Is a cap-and-trade system the best means of achieving emissions reductions? Explain.

In the run-up to the United Nations climate Change conference in Copenhagen from 7 to 18 December, many countries have been setting out their preliminary positions. The conference aims to set the terms for the agreement that will succeed the Kyoto Protocol in 2012.

Senior scientists, economists and politicians have been warning about the dire necessity of reaching a comprehensive agreement. One such economist is Sir Nicholas Stern. He argues that the EU should impose a unilateral cut in greenhouse gas emissions of 30% from 1990 levels by 2020, irrespective of the any agreement in Copenhagen. The EU has pledged to increase its targeted cut from 20% to 30% only if substantive progress is made at the talks.

Other countries have set out their preliminary positions. China has offered to reduce its carbon intensity by 40% (i.e. the proportion of carbon emissions to GDP); the USA has offered to reduce emissions by 17% by 2020 compared with 2005 levels; and India has offered to reduce its carbon intensity by 24% over the same period.

However, as the Washington Post article below states, “During a weekend meeting, India, along with China, Brazil, South Africa and Sudan, decided it would not agree to legally binding emission cuts, international verification of reductions without foreign funding and technology, and imposition of trade barriers in the name of climate change.”

Meanwhile the news from Australia has come as a blow to those seeking to extend tradable permit schemes around the world. The Australian senate has rejected a bill to set up an Emissions Trading Scheme (ETS), designed to cut Australia’s carbon emissions by up to 25% below 2000 levels by 2020.

Copenhagen climate talks: Main issues Independent (30/11/09)
Factfile on UNFCCC, Kyoto Protocol, Copenhagen talks Independent (30/11/09)
Copenhagen summit: Is there any real chance of averting the climate crisis? Observer, James Hansen (29/11/09)
A heated debate Economist (26/11/09)
Getting warmer Economist (3/12/09)
Is it worth it? Economist (3/12/09)
Good policy, and bad Economist (3/12/09)
The Carbon Economy Economist (3/12/09)
Copenhagen climate summit: 50/50 chance of stopping catastrophe, Lord Stern says Telegraph (1/12/09)
UK Economist: Climate Skeptics are Confused U.S.News, Meera Selva (1/12/09)
Growing Scientific Consensus on Climate Change Ahead of Copenhagen Conference Voice of America, Michael Bowman (1/12/09)
EU ‘should cut emissions by 30%’ BBC News, Roger Harrabin (1/12/09)
Stern says Copenhagen could still save world Environmental Data Interactive Exchange (1/12/09)
Moves by U.S., China induce India to do its bit on climate Washington Post, Rama Lakshmi (2/12/09)
Why do climate deniers hold sway in Australia? Guardian, Fred Pearce (1/12/09)
Australian Senate defeats carbon trading bill Guardian, Toni O’Loughlin (2/12/09)
Failed CPRS ‘may lead to better plan’ Sydney Morning Herald (2/12/09)
Australia carbon laws fail, election possible Reuters, Rob Taylor (2/12/09)
Australian Senate rejects Kevin Rudd’s climate plan BBC News (2/12/09)

The following is the official conference site:
United Nations Climate Change Conference Dec 7–Dec 18 2009

Questions

  1. Why cannot tackling global warming be left totally to the market?
  2. To what extent can the market provide part of the solution to global warming?
  3. How can a cap-and-trade system (i.e. tradable permits) be used to achieve (a) emissions reductions; (b) an efficient way of achieving such reductions?
  4. Why could the atmosphere be described as a ‘global commons’? Does it have either or both of the features of non-excludability and non-rivalry (which are both features of a public good)?
  5. To what extent are climate change talks a prisoner’s dilemma game? How may the Nash equilibrium of no deal, or an unenforceable deal, be avoided?