1 The Debate about Carbon taxing vs. Cap and TradeCap and Trade: What is it and how does it work? Carbon tax: How does this work and what is the intended incentive to businesses that emit too much CO2?
2 Carbon Pricing 101 Putting the Market to Work PriceonCarbon.org Costs of fossil fuel use are not included in the current price of using them. What are some of these costs? Hurricanes/severe weather (Sandy $65b), drought, health costs, sea level rise Cost of Carbon estimates from $37 to >$400/ton CO2e Fossil fuels are artificially inexpensive Put a price on carbon emissions so users pay the fair price Fossil fuel use will decrease; CO2 emissions will decrease Alternatives become more affordable and grow The economy can also grow ©
3 Tradable emissions permits (cap and trade) policy:Tradable emissions permits are licenses to emit limited amounts of pollutants; these permits can be bought and sold by polluters. • Permits are issued to polluting firms by regulators based upon a formula that reflects each firm’s polluting history. • Firms facing different costs of reducing pollution can engage in a mutually beneficial transaction: those that find it easier to reduce pollution can sell some of their permits to firms that find it more difficult. The ideal end result is that the producers with the lowest cost will reduce their pollution the most, while those with higher costs will reduce their pollution the least. Where is this policy practiced? And, does it really reduce carbon emissions?
4 Pricing Carbon is not a new ideaFigure from World Bank report, 2014 ©
5 How Do You Price Carbon? Carbon Pricing Elements Pricing Mechanism1. Carbon Tax or Fee 2. Cap and Trade Emissions Included Revenue Use ©
6 Pricing Mechanism Both mechanisms have been tried;both can be effective. ©
7 Cap and Trade Company A Declining Cap Set by Government Cap MaximumEmissions Allowed Change in average global temperature over the last 80 m.y. The temperature curve of Crowley and Kim (Crowley & Kim 1995) is modified to show the effect of the methane discharge at 55 Ma (Zachos et al. 2003, Zachos et al. 2005) and the Early Pliocene warming (Ravelo et al. 2004) (from AGCS 2008). The future rise in temperature expected from energy use projections shows the Earth warming back into the ‘greenhouse world’. Year 1 Year 2 Year 3 Year 4 © Linda Swift © 2015 7
8 Cap and Trade Permits Auctioned by GovernmentCap = 100 units Company A emits above cap, needs more permits Company B buys more permits than needed Company A Emissions Permits Cap Change in average global temperature over the last 80 m.y. The temperature curve of Crowley and Kim (Crowley & Kim 1995) is modified to show the effect of the methane discharge at 55 Ma (Zachos et al. 2003, Zachos et al. 2005) and the Early Pliocene warming (Ravelo et al. 2004) (from AGCS 2008). The future rise in temperature expected from energy use projections shows the Earth warming back into the ‘greenhouse world’. Company B Emissions Permits © Linda Swift © 2015 8
9 Cap and Trade Company B sells permits to Company A Company A Company BEmissions Permits Change in average global temperature over the last 80 m.y. The temperature curve of Crowley and Kim (Crowley & Kim 1995) is modified to show the effect of the methane discharge at 55 Ma (Zachos et al. 2003, Zachos et al. 2005) and the Early Pliocene warming (Ravelo et al. 2004) (from AGCS 2008). The future rise in temperature expected from energy use projections shows the Earth warming back into the ‘greenhouse world’. Company B Emissions Permits © 9
10 Cap and Trade Company B sells permits to Company A Company A Company BEmissions Permits Change in average global temperature over the last 80 m.y. The temperature curve of Crowley and Kim (Crowley & Kim 1995) is modified to show the effect of the methane discharge at 55 Ma (Zachos et al. 2003, Zachos et al. 2005) and the Early Pliocene warming (Ravelo et al. 2004) (from AGCS 2008). The future rise in temperature expected from energy use projections shows the Earth warming back into the ‘greenhouse world’. Company B Emissions Permits © Linda Swift © 2015 10
11 Emissions Included: which industries?EIA ©
12 The EU Emissions Trading System and data on reducing emissions since implemented.The European Union Emissions Trading System (EU ETS) can serve as a model on which to evaluate effectiveness of this policy. https://www.youtube.com/watch?v=fJrFSLfaeeE https://www.youtube.com/watch?v=5YCftIlYLyw
13 II. The Carbon Tax: An Illustration of its practice in Boulder Colorado
14 Boulder’s Climate Action Plan: How we got here2006: Climate Action Plan Committee shepherds CAP toward completion; adopted by city council in June Council determines carbon tax is best revenue source for implementation, places tax on November ballot Measure passes, 60.5% in favor, 39.5% opposed First carbon tax enacted in nation Between 2002 and 2006, we saw development of CAP, programs were started that produced results and got us heading in the right direction; community support being nurtured for programs and, ultimately, a funding stream
15 Boulder’s Carbon Tax: SpecificsTax on electricity consumption There has been tremendous interest in the carbon tax since its placement in the ballot and approval Though emissions are indirect, strongest nexus to Boulder’s carbon footprint 2005 data 15%
16 2005 Emissions by Sector Three primary sectors we will be focusing on this afternoon: Residential – 17% Commercial – 38% Industrial – 9%
17 Boulder’s Carbon Tax: SpecificsMaximize voluntary emissions reductions through: Education, outreach and marketing Reducing barriers to energy efficiency and renewable energy Connecting residents and businesses with available rebates and tax credits The implementation plan outlines what programs and actions would be implemented in 2007 and beyond. The estimates are based on reasonable, achievable, and slightly conservative participation rates. It is important to note that staff based the analysis on what we think we can achieve in the various sectors through behavior shift and implementation of projects with reasonable paybacks, where reasonable is generally under three to four years. Staff will return to Council every year with any necessary adjustments to the budget or estimated results. Staff will also continue to prepare annual progress reports that track program results and annual emissions. Sample services include subsidized energy audits, neighborhood sweeps and light bulb giveaways. It is recommended that the residential program in particular include grassroots elements, where actions are promoted and implemented on a neighborhood or block-by-block level.
18 Climate Action Plan StrategiesIncrease energy efficiency Switch to renewable energy and vehicle fuels Reduce vehicle miles traveled Maximize voluntary emissions reductions through: Education, outreach and marketing Connecting residents and businesses with available rebates and tax credits Providing services not offered in the Boulder market
19 Boulder’s Carbon Tax: SpecificsApplies to all electricity customers in the city No tax charged for green power customers Rates set in direct proportion to expected program sector expenditures Rates can be re-set depending on program needs Rates can be increased by 20% Sunsets in 2012 Will raise approximately $1 million per year Residential, commercial, industrial sectors % of tax based on % Windsource Rates set in concert with expected program expenditures: 60/37/3 Explain current approach of Xcel DSM program spending No need to go back to the voters – flexibility in rates Kyoto target not ultimate goal – sunset puts the city’s feet to the fire to produce For implementation of Climate Action Plan
20 GHG Emissions Reductions per sector by 2012 (mtCO2e)Energy Efficiency Renewable Energy Total Residential 30,228 16,914 47,142 Commercial 30,852 32,088 62,940 Industrial 10,896 21,000 31,896 City Operations 4,248 4,002 8,250