The Center for Climate and Energy Solutions seeks to inform the design and implementation of federal policies that will significantly reduce greenhouse gas emissions. Drawing from its extensive peer-reviewed published works, in-house policy analyses, and tracking of current legislative proposals, the Center provides research, analysis, and recommendations to policymakers in Congress and the Executive Branch. Read More
Graphical Analysis and Summary of Key Legislation
December 1, 2008
Statement of Eileen Claussen
President, Pew Center on Global Climate Change
Statement of President-Elect Barack Obama
to Bi-Partisan Governors' Global Climate Summit
November 18, 2008
This is exactly the kind of leadership the country and the world have been waiting for. President-elect Obama's statement makes clear that he's ready to roll up his sleeves and deliver the action that is needed to protect our climate, our economy, and our national security. He is setting the right goals and choosing the right policies. We urge the bipartisan leadership in Congress to work closely with the new president to quickly enact an economy-wide cap-and-trade system. Doing so will ensure significant reductions in U.S. emissions at the lowest possible cost, and help set the stage for a new international agreement ensuring that all other major economies contribute their fair share as well.
Obama Transition: Additional resources on next steps for the new administration.
Pew Perspective: The Obama administration should seek a greenhouse gas cap-and-trade law, argues a new Pew Center article. (November 2008)
Climate Policy & U.S. Election: In an article for the Transatlantic Climate Policy Group, Elliot Diringer discusses prospects for an international climate agreement under a new U.S. president. (October 2008)
By Eileen Claussen and Manik Roy
November 14, 2008
This article originally appeared in Carbon Market North America, a news publication of Point Carbon.
On January 20, 2009, the United States will have, for the first time in its history, a President pledged to enacting steep reductions of U.S. greenhouse gas (GHG) emissions through a cap-and-trade program and other mandatory measures. He will be joined by a Congress whose majority leadership is similarly supportive of mandatory GHG reductions.
The path forward, however, will not be easy. Two factors will have an especially heavy influence on President Obama’s climate agenda.
First, given the state of the economy and the role of high and volatile energy costs in damping economic growth before the financial meltdown, any Obama climate initiative will be framed in the context of building a green energy economy and creating “green jobs.”
Second, the U.S. Environmental Protection Agency (EPA) has been effectively directed by the U.S. Supreme Court to regulate GHG emissions under the regulatory provisions of the Clean Air Act (CAA). EPA must proceed quickly with the development of GHG regulations or risk facing court-ordered deadlines to do so. This can only change if the CAA is amended – an amendment highly unlikely to pass Congress unless as part of a package that includes an alternative means of reducing GHG emissions, such as a cap-and-trade program.
It is too soon to predict President Obama’s climate action agenda. It is our sense, however, that successfully threading his way between a heightened sensitivity to economic impacts and the threat of a court-ordered regulatory schedule would involve several steps.
First, President Obama should reaffirm early in 2009 his intention to enact by the end of 2010 an aggressive climate policy, including a GHG cap-and-trade law. This could be part of a larger energy economy package, or could be a separate initiative.
We would recommend that the cap-and-trade program cover the economy as a whole. Current Congressional proposals, for example, cover as much as 88% of US emissions. A program covering electricity generators only, or all large stationary sources of GHG emissions, would be a step forward as well. Furthermore, we would recommend that a cap-and-trade program:
- begin in 2012;
- begin to sharply reduce GHG emissions by 2020;
- use ample supplies of domestic and international offsets to protect against high initial allowance prices;
- use allowance value to level the playing field between energy intensive manufacturers and their competitors in countries not taking climate action; and
- use allowance value to provide an adequate transition for other affected sectors of the economy, and to hasten the development and deployment of low- and zero-emitting technologies.
To meet the steep reductions that have been pledged, sources not under the cap should face complementary measures, such as standards or tax incentives.
Second, the President should convene a working group that includes the EPA, the Departments of Energy, State and Treasury, and others to draft his administration’s legislative proposal, drawing from existing proposals (e.g., Dingell-Boucher, Boxer-Lieberman-Warner, Bingaman-Specter), as well as from the experience of the U.S. states and Europe. Such a process would take at least six months.
Third, the administration should work closely throughout the development and enactment of its policy with Congressional leaders in both parties.
Fourth, the administration should consult closely with the many stakeholders, including with groups trying to identify the common ground between diverse stakeholders, such as the U.S. Climate Action Partnership (USCAP).
Fifth, and perhaps most importantly, the President should communicate constantly with the American public about the dangers of climate change and how a climate action program will help the economy in the short term – by rewarding and stimulating innovation in the energy and other sectors – and in the longer term – by transforming our economy to attain global leadership in sustainable technologies and by avoiding the worst impacts of climate change.
Eileen Claussen is President of the Pew Center on Global Climate Change. Manik Roy is the Center’s Vice President for Federal Government Outreach.
November 13, 2008
Pew Center Contact: Tom Steinfeldt, (703) 516-4146
Implications, Options and Complementary Policies Examined in Ten Briefs
Washington, DC – As President-elect Obama and a new Congress prepare to assume office in January, expectations for climate and energy legislation in the U.S. are arguably the highest in recent memory. And within the confines of the current economic climate, careful crafting of these policies has never been more important.
To advance this effort and inform the climate change debate in Washington, the Pew Center is releasing a Congressional Policy Brief Series that will serve as a primer for the 111th Congress and the new Administration. The series addresses key cap-and-trade design elements and critical complementary policies that policymakers must grapple with to deliver cost-effective, environmentally-stringent plans to significantly reduce greenhouse gas (GHG) emissions and grow the economy.
The new series is presented in two Congressional briefing books focused on key design questions regarding U.S. climate policy. The first book discusses the elements of a cap-and-trade system, including the main considerations for crafting the system and the implications of various design approaches. The briefs address the controversial issues in the climate change debate, such as the allocation of allowances, the use of cost containment mechanisms, and the role of domestic and international offsets. The second briefing book outlines key complementary policies, including those related to coal use, transportation, carbon taxes, and technology.
The materials do not recommend specific design choices or support any particular legislation. Instead, the books emphasize the implications of different policy approaches.
“Designing a U.S. domestic carbon market that is both environmentally effective and economically viable is an enormous undertaking, and as we know too well, the devil is in the details. We hope this series of briefs will serve as a credible and accessible resource for policy-makers as they grapple with a multitude of design decisions next year.” said Eileen Claussen, President of the Pew Center on Global Climate Change.
The work of the Pew Center was supported by a generous grant from the Doris Duke Charitable Foundation (DDCF). Through its Climate Change Initiative, DDCF supports work to evaluate and develop policies that put a price on greenhouse gas emissions and address other aspects of the regulatory frameworks needed to reduce the threat of global warming.
“The insight and analysis found in this series will help policymakers assess the different ways to address our climate and energy problems,” said Andrew Bowman, director of the Climate Change Initiative at the Doris Duke Charitable Foundation. “This work is critical, and the Doris Duke Charitable Foundation is pleased to support it.”
For more information about global climate change and the activities of the Pew Center, visit www.c2es.org.
The Pew Center was established in May 1998 as a non-profit, non-partisan, and independent organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
Cap-and-Trade Design Elements for a Greenhouse Gas Reduction Program
- Greenhouse Gas Emission Reduction Timetables
- Scope of a Greenhouse Gas Cap-and-Trade Program
- Greenhouse Gas Emissions Allowance Allocation
- Containing the Costs of Climate Policy
- Greenhouse Gas Offsets in a Domestic Cap-and-Trade Program
- Addressing Competitiveness in U.S. Climate Change Policy
Complementary Policies to Reduce Greenhouse Gas Emissions
This policy brief outlines various options for containing costs under a cap-and-trade program to reduce greenhouse gas (GHG) emissions. Although cap and trade is generally considered a more cost-effective approach than traditional regulation, excessive allowance prices are a concern, particularly in the early years of a program when some low carbon technologies are not likely to be commercially available. High allowance prices could mean high compliance costs for regulated firms and high energy prices for consumers. A number of the design elements of a cap-and-trade policy—including the stringency of the emission reduction targets and the distribution of allowance value—will influence the cost of the policy. However, uncertainty regarding allowances prices, and in particular short-term price volatility and persistently high prices, are of concern to stakeholders. Policy options to address these concerns include allowing facilities to bank allowances, permitting firms or the government to borrow allowances from future allocations, allowing (or expanding) the use of offsets, allowing the use of multi-year compliance periods, setting a ceiling on allowance prices, or even relaxing the cap or emission targets associated with the policy. Each of these options has strengths and weaknesses and their desired results must often be weighed against the reduced certainty of meeting the environmental objective. A number of these polices, such as banking, could be established as part of the overall policy from the beginning of the program. Others could be set to be triggered automatically if allowance prices reach a certain level or at the discretion of a market oversight entity. It is likely that any viable cap-and-trade proposal will include a variety of cost containment mechanisms.
Download the brief (PDF)
This brief examines policy options for addressing competitiveness concerns arising from the establishment of a mandatory domestic program to limit greenhouse gas emissions. These concerns center on energy-intensive industries that compete globally and could face higher costs under a domestic climate program while key competitors do not. Studies find little evidence of significant competitiveness impacts on U.S. firms from past environmental regulation, and forecast relatively modest impacts on a narrow set of industries under a U.S. cap-and-trade program with modest emission allowance prices. In the long run, international agreements offer the best recourse against competitiveness concerns. As an interim measure, a domestic climate program could mitigate competitiveness impacts through options such as: excluding trade-exposed firms from regulation; compensating firms for regulatory costs through free allocation of emission allowances; compensating firms, while providing incentive for production and emission reduction, through output-based allocations; and placing taxes or other requirements on goods imported from countries with weaker emission controls. These approaches vary in their effectiveness in reducing competitiveness impacts, in their impact on the environmental integrity and economic efficiency of a domestic climate program, and in their influence on international relations and prospects for an effective international climate framework.
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This brief describes issues relevant to the timetable for reducing U.S. emissions of greenhouse gases (GHGs) under a cap-and-trade program. The first issue is whether reductions are sufficiently deep to have a meaningful effect on the global climate. Scientific evidence suggests that global reductions of 50 to 85% by 2050 are needed to avoid the most serious consequences of climate change, and policymakers need to decide what share of the global emission reduction burden will be shouldered by the United States. Second, while existing technologies can be used to make significant near-term emission reductions, new technologies will be needed to achieve deep long-term reductions. Policymakers can stimulate technology development with a sufficiently stringent timetable that covers several decades. Cost minimization is the third issue. Many existing technologies can be used to reduce emissions almost immediately at little cost. However, in some capital-intensive situations, such as a major change to a factory’s production process, costs may be reduced if emission reduction requirements can be matched with the natural lifecycle of the equipment or similarly, if firms and consumers have time to adjust purchasing patterns to reflect higher prices for GHG-intensive goods. Fourth, when it comes to the mechanics of setting a reduction timetable, policymakers must specify not only the start and end dates for the reduction pathway, but also the target for each intervening year. Given the environmental importance of cumulative emissions, less aggressive near-term action will necessitate deeper reductions in later years. Policies enacted by others suggest a blended strategy: near-term reduction targets based on technical feasibility and long-term targets based on environmental objectives. Finally, while a multi-decade emission reduction timetable will provide regulatory certainty, enhance innovation, and minimize cost, the reality is that new scientific, technical, or economic data may necessitate changes to the timetable. Policymakers need to manage the trade-off between long-term predictability and the flexibility to adapt to new information.
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This brief describes issues involved in choosing the set of greenhouse gases (GHGs), emission sources, and sectors of the economy included in a cap-and-trade program. Trade-offs between three primary criteria determine whether a source should be included in a cap-and-trade program: broader coverage, measurability of emissions, and ease of administration. Policymakers also face choices in determining which entity in each sector must hold allowances at the conclusion of each compliance period (the point of regulation)—either upstream, where the carbon dioxide or GHGs first enter the economy, or downstream at the location where GHGs are emitted, or somewhere in between. The choice of upstream or downstream depends partly on measurability and concerns about administration, and could have important impacts on the economic incentives for emission reductions. Additional choices include whether to regulate small sources, to expand program scope over time by “phasing in” additional sectors or GHGs, and whether to pursue complementary policies that can provide additional emission reduction opportunities. Special considerations are also important in defining the scope for each sector of the economy. The power sector requires special treatment to ensure proper incentives for carbon capture and storage and to avoid double-counting emissions from natural gas use. The transportation sector may be difficult to regulate downstream, but fuels can be included upstream and complementary policies play a particularly important role in this sector. High global warming potential gases are generally easier to include upstream, but adjustments may be necessary depending on the category of industrial use. Residential and commercial use of natural gas can be covered upstream or through those delivering natural gas, or can be addressed through efficiency standards.
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This brief presents the key issues and identifies options for the incorporation of greenhouse gas (GHG) offsets into emerging U.S. climate change policy. A GHG offset represents a reduction, avoidance, destruction, or sequestration of GHG emissions from a source not covered by an emission reduction requirement. The elimination of GHG emissions can be converted into tradeable offset credits, and cap-and-trade programs can be designed to permit firms to use these credits to meet their compliance obligations. A carefully crafted and implemented offset program can significantly reduce cap-and-trade compliance costs by providing lower cost emission reduction options. Yet, while economic modeling has shown that incorporation of offsets into a cap-and-trade program can significantly reduce costs and allowance prices, their inclusion is not without controversy or complication. Some are concerned that offset inclusion will reduce the price signal to the point that the innovation and technological change needed to address the climate problem will be diminished. Others focus on the difficulty associated with substantiating offsets as real emission reductions. Important considerations in designing offset programs include the way in which offsets are defined; the types, location and quantity of offsets allowed; and the methods for assessing and crediting projects. Generally speaking, offset projects come in three distinct types: 1) direct emission reductions, 2) indirect emission reductions, and 3) sequestration. Before a project can create an offset credit, the emission reductions should meet all of the following criteria: they must be real, measurable, additional, permanent, monitored, independently verified, measured from a credible baseline, not represent leakage, and be able to convey as a clear property right. Additionality is perhaps the most important yet complicated issue, as it requires an assessment of what would have happened in the absence of the project. Offset project assessments can be either project specific or standardized. A hybrid assessment approach, which uses some standardization methodologies but allows for a degree of flexibility in assessing projects, may be the most effective. Each of these important factors for creating high quality offsets are discussed in this brief.
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On March 6, 2009, the Pew Center held a Hill briefing on domestic offsets in a cap-and-trade system. Learn more here.
This policy brief outlines various options for distributing greenhouse gas emission allowances under a cap-and-trade program. Allowances represent a significant source of value and can be used to compensate firms or individuals affected by climate change policy or to raise funds for other socially desirable policy objectives. The basic allocation decision involves whether to freely allocate emission allowances, and if so, to whom, and whether to auction allowances, and if so, how to distribute the revenues. A number of recent cap-and-trade proposals begin with a combined approach that provides some allowances for free and auctions the rest, with the share of auctioned allowances rising over time. If free allocation is chosen, the basis for distribution must be determined. Options include granting allowances based on historical emissions (“grandfathering”), on levels of an output or input, or on an environmental performance “benchmark;” each has implications in terms of who benefits from the value of the allowances. If allowances are auctioned, in addition to deciding how the revenue generated by the auction will be used, policymakers will need to determine the type and frequency of the auction. Many of the same objectives can be met using either auction revenues or free allocation, including easing transition for affected firms and consumers and supporting new technologies. However, allocation decisions will sometimes entail trade-offs among the competing goals of achieving an equitable distribution of economic impacts, ensuring political feasibility, and minimizing overall program cost. Allowance allocation presents both a challenge and an opportunity: no allocation formula will satisfy everyone, yet allocation decisions can be made in ways that ease the transition to a low-carbon economy and enhance the likelihood of meaningful action on climate change.
Download the brief (PDF)