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
Featured in MetalMag's June edition. See page 66.
New Administration Puts Carbon Reduction on the Agenda
By Andre de Fontaine
During the past decade, climate change steadily has moved up the political agenda. Now, with a new administration in Washington, D.C., that has demonstrated a clear commitment to action, comprehensive climate-change legislation appears ripe for passage within the next couple years. As a result, many industries are appropriately wondering what the new regulatory environment will mean for their businesses.
First, it is important to note that reducing greenhouse-gas (GHG) emissions will impose a cost to society, though that cost is likely to be small and manageable within the context of the overall economy. These costs must also be balanced against the costs of unabated climate change, which are projected to be much greater than taking action now. Still, there likely will be distributional impacts as the U.S. transitions to a low-carbon economy, with certain industries being able to handle the transition with greater ease than others.
The green-building industry widely is expected to be a major beneficiary of public policies to reduce greenhouse-gas emissions because policymakers recognize two related facts. First, the country’s existing buildings are major contributors to climate change, accounting for about 43 percent of U.S. GHG emissions; and second, a number of low-cost mitigation options available involve improving the efficiency of new and existing buildings. Additionally, as the nation is mired in a serious economic downturn, efforts to stimulate the economy are increasingly focused on green buildings as a major source of new jobs in the coming years. For example, the recently enacted American Recovery and Reinvestment Plan of 2009 contained billions for weatherization assistance for low-income households, grants for states to improve the efficiency of residential, commercial and government buildings, and tax credits for energy efficiency improvements to existing homes.
While these stimulus provisions will benefit the green building sector in the near term, longer-term policy, in the form a cap and trade system for GHGs is also on the horizon. How does a cap-and-trade program work? The government sets an annual cap on allowable emissions, which declines over time. It then distributes allowances to entities– free of charge, through an auction, or a combination of the two – to entities included in the program. These typically are major emitters, like power plants and large manufacturing facilities. The total number of allowances distributed must match the total emissions allowed under the cap.
Regulated firms must hold and submit to the government one allowance for each ton of GHGs they emit. This creates a market for allowances—a carbon market—and an economic incentive for firms to reduce emissions. Those that easily can cut emissions can position themselves to purchase fewer allowances and/or sell excess allowances to firms that face higher reduction costs.
Buildings would not be directly regulated under the cap, but they could be impacted by increases in electricity and fuel costs attributable to the price of carbon. These higher energy prices will, over time, make investments in efficiency more attractive in the buildings sector.
This year the prospects for aggressive government action appear better than ever. President Obama has made clear his commitment to cap-and-trade legislation and related clean-energy policies, and key members of the U.S. Congress have pledged fast action in moving climate change legislation forward. Adding to the momentum for action is a strong push from the business community. This especially is noticeable in the advocacy efforts of the U.S. Climate Action Partnership, a unique coalition of 25 businesses and five nongovernmental organizations that is calling on Congress to pass comprehensive climate legislation this year.
Even as the country faces a significant economic challenge, business and political leaders increasingly are vocal about their commitment to addressing climate change--not at a later date, but right now. The green-building industry uniquely is positioned to ride this wave and make a major contribution in the country’s transition to a low-carbon future.
Andre de Fontaine is a Markets and Business Strategy Fellow at the Pew Center on Global Climate Change. He works with the Center's Business Environmental Leadership Council (BELC), a group of 43 largely Fortune 500 corporations that have partnered with the Pew Center to address issues related to climate change. He also engages in Pew Center analytic work on climate-related markets and investment issues.
OUTLOOK ON CLIMATE POLICY: ANSWERING A U.S. AND GLOBAL IMPERATIVE
Keynote Speech by Eileen Claussen
President, Pew Center on Global Climate Change
Carbon Finance North America
New York, New York
June 11, 2009
It is an honor to be here to present your keynote address this morning. We are here to talk about emissions trading … and forgive me for saying that I wouldn’t trade this opportunity for anything. I was wondering about something this morning, and realized I should have checked with the conference organizers on this: If my speech ends up shorter than advertised, would it be possible for me to sell the unused minutes to someone who is much more verbose?
Just imagine the possibilities if we could create a system like this. It would be a whole new market in public speaking credits. And, to the delight of conference-goers everywhere, perhaps we could once and for all address a very different emissions problem – yes, I am talking about far too many speakers going on for far too long.
In all seriousness, the conference organizers have put together a very impressive and packed agenda for the next two days. And I cannot imagine a more opportune time to be having this discussion.
These are exciting times in the energy and climate world. We have a President and Cabinet that are fully committed to addressing climate change – with cap and trade legislation being their preferred approach. We have an EPA that is poised to regulate greenhouse gas emissions – in response to the recent Supreme Court ruling in Massachusetts v. EPA. We have a number of state and regional initiatives in place and operational. We have teams of negotiators around the world preparing for the December meeting in Copenhagen, and we have ever increasing numbers in the business community that are ready – really ready for the certainty that regulatory frameworks will offer them.
Most recently, on May 21st, the House Energy and Commerce Committee achieved something extraordinary – passage of a climate and energy bill that has the potential to set the United States on a path to tackle climate change in a serious way. This bill could reach a vote by the full House as early as the end of this month – but almost certainly before the fall.
Einstein once said that “the only reason for time is so that everything doesn’t happen all at once.” But right now, it seems that everything is happening all at once.
And our job here at this workshop is to try and make sense of all these simultaneous goings-on – and to look ahead to another time, not far in the future, when cap and trade becomes an integral part of our national economy, a fait accompli.
What will this system look like? When will it take hold? And what does it mean for the organizations you represent, for American business in general, and for the American consumer? These are the questions you are here to explore over the next two days. And you will be hearing from a remarkable line-up of experts on finance, policy, trading and other topics.
My role this morning is to kick things off with a brief overview of where we stand today on the climate issue from a political and policy perspective. The Pew Center, both in its own right and as a participant in the U.S. Climate Action Partnership, remains very deeply engaged in the work of helping to forge domestic and international solutions to climate change. And I want to share with you some reflections based on this work, and some ideas about where this issue may be headed in the weeks and months ahead.
Please understand, however, that the climate issue is still very much in flux. Therefore, I will borrow from the latest statement I received from my investment advisor and say that this speech “contains forward-looking statements that reflect our beliefs, judgments and current expectations … these statements are not guarantees of future performance.”
And you can take that straight to the bank!
With that caveat out of the way, I want to start with some observations on how far we have come on this issue in what is actually a fairly short amount of time. For those of us in the trenches, of course, it feels like we have been at this forever. Trying to get our elected leaders, the general public, business executives and other audiences engaged in the work of addressing this enormous problem, and coming up with creative solutions that use the power of markets to reduce emissions, has required years of exertion, frustration and worse. But when you look at where we were just ten years ago, and then at where we are now, you see a transformation in how we think about this problem of climate change, and also in how we think about solving it.
And, of course, the main reason why we are thinking differently about the climate problem today is because the science is clear: there is no longer any doubt that climate change is real, that it is largely caused by humans, and that addressing this problem must be an urgent priority.
The Nobel Prize-winning Intergovernmental Panel on Climate Change said in its landmark 2007 report that the warming of the climate system is – I quote – “unequivocal.” In just the two years since the IPCC issued that report, it has become increasingly clear that the impacts of climate change are happening much sooner than scientists had projected. There is also growing concern among scientists that the 2007 estimates understate the potential level and pace of climate change, and that these changes will not happen gradually but potentially in fits and starts that will give the world far less time to adapt.
For example, projections from recent studies indicate a total rise in sea level of anywhere from one-and-a-half to six-and-a-half feet, compared to the maximum of two feet in the IPCC report. Recent studies also indicate that the melting of the Greenland ice sheet is accelerating, and that ice shelves in the Antarctic, which help prevent the rapid flow of land-based ice into the sea, are collapsing more rapidly than expected. To our North, the dramatic decline in Arctic summer sea ice has stunned scientists, who had not expected to see this level of ice loss for decades. These sorts of changes are happening right now and they are happening faster than anyone predicted.
The bottom line is that the science shows we have no choice but to take action on this issue. And it is largely because of the science that public opinion on this issue has shifted in recent years.
A national survey conducted earlier this spring found that 77 percent of voters now favor action to reduce greenhouse gas emissions. Further evidence of the shift in public opinion came in another spring poll showing that 59 percent of voters believe efforts to tackle global warming will create new American jobs.
Now, my intention is not to stand up here and paint a completely rosy scenario of public support for climate action. While public opinion has shifted over the past decade – there is still some pretty significant polling that shows we have a ways to go.
For instance, earlier this year, in a widely touted poll, global warming ranked last in a survey of the nation’s top 20 policy priorities. Among Republican voters, only 16% considered it a priority. And while this polling has gotten a lot of mileage in particular policy circles – what is important to know is this: In the same survey, 60% identified energy as a top policy concern – a 20% increase from six years ago. And as we know, energy and climate change are inextricably linked – so I am OK with 60% of respondents listing energy in the top three priorities – a win for energy could well be a win for climate. So part of our challenge has been to help make the energy-climate connection more clear to more people.
Yet another factor in the growing support for climate action in the nation’s capital is a profound change in the stance of leading businesses toward this issue. I mentioned the U.S. Climate Action Partnership already. With leadership from a range of Fortune 500 companies, in partnership with the Pew Center and other NGOs, USCAP has become a powerful advocate for strong and swift action on climate change.
A decade ago, it would have been unimaginable for so many leading businesses to sign on to an agenda advocating cap-and-trade and other measures to achieve dramatic reductions in U.S. emissions. But the USCAP Blueprint for Legislative Action is part and parcel of a campaign that has engaged CEOs from companies such as Alcoa, GE, Duke Energy, Shell and many others to become active and very visible supporters of mandatory climate solutions. Their plea for strong action and regulatory certainty on this issue has found a very receptive audience in Washington and has provided a vital push for Congress.
Another push has come from the states, which continue to act on their own in the absence of a federal program to reduce emissions. The first regional effort, of course, is the Regional Greenhouse Gas Initiative, under which ten Northeastern and Mid-Atlantic states will cap and reduce emissions from the power sector by 10 percent by the year 2018. But the Western states, and the states in the Midwest are also getting ready to implement cap and trade programs. And in May, a coalition of Governors of 27 states and three U.S. territories signed an agreement calling on Congress to enact energy efficiency and clean energy legislation and to cap greenhouse gas emissions to levels that scientists consider necessary to protect the climate.
So the pressure for action is coming from all directions: from the science, from public opinion, from business leaders and from the states. And it is therefore no wonder that we’ve seen Congress and the Administration engage on this issue in such a determined fashion this year.
But make no mistake – there are still some very real obstacles to cap-and-trade becoming law in the U.S., and there are also considerable obstacles to overcome before we will see effective international action on this issue – and I will address that later. But as never before, the stars are aligned for the United States and the world to finally develop solutions to tackle this problem.
With that, I want to get to exactly what’s been happening on this issue over the past few months, and what it means as we look ahead. Domestically, the Obama administration and Congress have made climate and energy policy a signature issue. And I say this not just because of where we are with cap and trade. It’s easy to forget that President Obama, in his first months in office, made some crucial decisions that will result in real reductions in U.S. emissions of greenhouse gases, and real changes in how we produce and use energy in the decades ahead.
The economic stimulus package signed by the President in February included more than $80 billion in new spending and incentives for everything from smart-grid technologies to renewable energy development to coal with carbon capture and storage to energy efficiency improvements and mass transit. This investment represents a down payment on building the clean energy infrastructure that we need to keep our economy strong for decades to come.
And then there was the President’s budget proposal, which called for an economy-wide cap-and-trade program to reduce U.S. emissions 14% below 2005 levels by 2020, and 83% below 2005 levels by 2050. Then, in response to a Supreme Court ruling, the EPA in April opened the door to regulation of greenhouse gases with its proposed finding that greenhouse gases contribute to air pollution that may endanger public health and welfare. And, one month later, the White House forged a groundbreaking agreement to increase the average fuel efficiency of cars and light trucks by 30 percent by 2016.
In his statements, his appointments, his stimulus plan, and his early executive actions, President Obama has given every indication that he understands the urgency of the climate challenge and is determined to meet it.
And the President’s engagement has been reciprocated on Capitol Hill. The most obvious evidence of this is the May vote of the House Energy and Commerce Committee on the American Clean Energy and Security Act. This bill combines ambitious but achievable greenhouse gas emission reduction targets with a market-based cap and trade program. It passed the Committee after roughly 37 hours and 94 amendments, by a vote of 33 to 25. It is a good bill – it protects consumers and provides the certainty businesses need to invest in a clean energy future for America. And now it will go before other committees – primarily the Agriculture Committee and Ways and Means -- for their consideration before it is taken up by the full House this summer. Given the support it received in Energy and Commerce – where Members represent a broad range of geographic regions with coal, oil, auto, and manufacturing concerns – the prospects are good for the bill’s passage by the full House.
Of course, the Senate is an entirely different matter. Majority Leader Harry Reid and Senator Barbara Boxer, who chairs the Environment and Public Works Committee, have made cap-and-trade legislation a priority for 2009. But action in the Senate will be far more difficult than in the House, and while Senator Reid has said he hopes for a vote this year, it’s nowhere near certain that this will happen. Although a bill can pass the House along partisan lines, this is not a possibility in the Senate. And so the White House will have to play a much more prominent role in mobilizing support from both Republican and Democratic senators.
The main challenge to fast action on this issue, of course, is the state of the U.S. and global economies. We should keep in mind that everything I have discussed is happening in the context of a serious economic downturn. In my view, President Obama is absolutely right when he says that tackling energy and climate change will not only help with the immediate challenge of economic recovery, but also will provide a new foundation for strong, sustainable economic growth. But the fact that he is right does not necessarily make our challenge easier to overcome. The opponents of strong climate action are using current economic conditions as reason for delay – and they are sure to ratchet up their opposition, and their rhetoric, as Congress continues its work.
In fact, the debate over climate policy in the U.S. in the coming months will in reality be a debate over costs – we will hear a lot about overall costs to the economy, costs for households, and possible job losses. And so the task facing those of us who support climate solutions is to do our best to make sure the debate is comprehensive and honest.
We cannot accept the numbers that are cited as the costs of the Waxman-Markey bill when they are not based on what is actually in the bill. We cannot accept cost estimates where the assumptions in the models used to generate those estimates are not transparent. And we need to make sure that the costs of solving this problem are balanced against the ultimate costs of the problem itself; that the clean energy jobs we will create as we transition to a lower-carbon economy are also accounted for; and that the costs of deferred investments in new technologies because of the uncertainty created by a lack of policy are not ignored. Only then will we be able to win the arguments against the opponents of serious action on this issue. And only then will we be able to develop policies that face up to the true scope of the climate problem.
These have to be our talking points in the weeks and months ahead as Congress continues to debate cap-and-trade and other measures. We must not let the debate rest solely on the costs of moving forward with these measures, although, of course, there will be costs. But we need to be honest about what these costs might be, and we need to array them against the benefits of acting – for workers, businesses, investors and, of course, the general public for whom climate change poses very serious consequences now and in the future.
Consider the costs of drought and other weather extremes. Reductions in water availability in the Central Valley of California could cost farmers $3 billion by 2050 and increased wildfires in the State could cost homeowners an additional $2 billion annually.
Making this discussion balanced and honest will not be easy. Given the severity of the economic crisis we are in, the debate about the costs of domestic action on climate will be a high-volume, highly contentious affair. As a result, even if we work very hard to pass national climate legislation in 2009, I do not believe we can count on a bill reaching the President’s desk this year. We can try, and we must. But at the same time, we also must be realistic about what’s possible to achieve in the current political climate here in Washington. And so my prediction – and remember: this is a forward-looking statement and not a guarantee – is that climate change legislation will pass Congress and be signed by the President sometime in 2010.
When this occurs, the implications for carbon markets will be profound. I know you will be discussing this throughout the conference, but let me just say that effective oversight of carbon markets will be essential to the success of any domestic cap-and-trade system. We need to make absolutely certain this market delivers what it promises: real reductions in overall emissions.
Our current economic conditions have caused many to rightfully question the future role of markets. So more than ever, we must ensure that a market for greenhouse gases is created with the rules and enforcement necessary to prevent manipulation and abuses. Getting it right from the start is critical, and much progress is already being made to ensure its success. As a member of the Energy and Environmental Markets Advisory Committee of the Commodity Futures Trading Commission, I look forward to consulting with many of you as we set out to design an effective carbon trading system for the U.S.
Under a mandatory national climate program, the U.S. will have the largest carbon market in the world. Considering the size of the carbon market is important, because as the cap-and-trade program’s scope increases, so do opportunities to lower the overall program costs for the economy. Containing costs, and protecting consumers and businesses from price volatility, is critical both for the economy and for the program’s political viability.
It’s no surprise, then, that cost containment mechanisms are critical to the Waxman-Markey bill. In addition to sensible rules for banking and borrowing allowances, the legislation allows up to 2 billion tons of offsets to be used for compliance—up to 1 billion tons domestic and 1 billion tons international. Offsets availability is one of the most important tools for containing the cost carbon allowance prices—indeed, EPA’s analysis of the Waxman-Markey discussion draft found that without international offsets, allowance prices would be 96% higher. And above all else, we must ensure that offsets, whether international or domestic, deliver real, verifiable and additional emission reductions.
This is especially true when considering international offsets. One advantage of international offsets is their ability to engage developing countries in climate change mitigation. And these countries do need to be engaged proactively in developing and implementing measures and programs to reduce emissions.
And this leads us to a discussion of where we stand in the international negotiations on this issue. The Pew Center believes that, ultimately, a multilateral treaty is not only the best solution, but is a requirement if we are going to seriously address climate change. Over the past two weeks, officials from 182 countries for the first time debated the “draft text” for a Copenhagen agreement. Their goal is extremely ambitious: they want to reach a new global climate agreement this year. And this is where we can see a clear connection between domestic and international action on climate change. Because without a solid blueprint for domestic action, it will be difficult for the United States to help craft an international plan to reduce emissions.
We simply cannot afford to repeat the mistake we made in negotiating the Kyoto Protocol. Despite the fact that the Clinton administration signed Kyoto in 1997 with much fanfare, it was never sent to the U.S. Senate for ratification. The problem was that there was a major disconnect between our domestic and our international policy. We were promising things on the international stage that we simply were not prepared to deliver at home.
Does this mean we should sit out today’s international negotiations until the President signs a comprehensive domestic climate bill? Of course not. The world can make substantial progress in Copenhagen. With a lot of hard work, I believe it is possible to achieve an interim agreement, one that sets the stage for a ratifiable agreement in 2010. But the chances for such an agreement will improve markedly to the extent that the United States is engaged in a serious discussion of what we intend to do here at home, and to the extent that we reach consensus this year on such critical issues as domestic targets and the assistance we are willing to provide to developing countries as they tackle this challenge.
Todd Stern, the U.S. special climate envoy, understands the delicate balance the United States must strike, and the challenges we face. He knows that we have to balance our interest in achieving an effective post-2012 global climate agreement with a realistic appraisal of what the world can expect from the U.S. in terms of mitigation commitments and financial support. The next 6-12 months will require the ultimate in political and diplomatic skill.
Stern has repeatedly highlighted the need for the U.S. to enact a domestic cap-and-trade program and invest in clean energy technologies that can help drive economic growth in the 21st century – suggesting – I believe rightly so – that the United States’ leverage in the negotiations will depend heavily on the pace of domestic climate legislation. The Waxman-Markey bill will allow the United States to help lead the efforts toward a global agreement in which the major economies of the world, both developed and developing, play their part to address the climate challenge.
But, in the same way that we must be honest with ourselves about the prospect of completing work on national legislation this year, we also must also be honest with ourselves about the prospect of wrapping up work this year on an international agreement. Reaching even an interim global agreement presents its own set of very serious challenges. What target levels are appropriate for the United States and other developed countries as they set out to reduce their emissions, especially in the midst of a global economic downturn? What’s the best way to ensure that developing countries like China and India are doing their part? How can we make certain that developing countries have the resources they need to invest in clean energy and other emissions-reducing technologies?
These are not easy questions. Answering them in a way that yields real progress toward an effective international climate agreement will take perseverance and a lot of hard work. And we will not get far, as I said, unless the United States is working hard to address this issue here at home.
Ultimately, we need a legally binding, post-2012 global agreement that includes commitments from all major economies, while respecting the common but differentiated responsibilities of developed and developing countries. The good news is that the major developing economies are indeed making progress on this issue – including China, India, Mexico, South Africa, and Brazil. But in the context of an international agreement, it’s critical to ensure the efforts of these countries are verifiable, and that they put the world on a path to stopping and reversing the growth in global emissions. Binding emissions targets are out of the question for developing countries at this time. And so the central challenge is to determine how to incorporate and enhance their national policies and actions, such as renewable energy and energy intensity targets, efficiency standards, and forestry goals, into an effective international framework.
At the same time, we also need to resolve the pressing question of financing for developing country efforts. There is an enormous need for technology and new investments in developing countries’ capacity to reduce emissions and adapt to climate change. But right now, given the state of the global economy, as well as the increasing portion of public monies dedicated to economic stimulus in the United States and many other nations, it is hard to see where the money comes from.
Whether the developed world, in 2009, will be able or willing to agree to mechanisms for providing dependable funding to developing countries on this issue remains unclear at best. And so money, as is so often the case, is perhaps the major challenge we will face as we move into serious negotiations on a post-2012 global climate agreement. Add to that the other challenges I have mentioned, and it’s clear that negotiators have their work cut out for them in the run-up to the Copenhagen meeting later this year.
Of course, the other complication when it comes to international action on climate change is the nature of the U.S. relationship with China. Of all the bilateral relationships on this issue, this is perhaps the most critical, and the most delicate. While China has shown a greater willingness to engage in climate discussions, and is sensitive to its new standing as the world’s largest greenhouse gas emitter, the Chinese do not want their country cast in a spotlight. So, rather than making an issue of what the Chinese must do to rein in emissions, a better approach for the U.S. at this moment is to pursue closer collaboration on clean coal technology and other energy and climate challenges. This could produce practical benefits for both countries, build trust, and help pave the way for a multilateral agreement.
In closing, I want to note that I have identified an array of challenges to domestic and international action on the climate issue, a whole host of potential hurdles. But I want to leave no doubt that I remain optimistic. The United States is moving ever closer to adopting a domestic cap-and-trade system, and international negotiators are engaged in a determined effort to forge an effective global climate agreement. We must succeed in both of these endeavors. And this is something that more and more of our leaders, more and more of the people of this world, understand. They have seen the science. They know that the time for action on this issue is now. And they understand like all of you that, if we do this right, we will leave future generations not only a safer climate but also a stronger economy that rewards innovation and that drives investment to industries and projects that will benefit us all.
I hope I have not gone over my allotted time, and if I have, then perhaps one of your other speakers will allow me to buy a few extra minutes.
Thank you very much.
OnPoint Interview with Eileen Claussen
Tuesday, June 9th, 2009
Watch the interview here.
With a number of studies showing varying statistics on how much a federal cap-and-trade program will cost the average American, how can Congress accurately assess the true impact? President of the Pew Center on Global Climate Change, Eileen Claussen, breaks down the numbers and discusses disparities among the studies. She explains why she does not believe there is an economic argument against cap and trade and gives her take on how inaccurate numbers and modeling may negatively affect Americans' perception of climate legislation.
Maintaining Carbon Market Integrity: Why Renewable Energy Certificates Are Not Offsets
A brief by the Offset Quality Initiative
This brief explains how and why renewable energy certificates (RECs) differ from greenhouse gas (GHG) emission offsets (offsets). While the Offset Quality Initiative (OQI) is a strong supporter of renewable energy and believes it has a critical role to play in addressing climate change, OQI does not believe that RECs sold in voluntary green power or mandatory renewable energy portfolio standard (RPS) markets should be treated as equivalent to GHG offsets. REC programs fail to meet two basic definitional requirements of emissions offsets: First, they do not adequately establish a clear and unambiguous claim of ownership to emission reductions. Second, they fail to adequately establish that RECs are associated with offsetting emission reductions. Specifically, REC programs do not ensure that emission reductions are additional to what would have occurred in the absence of a REC market.
In order to ensure that markets for RECs function appropriately and do not undermine the effectiveness and integrity of markets for GHG emissions reductions, OQI recommends the following:
- RECs should not be treated as equivalent to GHG offsets.
- The definition of a REC should be clearly established and consistently applied. A suggested definition would be the following: “A Renewable Energy Certificate (REC) is the unique and exclusive proof that one megawatt-hour of electricity has been generated from a qualified renewable resource connected to the grid.”
- It is inappropriate to treat RECs as an environmental commodity that conveys ownership of indirect “emission attributes” such as GHG emission reductions. OQI strongly recommends against the inclusion of indirect or derived “environmental attributes” or “benefits” in any definition of a REC, including those used in the various certificate tracking systems (e.g., Generation Attribute Tracking System [GATS] and Western Renewable Energy Generation Information System [WREGIS]).
- Purchasers of RECs should not make GHG emission reduction claims associated with the retirement of RECs.
In addition to the Pew Center on Global Climate Change, OQI members include The Climate Trust, Climate Action Reserve (formerly CCAR), Environmental Resources Trust/Winrock International, Greenhouse Gas Management Institute, and The Climate Group. OQI was founded in November 2007 to provide leadership on greenhouse gas offset policy and best practices. OQI is a collaborative, consensus-based effort that brings together the collective expertise of its six nonprofit member organizations.
Pew Center Side Event at Bonn Climate Talks:
Update on U.S. Climate Change Policy
Monday, June 8 from 7:30-9:00PM
Ministry of Transportation - Room RAILThe event features perspectives on the latest developments on cap-and-trade legislation and federal regulatory actions, and implications for the international climate negotiations.
- MANIK ROY, Vice President for Federal Government Outreach, Pew Center (Download Presentation)
- LEIF HOCKSTAD, U.S. Environmental Protection Agency
- MARK HELMKE, Foreign Relations Committee, U.S. Senate
Moderated by ELLIOT DIRINGER, Vice President for International Strategies, Pew Center
- Related Press Briefing on U.S. climate policy
- U.S. Legislation - The American Clean Energy and Security Act
- Pew Center Statement on the Act
- Testimony on International Aspects of the Act
- Summary of the Act
- U.S. Climate Action Partnership
- U.S. Climate Policy Briefs
- Testimony on the Roadmap to Copenhagen
- International Policy
- This statement was issued following the passage of the American Clean Energy and Security Act (ACES Act) by the House Energy and Commerce Committee. -
Statement of Eileen Claussen
President, Pew Center on Global Climate Change
May 21, 2009
Today the House Energy and Commerce Committee achieved something extraordinary – passage of a bill that sets us on a path to tackle climate change, drive our economic recovery, and advance our energy independence. Congressmen Waxman, Markey, Dingell and Boucher, and their colleagues on the committee have drawn from more than two years of intensive work to produce this landmark legislation. The bill will provide the certainty businesses need to invest in a clean energy future and provide protection for consumers.
The science is clear. There is no longer any doubt that climate change is real, it is largely caused by humans, and tackling it is urgent. The ACES Act combines ambitious but achievable greenhouse gas emission reduction targets with a market-based program that will reward business leaders for deploying clean energy technologies as quickly and inexpensively as possible. There is a global race underway to develop these technologies – a race that will dominate the 21st century economy – and the ACES Act will help U.S. businesses lead that race.
The ACES Act uses a variety of measures to minimize costs to the U.S. economy by providing assistance to help consumers and businesses transition to a low carbon future. In addition, the ACES Act will allow the United States to help lead the efforts toward a global agreement in which the major economies of the world, both developed and developing, play their part to address the climate challenge.
Chairmen Waxman and Markey have seized their opportunity to begin building a stronger U.S. economy and a better, safer world. It will not be an easy task – but it is one we must begin now. I urge the Congress to build on this work to pass strong climate and energy legislation.
Pew Center Contact: Tom Steinfeldt, 703-516-4146
- Opinion piece featured in Yale Environment 360 on May 7, 2009. -
May 7, 2009
The days of freely dumping greenhouse gases into the atmosphere are coming to an end, but how best to price carbon emissions remains in dispute. As the U.S. Congress debates the issue, Yale Environment 360 asked eight experts to discuss the merits of a cap-and-trade system versus a carbon tax.
A broad spectrum of people concerned about global warming and U.S. energy independence agree on one basic truth: Sooner or later, emitting planet-warming greenhouse gases is no longer going to be free. Whether it comes this year, or next, or in five years’ time, legislation imposing a price on burning fossil fuels seems all but inevitable.
Any law that places a price on carbon must achieve two basic and interrelated goals: discouraging — with increasingly painful economic consequences — the use of oil, coal, and natural gas, and encouraging the development of renewable sources of energy. Two paths to this end have been proposed. The first is a cap-and-trade system, which would place progressively stricter limits on fossil fuel use; require power plants, industries, and other major sources of greenhouse gases, to purchase permits to discharge carbon dioxide; and establish a market in those permits. The second is an outright tax on fossil fuels. Proponents of both methods say the economic hardship created by higher energy prices could be offset by rebates to taxpayers.
The cap-and-trade option has attracted far more attention and has many more supporters, including President Obama, key Congressional leaders, and an influential coalition of environmental groups and big businesses, including General Electric, Dow Chemical, Shell Oil, and Duke Energy. Congressional leaders say they hope to pass a cap-and-trade bill by year’s end, but whether they can achieve that goal remains a major question.
Supporters of cap-and-trade argue that it has two main strengths. It sets a steadily declining ceiling on carbon emissions, and, by creating a market that rewards companies for slashing CO2 (corporations that reduce emissions below their allotment can sell them on the open market), it uses the free enterprise system to wean the country off fossil fuels and onto renewable energy. Proponents of a carbon tax say their plan has one overriding benefit: Its simplicity. They contend that by imposing a predictable and steadily increasing levy on fossil fuels, the carbon tax will also drive development of alternative sources of energy.
Yale Environment 360 asked a number of environmentalists, economists, and academics to explain which approach – cap-and-trade or a carbon tax – they preferred. There was disagreement on many points, but on one issue most concurred. As Jeffrey D. Sachs, director of the Earth Institute at Columbia University, said, imposing some sort of price on fossil fuels “is a big improvement over the do-nothing status quo.”
Eileen Claussen's response:
An economy-wide greenhouse gas cap-and-trade system sets a clear limit on greenhouse gas emissions and minimizes the costs of achieving this target. Environmental integrity and cost-effectiveness are two critical advantages that make cap-and-trade the right policy mechanism to tackle climate change in an economically responsible manner. Complementary measures and incentives — including for coal, transportation, technology commercialization, and buildings and energy efficiency — are also necessary pieces of the climate solution.
Unlike traditional regulation, a cap-and-trade program constrains emissions but lets market forces set a price on emissions. Rather than mandating a specific technology, the flexibility afforded by emissions trading markets helps identify where emission reductions can be achieved most cost-effectively. Cap-and-trade stimulates the development of new technological solutions that can enable much deeper emissions cuts at lower cost in the future.
A carbon tax is often presented as a main alternative to cap and trade. A core difference between these approaches involves the issue of certainty. A tax provides cost certainty by setting a fixed cost on emissions, whereas cap-and-trade delivers emissions certainty by establishing a declining emissions limit based on an assessment of the reductions level required to protect the climate. In contrast to a cap-and-trade approach, a tax would not provide the same level of emissions certainty during any given compliance period.
An economy-wide cap-and-trade policy is supported by President Obama, by Congressional leaders drafting bills in the House and Senate, and by the 25 major corporations and 5 NGOs working together as the U.S. Climate Action Partnership. Greater flexibility to achieve emissions reductions in a cost-effective manner and greater certainty that environmental objectives will be met are key advantages of a cap-and-trade policy.
Press Release - May 6, 2009
Contact: Tom Steinfeldt, (703) 516-4146
PEW CENTER ANALYSIS PROJECTS MODEST COMPETITIVENESS IMPACTS
UNDER A U.S. GREENHOUSE GAS CAP-AND-TRADE PROGRAM
Report Outlines Policy Options to Ease Potential Impacts
on Energy-Intensive Manufacturers
Washington, DC – A close look at the historical relationship between energy prices and U.S. production and consumption of energy-intensive goods suggests that energy-intensive manufacturers are likely to face only modest “competitiveness” impacts under a U.S. greenhouse gas cap-and-trade program, according to a new analysis released today by the Pew Center on Global Climate Change.
The Pew Center study projects that U.S. energy-intensive manufacturing industries would on average lose 1 percent of their annual production to imports assuming a CO2 price of $15 per ton in the United States and no carbon price in other countries. Both the U.S. Energy Information Administration (EIA) and the Environmental Protection Agency (EPA) have projected CO2 prices of approximately $15 per ton under cap-and-trade programs proposed in Congress.
The authors conclude that the projected impacts can be addressed through policies targeted to energy-intensive sectors. They outline a range of policy options, including: compensating energy-intensive sectors covered by a mandatory cap for their regulatory costs; excluding those sectors from the cap-and-trade program; and using border adjustment measures to equalize costs for domestic and imported energy-intensive goods.
“This is one of the most sophisticated efforts ever to quantify the potential competitiveness impacts on energy-intensive industries. The analysis shows clearly that, at the price level studied, the potential impacts are very modest and very manageable,” said Pew Center President Eileen Claussen. “Policymakers have a range of policy tools to mitigate the modest economic impacts that may be foreseen. The bottom line is that fear of competitive harm should not stand as an obstacle to strong climate policy.”
The report is authored by economists Joseph E. Aldy and William A. Pizer, who were affiliated with Resources for the Future, a think tank in Washington, D.C., at the time the analysis was undertaken. Both have since taken positions in the federal government.
The report, “The Competitiveness Impacts of Climate Change Mitigation Policies,” bases its projections on an econometric analysis of the historical relationship between fluctuations in energy prices and shipments, trade, and employment within energy-intensive manufacturing industries. The analysis draws on 20 years of data for more than 400 energy-intensive subsectors.
Based on the historical relationships identified, the authors estimate the likely impacts of energy price increases at the levels associated with a CO2 price of $15 per ton. An EIA analysis cited in the report projects a CO2 allowance price of $16.88 per ton in 2012 under the Lieberman-Warner cap-and-trade proposal considered last year in Congress (S.2191). A preliminary EPA analysis of the draft Waxman-Markey climate and energy bill released in April projects an allowance price of $13 to $17 in 2015.
In assessing the potential impacts on energy-intensive manufacturers, the analysis distinguishes “competitiveness” impacts – the loss of market share to foreign competitors facing no carbon price – from the broader economic impacts these sectors may face under a mandatory greenhouse gas policy.
For U.S. manufacturing as a whole, the analysis estimates an average production decline of 1.3 percent, and a decline in consumption of 0.6 percent, suggesting only a 0.7 percent shift in production overseas. For energy-intensive industries (those with energy costs exceeding 10 percent of shipment value), output and consumption are projected to decline 4 percent and 3 percent, respectively, suggesting a 1 percent shift in production. The findings indicate that most of the projected economic impact reflects a move towards less emissions-intensive products, rather than an increase in imports or a shift of jobs or production overseas.
Looking at specific sectors, the report estimates a “competitiveness” impact of 0.6 percent for bulk glass; 0.7 percent for aluminum and cement; 0.8 percent for iron and steel; and 0.9 percent for paper and industrial chemicals. The authors note that the analysis assumes similar behavior among industries with similar energy intensity, and that at any given level of energy intensity, some industries may face impacts higher than the calculated average.
The analysis contributed to a recent Pew Center policy brief, “Addressing Competitiveness in U.S. Climate Change Policy,” which further examines available policy options. It also was cited by Claussen in recent testimony before the Energy and Environment Subcommittee of the House Energy and Commerce Committee.
Claussen noted that the competitiveness provisions of the Waxman-Markey discussion draft – which would use output-based rebates to compensate energy-intensive manufacturers for increased costs, and resort to border measures only if the President determines the rebates have been ineffective – are largely consistent with earlier Pew Center recommendations.
“The draft provides a very sound framework for managing what we now know are relatively modest risks,” said Claussen.
The new report, and additional information on global climate change and the Pew Center, are available at 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.
The Competitiveness Impacts of Climate Change Mitigation Policies
Joseph E. Aldy and William A. Pizer
Resources for the Future
A close look at the historical relationship between energy prices and U.S. production and consumption of energy-intensive goods suggests that energy-intensive manufacturers are likely to face only modest “competitiveness” impacts under a U.S. greenhouse gas cap-and-trade program, according to this report.
Climate Policy Hill Briefing on Carbon Market Design & Oversight in a U.S. Greenhouse Gas (GHG) Cap-and-Trade System
Briefing on Carbon Market Design & Oversight in a U.S. Greenhouse Gas (GHG) Cap-and-Trade System
May 1, 2009
The Pew Center and the Nicholas Institute for Environmental Policy Solutions at Duke University held a briefing on the design and oversight of a successful carbon market. As Congress debates climate change legislation, one of the most critical yet least discussed issues is the development and oversight of a well-functioning carbon commodity market. This briefing frames and discusses many of the central issues in this process, including: overall market design, options for the choice of regulator, the role and importance of the derivatives market, and the types of rules and enforcement necessary to prevent market manipulation and abuses.
Watch the video and accompanying slides presented by each speaker listed below.
- Janet Peace, Vice President for Markets and Business Strategy, Pew Center on Global Climate Change
Presentation: Windows Media Slides (pdf)
- Jonas Monast, Co-Director, Duke University Climate Change Policy Partnership
Presentation: Windows Media Slides (pdf)
- James Newsome, Board member of the CME Group, former president of NYMEX and former chairman of the CFTC
Presentation: Windows Media Slides (pdf)
- Andy Stevenson, Finance Advisor in NRDC’s Center for Market Innovation and a former hedge fund manager and investment banker
Presentation: Windows Media Slides (pdf)
- Betsy Moler, Executive Vice President of Government and Environmental Affairs and Public Policy, Exelon Corporation, and former FERC Commissioner
Presentation: Windows Media
- Question & Answer: Windows Media
- The U.S. carbon market will be large.
- A market for GHGs will be different than other commodity markets.
- Created to deliver an environmental goal
- Emitters will have to participate
- There will be a limited supply of compliance units (allowances and offsets) that will likely decrease over time.
- The effectiveness of the market will have implications for the broader economy.
- Key fundamentals of a successful market
- Role and importance of the derivatives market
- Oversight considerations, such as the types of rules and enforcement necessary to prevent market manipulation and abuses
-This series was made possible through a generous grant from the Doris Duke Charitable Foundation, but the opinions expressed herein are solely those of the presenters.-