Climate Compass Blog

States should explore carbon pricing to encourage clean power

C2ES President Bob Perciasepe moderates a Solutions Forum panel with (l to r): Martha Rudolph, Director of Environmental Programs, Colorado Department of Public Health & Environment; David Paylor, Director, Virginia Department of Environmental Quality; and Janet Coit, Director, Rhode Island Department of Environmental Management.

States will have tremendous flexibility to choose how to reduce their carbon emissions under the Clean Power Plan, and one idea they should explore is putting a price on carbon.

The Center for Climate and Energy Solutions (C2ES) recently brought together legal and economic experts, state environmental directors, and business leaders to explore the potential to use market mechanisms to reduce these damaging emissions efficiently and cost-effectively.

Here are three key insights from this Solutions Forum:

  1. Market-based policies are the most cost-effective way to reduce emissions.

Economists have plenty of evidence that market-based policies can achieve environmental objectives at lower overall costs. The U.S. acid rain cap-and-trade program reduced sulfur dioxide emissions from power plants about twice as fast and at a fraction of the cost of traditional regulation. Setting a price on carbon sends a clear market signal to businesses so they can make the best investment and technology decisions and seize new opportunities. Ten U.S. states are already using carbon trading programs to reduce emissions while minimizing costs. There’s also the idea of a revenue-neutral carbon tax where we’d tax something we don’t want – carbon pollution  –  while reducing taxes on things we do want, like productivity and employment.

  1. States and businesses are willing to explore the idea of being “market-ready.”

The options available to states go beyond creating or joining a cap-and-trade program or instituting a carbon tax. Pieces can be put in place, such as common definitions, measurement and verification processes, so that states or companies could be in a position to trade within their state or across borders. Martha Rudolph, director of environmental programs for the Colorado Department of Public Health and Environment, said modest programs that allow companies to trade carbon credits should be explored. Skiles Boyd, DTE Energy vice president of environmental management and resources, urged states to look beyond efforts to block the Clean Power Plan and instead seek the best solutions to implement it. “‘Just saying no’ gives you tremendous uncertainty,’’ Boyd said. “Let’s try to develop a rule base that can be the best for our customers.”

  1. State and business leaders recognize the need to talk to one another about the best ways to reduce emissions.

To achieve the goal of reducing emissions in the smartest way, states and businesses will need to work together. David Paylor, director of Virginia's Department of Environmental Quality, said his state has a preference for market-based tools. “Solutions are going to be facilitated when the business community can get behind certain ideas and say, ‘This is the thing that makes the most economic sense to us,”’ Paylor said. And Katie Ott, senior manager of federal government affairs at Exelon, said businesses recognize their responsibility to bring forward reasonable, low-cost ideas. “Markets have successfully internalized the cost of pollution before,” Ott said, “and there’s no reason why they can’t do it again, this time for greenhouse gases.”

All agreed that greater flexibility in the planning process would help states make progress in implementing market-based policies.

C2ES will continue the conversation with states and businesses on smart ways to implement the Clean Power Plan at two more events this spring. A Solutions Forum on May 18 will explore reducing emissions by using information technologies to improve energy efficiency. A June 25 Solutions Forum will examine how to finance clean energy technology and infrastructure.

By sharing insights and ideas, we’ll reach innovative, cost-effective solutions that will help us get to a clean energy future.

 

States can learn from each other on carbon pricing

As discussed at our C2ES Solutions Forum on Carbon Pricing & Clean Power, both power companies and states see advantages to using carbon pricing, such as a cap-and-trade program, to reduce carbon emissions under the Clean Power Plan.

For companies, rather than being forced into specific measures to cut emissions, a carbon price harnesses market innovation to find the most cost-effective solutions. Meanwhile, states can draw on the experiences of existing cap-and-trade programs in California and the nine-state Regional Greenhouse Gas Initiative (RGGI).

While the advantages of market-based approaches are widely acknowledged, some stakeholders are concerned that the Environmental Protection Agency’s (EPA) timeline would make it challenging to develop a cap-and-trade program. EPA proposes giving states until summer 2016 to submit a plan. States could apply for a one-year extension or, if submitting a plan as part of a multistate collaboration, a two-year extension.

It took more time than that for California and the RGGI states to set up their programs. RGGI, the first cap-and-trade program for carbon dioxide in North America, began as a memorandum of understanding among seven governors at the end of 2005, and went into force in 2009. The origin of California’s program, which extends beyond the power sector, was its Global Warming Solutions Act, passed in 2006, and its first auction was in 2012. These two programs took years to implement in part because they were pioneers.

EPA will submit its final rule this summer. Even if its implementation timeline is unchanged, there are several reasons why setting up a cap-and-trade program or other trading mechanism would take much less time today.

First, a major sticking point for California and RGGI, the size of the cap, will already have been set by EPA. RGGI took years to negotiate the total cap for the region and how allowances would be distributed across member states. Once the Clean Power Plan is finalized, states will know exactly what their 2030 goals are, which power plants are covered, and what interim goals, if any, they must meet. Since each state will have an established cap, research or negotiation on this point will not be necessary in a single-state program. In a multi-state program, states may wish to negotiate the allocation of the overall cap, but this process should be easier than what RGGI went through, since each state would have a defined and transparent starting position. Due to EPA’s existing rules on power plant greenhouse gas reporting, states also now have a better sense of the amount and location of their power sector emissions.

Second, states need not reinvent the wheel. States can emulate either RGGI’s method of allocating allowances via auctions or California’s mix of auctions and free allocation. They can also emulate cost certainty measures (both existing programs have an allowance price floor and measures to limit price spikes), and even the administrative structure of distributing, tracking, and retiring emission allowances.

Third, the California and RGGI programs are more complex than what would be required under the Clean Power Plan. California’s program covers not only in-state electricity generation, but also electricity imports, industrial facilities, heating fuels, and transportation fuels. RGGI focuses on domestic generation, but involves nine states working together on a single program. In contrast, a cap-and-trade program developed to comply with the Clean Power Plan would only have to cover domestic generation from a single state.

Finally, states merely have to submit plans by EPA’s deadlines; they do not have to have programs in place. EPA has proposed the following requirements for state plans:

  • Identification of affected entities
  • Description of plan approach and geographic scope
  • Identification of state emission performance level
  • Demonstration that plan is projected to achieve emission performance level
  • Identification of emission standards
  • Demonstration that each emission standard is quantifiable, non-duplicative, permanent, verifiable, and enforceable
  • Identification of monitoring, reporting, and record-keeping requirements
  • Description of state reporting
  • Identification of milestones
  • Identification of backstop measures
  • Certification of hearing on state plan
  • Supporting material

(79 Fed. Reg. 34838 (June 18, 2014))

It’s clear that a state would need to have the framework of a cap-and-trade program developed before submitting its plan to EPA, including the trajectory of the cap, backstop measures, and reporting requirements. However, the program need not be fully formed at this stage. EPA appears to leave room for additional details, such as the logistics of allowance distribution, to be worked out between the time the plan is submitted and 2020, the first proposed compliance year.

Developing a cap-and-trade program within a few years would not necessarily be an easy task. However, the existence of pre-established targets, lessons available from California and RGGI, and additional time to work out logistical details means states that see the advantages of using cap and trade to implement the Clean Power Plan should not view the plan submittal deadline as a deterrent to pursuing this option. 

How culture shapes the climate change debate

I have an in-law who is, shall we say, rather skeptical about climate change. Any discussion on the topic usually begins with some contrarian science theory that he heard on one of his favorite talk shows (e.g. sun spots, deep ocean magma, urban heat islands), and then devolves from there.

Why do some Americans believe the antithesis of the scientific consensus on issues like climate change?

This topic is explored by Professor Andy Hoffman of the University of Michigan in his new book, How Culture Shapes the Climate Change Debate. As suggested by the title, Hoffman’s thesis – a distillation of considerable research from social scientists over the past several years – is that the public’s understanding of climate change, like other historically contentious issues such as evolution, acid rain, the ozone hole, and genetically modified food – is as much a cultural issue as a scientific one.

One of the key arguments is that a scientific consensus does not necessarily reflect a “social consensus,” the latter being something that the majority of society would consider to be true.  For instance, the scientific consensus that cigarettes harm human health emerged decades before the social consensus emerged.

“Scientific knowledge is never socially or politically inert,” Hoffman writes, “particularly when it prompts changes in people’s beliefs or actions.” Indeed, we see that even today when there is a broad scientific and cultural consensus on the potential mortal harm of cigarette smoke, an estimated 42 million Americans smoke, 16 million live with cigarette-related disease, and cigarettes still account for around 20% of US deaths annually, according to the Centers for Disease Control.

A social consensus can be difficult to achieve in the face of a scientific one because individuals filter science news through their pre-existing beliefs, which are in turn influenced by their group values. This can be clearly seen in climate change polling, which breaks down predominantly along party lines.

Hoffman explains that disbelief of climate change is exacerbated by distrust of the typical messengers (environmentalists, Democrats, scientists), the process of scientific research (which most people do not understand), and the solutions (regulation, renewables).

Further, when a scientific consensus exists but the solutions pose a threat to the economic status quo (e.g. acid rain, tobacco, ozone hole, climate change), those opposed to change often work to discredit the science and create doubt in the minds of the undecided. Merchants of Doubt, a book by Naomi Oreskes of Harvard University and the basis of a current documentary film, explores the history of such disinformation campaigns.

Recognizing that the messenger can be as important as the message, the C2ES (then Pew Center) Business Environmental Leadership Council was formed in 1998 in part as progressive corporate alternative to the Global Climate Coalition, a group of companies that actively funded a campaign to question the science of climate change and thus the need for action. Ten years later, more than 90 organizations, including 75+ business (and some former members of the Global Climate Coalition), joined an ad campaign led in part by C2ES to support climate and clean energy legislation.

So times do change.

Yet it is also important to remember that even if and when a social consensus is reached, changes in human behavior can still be difficult to achieve, as we saw in the smoking example (and if you subscribe to the notion that the global economy is “addicted” to fossil fuels, perhaps the metaphor is even stronger). This example also suggests that even if people are able to draw a connection between climate change and their personal experience – even their own health – getting them to act will remain a challenge.

Recently, we’ve seen some hopeful developments. Several climate change related amendments received bipartisan support in the Senate earlier this year, and companies and governments alike are making climate commitments leading up to the Paris climate talks in December.

In the end, as Hoffman says, talking about solutions can be most productive. Sure enough, my climate skeptical in-law is paradoxically a fanatic about being energy efficient at home – something he and I can agree on. And finding common ground helps to continue the conversation.

 

World economy grew, but carbon emissions didn't

In a sign that low-carbon policies may finally be gaining traction, global carbon dioxide (CO2) emissions leveled off last year even while the world economy grew.

Preliminary data from the International Energy Agency (IEA) indicate that energy-related CO2 emissions (from burning fossil fuels for electricity, transportation, industry, space heating and so on) remained unchanged from the previous year at 32.3 billion metric tons. Meanwhile, economic growth increased 3.3 percent.

One year’s data doesn’t necessarily translate into a trend. Even with much stronger efforts, it will be some time before we can truly announce that we have turned the corner on reducing carbon dioxide emissions. But 2014 is notable in that it’s the first time since the IEA was established in the early 1970s that a levelling off or a drop in global carbon emissions didn’t accompany an economic downtown.

Historically, energy-related CO2 emissions have moved in lockstep with economic growth. They’re being decoupled due to policy changes and market forces affecting two factors – energy intensity and fuel mix – both in China and in the developed economies.

US climate target encourages others to put best foot forward

I recently wrote a piece for China Dialogue about the US announcement of its intended contribution to a new international climate agreement due this December in Paris. Here is that article:

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The US pushed strongly for getting climate targets on the table well ahead of this year’s Paris negotiation, arguing that exposing countries’ offerings to a bit of scrutiny would encourage them to “put their best foot forward.”  With the formal submission of its intended target, the Obama administration arguably has done just that.

The US contribution is, for the moment, only a declaration of intent. But by coming out early with the strongest target it believes it can muster, the White House has charted an ambitious course at home. And it is upping the pressure on China and other major economies to do the most that they can too.

The end result, hopefully, is a new agreement in Paris that not only pulls all these numbers together, but also holds countries accountable for their promises, and commits them to keep returning to the table in the years ahead to assess and strengthen their efforts.