[This post originally appeared in Weathervane, RFF's climate policy blog...]
If you’ve recently had a conversation about the world’s forests and climate change, then you’ve probably heard the figure “20 percent” thrown around. That number represents the amount of worldwide emissions currently attributed to deforestation and forest degradation.
If tropical rainforests have been a frequent topic of discussion in your social circles, maybe someone told you that more than 10 million hectares of rainforest were permanently logged or destroyed every year from 2000 to 2005. These figures represent important metrics for policymakers to understand the role forests play in environmental policy issues. Their widespread use is partially based on the assumption that scientists have accurate and consistent measurements of forest attributes from which they can derive such figures.
Forest measures and inventories, however, may not be as accurate and precise as scientists and policymakers would like. In his RFF discussion paper, Paul Waggoner highlights such discrepancies and uncertainties embedded in current forest measures. “Without accuracy, appraisals of timber will be discredited, assays of biomass will be deceptive, and claims of sequestered carbon may be fraudulent,” he writes in “Forest Inventories: Discrepancies and Uncertainties.”
His analysis comes at an opportune time as the Senate gears up to consider climate legislation and agencies like the Commodity Futures Trading Commission look to more closely regulate the nation’s carbon markets. As a major component of H.R. 2454, forest offsets will face more scrutiny about their veracity and quality in the coming months.
Waggoner showcases eleven different cases of major discrepancies in forest measures across the globe, including some within IPCC forest carbon accounting guidelines. One of the reasons for such uncertainty, he writes, is related to how forests are defined. The definition Waggoner cites—the Forest Identity—consists of four measures: area, growing stock density, biomass, and carbon. Uncertainties exist in each of these attributes and as they are combined to form the Forest Identity, their uncertainties aggregate and can result in significantly inaccurate final numbers.
So what’s the solution? Forest measures will never be perfect, nor will they have 0 percent uncertainty, but that is not why it is worthwhile to point out discrepancies. The point is to push toward acceptable levels of uncertainty in forest measures. As Waggoner points out:
Although perfect accuracy might seem the goal, it is not—at least not in the real world of affairs. Rather, the cost of improving accuracy makes good enough the goal. If the costs of surveying, monitoring, and verification exceed the consequent benefit or profit, regulation will fail and transactions abort in the long run…Thus the discrepancies and uncertainties in forest surveys must next be evaluated against standards of good enough for, say, scientific debates, timber sales, or carbon credits. Then economical methods for meeting those standards must be established.
In the mad rush toward using forest offsets to solve the world’s climate problems, voices of warning like Waggoner’s should not get lost in the din.
Did anything interesting happen over the summer? Oh,right. Well, we over here at CT Central got a little distracted by a combination of a malaise induced by the derailemtn of climate legislation and other interesting stuff related to our jobs. Blogging is fun, but it doesn’t pay the billz, unless you believe this. I’m not sure what it says, I haven’t had time to read it. Regardless, we are back and ready to rock the intertubes once more. Stay tuned to for more marginally insightful and entertaining blog posts to come. In the meantime, more about tubes below:
Originally posted at Weathervane, RFF’s climate policy blog.
Given the history of global climate negotiations, it is no surprise that a lack of trust remains between developing and developed nations in ongoing discussions for a new international agreement. In the context of the U.S. domestic policy debate, this distrust has—rightly or wrongly—been concentrated on China, and has led to calls for strong measurement, reporting, and verification (MRV) provisions in U.S. climate legislation and international agreements. It even led lawmakers to include a provision in the House bill that would require the EPA to report on emissions in China and India (Title V, Sec. 3).
It doesn’t help matters when major media outlets publish conflicting reports so close together (The Financial Times here and China Daily here) about a crucial component to U.S. domestic and international agreements: China’s emissions peaking date. Given the pace of China’s growth this number is arguably much more important than the U.S mid-term target for protecting the global climate, and it is certainly just as important for reaching a new agreement in Copenhagen. It’s also a critical step on the path toward setting a long-term collective global goal.
So climate change and China watchers had a collective heart attack when they read the Financial Times article in which high-level Chinese official Su Wei said China’s emissions would not peak until 2050. This is the equivalent of Deputy Special Envoy on Climate Change Jonathan Pershing stating that the United States will reduce emissions 0 percent instead of 17 percent by 2020. It would basically kill any chance of a global deal.
Thankfully, China Daily followed-up shortly highlighting a recent report by influential Chinese climate policy scholars arguing that the country could and should reach its emissions peak in 2030. Everyone breathed a sigh of relief. The United States and other developed nations will and should ask for more, but this number is likely to be within the range that they could accept as part of a global agreement. Although it was not an official government position, it’s the next best thing in China. The think tanks that published this report are close government advisers. The fact that they were quoted and featured on one of the nation’s leading English-language news websites indicates that this is a message the government wants the world to receive. China is moving ahead on clean energy with or without you, and is willing to put strong climate goals on the table if others are. An even more recent article indicates that China’s top legislative body will consider a draft resolution on climate change next week lends further credibility to this position.
This is not the first and will certainly not be the last time conflicting reports come out of China on climate or other issues. Since it is in both of their best interests, one would expect that both the media and the Chinese government will continue to improve their MRV procedures inside and outside of a climate agreement. However, it’s important to take the time to sort through the facts and recognize that, in the end, the preponderance of evidence continues to show that China will both do what it takes to be seen as a responsible global citizen on climate change, and will give everything it has to win the race on developing clean energy industries of the future.
From: The Patriot Freedom America Puppies Alaska Coalition (PFAPAC)
To: Grassroots Conservative activists
First, I want to thank you for your efforts so far in derailing the President’s drive to push through a government takeover of Medicare and Medicaid. I want to offer a few notes for upcoming town hall meetings on the so-called “cap-and-tax” legislation that is coming before the Senate this fall.
1) Death panels. We have been getting a lot of questions about this, and yes, the American Clean Energy, Security and Death Panel Act of 2009 does include death panels (section 1289, page 1567 of the bill). It reads, “Sometimes the tree of socialism needs to be watered with the blood of polluters”. These death panels are concentrated in Midwestern states where population reductions can achieve the greatest impact on U.S. greenhouse gas emissions reductions. They will be made up entirely of people from California, Massachusetts, and New York, because, according to the bill “they know what’s good for you”. Again according to the bill, if population in coal-using states gets too low, immigrants from China and Kenya will be allowed to replace them in a deal brokered by President Obama. Say ni hao to your new neighbors!
2) Jobs. This is one point we don’t need to worry about, because a little-known provision in the bill calls for Soviet-style “re-education” employment for those who lose their jobs or are not in compliance. These re-education camps would teach people the virtues green living, including not bathing or showering, not eating tasty animals, and generally not having any fun. “Students” will be paid handsomely in granola and tree bark, and when finished will return home to a job in a Chinese-owned wind factory. Although this is perhaps not ideal, our arguments about the bill sending jobs overseas will be more difficult with this new provision.
3) Global government. Along with the death panels, this will be one of our primary talking points to arouse fear in the American people about the ACESDPA. The bill calls for a long-term goal of an 80% reduction in greenhouse gas emissions and gross domestic product by 2050 from the United States, while China, India, and other major developing countries will be allowed to increase both their emissions and GDP by 80%. These mandates will be enforced by United Nations peacekeepers who will have the authority to come into your living room and turn off your TV after the 8th hour of the Glenn Beck marathon. Thousands of them will also be stationed in communities all across America to generally scowl and wag their fingers at people when they drive by in SUVs.
Please target your attacks on climate legislation at these provisions, which we believe are an unacceptable intrusion that goes against all that is good about this country. Although we can’t openly condone violence, we encourage everybody attending town hall meetings to exercise their 2nd amendment rights in case your well-being is endangered by radical liberal activists. Please keep dialogue rational by limiting your rants to 30 seconds or less, which is the average attention span of an American watching a youtube clip.
Originally posted at Weathervane, RFF’s climate policy blog.
President Obama and leaders of the U.S. Chamber of Commerce have spoken out against incorporating border adjustment measures in U.S. climate policy. Though there is great uncertainty about the economic and diplomatic value of leveling fees against nations who may not price carbon, 10 conservative Senate Democrats recently told the president such measures will be integral to their support of climate legislation. The challenge now is walking the fine line between the objective of these senators—not just maintaining, but strengthening the House measures—and respecting the concerns of the administration and Chamber about potential trade wars and international ill-will threatening the success of global climate cooperation. It will be a delicate balance, but one that can be achieved with a few key modifications.
The House bill (H.R. 2454) takes a three-fold approach to ensuring the global environmental integrity of U.S. climate policy by preventing emissions leakage. It exempts vulnerable industries from the first two years of the cap-and-trade program, provides output-based rebates until 2035, and introduces a border adjustment system in 2020 only if a multilateral agreement that meets certain conditions is not in place by 2018 and Congress and the president concur that border adjustments are necessary (with Congress given final authority).
The border adjustments are also intended to create leverage, by encouraging major-exporting and emitting developing nations to join an international agreement. Although the adjustments’ primary targets—China and India—have spoken out against this goal, South Korea actually cited it as one reason for being the first non-Annex I Kyoto country to announce a national target. Some have taken an optimistic view of the relationship between these measures and international agreements, while others are more skeptical.
While the House bill represents a compromise on border measures that most people could live with despite not being truly satisfied, the Senate is likely to push for making the measures stronger. In light of this political reality, the following changes could be introduced to both strengthen the measures and ensure they still reinforce, and are reinforced by, international agreements:
Provide incentives for a real negotiation. Large, developing countries are much more likely to accept the “sticks” (border measures) of U.S. climate legislation if they come with real “carrots” (financing and mitigation commitments) attached. Funding for adaptation and technology transfer in the House bill is well below what most estimates say is truly needed to solve the global climate problem. Although it is clearly concerned about upsetting domestic support, increasing recognition of the necessity for a global solution in Congress indicates the administration may be able to push further on these incentives, if they are properly structured and conditioned.
Improve the likelihood of World Trade Organization consistency. Border adjustments are likely to survive challenge in the WTO if they only enter into force after serious multilateral negotiations have failed, are targeted as clearly as possible at an environmental objective, and/or are backed by an agreement among several nations. Therefore, providing greater incentives for a real negotiation to take place—as discussed above—would likely improve the prospects in this area. Ensuring there are no references to specific countries or competitiveness concerns are also essential in the Senate bill. Finally, support from the nations of the European Union and other developed nations to adopt similar measures would also be helpful when standing before the WTO. These modifications should be in the interest of both those who want to see the measures implemented and those looking to avoid a trade war.
Make negotiating objectives flexible. From a global cooperation perspective, the worst thing Congress could do is to provide negotiating instructions that would be impossible to achieve, thereby ensuring a repeat of Kyoto. This means making them general enough—as the House bill does—that U.S. negotiators have flexibility about how, under what body, and with what conditions they will negotiate an international agreement on trade and climate, as long as it meets certain minimum requirements. Since the primary thing 100 Senators can agree upon is that they do not like the House bill, it is likely that some will want to make these objectives stronger. Instead of inserting additional specifics or calling for an explicit deal on border measures in Copenhagen, a more effective approach could be greater conditioning for U.S. financing and technology transfer on participation in an international agreement.
Adopt a “do no harm” approach on border measures in Copenhagen. From the perspective of U.S. domestic climate policy and global cooperation, the best possible outcome from Copenhagen on border measures is likely that nations do not condemn or even move to prevent them. In the unlikely event that a trade and climate agreement is struck within the UNFCCC or the UN, the issue is contentious enough that it will not come until the final stages of negotiations a few years off. The U.S.’ primary objectives for Copenhagen are likely to be gaining agreement on a long-term global goal, a broad framework for international financing, and potentially a recognition that all major emitters need to take legally binding actions if not now by a date certain. Throwing border measures into the mix will seriously threaten those already tenuous objectives.
Overall, by strengthening the House bill with more robust incentives, targeted framing, effective negotiating objectives, and realistic expectations the “hammer” of border measures desired by conservative Democrats can be compatible with the prospects for a new global agreement in Copenhagen.
I was at the senate finance committee’s hearing on allowance distribution under climate change legislation earlier this week. It was really interesting to see how engaged the senators were considering how much of their attention health care is taking.
There was one moment, however, which was not so proud. Check out the video here (go to the 80th minute) of Senator Kerry talking about a carbon tax.
To put it succinctly, Senator Kerry was …misguided. As Mr. Viard responded, a carbon tax and a cap and trade program can do the exact same thing. While a carbon tax is a political non starter these days, no one really debates that it could accomplish a similar goal.
Much to his credit, later on in the hearing Senator Kerry asked a number of questions which were very perceptive and showed a deep understanding of the issue.
He also brought up one of the underlying issues that is driving the climate debate, the EPA endangerment finding. Most politicians won’t come out and say it as forcefully as he did (minute 111), so it was impressive to hear. Lets just hope that everyone gets on board so we don’t end up in command and control land.
A few days ago I received an e-mail from a reader asking about allowance distribution mechanisms in Waxman-Markey. As I wrote a response, I thought it would make more sense to make a post out of it.
As it stands in Waxman-Markey, allowances will be distributed to LDCs based on a 50/50 split of their emissions and deliveries. This is often overlooked, but it is important as to where in the country allowance value is allocated, and ultimately how prices will change. Below i’ve listed three allocation mechanisms, their benefits and some of the problems. Keep in mind that a “benefit” in this discussion has to do with receiving more allowances ($) and hence has to do with more consumption/emissions (which we usually consider bad).
Consumption based – This metric benefits those who consume a lot of electricity, and are really inefficient at doing so. This is bad for states like California who have invested a lot in demand side energy efficiency. Consumption weighting also benefits those regions that already generate a lot of electricity from low carbon sources. If you could imagine a region that only generated electricity from zero carbon sources, they would get a whole lot of free permits, and they could turn around and sell them for pure profits. Some might argue this is unfair, but personally I think this can almost be seen as a reward for states which have spent the money to make low carbon generation investments.
Emission based – This metric is great for those states who haven’t invested money in low carbon sources of power. Think the Midwest and the Southeast. Some might argue that these are the states that need the most help, and that climate policy is going to hurt them the most in percentage terms. While I think that it is important to protect coal states, it is also important to acknowledge the expensive investments some states have made in low carbon generation.
Population based – This is not a part of Waxman-Markey, but I think it deserves a bit of discussion. This clearly would benefit those states with a high population. In some ways, this is the fairest system since one might assume that more energy is consumed in higher population areas. It does, however, disadvantage low population states that emit a lot of carbon. For example, Wyoming [remember this?] with its high emissions per capita would receive a very small amount of allowances even though it emits a ton of carbon.
At the end of the day, which system you pick depends on what you think is important. Personally (if you can’t tell already), I think it makes sense to reward those states that have already invested in lower carbon sources of power. These states typically face much higher electricity prices than the rest of the country. My personal feelings aside, there is an equally valid argument that the regions with lower electricity prices (and more emissions) also tend to have a lower cost of living. Large increases in electricity prices in these areas will constitute a larger burden as a percentage of income.
In the end, it is probably a political compromise which decided the 50/50 split, so there isn’t much we can do about it. It is just interesting that while a lot of the debate surrounds percent allocations, much less discussion has foused on the mechanism behind the allocation.
Plenty of criticism and analysis has already been directed at Alaska Governor Sarah Palin’s cap-and-trade editorial in the WaPo today (see here, here, and here). Instead of jumping on the bandwagon, I’d like to juxtapose it against an alternative analysis of the American Clean Energy and Security Act (ACES) by my former Congressman Mark Kirk (R-IL), who voted in favor of the bill. I’m not trying to pretend that Sarah Palin and Mark Kirk fall at the exact same point on the political spectrum (nor am I trying to set up some sort of artificial debate between the two of them). Indeed, Kirk represents a moderate suburban Chicago district (although one that would be hard hit by increased taxes on the wealthy), has always been fairly green, and had further political incentives for the “Yes” vote given his upcoming run for statewide office.
However, it’s worth illustrating that while both share the same overarching policy objective—“an ‘all of the above’ energy strategy”—Kirk’s reasoned, experienced, fact-based, forward-looking and still very much conservative analysis led him to a very different place than Palin. My overall message to the Republican Party: please, please listen to the Mark Kirks in Congress when designing your strategy on climate and energy legislation, and not the Sarah Palins.
The Starting Point
Kirk: “For 2009, our top goal should be energy independence. I support exploring for energy off our coasts, expanding nuclear power and building a natural gas pipeline across Canada to lower heating costs in the Midwest…”
Palin: “We must move in a new direction. We are ripe for economic growth and energy independence if we responsibly tap the resources that God created right underfoot on American soil…Our 3,000-mile natural gas pipeline will transport hundreds of trillions of cubic feet of our clean natural gas to hungry markets across America. We can safely drill for U.S. oil offshore…”
Kirk and Palin seem to be agreed to the standard Republican “all of the above” energy strategy, focused on promoting domestic sources of energy and reducing America’s dependence on foreign oil.
The Experience
Kirk: “…the underlying ACES bill would still lower our dependence on foreign oil by diversifying American energy production. It is time to break the boom and bust cycle of high gas prices and the need to deploy three separate armies to the Middle East (Desert Storm, Iraqi Freedom and Enduring Freedom). As you may know, I am a veteran of the Desert Storm and Enduring Freedom missions.” “In 1998 and 1999, I served as part of the U.S. delegation to both the Kyoto and Buenos Aires UN Climate Change conferences. In those years, there was a significant debate about the amount and effect of atmospheric carbon dioxide. I was a skeptic and spent hundreds of hours on the subject of 1990s climate science. In the Congress, our job is to learn as much as possible from the latest peer-reviewed non-partisan scientists and then plot the best course for our nation.”
Palin: Governor of a large, oil producing state (surely there are no perverse incentives there). Well, until she resigned.
You can’t fault Palin for looking out for her constituents, and supporting increased domestic oil and gas production. However, Kirk has seen firsthand the impacts of U.S. dependence on foreign oil when fighting for his country, and extensively studied climate science. Whose experience is more valuable when judging U.S. climate and energy policy options?
The Analysis
Kirk: “The National Academy of Sciences reports that the earth’s average temperature already increased by 1.4°F, from 56.8°F in 1920 to 58.2°F in 2007. NOAA also reports that due to a 30% drop in winter ice covering the Great Lakes since 1972, evaporation may be the cause of Lake Michigan’s declining water level…I am a strong supporter of the non-partisan Congressional Budget Office. When they reported the Democratic health care bill cost $1.6 Trillion, we should take notice and rewrite that bill. That is why I have become one of the leading Republican authors of an alternative health care bill that will be the Congress’s least expensive bill, costing our Treasury very little. I read their report on ACES carefully too. CBO reports that peer-reviewed scientists expect the world’s average temperature to increase by 9 degrees by 2100, lowering U.S. economic output by 3% annually. In sum, they estimated the costs of the bill per household at $140 annually.”
Palin: “The Americans hit hardest will be those already struggling to make ends meet. As the president eloquently puts it, their electricity bills will ‘necessarily skyrocket.’ So much for not raising taxes on anyone making less than $250,000 a year. Even Warren Buffett, an ardent Obama supporter, admitted that under the cap-and-tax scheme, ‘poor people are going to pay a lot more for electricity.’ ”
It’s perfectly reasonable for two intelligent, reasonable people to look at the same study and draw two different conclusions, based on their judgment of the underlying assumptions or methodologies. However, this was not the case here. Here we have a careful review of available non-partisan scientific and economic data specific to this exact piece of legislation versus unsubstantiated statements and generalized quotes. Once again, whose argument is more compelling?
The Conclusion:
Kirk: “In sum, I would have preferred a bill that focused more on energy independence and less on some of the complications in this bill. Nevertheless, the 1990 Clean Air Act signed by President Bush established a cap and trade system to reduce acid rain that proved to be a great low-cost success…In the coming Senate debate, I hope we can repeat this environmental success and aggressively back a national program to defund Iran and Venezuela by reducing America’s need for foreign oil.”
Palin: “Can America produce more of its own energy through strategic investments that protect the environment, revive our economy and secure our nation? Yes, we can. Just not with Barack Obama’s energy cap-and-tax plan.”
Hmmm…somehow there seems to still be a disagreement between Kirk and Palin about the merits of ACES and the direction of America’s climate and energy policy. Based on their experience, evidence and analysis, I wonder whom to believe?
I don’t pretend to know much about water, but being from California and living through droughts certainly has kept it on my mind. While everyone knows that water will continue to increase in importance, it definitely has not reached a national level of prominence like climate change. Most people acknowledge that climate change will continue to affect water availability going forward, but it seems that water shortages are already contributing to climate change.
A recent article in the Washington Post discusses the opening of a desalinization plant that is going to open next year in Carlsbad, CA. Of particular note to climate change was that
Government agencies have opposed desalination because of the process’s energy consumption. The desalination plant would use nearly twice as much energy as a wastewater-treatment plant available in Orange County.
I realize that we are already using energy to treat water, but turning to large scale desalinization is a significant step. Plants in other parts of California are also expected to be built, and many of these will require the construction of new power plants. These new emissions will in turn contribute to climate change related water shortages.
One new power plant is a drop in the bucket compared to global emissions, but it illustrates that water needs to be a part of our national climate agenda moving forward. If we ignore it, it will just find a way to come back and bite us.
The volume of celebrity deaths in the past few weeks is becoming a bit disturbing. While the world is mourning the king of pop, another king has passed quietly and sadly. John Bachar was a veritible god in the world of rock climbing. For the past 30-some years, he has been dominating walls and routes that others thought were unclimbable, and doing it all without ropes. He died Sunday while free soloing in Mammoth Lakes, CA, doing what he loved, which is as much as any of us can hope for. Grist has posted a touching (though slightly overwrought) eulogy here. Below are a couple videos that, while cheesy, show the ridiculous skills this man possessed.
I realize this post doesn’t have anything to do with economics, and is tangentially related to the environment. The reason I included it is the following: we all have our motivations for engaging in this work. Mine are numerous, but a lifetime spent in nature pushing my body and mind through skiing, climbing, mountain biking, etc., drove me to environmental work and it’s what keeps me going. It’s been a tough year for luminaries in these sports, and this is my small way of remembering their achievements. Rest in peace, John.
For the last month I’ve been spending a lot of time studying and modeling various allocation schemes for carbon allowances. This kind of a big topic, so I’m going to aim this post at talking about Waxman-Markey and what its distribution plan might mean. The current version of Waxman-Markey allocates 35% of permits to “electricity consumers” through Local Distribution Companies (LDCs). LDCs are highly regulated entities that take power from high-voltage transmission lines, and distribute it in a usable form to Industrial, Commercial or Residential customers. The details of how LDCs function aren’t that important, since the legislation lays out how the money should be used:
Emission allowances distributed to an electricity local distribution company under this subsection shall be used exclusively for the benefit of retail rate payers of such electricity local distribution (p575).
To the extent an electricity local distribution company uses the value of emission allowances distributed under this subsection to provide rebates, it shall, to the maximum extent practicable, provide such rebates with regard to the fixed portion of rate payers’ bills or as a fixed credit or rebate on electricity bills (p576).
To understand this, a little background on how electricity bills work is necessary. Unfortunately, every state has a different system, so forgive me if I misrepresent your state. The basic concept is that electricity bills have a fixed portion, and a variable portion. The fixed portion covers capital costs like transmission lines and maintenance etc. The variable part covers the cost of generating electricity like fuel costs and other variable operating costs.
The legislation above stipulates that as much as possible, the allowance revenue should go to subsidize the fixed portion of a bill instead of the variable cost. This is meant to allow the variable price of electricity to increase with carbon policy (and hence decrease consumption), but not increase the overall burden on consumers.
The reason why one might want the variable cost portion of a bill to increase is that it allows for a more efficient carbon policy. As consumers face higher costs, they will reduce their consumption and emissions. If consumers don’t face this higher variable cost, consumption will stay high, and emissions reductions under a cap and trade policy will have to come from other sectors of the economy. This is a less efficient overall outcome since the lower hanging fruit of reduced electricity consumption cannot be taken advantage of, and other less efficitn mitigation is necessary. This also results in a higher emissions allowance price.
The legislators seem to be somewhat aware of this, and hence the bill stipulates that money should go to reduce the fixed portion of a bill. In practice, this isn’t exactly what will happen. First off, residential consumers (around one third of consumption) probably aren’t sophisticated enough to think on the margin in electricity consumption decisions. I study energy and I just look my bill total, not the individual components. Industrial and Commercial customers, however, spend a lot more money on electricity and it is reasonable to assume that they would take higher variable costs into consideration.
The second important part is “to the maximum extent practicable.” This is tricky since in practice very few LDCs fully separate the fixed and variable portions of their bill. Instead, LDCs usually have some small fixed portion, but end up recovering a large portion of their fixed costs through the variable section of the bill. Other states hardly differentiate at all. In order to appropriately apply the allowance value to the full fixed portion of the bill, massive electricity billing reform would be needed.
If you have made it this far, you might be asking why this is important. I come at this issue from the income distribution perspective, and these small pieces of legislative language and assumptions about consumer behavior have huge impacts on who bears the cost of carbon policy. (In an effort not to write an essay for a post, I’ll touch on that next time.)
From the larger policy perspective, it looks like LDC allocation will be a part of Waxman-Markey as a compromise of sorts, but it doesn’t seem that the full effects of this policy have been fully analyzed. The bottom line is that LDC allocation is a less efficient mechanism for climate policy, and will force other sectors to abate more emissions to compensate. If we are ok with that as a compromise, so be it, but policy makers should at the very least know what they are compromising on.
Take CT, add a few more decades of experience and study, keen insights from established experts in the world of climate and energy, a dash of nuance, and the intellectual backing of an institution like Resources for the Future, and what do you have? Well, my friends, you have a recipe for Weathervane, the recently resurrected RFF climate policy blog.
Weathervane was originally established in the late 1990s and quickly became a primary source for quality policy discussions on climate change and other environmental issues on Web 1.0. With the myriad sources of climate news out there, this new iteration is now looking to foment thoughtful and robust conversation and highlight the latest insights from RFF’s stable of scholars. If you want a mature perspective of the nexus of climate and economics, then Weathervane is the place to be. Check it out.
Full disclosure: Occasionally, we CTers may cross-post between our autonomous blog and Weathervane (see Andrew’s last post for an example). CT remains an independent blog that in no way represents the opinions of RFF.
NPR’s Morning Edition has run a number of pieces this week trying to illuminate the mechanics of cap-and-trade for the masses. I applaud their efforts and wish more media outlets would take the time to explain to non-practitioners how these lovely econ tools we use work. The Planet Money C&T piece this morning was especially effective at cutting through my morning fog because there’s a good chance I would explain cap-and-trade to my less enlightened acquaintances in a similar manner. Also, as one who has been known to occasionally use the word ‘dude’ excessively, it touches me in a special place in my heart. Sweet.
Yeah, I know. We’ve been gone for a while. Lots of things have been happening over the past few weeks and any marginally smarmy/useful insight you were hoping to get from the CT crew wasn’t there. Here’s my apology:
Well, don’t worry. We’re back and we promise to do better in the future. It’s going to be a long, hot brutal summer, and we intend to offer some soothing and cool perspective. stay tuned.
Originally posted on RFF’s climate policy blog Weathervane.
For many environmental advocates, the generous forest conservation provisions in the Waxman-Markey energy bill (summary here) are a no-brainer. They target one of the world’s largest—20 percent of the global total—and most cost-effective—about half the world’s deforestation at under $10 per-ton—sources of greenhouse gas emissions reductions while protecting some of the world’s most treasured natural places.
It seems these provisions provide something for everyone, as they have found support from a broad coalition of stakeholders. U.S.-regulated entities like the potential cost-containment benefits from offsetting up to 1.5 billion tons of their emissions by paying for cheaper reductions in developing nations, and that forest conservation does not create competitiveness concerns. The global development community likes the possible poverty reduction benefits of channeling an additional $10 billion per year by 2015 in what could be seen as U.S. foreign aid to tropical forest nations. Climate policy wonks like that this forest financing will strengthen U.S. participation in ongoing global negotiations.
Is it possible, therefore, that these provisions could survive attacks from equally-strong skeptics of offsets, foreign aid, and climate action during House and Senate debates?
As the debate unfolds, expect three key issues to come into play:
1) Whether the uncertainties in Waxman-Markey’s forest “set-aside” provisions can be clarified.
Currently the bill allocates 5 percent of allowance values (Section 753(b)(1)) for the purchase of “supplemental emissions reductions”—not offsets—solely from international forest conservation. This “set-aside” must be used to purchase 720 million tons of emissions reductions per year from 2020 to 2025 and 6 billion tons overall from 2012 to 2025, and the EPA administrator is required to increase the allowance allocation if necessary to meet this target.
Based on reasonable assumptions about the size of the cap-and-trade program and cost of forest tons, including analysis done by EPA, the U.S. will be lucky to purchase half that amount (about 300 million) with the current 5 percent set-aside. Meeting the required amount may require saving up money in the initial years to spend later, but even this approach cuts it close, and will take away funds from needed capacity building in early years. Does the EPA have the authority or the will to actually follow-through with this requirement? Where will these allowances come from (they’re certainly not going to come without a fight)?
2) Whether the U.S. can demonstrate a plausible pathway to delivering offset tons from forests when cap-and-trade kicks off in 2012.
Forest carbon transactions in voluntary carbon markets accounted for about 7.5 million tons in 2007. With the relatively stringent requirements in the bill for developing countries’ participation in U.S. carbon markets—and the current low levels of market-readiness in many of these countries—how will they be ready to potentially deliver 1 billion or even 100 million tons in 2012? One answer is that they need funding for policy-planning and capacity building, on the order of several billion dollars per year between 2010 and 2012.
The good news is that these needs are being addressed by international negotiators in Bonn as we speak—including a strong U.S. forest team—and through other initiatives. The question is, will it be enough? Should the U.S. allocate substantial additional funds in its FY10, FY11 and FY12 foreign aid budgets to specifically target this issue? Or is there another innovative solution out there?
3) Whether the institutional structure that manages these forest programs can be strengthened.
Currently, the bill places authority to manage the forest set-aside and offsets programs with the EPA, in consultation with the State Department and several other departments. This is not ideal for several reasons. First, although the EPA has expertise in environmental markets, these forest programs will require much greater on-the-ground international development and conservation experience, and international environmental negotiation experience than it possesses. With the amount of funding on the table—about $10 billion per year, as stated before—and the need to get the most bang for the buck, it may make sense to create a specialized agency with expertise in all of these key areas. What should this agency look like? How should it be structured to most effectively manage these new funds and programs?
These are some of the key questions that academics and environmental organizations—including RFF’s climate and forest carbon policy teams—will be seeking to answer over the next several months. If policymakers are going to continue to support strong forest conservation provisions in U.S. climate policy, which many stakeholders would argue are absolutely essential from a scientific and economic perspective, these salient questions will need good, robust answers.
There has been some great discussion on the new Waxman-Markey bill including Danny’s previous post. One aspect of the legislation, however, that I don’t think has received enough attention is how offsets affect low income Americans.
First it is important to realize how large of a part offsets play in Waxman-Markey. For a quick refresher on their role, check out Danny’s post on the subject. Besides their large and increasing percentage of abatement, offsets are a huge factor in allowance price. Here are a few quotes on the importance of offsets from the EIA analysis of the Waxman-Markey draft.
“Without international offsets, the allowance price would increase 96 percent.”
“The availability of offsets under WM-Draft significantly influences the allowance price.”
“Without the use of international offsets, covered sectors are forced to find an additional 39 billion metric tons of abatement.”
So, offsets have a HUGE impact on how the program functions. Just how huge? Check out this graph from the EPA analysis.
Looking at the highlighted statistics, you can see that the 1,677 international offsets dwarfs the 408 domestic abatement in 2015. Also, this equates to $4 billion being spent on domestic covered abatement, while $17 billion is spent on international offsets. (The story balances out a bit looking into the future, but it still leaves us spending 50% of abatement costs abroad in 2030.)
Getting back to the original question of how offsets harm low income families, it is important to remember that climate policy is regressive. One way to remedy this is to redistribute some of the money raised by selling allowances. International offsets, however, don’t allow this to happen. The EPA analysis says:
“International offset payments are calculated for each model as the product of the amount of international credits purchased and the international credit price. Unlike the abatement costs associated with domestic covered abatement and domestic offsets, … international offsets .. are all purchased at the full price of international allowances and those payments are sent abroad.”
So, basically purchasing international offsets is equivalent to shipping money overseas. For example, if the cheapest international offset in Mexico costs $4/ton to offset, U.S. firms still have to buy it for the international offset allowance price of $10/ton. The remaining $6 (called the rent) will flow to international firms. If this abatement or offset was done in the U.S., either the government or U.S. firms would be able to capture this rent. These captured rents could then be redistributed to low income U.S. households bearing the brunt of climate policy. With international offsets, this money is lost abroad.
I understand that offsets are being relied upon heavily for cost containment, but why hasn’t the idea of rents being shipped overseas showed up in the political debate? Considering the average American doesn’t know what cap-and-trade is, this might be an effective way to sway public support towards a more effective system.
Unfortunately, in the current political climate, offsets will continue to be a significant part of climate policy. Offsets can have many positive components, but they also have a direct harmful effect on low income Americans. If this is the pill we have to swallow for climate policy to pass, then so be it. However, I would at the very least like to see this important trade off enter the discussion.
It’s official. The American Clean Energy and Security Act, brought to you by Henry Waxman and Ed Markey, is here, weighting in a whopping 932 pages. It should provide plenty of leisurely weekend reading. Fan of compromises will particularly enjoy the following highlights:
Emissions targets: 20 percent reduction below 2005 emssions levels by 2020, 44 percent reduction by 2030 and 83 percent by 2050.
85% of emission allowances allocated for free, including 35% to the electricity industry, 15% to trade-sensitive industries, 9% to natural gas distributors, 2% to oil refineries, 5% to stop tropical deforestation, and 2% for adaptation.
Tons of goodies to charm moderate Democrats from the Rust Belt, South, and Mountain West.
My initial reaction is that there are probably going to be a lot of things in here that piss me off, but reading legislation is not my idea of a fun Friday night. Stay tuned for marginally worthwhile analysis…
The WSJ ran an interesting article on the Cash-for-Clunkers program today. Their general conclusion is that the program is mostly going to spur the sale of trucks. I recommend you check it out
Here are a few of my favorite examples that illustrate how the program will probably function:
Say you owned a 2001 Dodge Ram four-wheel-drive pickup with a 5.9-liter engine. That truck has an EPA combined fuel economy of just 13 miles per gallon. Under the House proposal, you could scrap that vehicle and get up to $4,500 toward a truck weighing more than 6,000 pounds that got at least 15 miles per gallon. One that might qualify — depending on how weight is defined and measured — is a 2009 Dodge Ram 1500 four-wheel-drive pickup with a 5.7-liter V-8 and a combined 15 mpg.
There’s another way in which the House plan would help sell trucks. Someone who owns a big work truck — a van or pickup in the 8,500-to-10,000-pound weight class — built before the 2002 model year could get a $3,500 voucher for trading in that vehicle for a truck in the same or lower weight class. No mileage limits would apply, as trucks that big don’t have official EPA mileage ratings. In other words, a contractor who drives a Ford F250 could ditch the old one and get a new one, with the help of the Treasury.
The article makes a great point that due to CAFE standards, which haven’t increased much over the last 20 years, there aren’t many passenger cars which qualify.
To qualify for a scrappage voucher, the old car would have to get less than 18 miles per gallon. There aren’t that many “clunker” passenger cars on the road that are that thirsty on gas. You could drag in a 1987 Lincoln Town Car, if you happen to own one. (There’s one from that vintage for sale at a small used-car lot near my house.) But since passenger cars have had to measure up to a 27.5 miles-per-gallon fleet average for more than two decades, the few gas-guzzling sedans and coupes left are either pricey exotics or classic Detroit iron, neither of which are likely to be worth less than the $4,500 the government is offering.
This program basically is a cash subsidy to help automakers get rid of huge stocks of oversized pickup trucks. There is nothing fundamentally wrong with that, just please don’t call it green and stick it in with climate legislation.
If any of you are avid readers of the Washington Post editorial pages, then lately you might have noticed some climate change-related hating. There was of course the well-documentedbrouhaha back in February surrounding George Will’s spurious climate change articles and the Post’s editorial board refusing to do anything about his painfully incorrect assertions. Accusations and double talk bandied about, arguments were made, a good time was had by all.
This week, Post columnist Robert Samuelson decided to get in on the act as well. His column doesn’t do anything as egregious as question whether global warming is real or not. Instead, he goes after environmental groups that are trying to convince the public that climate change legislation will cost almost nothing. Why is this bad? Because according to him:
The claims of the Environmental Defense Fund and other environmentalists that this reduction can occur cheaply rely on economic simulations by “general equilibrium” models…The trouble is that these models embody wildly unrealistic assumptions: There are no business cycles; the economy is always at “full employment”; strong growth is assumed, based on past growth rates; the economy automatically accommodates major changes — if fossil fuel prices rise (as they would under anti-global-warming laws), consumers quickly use less and new supplies of “clean energy” magically materialize.
So, either climate change doesn’t exist or it’s a great way for those evil enviro-types to lie to us all with their voodoo economics models, according to the WaPo editorial stable. Samuelson’s claims don’t hold up much better than Will’s, though. Just like Will got pummeled by the blogosphere, Paul Krugman rides into the picture to lay an editorial pimp-slap on Samuelson, saying:
I don’t think there’s a single thing there that’s right. What on earth do business cycles have to do with it? The models may assume growth based on past trends, but they DO ask whether emissions policy would greatly slow growth — and the answer is no. Consumers aren’t assumed to “quickly” use less — the time frame in these models is decades long. And new supplies don’t “magically” appear — they respond to price incentives, which is what economics usually says…this column exemplifies a strange thing about the climate change debate. Opponents of a policy change generally believe that market economies are wonderful things, able to adapt to just about anything — anything, that is, except a government policy that puts a price on greenhouse gas emissions.
Well said, Dr. Krugman. Needless to say, if you are looking for a well thought-out and robust discussion about the pros and cons of climate change legislation, perhaps it would be wise to steer clear of the Washington Post.
This is a question that I think about frequently in the context of climate change.Over the last few years I have become more conscious of my daily activities and their larger climate impacts.I make sure to turn off the lights etc when I leave the house and have modified my daily life to be more climate conscious.Most of these aren’t very difficult to remember, and take very few personal sacrifices.
However, there are also things that I would not give up.For example, I know that eating meat generates a lot of greenhouse gasses, but I do it anyways.I also am a big fan of hockey in D.C. even though I know cooling down a 20,000 person arena to 60 degrees in late April is a huge waste of energy.In the end, there are some things I just am not going to stop doing regardless of how much someone wags their finger at me.
The truth is that everyone has their own set of preferences and their own list of things they wouldn’t give up.So, I’m curious, what wouldn’t you give up?I plan to come back to this topic with an actual intellectual lens at some point, but it is Friday, and I have a hockey game to go to.
