The Economics of Climate Change C 175 The Economics of Climate Change C 175 75 Christian Traeger g Part 3 Policy Instruments continued Cap and Trade in application US Lecture 14 Spring 09 UC Berkeley Traeger 3 Instruments 75 The Economics of Climate Change C 175 US Some non GHG Cap Trade Programs Acid Rain Trading U S EPA SO2 Electricity Generation 1995 Present Northeast NOX Budget Trading NOx SIP Call U S EPA NOx in the US N h Northeast S Stationary i Sources S 1999 2003 Present P RECLAIM South Coast Quality Management District NOx and SO2 in LA Basin Stationary sources 1994 Present Locally NOx NO formation f i off ozone or smog which hi h can affect ff h human respiratory i health SO2 can cause or contribute to fine particulate matter pollution which inhibits h b visibility b l and d can affect ff human h respiratory health h lh So locally both related to Asthma Allergies and Chronical lung diseases Regional Both causes of acid rain affecting plants forests and aquatic animals Spring 09 UC Berkeley Traeger 3 Instruments 76 The Economics of Climate Change C 175 EU emissions trading compared to US NOx and SO2 Source Kruger Pizer 2004 Spring 09 UC Berkeley Traeger 3 Instruments 77 The Economics of Climate Change C 175 US Cap Trade for GHGs a recent national attempt Failed in senate 2007 2008 Lieberman Warner Climate Security Act Cap Trade with reduction of 63 below 2005 levels by 2050 Initial allocation in 2012 Freely allocated allowances 73 5 Auction 26 5 Banking B ki Unlimited U li it d b banking ki off allowances ll Borrowing 15 of annual compliance obligation can be borrowed from future years at a 10 interest rate Spring 09 UC Berkeley Traeger 3 Instruments 78 The Economics of Climate Change C 175 US Cap Trade for GHGs Regional iniciatives After failure of federal cap trade initiative initiative states formed several regional initiatives to introduce cap trade for GHG reduction Some of them collaborate also with Canadian provinces Spring 09 UC Berkeley Traeger 3 Instruments 79 The Economics of Climate Change C 175 US Cap Trade for GHGs RGGI Regional Greenhouse Gas Initiative RGGI First mandatory U S cap and trade program for carbon dioxide begin by capping emissions at current levels in 2009 and then reducing emissions 10 by 2019 covers power plants of at least 25 megawatts that burn more than 50 fossil fuel Banking Yes Borrowing No CO2 Allowance Prices Auction 1 9 2008 3 07 3 07 Auction 2 12 2008 3 38 Next Auction 3 18 2009 Auction large fraction must auction 25 most states auction 100 Spring 09 UC Berkeley Traeger 3 Instruments 80 The Economics of Climate Change C 175 US Cap Trade for GHGs WCI Western Climate Initiative WCI 7 U S states and 4 Canadian p provinces observers light blue GHG target 15 percent below 2005 levels by 2020 Will cover 90 off GHG emissions i i when h fully f ll implemented i l d 1st phase starts 2012 will cover emissions from electricity and large industrial and commercial sources 2nd phase starts 2015 will expand to cover emissions from transportation and residential commercial and industrial fuel use not otherwise covered Start with auctioning at least 25 and increase share over time Banking Yes Borrowing No Spring 09 UC Berkeley Traeger 3 Instruments 81 The Economics of Climate Change C 175 US Cap Trade for GHGs MGGRA Midwest Greenhouse Gas Reduction Accord MGGRA Long term targets 60 80 below current emissions Multi sector cap trade Details expected soon Implementation should begin 2010 Spring 09 UC Berkeley Traeger 3 Instruments 82 The Economics of Climate Change C 175 An example of standards CAFE Corporate Average Fuel Economy CAFE Set by US Environmental Protection Agency EPA Sets fuel efficiency standards for miles per gallon mpg regulates passenger cars and now light trucks Fleet average is calculated as production weighted harmonic mean produces lower mean than arithmetic standard mean Manufacturer s pay fine per deci mpg under the standard and car in the fleet Law was passed in response to Arab oil embargo in 1975 Standard had increased over time and declared plans to increase further Spring 09 UC Berkeley Traeger 3 Instruments 83