Tag Archives: cap and trade

Lomborg has it wrong about California’s cap and trade program. 

Bjorn Lomborg, a Danish political scientist who has pushed for focusing spending on other pressing world needs over reducing climate change risk, has criticized the extension of California’s cap and trade program in the LA Times. I found two serious flaws in Lomborg’s analysis that undermine his conclusions.

The study that Lomberg cites about the electricity market impacts has not been reproduced since such extensive “contract reshuffling” can’t occur in the Western Electricity Coordinating Council (WECC) region or in the CAISO market. That’s just a simplistic modeling exercise not tied to reality. The fact is that thousands of megawatts of coal plants are retiring across the WECC at least in part in response to the cap & trade and renewables portfolio standards (RPS) adopted by California.

And then Lomberg writes “A smarter approach to climate policy — and one befitting California’s role as one of the most innovative states in the country — would be to focus on making green energy cheaper. ” Has Lomberg noticed that new solar and wind installations are now cheaper than new fossil-fueled plants? Contracts are being signed for less than 5 cents per kilowatt-hour–PG&E’s average cost for existing generation is close to 9 cents.

It’s as though Lomberg hasn’t updated his understanding of the energy industry since 2009 when the Copenhagen climate accord was signed.

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Analyses of California’s extended cap and trade program

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I believe that California’s passage of the extended cap and trade program was a generally good compromise. Most importantly, it decoupled the cap and trade market from separate legislation to regulate local emission impacts. As I wrote earlier, earlier proposals failed on this aspect.

Here’s the two best analyses I’ve seen so far, one legal and the other economic (by a former Michigan classmate), of the legislation.

State supreme court upholds AB 32, consistent with state-defined property rights

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The California State Supreme Court refused to rehear a state appellate court decision that upheld the validity of the cap and trade program (CATP) established in Assembly Bill 32 (2006). Those challenging the program claimed that (1) the program required firms to acquire allowances to operate and (2) that the auction receipts were budgeted into state programs like other tax revenues. However, the Court’s decision was a victory for those who believe that stronger property rights can lead to an improved environment.

The AB 32 CATP defined the property rights for individual firms and for the public in allowed GHG emissions into the atmosphere.  CARB also allocated allowances for free to these firms and set rates of declining annual emission totals (with some upward adjustments to accommodate interstate and international competitiveness). This is akin to delineating the acreage that a property owner has, and then setting out a rate at which the property owner must dedicate a portion to public use, while still allowing the owner to continue to use that land. The U.S. Supreme Court just upheld the ability of state governments to regulate land use in this manner. The CATP essentially allows an owner to continue to use the land in same manner by acquiring usage rates from other owners who may find it more lucrative to sell their allowances rather than use them. Under AB 32, the state auctions some of those allowances to make for a liquid market, while other allowances are traded bilaterally amongst firms. The bottom line is that CATP established property rights in GHG emissions, just as California established water property rights in 1914.

If the CATP had been declared to be another tax, then any disbursement of government property that generated revenues, e.g., sale of excess office space or forest land, could also be considered a “tax” subject to a two-thirds vote approval by the State Legislature under the state constitution. I doubt that the plaintiffs in this case (led by the Chamber of Commerce) intended that sale of state property would require a two-thirds supermajority vote.

Another reason SB 775 is a bad idea: Virginia to establish cap-and-trade program in push to regulate carbon emissions | Utility Dive

California’s SB 775 would prohibit interaction with other states’ cap and trade programs. The best alternative to a federal program is a network of state markets.

“A cap-and-trade program in Virginia would be the third in the U.S., and buck direction from the White House to pull back on carbon regulation.”

Source: Virginia to establish cap-and-trade program in push to regulate carbon emissions | Utility Dive

The misguided fix to cap & trade

Meredith Fowlie at the Energy Institute at Haas (California’s Carbon Border Wall ) and Dallas Burtraw at RFF have taken on the specific issues in the proposal to replace California’s cap & trade program (CATP).

Yet there’s a bigger issue with SB 775: Why are we so focused on getting every last ton of GHG reduction out of California, when instead we should be focused on creating a system that can easily accommodate integrating with other jurisdictions and encourages others to join the effort? What California does alone is absolutely meaningless in changing climate change risk. It requires a truly global effort. Putting up border walls won’t accomplish this.

Repost: Three Revisions Not to Overlook in California’s New Cap-and-Trade Proposal, SB 775 | Legal Planet

 

The proposal would eliminate allowance banking and offsets, and add a border adjustment mechanism. This would isolate California from global efforts to mitigate GHG emissions.

Source: Guest Blogger Dallas Burtraw: Three Revisions Not to Overlook in California’s New Cap-and-Trade Proposal, SB 775 | Legal Planet

Using tariffs to achieve valid goals

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President-elect Trump has called for imposing significant tariffs to “bring back jobs to America.” Unfortunately, this will be a fool’s errand. The Smoot-Hawley Tariffs in 1930 were imposed to “save” farming jobs, but instead exacerbated the Great Depression as shown in the chart above. There’s no valid reason to think tariffs will work any better this time around.

Yet, there are a set of valid reasons to impose tariffs, that in a roundabout way could lead to job growth in the U.S. These tariffs could be useful tools to pursue other policy goals by forcing other nations to play on a level field with U.S. industries. The tariffs could be adjusted downward as those countries adopt policies in line with those in the U.S. The World Trade Organization (WTO) allows these types of tariffs if properly designed. Just trying to save jobs doesn’t count, but achieving valid policy goals does.

The policy areas where using flexible tariffs could be fruitful include:

  • environmental and climate change
  • labor and employment
  • product standards

Tariffs to encourage nations to comply with global greenhouse gas reduction goals is one type of environmentally oriented use. Since U.S. companies comply with a wide range of environmental regulations, many of which are intended to preserve natural habitat that has worldwide value, asking other countries to do the same seems to be a valid request. Those nations can ignore those standards if they choose, but U.S. businesses should be allowed to compete as though imported products have incurred similar compliance costs.

Similarly, the U.S. has a wide range of labor employment, workplace and safety standards. Ensuring the well being of those outside of the U.S. if we’re going to buy those products is similarly valid.

Product standards is a third area. Many U.S. products last longer and perform better because they meet stricter standards. The increased longevity of automobiles is largely a byproduct of the increased stringency of emission standards that require engine performance meet those standards for at least 100,000 miles. Improved standards also can lead to reduced waste and increased productivity.

But to justify these tariffs will require that American corporations fully support the application of these standards within the U.S. Whether they can be persuaded to the advantages remains to be seen.