Block’s Indicator of Sustainable Growth

By Ray Block

The change over from the Bush years of negativity over global warming to a new positive administration are only a few months away. I can hardly wait for the January 21 change over.

Despite the Bush White House inaction, a lot of work has already gone into an emissions trading scheme in the US. In fact, there is already one in existence.

As Business Green, the online environment newsletter reported on August 22 2008, RGGI, the regional greenhouse gas initiative, set up under joint state legislation, which will be mandatory in 2009 is a cap and trade scheme for sulphur dioxide (SO2) emissions involving nine US northeastern states, with a combined population of 50 million. At this stage, RGGI is confined to power stations in the nine states.

In the meantime through the Chicago Climate Exchange (CCX), a subsidiary of the European Climate Exchange (ECX), futures trading will commence on 70,000 emissions allowances on September 25, to be auctioned by RGGI. Auctions are to be held four times a year. The initial traded price is between $5.25 and $5.70, roughly a fifth of the equivalent price on the ECX.

The cap on emissions is higher than emissions have typically been in the region, although this will drop after 2015. The likelihood is that a similar experience will happen to that of the EU emissions trading scheme during its first phase (2005-2007). That is the price will drop dramatically encouraging the power stations to simply buy extra allowances, rather than install expensive SO2 capture equipment.

In 2006, California passed its Global Warming Solutions Act setting a mandatory target for the state to reduce emissions to 1990 levels by 2020. A mandatory emissions trading scheme is to be set up from 2011, the details of which have not yet been released. California will join up with Oregon, Arizona and Washington in the Western Climate Initiative, which is proposing a cap and trade system comparable to RGGI.

California has also passed legislation to reduce the carbon intensity of the state’s passenger vehicle fuels by at least 10 per cent in 2020. Transportation fuels are responsible for more than 40 per cent of California’s greenhouse gas emissions.

Even among the more conservative southern states, there is a movement towards a regional cap and trade scheme. Virginia governor Tim Kane, in taking the chairmanship of the Southern Governors Association (SGA) in August 2008, said he would be encouraging the need to have an economy wide cap and trade scheme. There are 16 states involved, which are collectively the largest emitters of carbon dioxide equivalent in the US.

Point Carbon News says that in 2004 comparable data for US regions in terms of carbon dioxide emissions in million of metric tonnes according to Tim Kane was southern states 2,347; Midwestern states 1,397; western states 1,002; north eastern states 837. Point Carbon adds that “the southern states released only slightly less CO2 equivalent than the 3,115 million tonnes released by the European Union during the same year.

SGA states produce 57 per cent of the nation’s conventional oil, 56 per cent of its natural gas, 33 per cent of its coal, and refines more than half of the petroleum consumed in the US.”

At the US Congressional level, at least eight bills were introduced in 2007 and 2008. The Lieberman-Warner Climate Security Act narrowly failed to pass the Senate in June 2008 because of a filibuster by Republican Senators.  It would have provided for a cap on about 87 per cent of US emissions, and there would also have been complementary policies, including a low carbon fuel standard and energy efficiency standards. The positive achievement is that 48 of the 100 senators voted to move forward with the legislation, and this is encouraging for more comprehensive legislation in 2009.

A tougher bill styled Investing in Climate Action and Protection Act (iCAP) introduced in the House of Representatives by Ed Markey (June 4 2008) would provide for cutting carbon emissions by 85 per cent in 2050, a moratorium on traditional coal plants, auction 100 per cent of pollution permits by 2020, and invest in green workforce training. This bill is unresolved, as is a similar bill introduced in the House on June 19 by Lloyd Doggett. The bill is styled Climate Matters Act of 2008.

The newsletter election 2008: What’s at stake- News 21 blog (August 7 2008) suggests that while Senators McCain and Obama are both in favour of a cap and trade emissions system, they differ on the issue of whether the US would issue permits (presumably free to the heaviest carbon emitters), or auction them all. McCain goes for the first alternative, while Obama is in favour of the latter. There is a world of difference between the two positions and hopefully they will fight it out next year.

It will be fascinating to see what policy directions finally emerges, bearing in mind that any legislation Congress finally passes, subject to presidential veto, will end up being a compromise.