CARBON DIOXIDE

Massachusetts Joins Other States In Approving Carbon Dioxide Reductions

Dec 30, 2005 - - Massachusetts joined Oregon, Connecticut and five other states in adopting California's greenhouse gas rules, which limit the amount of carbon dioxide and other gases that can be emitted from vehicle tailpipes.  The only way to cut carbon dioxide emissions is through a drastic increase in fuel economy.

Every major automaker that sells vehicles in the United States is suing to have the new rules overturned.  The suit was filed in federal court in California in December 2004.  EPA has sided with the automakers and favors other methods of lowering carbon dioxide besides regulating tailpipe emissions.  The agency and automakers believe the changes will limit consumer choice and raise vehicle prices.

The California rule, which was approved by a state environmental board in 2004 and, with federal approval, would take effect for the 2009 model year -- requires a 30 percent reduction in greenhouse gases by 2016.  The EPA's position is crucial because it would have to issue a waiver before any of California's greenhouse gas regulations could go into effect. If California is permitted to impose the new regulations, the federal Clean Air Act allows other states with poor air quality to adopt California's rules after agency approval.

Chicago Climate Exchange ( www.chicagoclimatex.com ), a commodities market-like organization whose members have committed to reduce greenhouse emissions

Canada Carbon Market

THERE IS NO TECHNOLOGY TO SCRUB CARBON DIOXIDE. THE ONLY WAY TO REDUCE IT IS TO USE LESS ENERGY

The Australian economist Warwick McKibbin, has devised an alternative plan, "Climate Change Policy After Kyoto", which combines a fixed number of long-term tradable emissions permits that could be auctioned, or given to owners of existing energy assets -- with an unlimited supply of additional short-term (one-year, for example) permits, priced in such a way as to curb emissions. This approach combines the benefits of a straightforward permit scheme by letting the government decide where the domestic fiscal burden of the restrictions should lie and of a straightforward carbon fee that discourages emissions in an efficient way, while putting a cap on compliance costs).  (McKibbin Paper: http://www.ipa.org.au/pubs/special/climate/mckibbinpaper.pdf )

A recent proposal by the National Commission on Energy Polocy calls for slowing greenhouse gas emissions over the next decade, then freezing the level of emissions for 10 years before cutting back on them in 2030. Starting in 2010, the government would require a 2.4 percent annual reduction in greenhouse gas "intensity," a measure of the amount of emissions in relation to the level of economic activity.

The government would issue emissions permits at no cost to emitters in 2010, sell a small pool of permits to new emitters and allow all companies to buy and sell the credits. If the cost of containing heat-trapping gases rises significantly, polluters could buy additional permits at $7 per metric ton of carbon dioxide, which would contain the plan's overall costs but could hamper its ability to achieve climate goals.

To reduce consumption, the commission is calling for a significant increase in vehicle fuel economy standards that would use a system in which manufacturers could trade fuel economy credits within fleets as well as between companies.  AAEA believes utilities should promote the production of plug-in hybrid electrics and fuel cell electric vehicles.  They should get allowances for vehicle, home and business production and efficiency retrofits.  Utilities should also get significant carbon credits for new nuclear power plants.  Also see AAEA Energy Back Securities.

The key to success is to esablish a cap that the business community can accept while beginning the process of reducing carbon dioxide emissions. 

The key decision in such a scheme is the price at which the short-term permits would be sold -- this, in effect, would be the tax on marginal emissions of carbon. McKibbin suggests a price of $10 a ton to be collected from producers and importers of energy. This rate is quite low, and hence, one hopes, politically feasible. The  McKibbin approach is decentralized and does not require a complicated international agreement at.  The program could also include an internationally agreed upon price for short-term permits.