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How to Save a Planet – On a Budget

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About Our Moderators

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Gernot Wagner is an economist at the Environmental Defense Fund, where he works on market-based solutions to a wide range of environmental problems. He also teaches energy economics as adjunct faculty at Columbia’s School of International and Public Affairs, and is the author of But will the planet notice? How smart economics can save the world.

Marc Gunther is a writer and consultant whose focus is business and sustainability. Marc is a contributing editor at FORTUNE magazine, a senior writer at Greenbiz.com, and a leading blogger at The Energy Collective. Marc is the author or co-author of four books, including Faith and Fortune: How Compassionate Capitalism is Transforming American Business.

Jesse Jenkins is Director of Energy and Climate Policy at the Breakthrough Institute, and is a leading energy and climate analyst and advocate. Jesse's work and analysis has been featured in many media outlets, and he is recently the co-author of Bridging the Clean Energy Valleys of Death: Helping American Entrepreneurs Meet the Nation's Energy Innovation Imperative

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Robin Fray Carey is CEO of Social Media Today, which publishes The Energy Collective, Sustainable Cities Collective, and eight other B2B social communities that connect leading thinkers with other professionals and business influencers. Robin co-founded the company in 2007 and is a veteran of the print media world.

How to Save a Planet – On a Budget

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• Paying the Cost of Carbon: A Conversation about Carbon Pricing

• Can Carbon Markets Drive Green Innovation?

Hour 1 (9:15 – 10:15 EST):

About Our Speakers

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Janet Peace is the VP of Markets and Business Strategy at the Center for Climate and Energy Solutions, managing the Center's engagement with corporate community, its economics program and its analysis of market-based policy options. Previously, Dr. Peace held the same role at the Pew Center on Global Climate, C2ES's predecessor organization. Dr. Peace holds an M.S. and Ph.D. in Economics and an undergraduate degree in Geology.

Lee Thiessen works for the British Columbia Ministry of Environment as the Executive Director of Climate Policy in the Climate Action Secretariat. This Secretariat is responsible for developing and coordinating policy, and its implementation, across the BC provincial government. The policy is aimed at helping the province progress towards its greenhouse gas targets and adapting to the impacts of climate change.

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Lucas Merrill Brown is a Rhodes Scholar at Oxford who researches consumer behavior around cleantech adoption. He has worked as a research intern for climate change economics for Environmental Defense Fund, as Regional Field Director for Virginia Congressman Tom Perriello, as a budget aide for D.C. Mayor Adrian Fenty, and as a programmer for ILoveMountains.org.

Gernot Wagner, moderating, is an economist at the Environmental Defense Fund, where he works on market-based solutions to a wide range of environmental problems. He also teaches energy economics as adjunct faculty at Columbia’s School of International and Public Affairs, and is the author of But will the planet notice? How smart economics can save the world.

Paying the Cost of Carbon

Janet PeaceNovember 30, 2011

Emitting GHG Is Typically Free

Climate Change Has A Cost

Accounting For Cost•is the point—to make the cost of emitting carbon explicit, so that it becomes part of the everyday decision making process.•is the point—to make the cost of emitting carbon explicit, so that it becomes part of the everyday decision making process.•is the point—to make the cost of emitting carbon explicit, so that it becomes part of the everyday decision making process.•is the point—to make the cost of emitting carbon explicit, so that it becomes part of the everyday decision making process.•is the point—to make the cost of emitting carbon explicit, so that it becomes part of the everyday decision making process.•is the point—to make the cost of emitting carbon explicit, so that it becomes part of the everyday decision making process.•is the point—to make the cost of emitting carbon explicit, so that it becomes part of the everyday decision making process.•is the point—to make the cost of emitting carbon explicit, so that it becomes part of the everyday decision making process.

The point is to make the cost of emitting carbon explicit – so that decisions and investments factor in this cost

•is the point—to make the cost of emitting carbon explicit, so that it becomes part of the everyday decision making process.

Policy Options

• Command and Control (direct regulation)• Subsidies• Cap-and-Trade• Carbon Tax• Cap and Dividend• Clean Energy StandardAll with multiple variations….

Cap-and-trade and Tax are the two most often market based policies discussed

The Basics

Comparing C-T and Tax

• Simplicity

• Emission Reductions

• Cost

• Cost Effective

• Market Risk

• Technology and Innovation

For More Information

www.C2ES.org

Janet PeaceCenter for Climate and Energy Solutions

(formerly the Pew Center on Global Climate Change)PeaceJ@C2ES.org

CLIMATE ACTION INBRITISH COLUMBIA

www.livesmartbc.caNovember 30, 2011

Carbon Tax inBritish Columbia

www.livesmartbc.ca

16

Carbon Tax Objectives and Features

• Tax objective is to reduce provincial GHG emissions via financial incentive

• All carbon tax revenue is recycled through tax reductions

• Tax rate started low and increases gradually– 2008: $10/T CO2e 2012: $30/T

• Tax has the broadest possible base, given data• Tax is one of various other climate measures

17

Broader Actions: BC’s Climate Action Plan

• Provincial-wide approach to adapt to impacts, reduce emissions, and promote low-carbon economy – Legislated targets– BC Adaptation Strategy– Revenue neutral carbon tax– Western Climate Initiative

– Industry GHG reporting– Carbon Neutral Government 2010– Local governments GHG targets – LiveSmart BC housing incentives– Green Building Code– Renewable and Low Carbon Fuel

standards– Landfill gas collection standards

18

BC’s GHG Targets and Distribution by Sector

Fossil Fuel Production

19%

Transportation35%

Residential and

Commercial11%

Other Industry

19%Agriculture

3%Waste

6%Electricity

2%Net

Deforestation5%

B.C. Greenhouse Gas Emissions - 2009Total: Approx. 66 800 kilotonnes CO₂e

64MT (-6%)

56MT (-18%)

46 MT (-33%)

14MT (-80%)

2007 Baseline 2012

68MT

2016

2020

2050

Interim

Legislated

Interim

Legislated

19

• Applies $30 per tonne of CO2e in 2012 to combustion of fossil fuel

• Non-combustion GHG emissions not covered • BC has tailored tax benefits to balance costs

Carbon tax revenues*

Tax reductions*

$1.5 billion

$1.2 billion Personal income tax cuts

Low income tax credit

Business tax cuts

$182

*Projected total revenue and reductions for fiscal 2012/13

$226

$1,001

$85 Northern and Rural Homeowner Benefit

BC’s Revenue Neutral Carbon Tax

Fossil Fuel

Combust.

Process, venting

etc.

Other

Tax covers ~70% of emissions

20

Selected Carbon Tax Rates by Fuel Type

Fuel Units Tax Rate2011($25/T CO2e)

Tax Rate 2012($30/T CO2e)

Current BC Market Price (ex carbon tax)

2011 Tax as Percent of Market Price

Gasoline Litre $0.06 $0.07 $1.25 5%

Diesel Litre $0.07 $0.08 $1.35 5%

Natural gas Gigajoule $1.24 $1.49 $8.50 15%

Thermal Coal

Tonne $44.30 $53.16 >$100 <44%

21

Greenhouse Gas Impacts

• No historical attribution has been done because of limited data

• Effects must be modeled since many variables affect GHG emissions

• Projected reduction of current tax: 3+ MT by 2020 or about 1/10 of emissions gap to target

• Expectation of carbon tax rates affect energy-related investment, especially in industry

22

Carbon Tax Discussion

• Carbon tax main purpose is influencing decisions, unlike most other taxes – Revenues of tax can be seen as co-benefit

• Carbon tax and cap and trade can be complements or substitutes– Tax can help prepare economy for C&T

• Design simplicity and administrative capacity in implementing carbon tax

The EU Emissions Trading System Impacts and Lessons Learned

Chemrec, biofuel from pulp-and-paper waste

Outline:Whirlwind tour of the EU ETS

1. Disclaimer:– Views are my own and only my own

2. Acknowledgments: – Denny Ellerman, Bonnie Greenfield, Alex Hanafi

3. Emissions reductions4. Costs5. Impacts of the recession6. Price volatility7. Windfall profits8. Theft and fraud9. Low-carbon innovation

Emissions reductions

• 2005, 2006, and 2007:– Between 120 and 300m tonnes of CO2

– 2–5% fewer emissions than BAU

• 2008 and 2009:– Roughly 350m tonnes– 8% fewer emissions than business as usual

• 470m tonnes is more than Mexico or Australia

• On track to meet and beat Kyoto targets

Source: Ellerman, Pricing Carbon, and unpublished manuscript.

Emissions reductions

Source: EU Emissions Data: A. Denny Ellerman, unpublished manuscript. EU GDP data: World Bank.

Costs

• Minimal:– Roughly 0.01% of Europe’s GDP

(Ellerman)– Back of the envelope: 0.02% of EU GDP–Minimal effects even on power, steel,

pulp & paper (McKinsey, IEA)

Impacts of the recession

• The ETS is responsible for a larger share of emissions reductions than the economic recession

• Over-allocation:– Projected and unverified emissions data– Net long by roughly 2.5%

Sources: New Carbon Finance 2009, Ellerman 2010, Frank Watson 2011, Anderson and DiMaria 2011

Price volatility

• Phase I permits were not “bankable”– Thus Phase I was forced to end either in deficit

(high price, met by CERs) or surplus (zero price)– Price went to zero

• “Bankable” Phase II permits maintained stable value

Price volatility

Price volatility

• Since 2007:– Oil prices: 19% more volatile than EUAs– Coal prices: 25% more volatile than EUAs

Source: Black-Scholes calculations by the author, price data: World Bank, Point Carbon.

Price volatility

Windfall profits

• Phase I: – €11.4 billion for coal, gas, oil power– €7.9 billion for renewables, hydro, nuclear

• EU utilities market: €730 billion in total

• Will be eliminated by auctioning

Source: Ellerman, Pricing Carbon.

Windfall profits

• Concentrated in countries with:– Fewer regulations controlling end-user

prices– High-carbon peak electricity supply

• The carbon intensity of the marginal cost plant is crucial

• For instance: • German utilities have windfall profits/kWh four times larger

than Spanish utilities • German utilities have ETS-induced price increases four to

thirteen times larger than French utilities

• Implications for California and othersSources: Ellerman, Jos Sijm, Point Carbon/WWF.

Theft and fraud

• Theft:– €50 million – Approximately 0.06% of annual value– EU credit card theft: 0.12% of annual value

• VAT fraud: – Europol: widely repeated projection of €5 billion

• World Bank argued this cannot be true

– VAT fraud on other EU commodities: €100 billion/yr– Not possible in jurisdictions with harmonized tax

regimes

Sources: European Commission, Nilson Report, Ernst & Young, World Bank, Joshua Chaffin .

Theft and fraud

• Spot markets account for 10% of ETS carbon trading

• Futures markets stayed open and maintained stable prices

Source: Joshua Chaffin.

Low-carbon innovation

• Patent data• Renewables in Germany employ 367,000

people– Net gain of 70,000 to 90,000 jobs

• Of the 500 largest companies in the world, those focused on low carbon growth experience double the financial return

Sources: Dechezleprêtre 2011, German Federal Env’t Ministry, PricewaterhouseCoopers

Questions welcome!