Some History: Environmental Defense Fund (EDF), 1967-present, Full-time staff, 1967: : 325 Members, 1967: : 500,000 Offices, 1967: : 13 Budget, 1967: : $110,000,000 A CAP-AND-TRADE SYSTEM TO REDUCE CLIMATE CHANGE Charles F. Wurster PhD: Chemistry, Stanford, 1957 Professor Emeritus of Environmental Sciences State University of New York at Stony Brook Board of Trustees, EDF, 1967-present

1970’s: Economic argument, IT PAYS TO POLLUTE. Strategy: Hire economists, change the equation to IT PAYS NOT TO POLLUTE 1980’s: Acid rain, much research but no action to abate SO2. SO 2 + H 2 O = H 2 SO 4 (sulfuric acid) NOx + H 2 ) = HNO 3 (nitric acid) 1988: EDF formulates Cap-and-Trade system for SO 2, convinces George H. W. Bush, becomes part of Clean Air Act of 1990.

1990’s: Implementation of Cap-and-Trade for SO 2 : 1.Entity (corporation, industry, region) granted “Cap” to emit CO 2, less than formerly. 2.Entity must have permits for emissions, severe penalty for emissions that exceed cap. 3.Entity is not told how to meet cap, which opens door to innovation. Differs for each entity. 4.Permits are marketable, Chicago Board of Trade. 5.Entities that abate below their cap can sell their extra permits to entities that cannot meet their cap. Incentives: Profitable to abate SO 2 below their cap, sell their extra permits for extra profit. Costly not to abate to meet cap, must then buy extra permits for extra emissions beyond their cap. Both have incentive to abate SO2. Schedule: 25% reduction by 1995; 50% reduction by 2000.

Real World Example: ENTITY A ENTITY B Available permits, % 75% Costs of Abatement Low High Abatement by each entity 50% 0% A sells 25% of its extra permits to B. Both meet requirement. Results through 1990’s: 1. All targets met or exceeded, no enforcement problems. 2. Original cost estimates by industry: $2,400/ton SO 2 abated. 3. Actual costs, market prices of permits: $100-$ Cap-and-Trade selected cheapest and best technologies for abatement. These can also be marketed.

APPLYING CAP-AND-TRADE TO CARBON DIOXIDE 1992: United Nations Framework Convention on Climate Change Signed by G. H. W. Bush, Rio de Janeiro, Brazil. 11 Dec 1997: Kyoto Protocol adopted, contains Cap-and-Trade. 16 Feb 2005: Russia countries ratify Kyoto, bringing the Treaty into force. USA abstains, opposes treaty. Developing countries not included. Kyoto expires in 2012, must be extended to all countries, tighter limits in greenhouse gas emissions. Forests must be included as important carbon sinks, which has great biodiversity benefits. What about a Carbon Tax? Would it work? How about subsidies?