Summer Committee Meetings

Yoram Bauman Sightline Institute

Source: BC Budgets

Source: CANSIM

Source: CANSIM

Learning from the Regions

Learning from the Regions

Bruce Braine American Electric Power

Comparison of Hypothetical U.S. CO2 Cap and Trade vs. Tax Bruce H. Braine VP – Strategic Policy Analysis NARUC Summer Committee Meetings July 23, 2013

Background Federal CO2 legislation very unlikely in next 3-5 years. Obama Administration moving forward on CO2 regulations (e.g. utility NSPS on new and existing sources) BUT likely insufficient to meet long-term (post-2020) CO2 goals and NOT cost-effective. If policymakers determine more long term CO2 reductions needed, federal legislation (either carbon tax or “cap and trade”) would be required. How do these two approaches compare? 10

Comparison of Hypothetical U.S Cap and Trade vs. Carbon Tax Cap and Trade - 17% Reduction By 2020 $30 Per Ton Tax w/ 50% Recycling Emission Reductions Certainty HighLow Costs to Electric SectorModerateHigh Macroeconomic CostsLow to ModerateHigh Transparency/SimplicityMediumHigh 11 Assumptions for ‘apples to apples’ comparison of programs: Total US 17% reduction (below 2005 levels) by 2020 = CO2 tax of $30 per ton Cap and Trade w/ full allocation of allowances for electric utilities/customers Majority of CO2 reductions come from/required from electric sector Carbon Tax Revenues-- ½ for deficit reduction, ½ returned per-capita

Differences in Electric Sector “Direct” Costs 12 Note: Cap and Trade Assumes 100% allowance allocation to customers thru LDCs, but most reductions come from electrics. See Slide 3.

Approximate State Level Impacts of CO2 Tax 13 Notes: (1) “Cap and Trade” Results in Per Capita Values of $200 or less. (2) Values are approximate and do not account for regional shifts in costs from industrial production and/or exports.

Positive Track Record for Cap and Trade U.S. Acid Rain ProgramEuropean Union GHG ETS 14 Source: European Environmental Agency

Comparison of Other Forms of Cap and Trade and Taxes Cap and Trade with Full Allocation results in a much smaller “negative” impact than Tax with 50% recycling on electricity consumers and overall US GDP and jobs. However, Cap and Trade with 100% Auction and 50% recycling would have similarly large negative impacts as a Carbon Tax. Carbon tax “could” be a net positive for the economy if MOST ALL of proceeds are used to reduce less efficient taxes (e.g. marginal income tax rates). BUT High regional costs and negative distributional impacts on lower/middle income consumers. 15

Learning from the Regions