MBIs (Market-Based Instruments) for CO2 Gary Flomenhoft, Fellow Gund Institute January 31, 2008

MBIs-govt or market? No company will voluntarily add costs to its operation. Only government can do it to the market as a whole.

Why 1.Account for hidden costs-”true cost pricing” 2.Stimulus to producers and consumers (price-signal)-behavior change 3.Can raise revenue to target issues 4.Ecological efficiency-maximize production/throughput

What? 1.Emissions-powerplants, industry, cars, aircraft, houses, offices, agriculture 2.Increasing waste generation 3.Resource depletion 4.Renewable resource use 5.Land use

Types of MBIs 1.Tradable permits-emissions or wildlife 2.Environmental taxes 3.Environmental charges 4.Environmental subsidies and incentives 5.Liability and compensation schemes

1. Cap-distribute-trade Europe EUETS system-2005, Kyoto goals= 6-21% below base yr (1990) 11,000 installations: powerplants and industrial heat sector 2.15 billion tonnes = 50% of EU CO2 95+% Allowances given away, 5%vol auction Other gasses 20% of GHG (no transport) Jan 25, 2008 price-E21.03=$31.01/tonne

1. Cap-distribute-trade New England RGGI system-2009 Goal cap then -10% Powerplants only (+218 PA) 184 million tons = 184/700 =26.3% of CO2 100% Allowances auctioned 25% of revenue to benefit consumers (except VT 100% to consumers)

1. Cap-distribute-trade Vermont RGGI system-June, 2008 auction 1 Powerplant only-Berlin (2 other wood chips) 1.2 million tons = 2% of CO2 100% Allowances auctioned 100% of revenue to benefit consumers

2. Environmental Taxes-CO2 Germany 4% of total, US.9% of total Carbon Fuels Vehicle sales Vehicle registration Other GHG emissions

2. Fuel Taxes-VT Carbon-0 "Fuel Gross Receipts Tax” =.5% on retail sales of fuel "Electric Energy Tax” = 3.5% of appraised value "Utilities Gross Receipts Tax” =.3-.5% gross revenue Estimated Revenue from Sales Tax on Commercial Energy use = 5% Diesel Tax = $.26 commercial, $.17 cars gasoline tax = $ tank fee = $.20 Vehicle sales = 6% of purchase price Vehicle registration = based on type, size, weight, and purpose of vehicle = $54M

2. Fuel Taxes-Germany: 90% of ecotaxes road toll = 14c/km Electricity = 2.1c/kWh Natural gas =.06c/kWh Fuel oil = 6.2c/l = 23.46c/gallon Diesel = 47.2c/l = $1.79/gallon Gasoline = 65.6c/l = $2.48/gallon 55% increase in 1999: 89% recycled to reduce payroll taxes 9%- Environment Projects:2% admin –Renewable Energies –Less CO 2 in buildings –Tax break bio-fuels

3. Environmental Charges London Congestion charge 5£ then in July £ Traffic congestion -30% Taffic volume - 15% Public transit improved Better air quality

4. Subsidies & incentives-EU “Cohesion Funds” = Environment projects helping to achieve the objectives of the EC treaty priority to drinking-water supply, treatment of wastewater and disposal of solid waste. Reforestation, erosion control and nature conservation measures are also eligible. b) Transport infrastructure projects establishing or developing transport infrastructure as identified in the Trans-European Transport Network (TEN) guidelines.

4. Subsidies & incentives-EU “Feed-in Tariffs” /kWh for PV Europe =.63-78c Ontario =.42c Wash/CA = c Also have feed-in tariffs for wind, hydro, biogas VT feed-in tariffs= 0, net metering only

4. Subsidies & incentives-EU 1991 “Feed-in Tariffs” Results: Germany has 52% of PV in world w/ same sun as Anchorage, AK 35,000 employed MW installed US has 360 MW installed or 13% of Germany Germany 82M, US 300M people Germany: 150,000 employees in RE 107,000 FF & nuclear

Liability and compensation Insurance, re-insurance Oil spill funds-bonds

Bottom Line US emissions % GDP+55% NE emission % EU emissions -2%, EU % GDP+35% on target for -8% emissions by 2012 Germany -22% emissions by 2012