Overview of Carbon Markets and US Federal Proposals to Regulate GHGs American College of Construction Lawyers and Princeton University Joint Symposium November 6, 2009 Jean-Philippe Brisson Climate Action Reserve

2 Carbon Market Drivers Energy Efficiency Scientific Data “Green” Jobs Energy Security Risk- Adjusted Cost Governmental response in the form of new policies and regulations Carbon markets created by the adoption of cap-and-trade programs

3 International, Regional and National Responses.. Australia Operational for 2010? Canada 2007 Alberta program Europe EU ETS cap-and-trade program started in 2005 Japan Japanese industry has accepted to meet voluntary targets United States RGGI effective 2008, California AB-32 scheduled operation in 2012; multiplicity of proposals at federal level International 1992 UNFCCC and 1997 Kyoto Protocol

Global Carbon Market Trends

5 World Bank, State and Trends of the Carbon Market 2009 (May 2009) MT CO2e US $ Million MT CO2e US $ million MT CO2e US $ million Allowance1,13424,6992,10849,3613,27692,589 Offset6116, ,6461,53533,487 TOTAL1,745 31,2352,98463,0074,811126,345

6 Four Key Developments in the US Massachusetts v. EPA (2007) –Carbon dioxide is a “pollutant” –EPA intends to finalize Finding that GHGs are pollutants that “endanger public health and welfare” GHG emission standards for new motor vehicles –Implications of making GHGs “pollutants subject to regulation” PSD requirements for new or modified “major sources” Rise of state and regional programs Emergence of tort lawsuits against emitters –Connecticut v. AEP –Native Village of Kivalina v. Exxon Mobil –Comer v. Murphy Federal legislation

7 Federal Legislation 110 th Congress –Ten proposals introduced –Lieberman-Warner reported out of Senate EPW Committee December 5, 2007 Considered by full Senate in June th Congress –Waxman-Markey (American Clean Energy Security Act) Adopted by the House of Representatives June 26, 2009 –Kerry-Boxer (American Clean Energy Leadership Act) Reported out of Senate Committee November 5, 2009

8 Introduction to Cap-and-Trade Emissions Cap Entities within the cap can buy, sell, bank or borrow allowances to cover their actual emissions ALLOWANCES within the Cap The “Right” or “Authorization” to Emit” $ $ $ Offsets Additional Reductions of Emissions Outside the Cap to Create Offsets New York methane capture at landfill California redwood forest Project Brazil project under Kyoto? Marginal abatement cost is lower than allowance price for same environmental benefit OFFSETS outside the Cap Project-based Emissions Reductions

9 Federal Legislation – Key Design Elements “Economy-wide” cap-and-trade program –20% below 2005 by 2020; 42% below 2005 by 2030; 83% below 2005 by 2050 Use of domestic and international offsets permitted –Results in cost containment Allocation of allowances –Utilities, for ratepayers –Energy-intensive, trade-sensitive industry –Promotion of clean energy, energy efficiency –Promotion of carbon capture and sequestration (CCS) Border tax for energy-intensive imports from uncapped countries Allowance reserve for moderating volatile allowance prices Limited preemption of state and regional cap-and-trade programs Preclusion of EPA GHG regulation under the Clean Air Act (Waxman- Markey only)

US Carbon Market Relative to Existing Market

11 Potential Cost of Waxman-Markey Economic analysis ran by Environmental Protection Agency and Congressional Budget Office –Key differences in methodologies Source: Pew Center on Global Climate Change, Climate Policy Memo #3: Cost of the American Clean Energy and Security Act of 2009 Found to Be Small According to Government Analyses (June 2009). Source Allowance Price EPA CBO $16 $22 $26-27 NA $69-70 NA Annual Household Cost EPA CBO $49-61 $175 $ NA $ NA Annual Economy-Wide Cost billions $ EPA CBO $100 $22 $ NA $ NA Future Gasoline Price Increase EPA $0.13 (2015) $0.25$0.69

12 Potential Impact on Large US Emitter Assumption –Annual GHG emissions of 100 million MTCO2e Potential Annual Cost of Compliance Number of free allowances given to emitter Allowance Price $10$ million$0 50 million$500 million$1,500 million 25 million$750 million$2,250 million

Climate Action Reserve Statistics Account-holders: 150 Total projects listed and registered: 89 Climate Reserve Tonnes issued: 1.65 million Chicago Climate Futures Exchange Climate Reserve Tonne Futures – Dec 2009 Delivery

Offset Projects Listed with the Climate Action Reserve