1. Resolving Different Levels of Stringency  As framed: –There are benefits to linking separate “cap-and- trade systems.” –There may be “weak” and “stringent” regimes. –How do we ensure that the stringencies of separate systems are compatible, so that the benefits of linking can be realized? November 15, 2007Linkage MeetingPage 1

2. Resolving Different Levels of Stringency  Some statements: –Weak systems have low prices and a stringent regime have high prices. –Linking and trading between weak and stringent regimes will be “inefficient…with one way trading…” –Linking systems with equally stringent regimes (i.e., similar prices?) will enable emitters to benefit from the opportunities available in the larger market. –Linking systems with divergent stringencies risks putting industries in one sub-national entity at a significant disadvantage relative to industries in the other entity. November 15, 2007Linkage MeetingPage 2

3. Resolving Different Levels of Stringency  Defining Stringency: –Characteristics of the cap-and-trade system: Level of the cap Sectors/emitters included Portion of the economy affected Gases included Absolute or intensity Mandatory/voluntary Fixed/indexed cap Price maximum November 15, 2007Linkage MeetingPage 3

4. What is Stringency?  Stringency must be defined in terms of our overall goal: “Prevent dangerous anthropogenic interference with the climate system…”  GHG emissions from all sources matter.  Stringency is the impact on total emissions from all sources within a jurisdiction (state/province/region/country). November 15, 2007Linkage MeetingPage 4

5. If Stringency includes all emissions?  Cap-and-trade programs will not include all emissions.  It is possible (likely?) that cap-and-trade programs will include much less than 100% of emissions (e.g., 50%).  Therefore, the characteristics of the cap-and- trade program alone cannot define stringency. November 15, 2007Linkage MeetingPage 5

6. What does comparable stringency mean?  Progress toward our ultimate emission goal.  For example: –Limit total emissions from all sources to 1990 levels by 2020. –Limit total emissions from all sources to 20% below 1990 levels by 2030.  A cap-and-trade program can be one element of an overall strategy for achieving these emission targets. November 15, 2007Linkage MeetingPage 6

7. But…we have different starting points!  Comparable stringency does not imply comparable burden.  Variations in burden are driven by differences: –Growth rates. –Past efforts. –Mix of sources/sectors. –Costs and availability of technologies. November 15, 2007Linkage MeetingPage 7

8. The Role of Cap-and-Trade  The cap-and-trade program may take on a small or large part of the burden – depending on the other complementary policies that are implemented.  Linking only among cap-and-trade systems that are part of overall programs with comparable stringency ensures the environmental integrity of each program.  Linking cap-and-trade systems that have varying burdens improves overall efficiency. November 15, 2007Linkage MeetingPage 8