Cap & Trade. Cap & Trade (Cap) A cap commits a region or country to limits on greenhouse gas...
-
Upload
julian-rose -
Category
Documents
-
view
224 -
download
4
Transcript of Cap & Trade. Cap & Trade (Cap) A cap commits a region or country to limits on greenhouse gas...
Cap & Trade
Cap & Trade (Cap)
• A cap commits a region or country to limits on greenhouse gas emissions (GHG) and then reduces those limits over time.
• All proposals set an emissions target (cap) on sources covered by the program.
• The cap is normally set in terms of a percentage reduction below a prior year’s emissions level. – For example:
– 3 percent reduction below 2005 levels by 2012
– 20 percent reductions below 2005 levels by 2020
Cap & Trade(Covered Sources)
• Covered sources are likely to include major emitting sectors: – Power plants and carbon-intensive industries, fuel producers/processors
(coal mines or petroleum refineries), or some combination of both.
• In almost every case, electric power producers are a covered sector.
• Some sectors that emit greenhouse gases may not be covered, such as agriculture.
Cap & Trade (Allowances)
• The emissions cap is partitioned into allowances.
• Typically, one emission allowance equals the authority to emit one (metric) ton of carbon dioxide-equivalent. – A metric ton is equal to 2,200 pounds.
• Why “equivalent”? Greenhouse gases other than carbon dioxide vary in their global warming potential.– Other GHG’s: methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons,
and perfluorocarbons.
– Methane absorbs 21 times more radiant energy than carbon dioxide; nitrous oxide absorbs 310 times more radiant energy than carbon dioxide.
Cap & Trade (Trade)
• Trade means entities may buy, sell or trade “allowances” between themselves or others. – This creates a market for “allowances.”
• A trading system places a market price on allowances.
• The market price should motivate industry, businesses and families to reduce GHG’s.
• A well-designed trading system should encourage efficiency, innovation and lowest-cost solutions.
Cap & Trade (Offsets)
• An offset is an activity, other than a direct emission reduction that can be done to lower GHG emissions.
• An offset must be an approved, measurable activity reduction, avoidance, or sequestration of greenhouse-gas emissions from a source not covered by an emission reduction program.
• Examples of offsets:– Planting trees
– Paying dairy farmers for methane capture systems
– Paying farmers for reduced or no-till activities
• Use of offsets is normally limited (30%).
Cap & TradeHow does cap and trade work?
• Tally greenhouse-gas emissions– Energy Information Administration (EIA) and
Environmental Protection Agency (EPA) have the data.
• Set a cap– 2005 has been selected as the base year; emission cap will begin
in 2012 as a small percentage below 2005 levels.
• Distribute allocations– Some percentage given out freely, and some will be required to be purchased or traded.
• Enforce the cap– EPA will be given authority to regulate with severe penalties for non-compliance.
• Step it down– Cap decreases every year to reach a 80-90 percent decrease from 2005 levels by 2050.
Cap and Trade Basics
Baseline
Cap
Tons
Years
Reductions
How can the electricity industry respond? ?
Climate Change
• Basin Electric supports reasonable climate change legislation.
• We want to be a part of the solution, not part of the problem.
Energy Diversity
Largest carbon capture sequestration project in the world
Developing New Technologies
• Commercial-scale pilot carbon capture project at the Antelope Valley Station, Beulah, N.D.
• Working with a technology
provider
• Anticipated start = 2013
• Goal = 90% CO2 removal
What does Cap & Trade mean to an average household?
1 metric ton
carbon/month=
Annual Electricity Cost Increases to the Consumer
$10 – $60/metric ton carbon cost
$120 – $720 $240 – $1,440 $667,000 – $4 million
Power Supply Options Limited
• Natural gas price is highly volatile
• Nuclear option available but in the future
• Renewables, conservation and efficiency can not yet meet full base-load need
0
1000
2000
3000
4000
5000
6000
7000
2000 2010 2020 2030 2040 2050
U.S
. E
con
om
y C
O2 E
mis
sio
ns
(mil
lio
n m
etri
c to
ns)
•Flat between 2010 - 2020•3%/yr. decline beginning in 2020•Results in “prism”-like CO2 constraint on electric sector
0
500
1000
1500
2000
2500
3000
3500
1990 1995 2000 2005 2010 2015 2020 2025 2030
U.S
. Ele
ctri
c S
ecto
r
Em
issi
on
s (m
illio
n m
etri
c to
ns)
EIA Base Case 2007
Advanced Coal Generation
DER
PHEV
CCS
Nuclear Generation
Renewables
Efficiency
Technology
* Achieving all targets is very aggressive, but potentially feasible.
Electric Sector CO2 Reduction Potential
Key Elements in Legislation
• Incentives for technology development
• Credit for early adopters
• Time to develop the technology
• Price ceiling for carbon (safety valve)
• Free allocations vs. auction
• Regulatory certainty
• All sectors must be included
• Worldwide effort
Waxman-Markey Bill
• Cap and Trade
• Includes RES
• $1 billion/year in CCS grants
• Allocations
• Offsets
Henry Waxman (CA)Henry Waxman (CA) Ed Markey (MA)Ed Markey (MA)
American Clean Energy and Security Act(Waxman-Markey)
4 Titles
I. Clean Energy (RES and Transmission)
II. Energy Efficiency
III.Reducing Global Warming
IV.Transition to a Clean Energy Economy
• Bill has passed out of House Energy and Commerce Committee
• Still needs to go through several other committees
• Vote on entire House floor
Waxman-Markey Climate Provisions• Targets and timetables
– 17% below 2005 greenhouse gas emissions in 2020
– 83% below 2005 GHG emissions by 2050
• Allowance allocation
– 85% allowances will be freely given out at beginning – more allowances will be auctioned starting in 2026
• Offsets (agriculture and forestry)
– Domestic and international offsets are limited to 1 billion metric tons each of carbon per year
Allocations
• Allocations given to Local Distribution Companies (retail sales)
– Based 50 percent on sales and 50 percent on carbon intensity of electricity purchases
• Allocations given to merchant generators
– 5 percent of electric generator’s total
• Allocations to electric consumers phased out by 2030
Offsets
• Eligible Projects– Determined by EPA
• Project Requirements– Determined by EPA
• Verification – Determined by EPA
• Issuance of Credits
• Audits
• Offset Credits– 15 percent domestic and 15
percent international
• Offsets Integrity Advisory Board– 9 members established by EPA
• Offset Program– Regulations promulgated by EPA
w/consultation with Federal Agencies and Advisory Board
Performance Standards New Coal
• 2009 - 2020: 50% reduction in CO2
• After 2020: 65% reduction in CO2
Waxman-Markey Shortcomings
• Allocation formula is skewed– Some receive more than 100 percent of their needs and double
allocations are given to others
– Allocation should be based entirely on emissions
– Allowances are fazed out too quickly
• Offset Program should be administered by the U.S. Department of Agriculture
• Credit for current emissions reduction (Early Action) is missing
• Timing of emission reduction does not match the development and commercialization of carbon capture technology
Waxman-Markey Shortcomings
• Auction – no restriction on the types of entities or individuals who could purchase the allocations
• Safety Valve – no safety valve price is included in the bill that could mitigate the harmful economic impact on the end consumers
• Research, Development & Deployment funding - inadequate to fund the necessary advancement in carbon capture technologies
NRECA Negotiations
• NRECA will not oppose the legislation, but will stand aside and work to improve the bill in the Senate in return for:
– Pelosi will not object to Rural Utilities Service funding new nuclear generation
– No utility shall receive allocations that exceed 100 % of their needed emissions.
– Additional small utility allocations (less than 4 million MWh) for cooperatives.
Questions