How are those "chits" being used?
The climate bill coming this week from Sens. Barbara Boxer and John Kerry will likely leave some big questions unanswered, including the biggest: how to divvy up carbon allowances.Allowances are permission slips to release emissions, and they function as a currency in the market the cap-and-trade legislation would create. For Boxer (D-Calif.) and Kerry (D-Mass.), they are chits to use to negotiate support for their bill as they attempt to form a winning coalition.
The draft is also expected to have “placeholders” for some additional subsidies for coal and nuclear power. . .An analysis of the implications of the Waxman-Markey Bill from two scholars at MIT, Richard Lester and Ashley Finan, places the scale of the challenge into clear focus (here in PDF). Lester and Finan use an approach very similar to that I employ in my critique of the UK and Japanese climate policies, based on decomposing decarbonization using the Kaya Identity. (Thanks DC for the pointer). The study starts with several scenarios to 2050. Here is the first scenario:
Most energy lobbyists expect the bill to pass Boxer’s committee but not get much further this year.
That would give President Barack Obama some progress on climate to show off in Copenhagen, Denmark, where world leaders will discuss what to do about global warming, but leave a final push in the Senate for early 2010.
Several Democratic senators are already on record as being uneasy about the climate bill. The distribution of the allowances is one way to ease those concerns.
Some sectors, namely the oil and gas industry, feel like they weren’t treated fairly under the allowance system Waxman and Markey eventually settled on. Jack Gerard, the president and CEO of the American Petroleum Institute, said the sector was seeking more “equitable” treatment.
Refiners got 2 percent of the allowances to cover emissions at their own facilities. But the sector is also responsible for the emissions that come from the use of their products — in total, around 44 percent emitted by human activity in the United States.
The Institute is flying in Hispanic workers this week as part of its grassroots push to change its image from that of the corporate fat cat. The group was preceded by a group of women and African-Americans who work in the industry, and will lobby on taxes and access issues beyond climate.“We want to show the human face of the oil and gas industry in the United States,” Gerard said.
Solar and wind each provide 20% of total electricity supply; nuclear capacity is tripled, and the technology for coal plant carbon capture and sequestration (CCS) is assumed to be available without constraint. Geothermal provides 100 GWe (compared with about 2 GWe today). Reliability issues stemming from the heavy dependence on intermittent wind and solar energy resources are assumed to be resolved with economic electricity storage and other advanced grid technologies that are not available today. Hydroelectric plants continue to contribute at their current, relatively modest level.The authors comment of this scenario that:
These are generally very ambitious goals. Some observers would likely regard them as being at or even beyond the bounds of plausibility.But assume that the US legislative process actually results in the achievement of all of these accomplishments. What would it imply in terms of economic growth consistent with hitting an 80% reduction target by 2050? The authors give the answer, writing that this scenario,
with its highly optimistic assumptions about the future availability of renewables, nuclear, and CCS, the mid-century carbon emission reduction goal could only be achieved if the annual growth in GDP per capita between now and 2050 were to slow to a rate of 1% per year. It is worth noting that in no decade since the 1930s has this broad measure of the nation’s economic growth performance been as low.What about the implications of a more realistic scenario? The authors describe a second scenario as follows:
Wind accounts for 15% of total electricity supply, and solar another 5% – both many times larger than their current contributions, but well below today’s most optimistic projections. No new nuclear plants are built, and all currently operating plants are phased out. Carbon capture and sequestration technology is assumed not to become available, and no new coal plants are built. The balance of electricity supply is provided by a combination of hydroelectricity (unchanged from today), geothermal (100 GWe), and biofuels.What are the implications for economic growth in the context of the reduction target?
. . . per capita economic output would actually have to contract[by 0.85% per year] in order to achieve the mid-century carbon emission reduction goal.The authors conclude:
Uncompromising environmental advocates assert that the risks of climate change are so great that carbon emission reductions must be achieved regardless of what this would mean for economic growth. But that view is not widely shared and as a practical matter national policy is unlikely to privilege the emission reduction goal in this way. Certainly many people would regard the prospect of weak or even negative economic growth in the service of avoiding global climate change as unacceptable. But it is an inescapable fact that even with extraordinary measures to adopt low-carbon energy supply technologies on a large scale it will be mathematically impossible for the country to enjoy even moderate economic growth in the absence of much stronger energy efficiency gains than in the past. Equally, strong economic growth will be impossible even with rapid gains in energy efficiency if these are not accompanied by much more aggressive rates of decarbonization.Remarkably, in all that I have read and heard in the public debate on Waxman-Markey and its Sentae follow-on, aside from a few academic papers and discussions, the phrase "rate of decarbonization" is all but absent from the debate. In its place we see plenty of discussion of "allocation of emissions allowances." This fact alone is a clear sign that politics is trumping policy in the U.S. climate bill. No one should be surprised if rates of decarbonization are not substantially influenced by the legislation, if it ever passes, which right now looks questionable.
However, so long as climate policy is focused on magical solutions the fact that "rate of decarbonization" isn't considered to be important will probably not trouble too many people in the debate.