Colloquium explores greenhouse gas emissions trading
Can markets curb global warming? That was the question explored at the 9th Colloquium on Environmental Law and Institutions, held at the Law School on November 16. “Can Markets Protect the Climate? Prospects for Greenhouse Gas Emissions Trading in the United States and Europe” was a joint collaboration of the Duke Center on Global Change, the Duke Center for Environmental Solutions, and the Duke Program on Energy and the Environment. The discussion was moderated by Professor Jonathan Wiener, who is the faculty director of the Duke Center for Environmental Solutions.
Calling climate change arguably the most important environmental issue of the 21st century, Wiener pointed out that while markets give rise to greenhouse gas emissions, they can–and must–also be part of the solution.
“The environment is too important to be left out of markets. The challenge is one of creating a market-based regulatory system that re-incorporates important environmental issues into market signals, and thereby delivers both environmental protections and economic performance.”
Peter Zapfel, a European Commission economist, outlined Europe’s new system for trading carbon dioxide (C02) emissions, [which went into effect January 1, 2005]. A “downstream scheme,” it targets emission sources, such as facilities where fossil fuels are combusted, and involves a system of permits, which define obligations to reduce C02 emissions, and tradable “allowances,” distributed at the member-state level. The program seeks to reduce C02 emissions by eight percent from 1990 levels by 2012, and spreads the burden to do so over 25 European Union member states; some will be obligated to reduce levels more than others.
“Climate change requires cooperation among nations,” observed Zapfel. “We see [the program] as part of an evolution that brings us closer to an international carbon market.” While limited to C02 emissions at this time, the EU eventually hopes to extend the trading scheme to other countries and greenhouse gases.
“The environment is too important to be left out of markets.” Jonathan Wiener
By contrast, the U.S. scheme proposed by Senators Joseph Lieberman and John McCain in their draft Climate Stewardship Act introduced–and defeated–on the Senate floor in January 2003, contemplates trading in all six of the identified greenhouse gases: C02, methane, nitrous oxide (N2O), hydroflourocarbons, perfluorocarbons, and sulfer hexaflouride. The Senators plan to reintroduce a scaled-back version of the bill in the current congressional term.
Tim Profeta JD/MEM ’97, counsel for the environment for Senator Lieberman, said the Senators were motivated to develop a comprehensive U.S. emissions trading system after the 2001 U.S. withdrawal from the Kyoto Protocols, which contemplated an international system.
“The Senators were concerned that the world was moving forward, and the U.S. was being left behind environmentally, geopolitically … and economically. The rest of the world was creating a market signal that would lead to the development of new technologies, and the United States would not have that market signal.”
The bill introduced on the Senate floor in January 2003, covered all four major sectors of the economy–industry, utilities, transportation, and commercial–using a “cap-and-trade” approach, with a two-phase goal: for the U.S. industry to reach 2000 emission levels by 2010, and 1990 levels by 2016, on all six greenhouse gases. Those targets have since been scaled back, but the overall approach is the same, said Profeta.
“We believe that some of the ‘cheap’ reductions come from methane, nitrous oxide, and some of the manufactured gases. And if you want to get the system off the ground, you want to let people pluck those low-hanging fruit as soon as possible.”
The U.S. plan is a hybrid system; while industry caps its emissions “at the smokestack,” considered to be a downstream stage, transportation emissions are capped “upstream,” with refining companies required to have a credit for every ton of carbon in their fuel. A system of offsets is available for up to 15% of an entity’s emissions. Allowances–the limited authorization to emit pollutants–could be traded from one source to another.
Bruce Braine, senior vice president of strategic policy analysis at American Electric Power Service Corporation, shared some of his company’s experiences with emissions trading on the nascent Chicago Climate Exchange, a voluntary exercise in trading that seeks to build a market before there is substantial demand.
Asked to compare the U.S. and European proposals, Joe Goffman, a key architect of the very successful 1990 acid-rain (S02) trading initiative, was blunt.
“The best thing about the EU program is that it has the votes. The worst thing about the McCain-Lieberman bill is that it doesn’t.”
The success of the S02 trading program, as well as many other regional greenhouse gas trading programs, Goffman pointed out, is proof that markets are a productive way to deal with emissions, but encounter political opposition from, in large part, the carbon and coal sectors and states.
“[Senators] McCain, Lieberman and their staff are trying to come up with the most rational, market-based system … that has to be refracted through what [can be implemented].”
There will be a cost to U.S. inaction on emissions trading, concluded Profeta.
“We will need to put in a far more severe program 10 years from now.”