Download Cap & Trade Legislation: What`s Proposed and What Does It Mean.

Cap & Trade Legislation:
What’s Proposed and What Does It
Mean
Chad Hart
Asst. Professor of
Economics
Iowa State University
Iowa Meeting of ASFMRA and RLI
Ames, Iowa
March 23, 2010
Department of Economics
Climate Change
Source: www.conservationreport.com
Department of Economics
Climate Change
Source: Congressional Budget Office
Department of Economics
GHG Emission Rules
• Greenhouse gas rules are coming
– Whether through legislation or regulation
• EPA has the authority to regulate GHGs
– Via Clean Air Act
• However, Congress would like to set the rules
– H.R. 2454, American Clean Energy and Security Act
of 2009,
• Passed in U.S. House of Rep. on 6/26/09, 219-212
– S. 1733, Clean Energy Jobs and American Power
Act
• Introduced 9/30/09, In committee (actually, six committees)
Department of Economics
U.S. GHG Emissions
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Source: EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks: 1990-2007
CO2 Emissions
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Source: EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks: 1990-2007
CH4 Emissions
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Source: EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks: 1990-2007
N2O Emissions
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Source: EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks: 1990-2007
GHG Emissions by Sector
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Source: EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks: 1990-2007
Agricultural GHG Emissions
Department of Economics
Source: EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks: 1990-2007
GHG Emission Statistics
Department of Economics
Source: EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks: 1990-2007
Climate Change Legislation
American Clean Energy and Security Act of 2009 (H.R. 2454)
• Requires utilities to supply an increasing percentage of their demand
from a combination of energy efficiency savings and renewable
energy (6% in 2012, 9.5% in 2014, 13% in 2016, 16.5% in 2018, and
20% in 2021-2039).
• Provides for issuing, trading, banking, retiring, and verifying
renewable electricity credits.
• Establishes targets to cap and reduce greenhouse gas (GHG)
emissions, annually, so that GHG emissions from capped sources
are reduced to 97% of 2005 levels by 2012, 83% by 2020, 58% by
2030, and 17% by 2050; and establish a federal GHG registry.
• Provides for trading, banking and borrowing, auctioning, selling,
exchanging, transferring, holding, or retiring emission allowances.
Source: Congressional Research Service
Department of Economics
Climate Change Legislation
Agriculture provisions in H.R. 2454
• Provides some exemptions from the GHG emission reduction
requirements for agriculture and forestry
• Provides incentive-based approach to GHG emission
reduction/capture
• Allows USDA to help establish eligible GHG offset practices and
review of those practices
• Shifts question on indirect-land-use to an independent panel for study
with EPA and USDA to review in the future
• Allows for a specific exemption for livestock (enteric fermentation
from ruminant animals) from uncapped emissions guidelines
Department of Economics
Source: Craig Raysor, Gillon & Associates, PLLC
Lots of Analysis
• The EPA has funded the development of
several models that are capable of examining
the impact of this bill and other similar bills
• The environmental economists who worked
on these models are very well respected and
the work is sound
• However, the only certainty in the bill is the
limit on carbon, everything else is assumption
driven
Source: ISU, Dermot Hayes presentation, Oct. 2009
Department of Economics
Key Assumptions
• The US economy was already on a slow growth
path for energy consumption, the analysis
assumes that this continues
• Coal fired plants largely shut down and are
replaced by nuclear
• Enormous reliance on international and domestic
offsets
• If we cannot build the large number of nuclear
plants or find the international offsets, then the
price of carbon will increase at about twice the
reported rate
Source: ISU, Dermot Hayes presentation, Oct. 2009
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Energy Sources
Source: EPA Analysis of H.R. 2454, June 23, 2009
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GHG Emissions & Abatements
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Domestic Offsets
• Implementing regulations not yet written
• Uncertainty about how the offsets would work
in agriculture, particularly for conservation
tillage, but the intention is clearly to use these
offsets as a way to stimulate agricultural
incomes
• Consideration of leakage is prohibited
pending a study
• Heavy reliance on the growth of trees on
pasture and crop land
Source: ISU, Dermot Hayes presentation, Oct. 2009
Department of Economics
Domestic Offsets
Department of Economics
Source: EPA Analysis of Waxman-Markey,
April 20, 2009
Domestic Offsets
Table 1. Rental values ($/acre) for U.S. cropland used to grow trees
Carbon Price ($/ton)
Region
20.00
30.00
40.00
50.00
Corn Belt
81
121
161
202
Delta States
127
190
253
316
Lake States
98
147
195
244
Southeast
115
173
231
288
60.00
242
380
293
346
90.00
363
569
440
519
Source: ISU, Dermot Hayes presentation, Oct. 2009
Department of Economics
Land Use Changes
Allowance Prices
Department of Economics
Source: USDA, Office of Chief Economist
Statement of Joseph Glauber, before House Ag Committee, 12/3/09
International Offsets
• Must be a developing country that is a member of a
unilateral or multilateral emissions reduction
agreement with the United States
• Must have the technical capacity to monitor,
measure, report and verify forest carbon fluxes
resulting from deforestation
• Must have the capacity to reduce emissions from
deforestation, including strong forest governance
• The international offset project itself must be shown
to result in permanent verifiable reductions that are
net of any leakage measures
Source: ISU, Dermot Hayes presentation, Oct. 2009
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Allowances
2016
2030
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Source: Congressional Research Service, June 2009
Carbon Prices Increase Over Time
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Prices Are Sensitive to Offsets
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Energy Price Paths
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Impacts on an Average Household
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Impacts on Tillage Practices
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Allowance Price
Comparison of Results
Source: ISU, Dermot Hayes presentation, Oct. 2009
Department of Economics
USDA Estimates
2012-2018 Production Costs Changes
Department of Economics
Source: USDA, Office of Chief Economist
Statement of Joseph Glauber, before House Ag Committee, 12/2/09
Crop Production Changes
Source: USDA, Office of Chief Economist, “The Impacts of
Department of Economics the American Clean Energy and Security Act of 2009 On U.S. Agriculture”
Crop Price Changes
Source: USDA, Office of Chief Economist, “The Impacts of
Department of Economics the American Clean Energy and Security Act of 2009 On U.S. Agriculture”
Livestock Production Impacts
Source: USDA, Office of Chief Economist, “The Impacts of
Department of Economics the American Clean Energy and Security Act of 2009 On U.S. Agriculture”
Livestock Price Impacts
Source: USDA, Office of Chief Economist, “The Impacts of
Department of Economics the American Clean Energy and Security Act of 2009 On U.S. Agriculture”
Offsets and Revenues
Source: USDA, Office of Chief Economist, “The Impacts of
Department of Economics the American Clean Energy and Security Act of 2009 On U.S. Agriculture”
Not The Only Game in Town
• The House bill has not gained traction in the
Senate
• Senate proposals have stalled in committee
– Very little committee action up to this point
• A bipartisan effort (Kerry D-Mass., Graham RS. Car., and Lieberman I-Conn.) is underway
– No legislative language yet, but that may come
soon
– Expected to be more “business-friendly”
– One trial balloon: carbon fee on transportation
fuels (suggestion from oil companies)
Department of Economics
Concluding Thoughts
• The potential for cropland conversion points
to higher crop prices and feed costs
• Crop prices will likely track carbon prices
• Cropland conversion will benefit landowners
through higher rents
• Agriculture will experience the benefits and
the costs of climate change legislation
Department of Economics
Thank you for your time!
Any questions?
Department of Economics