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Nov 2014: China-US agreement on carbon emissions -President Obama pledges to reduce GHG emissions by -26 to 28% of 2005 levels by 2025 -president Xi Jinping pledges that China’s GHG emissions will peak by ~2030, if not sooner, and move to 20% no-carbon energy by 2030 NOTE: US + China = 30% of global GHG emissions California and the Carbon Relevant carbon prices as of Jan 15, 2015 World relative to Nov 15, 2014 DASHBOARD California $12.85 (+$0.71) EU ETS €7.14 (+€0.36) RGGI $5.44 (+$0.27) Shenzhen ¥39.17 (-¥2.53) Beijing ¥55.00 (¥2.05) Shanghai ¥21.00 (-¥14.10) Tianjin ¥25.05 http://californiacarbon.info/wpcontent/uploads/2015/01/California-andHubei Guangdong the-Carbon-World-Jan-2015.pdf ¥24.11 ¥21.46 PRICE COMPARISON Spot price (or equivalent) Floor price (primary, if applicable) Last auction price Fixed Price $24.23 carbon “taxes” $25.00 cap and trade $10.52 $4.23 $4.58 $4.82 $4.82 $3.87 $3.37 $3.37 $4.02 $7.71 $8.84 $6.29 $5.69 $5.69 $3.37 $5.00 $5.44 $2.00 $5.21 $10.00 $7.65 & S. Korea effective 1/1/15 $8.15 $15.00 $12.12 $20.00 $12.85 $12.10 $12.10 Notes: California: Averaged broker CCA spot delivery bid-ask medians EU ETS: (ICE Daily Future + EEX Spot) / 2 RGGI: Aggregated broker spot/same-month OTC prices; short ton Chinese ETS’: Regulated spot exchanges, September 15. Note Guangdong trading under the primary floor. Auction Dates: South Africa Alberta BC New Zealand Guangdong Hubei Tianjin Shanghai Beijing Shenzhen RGGI EU ETS $0.00 California ALLOWANCE PRICE (IN USD, JANUARY 15, 2015) $30.00 New Zealand: 1 NZU covers 2 MtCO2e, and can be bought spot from the market or at fixed price from the regulators. Kyoto credits also recognised. Canada: BC and Alberta have fixed carbon taxes South Africa: Tax implementation delayed by a year, to 2016 http://californiacarbon.info/wpcontent/uploads/2015/01/California-and-the-Carbon- http://ec.europa.eu/clima/policies/g-gas/documentation_en.htm#Reports http://theenergycollective.com/trevorhouser/245991/ neck-and-neck-us-and-european-ghg-emissions-trends http://theenergycollective.com/trevorhouser/245991/ neck-and-neck-us-and-european-ghg-emissions-trends regate decomposition of the change in total CO2 emissions from fossil fuel combustion in th d 2008-2012 periods. Contributions to emissions changes in the EU 8,0% 6,0% http://ec.europa.eu/clima/policies/g-gas/ documentation_en.htm#Reports 4,0% 2,0% renewables 0,0% -2,0% Carbon intensity of energy energy efficiency Energy intensity of GDP -3,3% economic growth GDP per capita -4,0% Population -6,0% Total change 8.3% -8,0% -9,2% -10,0% -12,0% 2005–2008 2008–2012 End use of proceeds ($) from carbon allowances across EU Figure 9: Reported revenues from the auctioning of EU ETS allowances (millions of euros) in 2013 and share of these revenues or the equivalent in financial value used or planned to be used for climate and energy related purposes 800,0 Auctioning Revenues (million €) 700,0 600,0 Use of auctioning revenues not reported* 500,0 Not used for climate & energy related purposes 400,0 300,0 200,0 100,0 0,0 Used for international climate & energy related purposes Used for domestic climate & energy related purposes http://riskybusiness.org Risk = probability of outcome x severity of its consequences Costs of carbon mitigation? vs Costs of adaptation? HOW DO WE MINIMIZE RISK? Risk = probability of outcome x severity of its consequences Temperature increase PDF for targets “tail” riskdifferent = low-probabilitystabilization event w/ potentially catastrophic impacts Climate Risks are Regional 3 areas of action to minimize climate risk: 1)change business practice to become more resilient 2) investor adaptation (SEC issued guidance on climate disclosure; only 40% of S&P companies voluntarily participate) 3) public sector response – investments and policies that can reduce GHG emissions When combine high-tail risks w/ catastrophic costs, any cost-benefit analysis (CBA) of climate change mitigation vs. adaptation is dominated by so-called “fat tail” risk. e.g. Weitzman, Martin L. 2009. On modeling and interpreting the economics of catastrophic climate change. Review of Economics and Statistics 91(1): 1-19. The Stern Review: The Economics of Climate Change commissioned by UK Prime Minister & Chancellor in 2006 Some Stern numbers: 2050 the timeframe for most of their economic analyses 550ppm the CO2 target level of stabilization 5-20% range of costs to world output associated with climate change comment: relatively pessimistic view of consequences -1 to 5% range of costs associated with stabilizing CO2 at 550ppm comment: relatively optimistic view of mitigation $85 cost of one ton of CO2 in Business as Usual (BAU) $25-35 cost of one ton of CO2 for 550ppm stabilization Stern, 2008 Tail risk of temperature response to CO2 Total cost of climate change in BAU scenario over next two centuries: -5% of global per capita consumption however, this 5% number does not take into account: 1) “non-market” impacts (how do you value human health and environmental impacts?) 2) positive feedbacks in the climate system (such as???) 3) disproportionate impact of climate change on world’s poor (equity) Including these factors could bring the cost of climate change to -20%! What action is needed, according to Stern: Mitigation: 1. Carbon pricing (tax or trading) 2. Technology policy (spur development of low-C energy) 3. Remove barriers to behavioral change (enforce changes where economic incentives are not strong enough) Adaptation: 1. Improve climate information; esp. regional climate forecasts 2. Land-use and building planning (infrastructure decisions) 3. Natural resource protection, coastal protection, etc 4. Financial safety net for poorest members of society The Stern Report urgently calls for coordinated, international action, justified by cost-benefit analysis of climate risks (costs of -5 to -20%) balanced against mitigation (costs of -1 to -5%). 2. What is the range of model estimates of the costs of global climate change polic Economic models give a range of cost estimates due to the number of key variables that emission reduction goal similar to the Kyoto Protocol: www.c2es.org CGE or top-down models generally give marginal costs of $25-200/ton of carbon. T GDP. Technology-rich or bottom-up models generally marginal costs of $0-50/ton ca - run a “top-down” climate policy – economic impactgive model of U.S. GDP. assumptions, Top [21] (limitations, inputs?) 3. Would particular sectors or industries be more affected? -for a doubling of GHG (to 560ppm), benefits of Sectors responsible for a predominant share of greenhouse gas emissions would b mitigation $55-140billion (0.5-2% GDP) includes coal mines, oil refineries, natural gas importers, electricity producers, ceme pulp mills, 0.2-1.5% steel and other companiesofand glass manufacturers. However me -cost of mitigation GDPmetal ($25-200/ton carbon) sectors; these include recycling of revenues from emission permits or taxes, and to communities and workers. Top [21] 4. How do costs per ton of carbon translate into costs of fuels? How do we interpret a “price on carbon”? A carbon price of $50/tC is equivalent to: 12¢/gallon of gasoline: from a base price of $1.50/gallon this is an 8% rise 75¢/mcf of natural gas: from a base price of $3/mcf this is an 25% rise $25/ton of coal: from a base price of $30/ton this is an 83% rise. Top [21] 5. What economic instruments can be used to control emissions? McKinsey 2008 report on cost of US GHG reductions McKINSEY GLOBAL ABATEMENT CURVE