Module 7 - Cap and Trade Flashcards
Where have SO2 emissions historically taken place?
Eastern industrial area where there are a lot of smelters.
What was the 1970s Dilution Approach?
- A new 381m tall “superstack” smelter built in Sudbury
- ppl saw the plants dying and realized there was a problem; started building taller smock stocks to spread out and dilute emissions
- helped in the immediate area but pollutants were being pumped out more and more still
The Canadian Coalition on Acid Rain (1981)
- Raised awareness of the acid rain issue, through advocacy, educational programs and by lobbying the governments of both Canada and the United States
- With the passage of amendments to the U.S. Clean Air Act in 1990 the Coalition’s mandate was completed and the group disbanded
- Example of an NGO group raising awareness of the impacts of acid rain
What are these quotes examples of?
- “Million dollar problem - billion dollar solution?”
- “Can we afford risking 4 million jobs for marginal gains in air quality and fighting bugaboos like acid rain?”
- “…the President’s proposal to cut sulfur dioxide emissions has no ecological, health, or economic justification.”
- When lobbying for environmental policy, often hear that you are a doomsdayer; always predicting doom but doom never comes
- Ppl who work against environmental policy are also doomsdayers; if we enact envrio policy it will destroy the economy
1985 - Eastern Canada Acid Rain Program
- Set target load aka a cap of how much acid rain we wanted to touch the Earth’s surface; this was a total Eastern Canada cap of 2.3 million tonnes/yr
- Note: this level was significantly above what scientists considered to be the critical load; would still cause harm but at least better than current situation
Define Target Load
A target load is the amount of pollution that is deemed achievable and politically acceptable when other factors (such as ethics, scientific uncertainties, and social and economic effects) are balanced with environmental considerations.
Results of the 1985 Eastern Canada Acid Rain Program
How were results achieved?
- Program surpassed its goals by 14%; worked well at reducing acid precipitation
- Achieved through intensive command and control Technology and Procedural Standards (know this); these are regulations, a straightforward rule without economic implications
- Each province developed its own regulations, and undertook negotiations with individual producers
- “Held the industries hand through the process”; worked one-on-one with industries
U.S. Acid Rain Policy Approach
- 1990: Clean Air Act Amendment to reduce emissions from electric generating plants by 50%
- 1991: Canada-US Air Quality Agreement was signed
- US system initiated system based upon tradable quotas (aka Tradable Permits or Cap and Trade system)
- More than 4000 producers involved in USA
How did U.S. Policy work?
Cap-and-Trade system
- Allocation given to plants based upon historical emissions and current approaches
- Emissions monitoring equipment installed on all producers
- At end of year, companies must have enough permits to cover their actual SO2 Emissions
- Just as effective as the Canadian model but WAY cheaper
Why was the cap and trade solution more efficient than the regulatory monitoring system?
American system was more efficient bc it created incentives for innovation, encouraged overachieving, and allowed for more diverse solutions.
- Competition encourages continuous INCENTIVE TO INNOVATE least cost reduction strategies through innovation
- The ability to bank permits means that firms can invest in ‘OVER-ACHIEVING’ improvements, knowing that they will receive a payoff for doing so
- No need for all firms to make adjustments, those that can MOST EFFICIENTLY improve their emissions can do, while those less able can purchase permits
What are 4 other examples of cap and trade?
- Alberta’s Technology Innovation and Emissions Reduction Regulation (TIER) Program
- Quebec, California Carbon Market
- Individual Fishing Quota’s
- China’s new Cap and Trade system
What is Quebec’s Cap and Trade system?
- If you are a producer in QB you can buy from another QB firm or California
- Big emitters in QB are forced to be apart of this
- The gov establishes the annual GHG emission unit caps. These caps are progressively lowered over time in order to generate GHG emission reductions.
- The gov sells emission units at auction 4x a year w/ a minimum price. Only emitters and participants registered to the mkt can participate in these auctions.
- Emitters can sell their units to other emitters.
How was “carbon leakage” prevented with Quebec’s system?
Industrial emitters exposed to national or international competition receive most of the emission units they need free of charge in order to prevent what is called “carbon leakage,” that is, the offshoring of companies to places without a C pricing system.
- in place so competition stays equal but can still sell credits = incentive to not produce GHGs
- number of units allocated for free have been dropping to encourage further GHG cuts
- electricity producers as well as fossil fuel distributers do not receive free allocations since they are able to pass the cost of C pricing onto consumers
Exploring Border Carbon Adjustments for Canada
- we would put a cost on things being brough into CA that have embedded carbon
- we have trade agreements that prevent us from doing this
What is a better system, cap and trade or carbon taxes?
Generally speaking, there are differences, but very small in comparison to the commonality that we price C to get a response form producers and consumers. As long as you have 1 of the systems there will be an impact.
Cap and Trade VS. Carbon Taxes
Cap and Trade
- More complicated and expensive to administer
- More certainty in terms of total amount of emissions
- Less certainty in terms of cost for emitters
- Usually not revenue neutral
- Appear to be more politically resilient
- Easy mechanism to address trade exposed industry
Carbon Taxes
- Very simple to administer
- More certainty in terms of cost per tonne of emissions
- Less certainty in terms of total amount of emissions
- More commonly revenue neutral
- More politically fraught
