May 23, 2009

"cap and trade" May Let U.S. Emissions Rise for Next Twenty Years

This all leads one to wonder: where's the cap in the "cap" and trade program?

Breakthrough Institute  While the bill intends to reduce economy-wide U.S. greenhouse gas emissions 20% below historic 2005 levels by 2020, 42% by 2030 and 83% by 2050, the use of international offsets would allow U.S. emissions to continue at up to 1.5 billion tons higher than the emissions reduction path intended by the bill. For capped sectors of the economy only, up to two billion tons of additional emissions would be permitted by full use of offsets.

The following graphics illustrate the effect of the offset provisions. Click any of them to enlarge.

This first chart illustrates the range of potential emissions across the entire U.S. economy allowed by the ACES bill if international emissions offsets are utilized at the levels permitted by the legislation (1 billion tons in normal circumstances; up to 1.5 billion tons if domestic offsets are unavailable). Because the use of domestic offsets will merely shift emissions reductions from the sectors that fall under the greenhouse gas cap and trade regulations to non-capped sectors of the U.S. economy (assuming they are credible offsets), they are not considered in this chart.

ACES_Emissions_Economy_Wide.jpgAs the graphic illustrates, offsets could create a major oversupply of emissions allowances during the first nine years of the cap and trade program. This oversupply would either collapse the market value of emissions allowances or allow significant quantities of emissions permits to be banked for future compliance years (ACES allows unlimited banking of unused allowances) — or both. (Compare this graphic with this analysis from the World Resources Institute, which does not consider the impact of international offsets on U.S. emissions levels.)

ACES_2020_Emissions.jpg

Note: All of these graphics and the underlying calculations and assumptions can be downloaded here as a .xlsx file.