A New Roadmap for U.S. Greenhouse Gas Reductions

WASHINGTON, DC, May 15, 2003 (ENS) - The Bush administration may be steadfast against adopting any mandatory greenhouse gas emissions program, but there is increasing interest among some in the U.S. Congress for policies that would force the nation responsible for one quarter of the world's greenhouse gases to curb its emissions.

And it is this discussion that the Pew Center on Global Climate Change hopes to influence with two new reports released today that analyze the best options available to tailor a mandatory greenhouse gas emissions program for the United States.

"We are not at the point where Congress is going to pass a mandatory program, but there is growing interest," said Eileen Claussen, president of the Pew Center on Global Climate Change, an independent, nonprofit and nonpartisan organization. "We are at the very beginning of the debate on how to do this and that makes these reports extremely timely."

Reducing greenhouse gas emissions, in particular carbon dioxide, is a tricky issue for American politicians. The Bush administration withdrew the nation's support for the Kyoto Protocol - the United Nations accord on greenhouse gas emissions - and refuses to commit to anything but voluntary measures to cut emissions of gases that most believe are contributing to global warming.

Most scientists are convinced that greenhouse gas emissions are causing the planet's climate to change. (Photo courtesy the David Suzuki Foundation)

Rather than seek straight reductions of greenhouse gas emissions, the Bush administration is focused on reducing the nation's greenhouse gas intensity - the rate of emissions to economic output.

But many believe these efforts will do nothing to alleviate a growing problem and contend that mandatory measures are necessary. The reports released by the Pew Center indicate that emissions trading programs that have worked for other pollutants, such as acid rain, offer low cost mechanisms that could cut greenhouse gas emissions.

One report analyzes the lessons of emissions trading and the second provides an evaluation of multiple options for program design.

Emissions trading has a 40 year history in the United States and there is now ample evidence the theory behind the concept is valid, explained Denny Ellerman, coauthor of "Emissions Trading in the U.S.: Experience, Lessons, and Considerations for Greenhouse Gases."

Ellerman, a senior lecturer at the Massachusetts Institute of Technology, and his coauthors reviewed the experience with six emissions trading programs and drew general lessons for the development of greenhouse gas reduction programs.

The primary attraction of emissions trading, Ellerman explained, is that a well designed program can provide a framework to meet emissions reduction goals at the lowest possible cost.

By giving emissions sources flexibility to find and apply the lowest cost solutions to reduce pollution, such a program gives incentives for those with low cost compliance options to reduce emissions more than they would under command and control regulation.

The trading of emissions credits provides further incentives and encourages both low cost and high cost compliance sources to achieve emissions reductions.

In their report, the authors detail that these programs have been successful in the major objective of lowering the cost of meeting emissions reductions goals and have enhanced - not compromised - the achievement of environmental goals.

Emissions trading programs have worked best when allowances or credits are clearly defined and when there is "an unquestioned ability to trade," Ellerman said.

"Case by case certification of trades greatly diminishes emissions trading," he explained.

The report concludes that banking - allowing sources to reduce emissions early and accumulate credits or allowances for compliance in future periods - has played an important role in improving the economic and environmental performance of these programs.

The matter of the initial allocation of credits is the "most contentious and difficult issue," for trading programs, Ellerman said, but the report finds that these concerns can be addressed without impairing the cost savings from trading or the environmental performance of the program.

The report concludes that emissions trading seems well suited to addressing greenhouse gas emissions because the costs of reducing emissions varies widely and these pollutants are long lasting and affect areas far from where they are emitted.

Opt in or voluntary features have a role that merits their inclusion in greenhouse gas emissions trading programs, according to the authors, but this should be determined by weighing the cost savings benefits against the emissions increasing potential.

President George W. Bush favors voluntary measures to reduce greenhouse gas emissions. (Photo by Paul Morse courtesy the White House)

There are several types of cap and trade programs worth considering, explained coauthor Robert Nordhaus, a lawyer who specializes in federal electric, natural gas and environmental regulation.

A conventional program sets a cap on emissions and allocates tradeable permits equal to the cap, whereas a "downstream" cap and trade program applies to sources of greenhouse gas emissions and requires them to surrender allowances equal to their emissions.

Third, an "upstream" cap and trade program applies to fuel suppliers and requires them to surrender allowances equivalent to the carbon content of fossil fuels they distribute.

The authors find that a downstream cap and trade program would be "unadministrable" and that a standalone large source cap and trade program would have to be coupled with a program to cover other sectors.

They contend that an economy wide upstream cap and trade program "may be the best one if it can be put in place." But this approach would drive up the costs of gasoline and home heating fuels, the authors explain, and could be a political dead end.

"New taxes is the third rail of American politics and if there is a fourth rail, it is higher energy costs and this combines both," explained Nordhaus.

A greenhouse gas tax is also politically unfeasible, Nordhaus said, but the sectoral hybrid approach could work in the United States.

This consists of a large source downstream program coupled with product efficiency standards, a combination that addresses emissions from sources such as automobiles and appliances that could not feasibly be covered by a downstream cap and trade program.

Building on existing standards programs, the authors explain, such a hybrid program could attain coverage of about 80 percent of the U.S. energy-related carbon dioxide emissions.

It could prove more costly than other efforts, but it "may score better on political acceptability because it constrains domestic greenhouse gas emissions while largely shielding consumers from fuel price increases."

Nordhaus said the European Union is working on this kind of a program and he believes the administrative complexity is overshadowed because it is "more politically appealable."