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MBIs (Market-Based Instruments) for CO2. Gary Flomenhoft, Fellow Gund Institute January 31, 2008. MBIs-govt or market?. No company will voluntarily add costs to its operation. Only government can do it to the market as a whole. Why. Account for hidden costs-”true cost pricing”

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Mbis market based instruments for co2

MBIs (Market-Based Instruments) for CO2

Gary Flomenhoft,

Fellow Gund Institute

January 31, 2008


Mbis govt or market
MBIs-govt or market?

  • No company will voluntarily add costs to its operation. Only government can do it to the market as a whole.


Why

  • Account for hidden costs-”true cost pricing”

  • Stimulus to producers and consumers (price-signal)-behavior change

  • Can raise revenue to target issues

  • Ecological efficiency-maximize production/throughput


What?

  • Emissions-powerplants, industry, cars, aircraft, houses, offices, agriculture

  • Increasing waste generation

  • Resource depletion

  • Renewable resource use

  • Land use


Types of mbis
Types of MBIs

  • Tradable permits-emissions or wildlife

  • Environmental taxes

  • Environmental charges

  • Environmental subsidies and incentives

  • Liability and compensation schemes


1 cap distribute trade
1. Cap-distribute-trade

  • Europe EUETS system-2005, 2008-2012Kyoto goals= 6-21% below base yr (1990)

  • 11,000 installations: powerplants and industrial heat sector

  • 2.15 billion tonnes = 50% of EU CO2

  • 95+% Allowances given away, 5%vol auction

  • Other gasses 20% of GHG (no transport)

  • Jan 25, 2008 price-E21.03=$31.01/tonne


1 cap distribute trade1
1. Cap-distribute-trade

  • New England RGGI system-2009

  • Goal 2009-2015 cap then -10% 2015-2018

  • 807 Powerplants only (+218 PA)

  • 184 million tons = 184/700 =26.3% of CO2

  • 100% Allowances auctioned

  • 25% of revenue to benefit consumers (except VT 100% to consumers)


1 cap distribute trade2
1. Cap-distribute-trade

  • Vermont RGGI system-June, 2008 auction

  • 1 Powerplant only-Berlin (2 other wood chips)

  • 1.2 million tons = 2% of CO2

  • 100% Allowances auctioned

  • 100% of revenue to benefit consumers


2 environmental taxes co2
2. Environmental Taxes-CO2

  • Germany 4% of total, US .9% of total

  • Carbon

  • Fuels

  • Vehicle sales

  • Vehicle registration

  • Other GHG emissions


2 fuel taxes vt
2. Fuel Taxes-VT

  • Carbon-0

  • "Fuel Gross Receipts Tax” = .5% on retail sales of fuel

  • "Electric Energy Tax” = 3.5% of appraised value

  • "Utilities Gross Receipts Tax” = .3-.5% gross revenue

  • Estimated Revenue from Sales Tax on Commercial Energy use = 5%

  • Diesel Tax = $.26 commercial, $.17 cars

  • gasoline tax = $.19 + .01 tank fee = $.20

  • Vehicle sales = 6% of purchase price

  • Vehicle registration = based on type, size, weight, and purpose of vehicle = $54M


2 fuel taxes germany 90 of ecotaxes
2. Fuel Taxes-Germany: 90% of ecotaxes

  • road toll = 14c/km

  • Electricity = 2.1c/kWh

  • Natural gas = .06c/kWh

  • Fuel oil = 6.2c/l = 23.46c/gallon

  • Diesel = 47.2c/l = $1.79/gallon

  • Gasoline = 65.6c/l = $2.48/gallon

  • 55% increase in 1999:

  • 89% recycled to reduce payroll taxes

  • 9%- Environment Projects: 2% admin

    • Renewable Energies

    • Less CO2 in buildings

    • Tax break bio-fuels


3 environmental charges
3. Environmental Charges

  • London Congestion charge

  • 5£ then in July 2005 8£

  • Traffic congestion -30%

  • Taffic volume - 15%

  • Public transit improved

  • Better air quality


4 subsidies incentives eu
4. Subsidies & incentives-EU

  • “Cohesion Funds” = Environment projects helping to achieve the objectives of the EC treaty

  • priority to drinking-water supply, treatment of wastewater and disposal of solid waste. Reforestation, erosion control and nature conservation measures are also eligible.

  • b) Transport infrastructure projects establishing or developing transport infrastructure as identified in the Trans-European Transport Network (TEN) guidelines.


4 subsidies incentives eu1
4. Subsidies & incentives-EU

  • “Feed-in Tariffs” /kWh for PV

    Europe = .63-78c

    Ontario = .42c

    Wash/CA = .52-.54c

    Also have feed-in tariffs for wind, hydro, biogas

    VT feed-in tariffs= 0, net metering only


4 subsidies incentives eu2
4. Subsidies & incentives-EU

1991 “Feed-in Tariffs” Results:

Germany has 52% of PV in world w/ same sun as Anchorage, AK

35,000 employed. 2715 MW installed

US has 360 MW installed or 13% of Germany

Germany 82M, US 300M people

Germany:

150,000 employees in RE

107,000 FF & nuclear


Liability and compensation
Liability and compensation

  • Insurance, re-insurance

  • Oil spill funds-bonds


Bottom line
Bottom Line

  • US emissions 1990-2005 +16.3%

  • GDP+55%

  • NE 1990-2000 emission + 10.5%

  • EU-15 1990-2005 emissions -2%, EU25 -11%

  • GDP+35% on target for -8% emissions by 2012

  • Germany -22% emissions by 2012


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