Curbing Global Warming

1. Curbing Global Warming How to Control Costs and Still Meet the Cap David Doniger, NRDC Climate Center May 30, 2008

2. Time running out • We have a window to avoid raising average global temperatures more than another 2°F • Requires cutting U.S. CO2 emissions 15-20% by 2020, 80% by 2050 • U.S. leadership key to global action • It can be done if we start now, but much harder if we delay 2

3. Arctic meltdown 3

4. Stronger hurricanes 4

5. Wildfire and drought 5

6. Endangered species 6

7. Slow start means crash finish Source: Union of Concerned Scientists 7

8. Meeting the cap is crucial • Legislation needs to be science-driven • Impacts are already upon us; little room left to maneuver • Some flexibility left in the shape of the curve, but… • Busting the cap is not an option 8

9. Cap and trade as cost control • Market-based system cuts control costs • Multi-year averaging, trading, banking • Efficiency standards capture low-cost actions blocked by market failures • Technology incentives and impact assistance funded by allowance allocations or auctions 9

10. The yardstick for cost-control • If we need “more” cost control, two questions: • Does a cost-control device directly bust the cap? • Does a cost-control device effectively bust the cap by deferring transformational change in core polluting sectors? 10

11. “Safety valves” bust the cap • “Safety valve” proposals put price certainty above all else • They set a maximum allowance price • To keep from exceeding this price, the government prints more allowances … as many as needed • Extra allowances are never paid back 11

12. “Safety valves” continued • Safety valve bills to date have proposed setting the maximum price within the range of expected prices • So the valve would always be open, by design • Imagine a boiler designed this way … it wouldn’t build up any pressure or get any work done 12

13. The “offset” alternative • Allows firms under the cap to substitute reductions made outside the cap • Offsets have to be “additional” – reductions that would not happen anyway • Theory is better than practice … too many offsets produce only “anyway tons” • Too many offsets postpone needed action in power, transportation, and industry sectors 13

14. Offsets continued • If offsets are not additional, cost-control through offsets busts the cap • Ways to reduce offset risks • Limit the number of offsets • Move away from project-based offsets • Use sectoral approaches, including “forest carbon tons” based on reducing national-level deforestation rates 14

15. The “borrowing” alternative • “Cost-containment reserve auction” to reduce volatility in early years • A limited reserve of tons borrowed from later years (2030-2050) • Limited amount auctioned into early years if price exceeds a trigger level • Trigger price should be set well above expected range 15

16. Borrowing continued • If too much borrowing, near-term cap is weakened and long-term cap is compromised • Ways to reduce borrowing risks • Limit total amount borrowed, annual amount auctioned • Increase trigger price faster than inflation • Use revenues to buy reductions outside cap 16

17. We have to choose • “Price certainty” and “quantity certainty” – we can’t have 100% of both • There is still some room to meet science-driven caps with flexibility and cost-control • But the climate crisis is paramount • We have to set, and keep to, a science-driven cap 17

18. Thank you! • Contact me at: • ddoniger@nrdc.org • 202 289-2403 • www.nrdc.org/globalwarming 18