Inspiration / Goals of Workshop

1. Purdue Climate Change Research Center Emissions Trading WorkshopIntroduction and Overview of IssuesWest Lafayette, IndianaApril 30, 2010 Leigh RaymondAssociate Professor, Department of Political ScienceAssociate Director, Purdue Climate Change Research CenterPurdue University100 N. University St.West Lafayette, IN 47907-2098lraymond@purdue.edu

2. Inspiration: Growing complexity in this policy area, as well as greater confusion and misinformation on topic Goal: Provide latest research and ideas on these issues to diverse audience in non-partisan and interactive manner. Workshop rather than conference. Inspiration / Goals of Workshop

3. Cap: Pollution limit—load not rate Allowance: Right to emit one unit of pollution (per unit time) Trade: Equalize marginal costs Core Principle: Fixed Impact, Floating Cost—Opposite of emissions tax What is Emissions Trading?(or “Cap and Trade”)

4. “Private Rights in Public Resources” Examples: Mining claims, grazing permits, ITQs, broadcast frequencies Exclusive use rights the key Historical Context: Allowances as “Licensed Property”

5. This is not such a new idea. We can learn from these other resource examples! We have auctioned private rights in public resources before with little controversy (Broadcast spectrum, EU ETS, RGGI). What History Tells Us…

6. Allowance Allocation Who gets what? At what price? Offsets Reductions outside cap & “leakage” Price Controls “Price collars,” banking, borrowing Reporting & Enforcement Measurement, Reporting, and Verification (MRV) mechanisms for reductions Key Design Issues

7. Five Emissions Trading “Myths”

8. Cap & trade requires high allowance prices “Right now, because of the recession in European manufacturing, the cost of…carbon credits has fallen fantastically, rendering the cost of carbon emissions low. That doesn’t do much for reducing emissions.” Ben Stein, NY Times, Feb 21, 2009. Wrong: Cap & trade keeps compliance costs/allowance prices as low as possible. SO2 allowance prices were far below initial projections. Myth #1

9. Cap & trade is good solution to every problem Wrong: Need reasonable institutional structures to support property rights. Need pollutants without serious localized health risks. Need to attend to fairness implications. Myth #2

10. Cap and trade is lousy solution to any problem: too complicated or expensive to administer Wrong: SO2 program was complex, yet implemented at far lower cost than many traditional command and control policies. Virtually 100% compliance with SO2 program! Myth #3

11. Free allocation of allowances to existing emitters is politically inevitable Wrong: Rightly or wrongly, growing view of emissions rights as “public assets.” New conflict will be over who is entitled to revenue from this resource, government or public. Myth #4

12. Cap and trade is politically dead* *John Broder, NY Times, March 25, 2010 Wrong: Proliferation of state/regional cap and trade programs in U.S. – including a number of coal-dependent states in MGGRA! General expectation of a federal cap and trade program on utility sector, at least, even in (now pending) Kerry/Lieberman/Graham bill Myth #5

13. “Cap and trade” may be out of favor as a term, but these policies are not. Rather, we have a new lexicon of terms associated with a rapidly diversifying range of policies Cap and trade, cap and dividend, cap and tax, fee and dividend, reduction and refund, etc. Final Thought for the Day

14. Keep our eyes on the ball. Devil is in the details of the policy, not the three words we use to identify it. That’s what we hope to explore today. What to do in the face of this “rhetorical blizzard”?