Earlier this month, Environmental Defense Fund’s Director of Economic Policy and Analysis, Dr. Nat Keohane, released a clear, helpful video on the facts of cap-and-trade on behalf of the Clean Energy Works coalition. I’ve re-posted the video and EDF’s summary of the facts below. (HT: Professor Nan Keohane)
The Facts of Cap and Trade
Bibliography of the Facts
Fact #1 – 147 million tons
The estimated emission reduction of 147 million tons represents the difference between the Department of Energy’s projections of 2012 emissions if no legislation is passed (an estimated 4,774 mmtCo2e) and the total number of allowances for that year under the House bill, H.R. 2454 (4,627 mmtCo2e). (Both numbers refer to the polluters that would be covered by the cap in 2012.) The emissions reduction is virtually identical if calculated as the difference between the cap and emissions in the base year, 2005.
Source: Energy Information Administration, “Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009,” August 2009, available online with data tables.
The 2009 Hummer H3 4WD has an estimated annual carbon footprint of 11.4 tons/yr of CO2. 147 million tons divided by 11.4 equals 13 million Hummers (12.9 million, to be precise).
Source: The U.S. government’s fuel economy website maintained jointly by the Department of Energy and the Environmental Protection Agency.
Fact #2 – How it works
There are many, many sources for the economics of cap and trade.
The U.S. Environmental Protection Agency (EPA) has a good primer: “Cap and Trade: Essentials.”
See also the primer on environmental economics written by Nat and a co-author:
Source: Nathaniel O. Keohane and Sheila M. Olmstead. “Markets and the Environment” (Washington, D.C.: Island Press, 2007).
Source: Tom Tietenberg, “Emissions Trading: Principles and Practice,” 2nd ed. (Washington, D.C.: Resources for the Future, 2006).
For a discussion of cap and trade in the context of U.S. climate legislation, with particular reference to cap and trade versus a carbon tax, see:
Source: Nathaniel O. Keohane, “Cap and Trade, Rehabilitated: Using Tradeable Permits to Control U.S. Greenhouse Gases,” Review of Environmental Economics and Policy 3: 1-21 (2009).
For evidence that the Kyoto Protocol is already driving innovation, see:
Source: Mathieu Glachant, Anoine Dechezleprêtre, Ivan Hascic, Nick Johnstone, and Yann Ménière, “Invention and Transfer of Climate Change Mitigation Technologies on a Global Scale,” Fondazione Eni Enrico Mattei (FEEM) Working Paper 343 (October 2009).
For case studies of innovation in the European Union under its Emission Trading Scheme, see:
Source: Annie Petsonk and Jos Cozijnsen, “Harvesting the Low-Carbon Cornucopia: How the European Union Emission Trading System (EU-ETS) is spurring innovation and scoring results [PDF],” Environmental Defense Fund, March 2007.
For a great description of the amazing clean energy technologies that would benefit from cap and trade, like algae that make jet fuel or shingles that generate solar power, see:
Source: Fred Krupp and Miriam Horn, “Earth: The Sequel.” (New York: W.W. Norton & Co., 2008).
Fact #3 – It’s Proven and Tested
This is really important fact, so we’ve pulled together a number of sources.
A group of MIT economists literally wrote the book on the U.S. Acid Rain program:
Source: A. Denny Ellerman, Paul L. Joskow, Richard Schmalensee, Juan-Pablo Montero and Elizabeth M. Bailey, “Markets for Clean Air: The U.S. Acid Rain Program” (New York: Cambridge University Press, 2000).
Other sources on the SO2 program include:
Source: National Acid Rain Precipitation Assessment Program, “NAPAP Report to Congress: An Integrated Assessment” (Washington, D.C.: 2005).
Source: Lauraine G. Chestnut and David M. Mills, “A fresh look at the benefits and costs of the US acid rain program,” Journal of Environmental Management 77: 252-266 (2005).
MIT economist Denny Ellerman, who wrote the book on the U.S. Acid Rain program, is also one of the leading experts on the European Union’s Emission Trading Scheme (EU ETS). For a discussion of how that program has reduced emissions, see:
Source: A. Denny Ellerman, “Lessons for the United States from the European Union’s Emissions Trading Scheme [PDF]” in Ellerman, A. Denny, Mort D. Webster, John Parsons, Henry D. Jacoby and Meghan McGuinness, “Cap-and-Trade: Contributions to the Design of a U.S. Greenhouse Gas Program,” (Cambridge, MA: MIT Center for Energy and Environmental Policy Research, 2008), pp. 2-35.
Source: A. Denny Ellerman, Frank J. Convery and Christian de Perthuis, “Pricing Carbon: The European Union Emissions Trading Scheme,” (New York: Cambridge University Press, forthcoming 2010).
Fact #4 – Overwhelming Support
Cap and trade supporters include (among others) President Obama, Al Gore, Former Norwegian Prime Minister Dr. Gro Harlem Brundtland, Nobel-Prize Winner Paul Krugman, Environmental Defense Fund, Union of Concerned Scientists, National Resources Defense Council, League of Conservation Voters and National Wildlife Fund.
Fact #5 – Essential to an International Agreement
Okay, this is as much a judgment as a “fact.” But we think that it’s a pretty sound judgment to say that the United States, as the world’s leading economy and largest historical emitter—and still one of the two largest emitters in the world—will play a crucial role in an international agreement.
Fact #6 – We Need Rainforests
The basis for the 15% statement is an EDF analysis of the most recent data published by Richard Houghton at the Woods Hole Research Center. See:
Source: R. A. Houghton, “Carbon Flux to the Atmosphere from Land-Use Changes: 1850-2005,” In TRENDS: A Compendium of Data on Global Change. Carbon Dioxide Information Analysis Center, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, Tenn., U.S.A.
EDF scientists augmented Houghton’s estimate to account for all greenhouse gases (not just carbon dioxide) and additional emissions from forest degradation and peat, in order to arrive at the 15% figure.
For similar estimates from the Intergovernmental Panel on Climate Change, see:
Source: “Fourth Assessment Report of the Intergovernmental Panel on Climate Change” (IPCC AR4), Volume I (Working Group I), Chapter 7, pp 514-515; and Volume III (Working Group III), Chapter 1, pp. 102-105; both are available at the IPCC website.
For more about how cap and trade can help save rainforests (through what is called Reducing Emissions from Deforestation and Forest Degradation, or “REDD”), see:
Source: Daniel Nepstad et al., “The End of Deforestation in the Brazilian Amazon,” Science 326: 1350-1351 (4 December 2009).
Rebecca Lutzy is the Content and Community Manager at The Energy Collective and a Ph.D. researcher on U.S. climate and energy policy at Princeton University.