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MBIs (Market-Based Instruments) for CO2

This presentation by Gary Flomenhoft explores the role of Market-Based Instruments (MBIs) in managing CO2 emissions, emphasizing the necessity for government intervention in addressing hidden costs and promoting ecological efficiency. It outlines various types of MBIs, such as tradable permits, environmental taxes, and subsidies, and discusses notable case studies from Europe and the United States, including the EU Emissions Trading System and the Regional Greenhouse Gas Initiative. The talk also highlights the impacts of environmental policies on emissions reduction and market behavior.

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MBIs (Market-Based Instruments) for CO2

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  1. MBIs (Market-Based Instruments) for CO2 Gary Flomenhoft, Fellow Gund Institute January 31, 2008

  2. MBIs-govt or market? • No company will voluntarily add costs to its operation. Only government can do it to the market as a whole.

  3. 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

  4. What? • Emissions-powerplants, industry, cars, aircraft, houses, offices, agriculture • Increasing waste generation • Resource depletion • Renewable resource use • Land use

  5. Types of MBIs • Tradable permits-emissions or wildlife • Environmental taxes • Environmental charges • Environmental subsidies and incentives • Liability and compensation schemes

  6. 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

  7. 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)

  8. 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

  9. 2. Environmental Taxes-CO2 • Germany 4% of total, US .9% of total • Carbon • Fuels • Vehicle sales • Vehicle registration • Other GHG emissions

  10. 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

  11. 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

  12. 3. Environmental Charges • London Congestion charge • 5£ then in July 2005 8£ • Traffic congestion -30% • Taffic volume - 15% • Public transit improved • Better air quality

  13. 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.

  14. 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

  15. 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

  16. Liability and compensation • Insurance, re-insurance • Oil spill funds-bonds

  17. 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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