The WCI is a collaboration of seven U.S. Governors and four Canadian Premiers, created to implement regional greenhouse gas emissions reductions with a focus on a market-based cap and trade system. Current WCI members are: Arizona, California, Montana, New Mexico, Oregon, Utah, Washington, British Columbia, Manitoba, Ontario, and Quebec.
The proposed cap and trade program would have broad coverage, regulating all greenhouse gas emissions from utilities, industrial and commercial facilities, transportation activities, and residential sources.
Studies have concluded that a market-based cap and trade system, in which total greenhouse gas emissions are capped via a set number of tradable emissions allowances, is the most cost-efficient way to reduce greenhouse gas emissions.
Still, such a system would not be without economic impacts. A study conducted by the National Bureau of Economic Research estimated that a national cap and trade program could result in price increases for gasoline of 13%, crude oil of 28%, and natural gas of 13% by 2015. Electricity prices have separately been estimated to increase by 24% under similar conditions.
It is the "cost of carbon" imposed by a cap and trade system that drives these price increases. The cap and trade system establishes the "carbon allowance" as a tradable currency similar to stock in a company. The number of these allowances is capped, and the cap is slowly reduced over time. As these allowances become more and more scarce, their associated price increases. Penalties for greenhouse gas emissions not covered by an allowance are typically 3-4 times the current allowance market value.
One study out of the Harvard J.F.K. School of Government estimated that a national cap and trade program would result in carbon dioxide emission prices of $18 to $41 per ton by 2015, and $70 to $161 per ton by 2050. Under the European Union's existing cap and trade program, carbon dioxide emissions are currently trading at roughly $20 per ton.
If this sounds expensive, think about the cost of doing nothing and just letting climate change happen. In May of 2008, a joint report between the National Resources Defense Council, Cambridge University, and others estimated the annual cost of doing nothing to mitigate climate change at $271 billion in 2025, $506 billion in 2050, and $1.9 trillion in 2100. The estimated cost of a cap and trade program? $153 billion in 2025 and $212 billion in 2050 - about ½ of the estimated cost of doing nothing!
When do you need to start thinking about how all this might affect your business? Now. In preparation for its cap and trade program launch in 2012, the WCI intends to initiate mandatory reporting of GHG emissions starting January, 2010.
No comments:
Post a Comment