Potential Policy Pathways for Oregon

Sean PenrithExecutive DirectorThe Climate Trust

9/24/15

INVEST WITH PURPOSE

Topics

• Targets

• Real world performance

• Oregon’s choices

• Implications for the region & compliance with Clean

Power Plan

Carbon Market and Special Purpose Fund Management Experience • Managed over $43 million in carbon financing for greenhouse gas emission reduction projects and seven

national programs.• Over 18 years of experience in domestic voluntary & compliance carbon markets.

History• The Oregon Legislature established the Oregon Carbon Dioxide Standard in 1997, requiring power plants to

mitigate a portion of their GHG emissions.• To date, all new Oregon plants have elected to pay The Climate Trust to manage this compliance obligation. The

Climate Trust is currently managing $22 million from this program.

3

TCT Portfolio

Strong Oregon Focus

TMF Biofuels, Boardman

OSU, Corvalis

Roseburg LFG, Douglas County

Astoria

Committed $6,141,754 to Oregon-based digester projects forecast to deliver 741,054 credits.

The projects are:

1. Farm Power Tillamook- Tillamook2. Farm Power Misty Meadow- Tillamook3. JC Biomethane- Junction City4. RES Lochmead- Junction City5. RES Oak Lea- Aumsville6.Roseburg LFG- Roseburg7. TMF Three Mile Canyon Farms- Boardman

Currently $0.50 of every dollar committed is kept in Oregon under the CO2 Std.

2015 Draft Report

“Oregon’s emissions in 2020 projected to be ~11 MMTe in excess of the 51 MMTe state goal established by Legislature for that year.By 2035, absent significant additional intervention, the gap (between business-as-usual emissions and a linear trajectory to the 2050 goal) is likely to exceed 30 MMTe.”

The Climate Trust’s carbon pricing research• Comprehensive primary and secondary peer reviewed research published 2014 [report]• Examined five existing mechanisms around the world

Research Context

3 concerns:

• Isolation from or integration with surrounding C&T states

• Alignment with state goals

• Progress made towards real & credible CO2 reduction (in time)

2 research questions:

• What might happen if Oregon chooses a tax?

• What might happen if Oregon chooses cap & trade?

C&T?

C&T

?

Indices tracked

Carbon pricing as a tool

Carbon Pricing 101:

Decision criteria: Does the state want certainty on price, or certainty of CO2 reductions?

1. Carbon Taxation: Regulated price on each ton of CO2 emitted, but emissions are allowed to fluctuate

2. Cap & Trade: Place a “cap” or limit on total permissible emissions, but prices per ton of CO2 are allowed to fluctuate

Key findings

Once passed, program survivability was determined by built-in flexibility to withstand political turnover and effective holistic program design to achieve results across all indicators.

The Climate Trust’s carbon pricing research

• Impacts on key indices:

• Takeaway messages:• Design for maximum impact across all four indices• Manage revenue responsibly and link revenue to GHG reduction• Consider complimentary policies• Plan for political turnover• Begin simply and increase complexity over time• Prioritize flexibility, transparency, and validity

Current status of these systems: California

• Emissions are down by 3.8% for covered entities

• CA grew its economy 6.6% between 2010 and 2013

• C&T auction revenue passed $1.6B mark

• CA attracted $21B in clean energy investment capital since signing of AB32

• 491,000 jobs added (3.3% growth; national 2.5%)

• 25% of program revenue targeted at disadvantaged communities

• California leads the nation with the highest total manufacturing output ($239B) of any state

Current status of these systems: BC• Tax has reduced emissions 5-15%

depending on modeling used• BC’s economy has outperformed the rest

of Canada during the time the tax has been in effect

• Tax frozen at $30/ton since 2013• Because they stopped raising the tax,

revenue is falling behind – more is being returned!

• $1B/year tax revenues offset other taxes, but has created doubt on environmental benefit this approach achieves

Credit: Sightline Institute

Sources:“BC’S CARBONTAX SHIFTAFTER FIVE YEARS: RESULTS An Environmental (and Economic) Success Story”, Sustainable Prosperity 2013“British Columbia’s Revenue-Neutral Carbon Tax: A Review of the Latest “Grand Experiment” in Environmental Policy”, Sustainable Prosperity,Nicholas Institute at Duke University and University of Ottowa, 2015

Current status of these systems: RGGI• Emissions from power plants down 40% since 2010,

half of this attributed directly to RGGI• Total economic gains to region of $2.9B in RGGI’s

first six years• 30,200 job-years added to region in RGGI’s first six

years• Total revenue raised so far over $2.2B, nearly all

reinvested in clean energy, renewables, jobs, etc.• Consumers have saved a cumulative $341M on

electricity and $118M on gas and oil• Most recent auction cleared at $6.02, raising $152M• 6 of 8 RGGI states subject to the CPP are set to

achieve their 2030 targets by 2020!

Credit: Sightline Institute

Expenditure of RGGI proceeds:

Sources:“The Economic Impacts of the Regional Greenhouse Gas Initiative on Ten Northeast and Mid-Atlantic States”, The Analysis Group 2011“The Economic Impacts of the Regional Greenhouse Gas Initiative on Nine Northeast and Mid-Atlantic States”. The Analysis Group 2015Auction results from RGGI.org, Sept. 2015

Current status of these systems: EU ETS• The EU grew its GDP by 45%

between 1990 and 2012, while reducing emissions 19%

• EU has set an emission reduction target of 40% by 2030 and has proposed changes to the ETS to help meet this goal:• Allowances will be held off the market

in instances of oversupply (back loading)• Cap will decline faster after 2020 (2.2%

per year)Sources:EU ETS pages of the European Commission website, http://ec.europa.eu/clima/policies/ets/index_en.htm

Common approaches to climate mitigationPros Cons

Regulation • Emission reduction is prioritized • More expensive than market based solutions, due to lack of abatement flexibility

• Subject to repeal due to political turnover

Carbon Tax • Easy to understand• May utilize existing administration

structures

• Emission reductions not assured• Can be regressive if designed incorrectly• Needs legislative approval to increase over time• Difficult to harmonize throughout the region

Cap and Trade • Emission reductions assured• Revenue raised can be reinvested in low-

carbon economic development• Cost-containment mechanisms are built in• Enables lowest cost attainment through

trading

• Requires effective administration and oversight• Complexity around integration with existing

policies and use of revenues derived

Fee and Dividend

• Creates “stickiness” to prevent against repeal

• Social equity is questionable if everyone receives same amount

• Dividend distribution may not contribute to development of low carbon economy

Sources:“Markets versus Regulation: The Efficiency and Distributional Impacts of U.S. Climate Policy Proposals”, MIT May 2014

Oregon’s Choices1) Cap & Trade (HB3470): Modeled after California’s AB32

• Gives ORS 468A.205 greenhouse gas reduction goals the mandate it needs (10 % below 1990 levels by 2020 and 75 %below 1990 levels by 2050).

• Applies the best available science. • Consolidates Oregon laws, rules and policies about emissions into a comprehensive framework. • Mandates emission reductions which are real, quantifiable, verifiable and enforceable. • Requires least cost implementation strategies. • Provides protections that impacts do not fall disproportionately on low income communities. • Authorizes a market-based trading and auction program similar to California law AB32. • While opponents of cap & trade argue that its complexities are a disadvantage, this same complexity

may contribute to increased difficulty in repealing a cap & trade program once in place.

Oregon’s Choices 2) Carbon Tax (and dividend):

• Sends comprehensible market-based message to consumers, people understand "tax.”• Taxation is generally perceived as easier to administer because it can utilize portions of existing

tax structures. • Can choose to remits funds back to citizens designed to build support (stickiness).• Offers price certainty to aid industry planning (Note, the price of carbon under the EU ETS--the

most volatile system we examined--was no more volatile than that of fossil fuels commodities like oil or natural gas).

• It is notable that there are not yet any multi-jurisdictional carbon tax schemes; the complexity of writing interlocking tax code for jurisdictions within a region may have prevented this type of scheme to date.

• A tax design has to contemplate pricing that will assure attainment of state’s GHG reduction goals.

• Targeted reinvestment of (a portion) tax proceeds should build a clean economy/jobs.

Bear in mind….• Neither C&T or tax on its own is likely to reduce emissions enough

to meet the dramatic emission reduction targets needed. • California’s AB32 was never a bill specifically about cap-and-trade.

It was a comprehensive bundle to meet its GHG reduction goals. • A ‘market based’ mechanism was also a requirement under AB32,

though not specified.• All revenue from AB32’s cap & trade must, by law, be used to

reduce greenhouse gas emissions• AB32’s decreasing cap with floor price + cost containment reserve

=> benefits of cap with price certainty/stability.• Some European countries, like Sweden, are using taxes as an

element of complementary policy, to cover sectors not covered by cap and trade.

• Good program design can shield against the risk of gaming or market manipulation.

Implications: Regional Market• Oregon, Washington, California, and BC have pledged to align their carbon policy efforts• Quebec announced new carbon reduction of a 37% reduction below 1990 levels by 2030, the most

ambitious such target in Canada. Linking with Ontario ETS• The West Coast represents the world’s 5th largest economy • By 2017, ¼ of the world’s emissions will be priced in some form!

Implications: Compliance with Clean Power Plan

Emission Standards Plan – state places federally enforceable emission standards on affected electric generating units (EGUs) that fully meet the emission guidelines

- can be designed to meet the CO2 emission performance rates or state goal (rate- based or mass-based goal)

State Measures Plan - state includes, at least in part, measures implemented by the state that are not included as federally enforceable emission standards

- designed to achieve the state CO2 mass-based goal- includes federally enforceable measures as a backstop

Credit: IETA and EPA• States have flexibility to

design their own compliance strategies with the CPP

• Choice of rate or mass based approach

• Emissions trading is encouraged

• Many states already exploring interstate trading programs as a method of compliance

Oregon can price carbon in a way that reduces emissions, contributes to low-carbon economic growth, provides well-paying jobs, and increases social

equity.

Central closing question:

Is there a time to acknowledge that a ‘competitive disadvantage’ relative to other jurisdictions pales in the face of planetary disadvantage if we continue to procrastinate?

THANK YOU!Sean Penrith503-238-1915spenrith@climatetrust.org

Links:A. “An Evaluation of Potential Carbon Pricing Mechanisms for the State of Oregon” http://climatetrust.org/wp-content/uploads/2014/07/An-Evaluation-of-Potential-Carbon-Pricing-Mechanisms-for-the-State-of-Oregon.pdf

B. “Achieving Carbon Revenue Leverage”https://climatetrust.box.com/s/4r9024k54fyxgbtlpufp

C. Draft Oregon Global Warming Commission Report http://www.keeporegoncool.org/meeting/oregon-global-warming-commission-meeting-%E2%80%93-september-2015

D. Markets versus Regulation: The Efficiency and Distributional Impacts of U.S. Climate Policy Proposals http://globalchange.mit.edu/files/document/MITJPSPGC_Rpt263.pdf