SO2 cap and trade case study

SO2 cap and trade case study -...

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Unformatted text preview: A
Cap‐and‐Trade
Case
Study:
 SO2
and
the
Clean
Air
Act
of
1990
 A
Cap‐and‐Trade
Approach
 •  Goal:

to
reduce
SO2

emissions;
 •  Designed
a
cap‐and‐trade
 mechanism;
 •  A
useful
case
study
of
what
it
did;
 •  Especially
when
compared
to
what
 people
at
the
Dme
predicted
that
it
 would
do!
 The
Usual
Suspects
 •  Industry
lobbies
make
the
same,
 Dred
old
arguments,
against
all
 polluDon
(including
GHG)
 regulaDons:
 •  “It
will
cost
us
too
much
to
comply!”
 •  “You
will
pay
much
higher
bills!”
 •  “Many
people
will
lose
their
jobs!”
 1.
Compliance
Costs
 •  EPA
hired
a
firm
to
calculate
the
 expected
compliance
costs.
 •  Their
esDmate:

$2.7
to
$4.0
billion
 per
year.
 •  10
years
later:
actual
compliance
 costs
were:
 •  $1‐2
billion
per
year.
 2.
Expected
Permit
Prices
 •  UDliDes:
oZen
esDmated
that
price
 of
emissions
would
be
somewhere
 between
$1100
and
$1500/ton.
 •  EPA:
esDmated
that
price
would
be
~ $750/ton.
 •  So…what
actually
happened??
 Reality:
“Less
Than
Meets
the
Eye”
 •  Prices
started
off
at
$250‐300
per
ton
in
iniDal
 trading
in
1993.
 •  They
then
quickly
fell,
all
the
way
to
$70
per
 ton
in
1996.
 •  A
new
law,
the

Clean
Air
Interstate
Rule
 (CAIR),
was
passed,
mandaDng
addiDonal
cuts.
 •  So,
of
course,
the
permit
price
then
rose
again
 (“right
to
pollute”
was
now
scarcer).
 •  However,
in
2005,
real
price
of
a
permit
was
 $378.

 3.
Electricity
Prices
 •  It
was
predicted
that
they
would
rise.
 •  “Your
electricity
bills
will
soar!
Your
 grandmother
will
sit
in
darkness!”
 •  And
other
assorted

 
moans
of
fear‐mongers.
 4.
Job
Losses
 •  1990
EPA
esDmate:
more
than
15,000
 coal
mining
jobs
would
be
lost.
 •  2001
EPA
study:
net
job
loss:
4,100,
of
 which
 •  95%
were
due
to
mechanizaDon
of
 operaDons,
only
5% (205) due
to
cap‐ and‐trade
regulaDons!
 •  That
is,
actual
job
losses
were
less
than
 2%
what
was
predicted
at
the
Dme!
 Did
It
Work?
 •  Reduced
SO2
and
other
pollutants.
 •  By
2002,
emissions
were
9%
below
 2000,
and
41%
below
1980.
 •  Always
an
issue:
did
it
go
far
 enough?
 Results
of
a
2003
OMB
 Cost‐Benefit
Analysis
 •  Main
benefits:
health
benefits
(using
 the
“value
of
a
human
life”
metric
 that
we
have
discussed
in
class.)
 •  Human
health
benefits:

$70
billion!
 •  Benefit
to
Cost
raDo:

40
:
1.
 Remember
This
When
They
 Tell
You
How
Expensive
 Controlling
CO2
Emissions
 Will
Be!
 A
Down‐Side
 •  Part
of
inexpensive
compliance:
 •  De‐regulaDon
of
railroad
industry
led
to
 reducDon
in
railroad
rates.
 •  Mid‐western
uDliDes
could
get
low‐sulphur
 coal
from
Wyoming
more
cheaply.
 •  Which
also,
of
course,
meant
higher
CO2
 emissions…
 Model
Results
 
“Even
as
climate
modelers
have
been
reaching
 consensus
on
the
view
that
the
threat
(of
 climate
change)
is
worse
than
we
realized,
 economic
modelers
have
been
reaching
 consensus
on
the
view
that
the
costs
of
 emission
control
are
lower
than
many
feared.”
 
Paul
Krugman,
NYT,
9/28/09
 So,
what’s
the
problem?
 1.
Vested
Interests
 
“Responding
to
climate
change
with
the
vigor
 that
the
threat
deserves
would
not,
contrary
 to
legend,
be
devastaDng
for
the
economy
as
a
 whole.
But
it
would
shuffle
the
economic
 deck,
hurDng
some
powerful
vested
interests
 even
as
it
created
new
economic
 opportuniDes.
And
the
industries
of
the
past
 have
armies
of
lobbyists
in
place
right
now;
 the
industries
of
the
future
don’t.”
 2.
Vested
Ideas
 
“For
three
decades
the
dominant
poliDcal
 ideology
in
America
has
extolled
private
 enterprise
and
denigrated
government,
but
 climate
change
is
a
problem
that
can
only
be
 addressed
through
government
acDon.
And
 rather
than
concede
the
limits
of
their
 philosophy,
many
on
the
right
have
chosen
to
 deny
that
the
problem
exists.”
 ...
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This note was uploaded on 01/12/2010 for the course ENVS 141 taught by Professor Richard during the Fall '09 term at UCSC.

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