UEDA 2008 Singerman Presentation To Ueda (14)

1www.bakerdconsulting.com

Climate Change Policy and Climate Change Policy and Economic Development PracticeEconomic Development Practice

Phillip A. SingermanSenior Vice President

B&D ConsultingWashington, D.C.

Presented to the University Economic Development Association

November 10, 2008St. Petersburg, FL

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Global WarmingGlobal Warming

source: NASA

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ReferencesReferencesThe Weather Makers (2005) Tom Flannery

An Inconvenient Truth (2006) Al Gore

The Economics of Climate Change: The Stern Review (2006) Nicholas Stern

A Question of Balance (2008) William Nordhaus

The Necessary Revolution (2008) Peter Senge

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Nobel Peace Prize 2007Nobel Peace Prize 2007Intergovernmental Panel on Climate Change“Whereas in the 1980s global warming seemed to be

merely an interesting hypothesis, the 1990s produced firmer evidence in its support. In the last few years, the connections have become even clearer and the consequences still more apparent.”

Al Gore“By awarding the Nobel Peace Prize for 2007 to the IPCC

and Al Gore, the Norwegian Nobel Committee is seeking to contribute to a sharper focus on the processes and decisions that appear to be necessary to protect the world’s future climate, and thereby to reduce the threat to the security of mankind. Action is necessary now, before climate change moves beyond man’s control.”

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Barack Obama’s Approach to Climate ChangeBarack Obama’s Approach to Climate Change“Climate change is real. It is something we have to deal with now,

not 10 years from now, not 20 years from now.”

Greenhouse Emissions: Plans to utilize a cap-and-trade system through which all allowances are immediately auctioned and then traded. Wants to reduce greenhouse gas emissions by 2050 to 80% below 1990 levels.

Fuel Efficiency: Would increase fuel efficiency standards by 4 percent a year and create a national low-carbon standard for transportation fuels.

Alternative Energy: Would require that 25 percent of U.S. electricity come from sustainable energy sources by 2025. Proposes investing $150 billion of cap-and-trade revenue over 10 years in clean energy research and development to create an estimated 5 million new jobs.

Climate Treaties: Would re-engage the U.N. Framework Convention on Climate Change and create a Global Energy Forum of the world’s largest energy consumers.

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Cap-and-Trade in TheoryCap-and-Trade in TheoryA “market-based” approach to reduce CO2 emissions by giving business flexibility and a financial incentive to find a faster, cheaper, more innovative way to reduce pollution.

Cap: Limit the amount of CO2 and other GHG that polluters (e.g. power plants) can emit by requiring an “emissions allowance” for each ton of CO2.

Trade: Efficient firms can sell allowances; inefficient firms can buy them to meet cap.

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Cap-and-Trade in PracticeCap-and-Trade in Practice

Experience with emissions trading markets:

– U.S. Acid Rain Market (NOx, SO2)

– European Union Emissions Trading Scheme

– U.S. Public Sector Initiatives

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US Acid Rain Market US Acid Rain Market (NO(NOxx and SO and SO2 2 ))

Title IV of the 1990 Clean Air Act established the allowance market system known today as the Acid Rain Program.

Title IV sets a decreasing cap on total SO2 emissions for each of the following several years, aiming to reduce overall emissions to 50% of 1980 levels.

The program was implemented in two stages: Phase I (beginning January 1, 1995) and Phase II (starting January 1, 2000).

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European Union European Union Emissions Trading SchemeEmissions Trading Scheme

January 2005:– 3 year trial period– Caps CO2 emissions for 10,000 power

generators and factories– > 50% of region’s CO2

January 2008:– Compliance period begins– Prices stable at €25/ton

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Public Sector InitiativesPublic Sector Initiatives Western Climate Initiative (WCI)

– Participants: Arizona, British Columbia, California, Manitoba, Montana, New Mexico, Ontario, Oregon, Quebec, Utah, and Washington

– Observers: Alaska, Colorado, Idaho, Kansas, Nevada, Wyoming, Saskatchewan, and the Mexican states of Baja California, Chihuahua, Coahuila, Nuevo Leon, Sonora and Tamaulipas

Midwestern Greenhouse Gas Accord – 7 participants– Participants: Minnesota, Wisconsin, Illinois, Iowa, Michigan,

Kansas, Manitoba – Observers: Indiana, Ohio, South Dakota

U.S. Conference of Mayors Climate Protection Agreement– Nearly 1000 U.S. Cities

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Regional Greenhouse Gas Initiative Regional Greenhouse Gas Initiative (RGGI)(RGGI)

Cooperative of 10 Northeastern and Mid-Atlantic states:– Participants: Maine, New Hampshire, Vermont, Connecticut, New

York, New Jersey, Delaware, Massachusetts, Maryland, Rhode Island

– Observers: Pennsylvania, District of Columbia, Eastern Canadian Provinces

August 15 – trading for futures and options contracts for 70,000 permits at $5.58

Allowances were auctioned for 6 states in September, 2008– 12.56 million allowances at $3.07/allowance yielded $38.5 million

dollars for energy conservation program Next auction on December 17th will have all 10 RGGI States

participating, with 31.5 million allowances and a minimum reserve price per allowance at $1.86

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U.S. Climate Action Partnership (USCAP)U.S. Climate Action Partnership (USCAP) 26 Fortune 500 companies; 6 leading environmental organizations Primary advocates of cap and trade legislation

Alcoa American International Group, Inc. (AIG) Boston Scientific Corporation BP America Inc. Caterpillar Inc. Chrysler LLC ConocoPhillips Deere & Company The Dow Chemical Company Duke Energy DuPont Environmental Defense Fund Exelon Corporation Ford Motor Company FPL Group, Inc.General Electric

General Motors Corp. Johnson & Johnson Marsh, Inc. National Wildlife Federation Natural Resources Defense Council The Nature Conservancy NRG Energy, Inc. PepsiCo Pew Center on Global Climate Change PG&E Corporation PNM Resources Rio Tinto Shell Siemens Corporation World Resources InstituteXerox Corporation

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How Does Cap-and-Trade Work?How Does Cap-and-Trade Work? Limits on GHG emissions Covered facilities Organizational structures Allowances

– Allocations – Borrowing– Auctions – Banking– Offsets

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Emissions Reduction Plan: Emissions Reduction Plan: Lieberman-Warner Climate Security ActLieberman-Warner Climate Security Act

Year

5775

1732

3856

Target Reductions(to 2005 levels)

2020 15%2030 30%2050 70%

Million Metric Tons CO 2

2012 2030 205020402020

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Covered Facilities Under Covered Facilities Under Lieberman-WarnerLieberman-Warner

Facilities that use more than 5,000 tons of coal in a year Facilities in the natural gas sector (production facilities and

processing plants) Facilities that produce or entities that import petroleum- or coal-

based fuel (liquid or gaseous) or petroleum coke, the combustion of which will emit group I GHGs

Facilities that produce or entities that import, in any year, more than 10,000 carbon dioxide equivalents of chemicals that are group I GHGs

Facilities that emit as a byproduct of the production of hydrochlorofluorocarbons more than 10,000 carbon dioxide equivalents of hydrofluorocarbons (HFCs) in any year

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Organizational StructureOrganizational Structure EPA Administrator Carbon Markets Working Group

– To identify and develop recommendations related to establishment of a new cap and trade financial market

– EPA Administrator, Treasury Secretary, SEC Chair, Commodity Futures Trading Commission Chair, Federal Energy Regulatory Commission Chair

Carbon Market Efficiency Board– To gather information on the allowance market regarding price and

economic effects and employ cost relief measures as necessary– 7 citizens appointed by President and a scientific advisor; bipartisan,

geographically diverse; 14 year terms

Climate Change Technology Board– To accelerate the commercialization and diffusion of low- and zero-

carbon technologies and practices– 5 directors appointed by President; 5 year terms

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Emission Allowance Programs

41.25%

27.75%6.25%

2.00%

4.00%

2.50%

2.50%

13.75%

Preventing EconomicHardshipPartnerships with States,Localities and TribesEfficiency and Renewables

Low Carbon Technology andAdvanced ResearchFuture of Coal

Future of Transportation

International Partnerships toReduce Emissions and AdaptOther Programs

5,775,000,000 Allowances in 2012

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Funding Generated by Auctions and Funding Generated by Auctions and AllocationsAllocations

5,775,000,000 Allowances 2012 (billions)Spending from auction

proceeds (budget authority)………….. $35.3 Spending from freely

allocated emissions allowances…...... $125.8

TOTAL…………………………………….. $161.1

Estimated Allowance Price of $28*

*CBO Estimates

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Partnerships with States, Localities, and Partnerships with States, Localities, and Indian TribesIndian Tribes

In 2012, at $28 per allowance….Allocations BillionsElectricity and Gas Consumers…......................................$20.62 Assisting Coal and Manufacturing States………………… $4.85 States Leading in Reducing Emissions……………………$6.47 Adapting to Climate Impacts - State and Indian Tribes…. $4.85 Subtotal………………………………………………………$36.79Auctions Billions Transportation Sector Emissions………………………….. $1.62Energy Efficiency Block Grants……………………………. $3.23State and Wildlife Tribal Adaptation………………………..$3.23Subtotal………………………………………………………$8.08Total………………………………………………………….. $44.87

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Partnerships with States, Localities, and Partnerships with States, Localities, and Indian TribesIndian Tribes

In 2012, at $28 per allowance... (In Billions)

$4.85

$6.47

$4.85

$1.62

$3.23

$3.23

$20.62

Electricity and Gas Consumers

Assisting Coal and ManufacturingStatesStates Leading in Reducing Emissions

Adapting to Climate Impacts - Stateand Indian TribesTransportation Sector Emissions

Energy Efficiency Block Grants

State and Wildlife Tribal Adaptation

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Transition Assistance for WorkersTransition Assistance for Workers

Efficiency & Renewable Energy Worker Training Program………………………..…$485 million

Climate Change Worker Adjustment Program…………………………………..…$970 million

Workforce Training and Safety………………..….$161 millionTotal…………………………………………..…..$1.616 billion

Climate Change Workers Training and Assistance Fund (Auction) 1%

Multi-Agency Steering CommitteeNational Climate Change Advisory CommitteeOffice of Climate Change Adjustment Assistance (DoL)

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Examples of University Programs in Examples of University Programs in Lieberman-WarnerLieberman-Warner

Worker Training: Allocates funds among States to train for climate change-related skill development and job training.

Energy Efficiency Block Grants: Uses include promoting “industry sector strategies that involve public-private partnership and other community-based stakeholders in the development of regional strategies to maximize the creation of good…jobs”

Program 2012 Funding (Billions)

Worker Training $1.616

Energy Efficiency Block Grants $3.234

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Boucher-Dingell Climate Change BillBoucher-Dingell Climate Change Bill“Politically, scientifically, legally, and morally, the question

has been settled: regulation of greenhouse gases in the United States is coming… The only remaining question is

what form that regulation will take.”[Letter from John Dingell to the Committee on Energy and Commerce]

Would establish a cap-and-trade program covering 88 percent of U.S. greenhouse gas emissions, reducing these emissions:– 6 percent below 2005 levels by 2020;– 44 percent below 2005 levels by 2030; and– 80 percent below 2005 levels by 2050.

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Boucher-Dingell Climate Change BillBoucher-Dingell Climate Change Bill Bill would apply cap to power plants, producers and importers of

fossil fuels, large industrial facilities, producers and importers of bulk gasses, natural gas local distribution companies, and geological sequestration sites

EPA would receive authority to establish industry-specific emission standards, and carbon market oversight would reside with the Federal Energy Regulatory Commission

Entities covered by the cap could bank and borrow emission allowances, and would have access to a set of reserve allowances if the allowance price hit a predetermined level.

Covered entities could also purchase EPA-approved domestic and international offset credits.

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Boucher-Dingell Climate Change BillBoucher-Dingell Climate Change Bill

Dingell-Boucher Emissions Targets

01000200030004000500060007000

Year

Mill

ions

of A

llow

ance

s (m

etric

tons

of G

HG

s)

49873436

1233

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Comparing Dingell-Boucher and Comparing Dingell-Boucher and Lieberman-WarnerLieberman-Warner

Emissions Targets

0

1000

2000

3000

4000

5000

6000

7000

Year

Mill

ions

of A

llow

ance

s (m

etric

tons

of g

as)

Dingell-BoucherLieberman-Warner

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Upcoming Legislative VehiclesUpcoming Legislative Vehicles Revisions to “Energy Independence and

Security Act of 2007” Reauthorization of Transportation Bill

– SAFETEA-ALU: “Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users”

– Expires in September, 2010 Significant reform of “Public Works and

Economic Development Act” Revisions to “Food, Conservation and Energy

Act of 2008”

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““Repurposed Federal Economic Repurposed Federal Economic Development Program”Development Program”

Economic Development Quarterly, May 2008Economic Development Quarterly, May 2008 “Agency’s strategy should be refocused on developing the capacity

to proactively identify and promptly respond to specific national economic problems that can be best addressed at the local level.”

Substantial increase in funding and expansion of local planning and technical assistance networks

Enhanced relationships with State governments Regional officials and EDR’s responsible for disseminating best

practices, facilitating interactions among local networks Focused role for the national office

– Research and evaluation, demonstrations projects

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Climate Prosperity StrategiesClimate Prosperity Strategies EDA FY2008 Budget – “Global Climate Change

Mitigation Incentive Fund”

Best Practices Research– Rockefeller Brothers Foundation and Environmental

Defense Fund roundtables– Regional strategies: Silicon Valley, Portland, Denver,

St. Louis, Cleveland, Montgomery County (MD), Twin Cities

– Global Urban Development and International Economic Development Council: Guidebook

• February, 2009

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B&D ConsultingB&D ConsultingB&D Consulting is a national advisory and advocacy firm with a focus

on interdisciplinary services for growth sectors of the U.S. economy. Since 1986, B&D Consulting professionals have served private and public sector clients across the country.

B&D Consulting is a division of Baker & Daniels LLP, a full-service law firm with more than 370 lawyers and consulting professionals serving clients in regional, national and international business and litigation matters from offices in Indiana, Chicago, Washington, D.C. and Beijing.

Phillip SingermanSenior Vice President

phillip.singerman@bakerd.com202.589.2849