View Large SizeThis analysis provides an assessment of reductions in greenhouse gas (GHG) emissions that could be achieved by the measures contained in the Waxman-Markey Discussion Draft (WM-DD) released on March 31, 2009. To account for the effects of different components of the proposal, reduction estimates are divided into three scenarios:
- Total emission reductions under just the two proposed emissions caps (the cap on hydrofluorocarbon (HFC) consumption and the economy-wide cap).
- Total emission reductions under the caps and all other complementary requirements, including emission performance standards for uncapped sources and required components of the supplemental reduction program through 2025.
- A range of potential additional reductions that could be achieved through the 1.25 offset requirement and supplemental reductions beyond 2025.
Key Findings
- The pollution caps proposed in the WM-DD would reduce total GHG emissions 17 percent below 2005 levels by 2020 and 73 percent below 2005 levels by 2050.
- When all complementary requirements of the WM-DD are considered in addition to the caps, GHG emissions would be reduced 31 percent below 2005 levels by 2020 and 76 percent below 2005 levels by 2050.
- When additional potential emission reductions are considered, the WM-DD could achieve maximum reductions of up to 38 percent below 2005 levels by 2020 and up to 83 percent below 2005 levels by 2050. The actual amount of reductions will depend on the quantity of offsets used for compliance.
Related Information
2 Comments
There seems to be a number
There seems to be a number of different interpretations as to the intended effect and possible unintended consequences of the role of domestic and international Offsets as described in the WM-DD. It would be helpful if the designers of the legislation (staff of the Energy & Commerce Committee ?) were to publish something to explain their intentions and expectations with the design they created.
Business As Usual
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The EPA Preliminary Analysis of WM-DD uses the Annual Energy Outlook-2009 (see chart on slide 21 of the Appendix). I have compared your chart' Business As Usual line to their AEO-09 line and they appear very different.
You chart's line even seems to be about 1,000 mtCO2e higher every year than even the AEO-06 line that was used by the EPA in their analysis of the Lieberman-Warner bill. I am interested in which of these is a more accurate estimate of expected total US GHG emissions.
Oversupply of Allowances
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The "compliance obligation of covered entities" is their reported direct emissions of GHG in that year.
As John Larson points out in his Summary, the bill intends that emissions from Covered Entities represent 68.2% of total US emissions in 2012. But what is the official estimate of the total US GHG emissions in 2012 ? The EPA Preliminary Analysis of WM-DD uses the Annual Energy Outlook-2009 (see chart on slide 21 ofthe Appendix) which appears to be about 5,900 mTCO2e.
68.2% of 5,900 is about 4,024 so the "compliance Obligation of Covered Entities" in 2012 would be estimated as 4,024 mTCO2e.
But the WM-DD lists the number of Allowances for 2012 as 4,770. This suggests there could be about 700 million more Allowances issued that the total emissions by Covered Entities. With such an oversupply, the price of Allowances could be very low, removing almost all incentives for Covered Entities to make any physical reductions in their emissions at all.
Effect of Offsets on overall physical emission reductions
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Covered Entities may purchase Offsets and surrender them (on a 1.25-to-1 basis) to meet part of their compliance obligation. They do so in lieu of making a physical reduction in their own emissions. Therefore the effect of using the offset is to shift the source of the physical reduction from a Covered Entity to a non-covered entity, and to increase the reduction by 25%.
In charting expected reductions in US GHG Emissions, we need to exclude any International Offsets, as those projects by definition will not reduce US GHG emissions.
That means that in 2012, the maximum amount of Domestic Offsets are 15% of the total compliance obligation of covered entities. If we estimate the 2012 compliance obligation of covered entities as 4,024 mTCO2e, 15% would be about 600 mtCO2e. Theses offsets would represent 1.25 x 600 = 750 mtCO2e of physical reductions.
I would welcome any comment you may have on these points.
Regards
Terry Moore
Thanks Terry for your
Thanks Terry for your comments. I thought I would respond to your questions as they are probably similar to those that others might have.
First on offsets. There are a variety of reasons to include offsets in a cap and trade program. I can’t speak for the Energy and Commerce Committee staff or Chairmen Waxman and Markey but generally offsets are included to lower the cost of the entire program by broadening the available opportunities for abatement beyond just those that may be under the cap. Politically, offsets can be used to provide a way for certain constituencies to support a proposal where they otherwise wouldn’t because they perceive that a cap and trade without offsets does not generate any opportunities for them.
On your last point about physical emission reductions and offsets. You are right that an offset allows capped emissions to increase and uncovered emissions to decrease proportionately. The discount ratio augments this behavior to yield additional reductions in uncovered emissions. Our analysis of Waxman Markey (as well as previous analyses of other bills) calculates the total emission reductions achieved by the proposal RELATIVE to US historic and projected emissions. This is different than showing expected US emissions. If we were to show just US emissions under the proposal we would need another chart that illustrates the change in emissions in the rest of the world. We chose our current approach in order to provide a straightforward snapshot of what the proposal could achieve. This approach is non dissimilar to the EPA’s presentation of the bill (see slide 14 of their preliminary analysis).
Our analysis does not find an oversupply of allowances in the early years of the program. I am not sure where you get 700 million tonnes of excess allowances from. I have not seen a reference scenario that projects total US emissions to be 5.9 billion tonnes in 2012 under business as usual. The bill assumes 68.2 percent coverage of US 2005 emissions not projected 2012 emissions. It also assumes that total US emissions in 2005 were 7.206 billion tonnes. That is how the 4770 tonne 2012 allowance budget is generated (97 percent of 7206*.682). EPA’s BAU for 2012 for total US emissions is in their Waxman Markey Analysis is close to 7.2 billion tonnes. Assuming covered emissions are similar between 2012 and 2005 then the cap should be pretty tight in the early years before you take any emission reductions from renewables, efficiency and other GHG standards into account. I suggest downloading EPA’s data annex http://www.epa.gov/climatechange/economics/downloads/WM-EPAA... where you will find all of the numbers behind their analysis.
Finally, our BAU in this analysis is very different from what was recently published in EPA’s analysis of Waxman Markey. It is the same reference case used in EPA’s analysis of S.2191. Our methodology document (attached to the back of the analysis above) explains that at the time of the release no public update to EPA’s ADAGE reference case was available and so our hands were tied. Now that EPA has released its update we are in the process of reworking our analysis to reflect the new reference case. While there is no such thing as an accurate projection of the future, the latest EPA reference case does incorporate the recent economic slump as well as important legislation that has been enacted over the past few years that will affect GHG emissions. Therefore the new reference case is a much more reasonable estimate of where emissions may go compared to the reference case generated for their analysis of S.2191.