Submission to US Senate Energy and Natural Resources Committee: Design Elements of a Greenhouse Gas Regulatory System

A 2005 Sense of the Senate Resolution states that “Congress should enact a comprehensive and effective national program of mandatory, market-based limits and incentives on emissions of greenhouse gases” that “will not significantly harm the United States economy” and “will encourage comparable action by other nations that are major trading partners and key contributors to global emissions.”

Senators Pete Domenici and Jeff Bingaman, Chairman and Ranking Member of the Senate Energy and Natural Resources Committee, respectively, released a white paper in February 2006 to address this resolution.  Titled “Design Elements of a Mandatory Market-Based Greenhouse Gas Regulatory System,” the paper posed four key questions:

1. Who is regulated and where?

2. Should the costs of regulation be mitigated for any sector of the economy, through the allocation of allowances without cost?  Or, should allowances be distributed by means of an auction?  If allowances are allocated, what is the criteria for and method of such allocation?

3. Should a U.S. system be designed to eventually allow for trading with other greenhouse gas cap-and-trade systems being put in place around the world, such as the Canadian Large Final Emitter system or the European Union emissions trading system?

4. If a key element of the proposed U.S. system is to “encourage comparable action by other nations that are major trading partners and key contributors to global emissions,” should the design concepts in the NCEP plan (i.e., to take some action and then make further steps contingent on a review of what these other nations do) be part of a mandatory market-based program?  If so, how?

The Committee offered interested businesses, advocacy organizations, non-profits, industry representatives and individuals an opportunity to submit answers to the questions through a public comment period.  These answers will be reviewed by the Committee and selected stakeholders will participate in a Climate Conference held on April 4th, 2006.

WRI’s submission reflects its longstanding work in the U.S. and internationally to design effective climate change policies, including our facilitative role in the Regional Greenhouse Gas Initiative, our extensive work with the private sector, and our policy analysis and tools such as the Climate Analysis Indicators Tool (CAIT) http://cait.wri.org/.

In particular, WRI comments on the trend toward “downstream” allocation of emissions allowances, the increasing appeal of auctioning as a way of distributing allowances, the feasibility of linking a U.S. system with other emissions markets, and the counter-productive effect of making U.S. action contingent upon the actions of other nations.