Daily Score Blog

This is the fifth in a short series of posts that explain some important but often overlooked policy issues in the Western Climate Initiative -- the West's regional cap-and-trade system. Alan Durning wrote a very substantial portion of this post.

“Offsets” are surely one of the most contentious issues in cap and trade. That's because they could improve the cost-effectiveness of cap and trade while bringing substantial side-benefits for free. Or they could also gut cap and trade, making it a sham. The devil is in the details.

Offsets are reductions in emissions that are legally or geographically outside the cap but that are honored like carbon allowances under the cap. For example, an electric utility in the Northwest might buy a 1-ton carbon offset -- for one ton of CO2 removed permanently from the atmosphere -- from a Northwest forest land owner who put a legally binding (and permanent) conservation easement on her land and thereby soaked up and sequestered, or stored, 1 ton of CO2. Alternatively, an oil company in the Northwest might buy 100 offsets from a coal-fired power plant in China that shut down one of its generators and replace the power through conservation programs. To use the offsets under cap and trade, the electric utility or oil company would present public officials with documentation of the offsets as a substitute for an equal number of carbon allowances.

WCI’s July 2008 draft proposal contemplates allowing companies to include up to 10 percent offsets in their portfolios of carbon allowances. That means that they could use offsets to achieve two-thirds of WCI’s 2020 reduction goal of 15 percent.

We think 10 percent is too much, especially when the entire goal is only 15 percent. Here's why. 

A request:  if a) have anything to do with city or county government, and b) have any interest in, or authority over, property taxes, finance, or energy efficiency, please drop whatever you're doing for 2 minutes, and skim this article.

Oh, all right, I bet you didn't actually hit the link.  So to make your job easier, I'll pull a quote or two.

California [just] enacted a law that allows cities and counties to make low-interest loans to homeowners and businesses to install solar panels, high-efficiency air conditioners and other energy-saving improvements.

Participants can pay back the loans over decades through property taxes. And if a property owner sells his home or business, the loan balance is transferred to the next owner, along with the improvements. [Emphasis added.]

I don't think that I emphasize this enough, so I'll use capital letters: THIS IS TRULY GROUNDBREAKING.  In fact, it may well be among the top three climate policies ever adopted by the state.  I hope that other states follow suit soon -- even if it means fixing the state constitution.  (Cough*Washington*cough).

This is the fourth in a short series of posts that explain some important but often overlooked policy issues in the Western Climate Initiative -- the West's regional cap-and-trade system.

In cap and trade, bigger is better -- or at least cheaper. That's because of the flexibility that is built into the program: the "cap" sets the overall level of emissions while the "trade" harnesses the profit motive to seek out the cheapest and easiest reductions wherever they occur in the economy. So it's good news when the Western Climate Initiative expands to add new member states and provinces.

Cap and trade gets even better (and cheaper) when different cap and trade programs "link" with one another. Linking means that two different programs honor one another's carbon permits. So the members of WCI could, in theory, trade carbon permits with the members of the European cap and trade program (the ETS), or with the carbon market in the northeast United States (RGGI). By linking, we can create huge economies of scale where all the participants can benefit because the emissions reductions will come at the lowest possible price across a very large economic area. Basically, linking is free trade for reducing climate pollution.

But linking can only happen if cap and trade programs are designed correctly.

My backyard garden is giving me mixed results this year. I did okay with the strawberries and snap peas, but the peppers are only so-so and the tomatoes are downright pathetic. Personally, I'm chalking it up to the lousy spring, not my laissez-faire attitude toward vegetables.

Still, I love it. My garden is definitely not saving the world or anything, but there's something weirdly profound about coaxing food from the ground. (Or in my case, coaxing some dicey-looking salad greens from the planter box.) Growing food scratches some peculiar itch we have, whether it's a glimmer of our agrarian past or a sense of self-reliance. It may even be good for us.

While eating locally is probably not the most important environmental decision we make at mealtime it often has important benefits. (More on these below the jump.) But what's local? And can we city dwellers really sustain ourselves locally?

Enter Matt Stevenson -- Sightline's friend, periodic GIS contractor; he's a data-fiend and map-maker. So I wasn't surprised to see that he'd produced this map showing where you can eat on 100 mile diet if you live in Seattle:

This 100-mile diet would be tough. There's some good farmland -- especially in the Skagit and northern Willamette Valleys -- as well as some opportunity for seafood. But there's a lot of dense forest in there; a lot of rock and ice; and a lot of development too.

Sure, fine. But Matt isn't satisfied with general qualitative remarks like these. He crunched the numbers to figure out how much farmland we're protecting near our urban areas -- and whether it could sustain us. The news isn't great.

In Seattle, Mayor Greg Nickels took a cue from Portland and New York by instituting a few “car-free” Sundays where, throughout August, three city streets will be consecutively closed to cars. The program is part of Seattle’s “Give Your Car the Summer Off” project in which the city is encouraging citizens to drive 1,000 fewer miles this year:

"Neighbors will have three to six hours to experience our streets in a new way and to see how livable a city can be when people drive less," Nickels said. "This is our chance to experiment and to evaluate how these events work for people. And we'll be fighting global warming at the same time."

Check out our new map!

These states and provinces shown in green are using cap and trade to put a legal limit on carbon pollution by designing market-based programs to reduce pollution economically. These places represent more than half of North America's population and economic activity.

Bigger versions for free download are available here.

This is the third in a short series of posts that explain some important but often overlooked policy issues in the Western Climate Initiative--the West's regional cap-and-trade system.

One of the core questions in cap and trade -- really, for any regulatory system -- is who, exactly, participates. Ideally, the program would include as many sources of climate pollution as possible without creating an administrative nightmare. (In fact, administrative simplicity is one of the main reasons why an "upstream" approach to regulation works best.) So we want to include refineries and coal plants, but not necessarily the neighborhood propane dealer. This is a good deal for both the regulators, who can work with a manageable system, as well as for businesses. An oil importer is sophisticated enough to account for emissions and hold tradeable carbon permits, while a smaller business can't do so as easily.

So to balance comprehensiveness with parsimony, WCI needs to establish an emissions "threshold" for regulation: facilities that generate more than the threshold participate in cap and trade, but smaller facilities don't have to. Luckily, the lion's share of emissions come from fairly large sources, so the trade-off isn't too severe in most cases. Still, there is a trade-off and it's important to get the balance right.

In it's latest draft, WCI suggested a threshold of 25,000 metric tons of carbon-dioxide-equivalent (often expressed as 25,000 metric tons CO2e or 25,000 MTCO2e). That was at the very the high end of what they had been considering. In previous drafts they had said they would set the threshold "within the range of 10,000 to 25,000 metric tons of CO2e per year per facility." The vast majority of public interest groups  -- Sightline included -- have argued that the threshold should be set no higher than 10,000 tons.

This is the second in a short series of posts that explain some important but often overlooked policy issues in the Western Climate Initiative. We've written extensively on "allocations" -- the method of distributing the carbon permits to the public through auctions or free distribution -- but there's a related issue often confused with allocations. Called "apportionment," it has important ramifications.

I know, I know, nothing gets the skin tingling like the word "apportionment." But this is a big question for the Western Climate Initiative -- the seven-state-four-province regional cap and trade system. Which states and provinces get to pass out the carbon permits? How many does each get? And who gets the revenue if the permits are auctioned? Ultimately, it's about the money.  Carbon permits have a real cash value, whether they are sold or handed out for free. And we all know that nothing sharpens a negotiation like a pile of money sitting in the middle of the table.

Maybe that's why WCI has so far produced this masterfully crafted position (pdf):

The Partners are working on an apportionment methodology based on Partner and regional emission reduction goals and requirements. The apportionment methodology will address factors such as production and consumption of electricity, projected population growth and economic activity, and other factors. The Partners intend to have a recommended apportionment methodology by Fall 2008. [Section 7]

Say what?

Before I explain what's going on here, I'll put my cards on the table: Sightline believes that state apportionment should be based on protecting consumers and working families -- in short, it should be based on climate fairness. That means figuring out where the price impacts will occur and awarding state apportionments there so that auction revenue can be used to assist families. One way to do that might be to apportion permits among states and provinces in proportion to their spending on carbon-energy. I'll come back to this in a monent, but first I should explain that some of the intuitive answers to apportionment are unfair.

At first blush, it might seem pretty straightforward to figure out the apportionment (sometimes called an "allowance budget").

Last week when the Western Climate Initiative's latest draft appeared it mystified most folks who aren't insiders to the process. That's a shame because WCI is hugely important. So over the next few days I'm going to embark on a series of posts that I hope will clear up some of the misunderstandings. Along the way, I'm also going to explain what Sightline wants to see improved.

Maybe the single most important question in cap and trade is the question of "scope," the question of what we should include under the cap. How do we decide which carbon pollution counted? And who must obtain the tradeable carbon permits that are equal to the cap?

WCI gets a couple of things right. First, they will regulate all six of the major greenhouse gases. And they've opted for an "upstream" approach: regulating carbon at the handful of points where it enters the economy (pipelines, refineries and so on) rather than further downstream where hundreds or thousands of fuel users would be implicated. It's the coal plant, not the residential electricity meter, that gets treated.

But other questions have been stickier. Some sectors are getting a pass, at least for now, because they are technically infeasible to cover. For example, emissions from agriculture and forestry are difficult to count and there are multitudes of small-scale emitters who have little capacity to participate in a cap and trade program. Fortunately, however, the vast majority of the West's carbon pollution is relatively easy to count, and the polluters are large and sophisticated companies that are accustomed to regulatory requirements. (Think utilities, oil refiners, and smelter operators.) The right thing -- for the climate, for the program's cost-effectiveness, and for equity among businesses -- would be to include as many sources of carbon pollution as is technically feasible.

But that hasn't happened.

The single biggest problem with scope is that WCI is excluding oil companies -- even though transportation fuels are the single largest source of emissions -- until the second "compliance period," which doesn’t start until 2015. (A "compliance period" is a unit of time over which the regulated firms must match their climate emissions to the number of carbon permits that they have obtained.) Seven years is a long time to wait to address the central climate threat of the West. And it gets worse: because each compliance period is three years long -- meaning that polluters have three years to match their emissions to their carbon permits --we might not see meaningful reductions until eight or nine years from now.

That's hardly the only problem.

Here's the word from the US Department of Transportation:

[Vehicle travel] on all public roads for May 2008 fell 3.7 percent as compared with May 2007 travel...marking a decline of 29.8 billion miles traveled in the first five months of 2008 than the same period a year earlier. This continues a seven-month trend that amounts to 40.5 billion fewer miles traveled between November 2007 and May 2008 than the same period a year before, she said.

So it's official:  high gas prices (coupled with a slack economy) are encouraging us to drive less. And if you look at the chart to the right, the recent downturn comes after a fairly long period of slow growth in vehicle travel.  It looks like the gradual rise in gas prices has been tempering the growth of driving since at least 2005.

I wouldn't be surprised to find that total gas consumption has fallen even more steeply than the number of miles driven.  After all, SUV sales are down; sales of efficient cars are up; highway speeds are slowing slightly; congestion is down (because fewer cars are on the road); and there's anecdotal evidence that people are choosing the more efficient car when they have more than one vehicle in the driveway.  All of these factors tend to decrease gasoline consumption, above and beyond the decline in vehicle miles traveled.

Of course, the DOT responds to the news by...calling for more money for roads!

"Less driving means less money for the Highway Trust Fund," said Acting Federal Highway Administrator Jim Ray. "The status quo cannot and will not work in the 21st century."

That's right: we're driving less, gas costs are through the roof, and people are turning to transit in record numbers.  But according to the DOT, the real problem is that the Highway Trust Fund is running out of cash.  (How on earth are we going to pay for all those new roads that people can't afford to drive on?)

George Erb of the Puget Sound Business Journal recently shot some ink at Washington Governor Chris Gregoire. He wrote:

Earlier this year Washington was competing with four other states for a $2 billion uranium enrichment plant that could be located on the Hanford Nuclear Reservation. The facility would employ about 400.

But Areva, the French company that proposed the plant, announced in May that it would build the facility at Idaho Falls, Idaho. The Tri-Cities were stunned.

The Tri-City Herald later learned, through a public records request for correspondence, that the governor’s office was aware of Areva’s offer as long ago as the summer of 2007.

Civic leaders had urged the governor’s office to help close the deal for the state. But the Tri-City Herald discovered that Gregoire instead canceled a telephone call with Areva’s chief executive in September 2007. Then she didn’t contact the company for another six months.

Um. I don’t know terribly much about this, but it smells a little off.

I'm going to geek out for a second. But first, check out this graph:

I suppose there are two lessons:

1. Price and consumption are not perfectly correlated. Clearly there are many non-price factors affecting electricity consumption. (These include, at least, the local climate, building size and type, and local energy efficiency policies.) But still...

2. Price definitely affects use, and the fit gets better as you move up the price axis. The more expensive electricity is, the less likely consumers are to be profligate.

In energy circles it's sometimes alleged that consumers are price insensitive or economically irrational about consumption. There's some truth to that, but it's only a partial truth.

These charts help demonstrate why carbon pricing can be effective. Putting a price on carbon -- or a price on energy -- acts to reduce consumption. Price is not the only factor and it may not even be the biggest factor, but it does appear to matter. And it appears to matter more above about 10 or 12 cents per kilowatt hour.

This hooks into a larger debate in the Western Climate Initiative.

I'm not going to pull punches:  The Oregonian ran an opinion piece on climate science, penned by columnist David Reinhard, that simply isn't up to the standards of responsible journalism.  Not only does it get basic facts wrong, it displays a disturbing arrogance, coming from someone who's arguing that others should display a little humility.

The Oregonian's readers deserve better. 

Just wanted to let folks know that we have an updated and corrected version of our grizzly bear range-map. The former version of the map incorrectly showed that grizzly bears no longer live on the southeast Alaskan Islands of Chichagof, Baranof, or Admiralty. In fact, grizzlies are still present -- and in extremely high numbers. Still, the major lesson of the map -- that grizzly range is drastically reduced -- is probably the more important point that the map makes.

An animated version can be downloaded here; static versions in several sizes can be found here.

A big hat tip is in order to sharp-eyed reader Bill Walker of Billings, Montana who caught the mistake.

The new draft proposal is here.

Just the major points. First off, the proposal is basically pretty good. We should keep in mind that what the Western Climate Initiative (WCI) is doing represents a big -- gigantic -- step in the right direction for the climate. So I'll raise a glass to everyone who's worked so hard on the WCI proposal so far.

But there's room for improvement. Below, I highlight the core areas of the proposal. These are bedrock issues that make me concerned.

Transportation is in. Sort of.
It appears that transportation fuels – the region’s largest source of carbon pollution – will be delayed until 2015, the second “compliance period.” The document is not crystal clear, but in Section 6, “Setting the Regional Cap,” it says that the regional cap will be adjusted in 2015 to add both transportation and the natural gas that is used in homes and businesses. (See 6.3). It's critical that we included transportation fuels ASAP.

Auctioning is in limbo.
WCI appears to be punting on this hugely important question. In past communications they’ve said that states and provinces will be required to auction a minimum percentage of between 25 and 75 percent of their allowances. In today’s draft (see 8.7) they say this:

The issue of establishing a minimum percentage of allowances subject to auction by each Partner is still under discussion by the Partners. The Partners expect to make a recommendation on this issue by Fall, 2008.

That's not wildly helpful. But in defense of WCI, they do include quite a bit of language about how the value of allowances are to be used (Sections 8.2 and 8.3) most of which are clearly good public interest goals.

Offsets are on the table.
WCI is apparently considering allowing offsets in the amount of 10 percent of any regulated firm’s allowances. They say, “not greater than 10 percent of an individual entity’s or facility’s compliance obligation” (section 9.2). (A firm's compliance obligation is its total amount of carbon emissions.) Since WCI is shooting for a 15 percent reduction, allowing a firm to submit offsets to cover 10 percent of its total emissions is tantamount to allowing offsets to cover more than half of all the WCI reductions. In my judgment, 10 percent is probably much too high a figure. We shouldn’t have so much confidence in offsets. (For more on the trouble with offsets, see this excellent 2-page summary from economist Chris Busch with the Union of Concerned Scientists. It's California-centric, but completely relevant to WCI.)

A strange loophole, maybe.
Finally, there’s some odd language sprinkled throughout the document that appears to nudge open the door for some states or provinces to avoid capping transportation fuels. In Section 1.4, for example, the document says:

WCI Partners acknowledge that individual jurisdictions may instead utilize comparable fiscal measures, such as British Columbia’s carbon tax, to address transportation fuels and fuel use by residential and commercial sources.

That would be a mistake. Consistency and comprehensiveness are key to the program's success. To use this particular example, BC's carbon tax can easily integrate with a cap and trade program (the taxes would basically become a "reserve price" in the auction system). But a legal cap on carbon is important because it makes certain we meet our climate targets.