Various stories have arisen on the Internet regarding a study released on February 14, 2008 by New Carbon Finance, a division of New Energy Finance, a provider of information and analysis on renewable energy and low-carbon industries. The study reportedly predicts that the USlegislation now being considered that limits carbon trading to the US market, would create a $1 trillion US carbon market by 2020. However, the exact nature of such market is not clear. It is not clear whether the study predicts an annual market, which would seem overstated, or a cumulative market over 10 years, or on average $100 billion per year, which seems very possible. The study predicts the US market would be twice the size of the EU market.
Major investments in the US would occur in clean technology, accoding to the study. These projects would include renewable energy, energy efficiency, and greenhouse gas mitigation projects.
At present there are about thirteen bills that have been filed in the Congress, in both the House of Representatives and the Senate. Almost all are based on a cap-and-trade program. Thus, it appears if any bill is actually passed, a market-based program to cap greenhouse gas emissions and to allow the selling of carbon allowances and offsets will be the system that is implemented in the US to reduce greenhouse gas emissions and to address climate change.
The study by New Carbon Finance reportedly concludes that an economy-wide cap-and-trade system will be implemented within four to five years. An economy-wide greenhouse gas emissions reporting system has already been passed in the December Omnibus Spending bill and the President has signed it into law. The US Environmental Protection Agency is already working on the implementing regulations. The law requires EPA to propose draft reporting regulations by September 2008 and final regulations by September 2009. The reporting regulations form the foundation of any future greenhouse gas emission law.
The three currently viable presidential candidates from both parties have committed to controlling greenhouse gases and to passing climate change legislation. John McCain, the Republican candidate, co-authored a bill with Joe Lieberman restricting greenhouse gas emissions and creating a cap-and-trade system.
"Even if the current Bush administration rejects all of these bills, the next president will be less inclined to use a veto. All leading 2008 presidential candidates have endorsed the need for action and some have already supported significant emissions reductions," said Michael Liebreich, CEO of New Energy Finance.
The US legislation that has made it the farthest in the legislative process, the Lieberman-Warner Climate Security Act, which was passed out of the Senate Environment and Public Works Committee, would impose restrictions on the use of international credits under any post-Kyoto agreement, such as the Certified Emission Reductions generated through the Clean Development Mechanism. The CDM program allows the use of cheaper offset credits generated through less expensive greenhouse gas reduction projects in developing countries.
"This will have two important consequences. For the US market, it will rule out a significant source of inexpensive abatement, pushing the carbon price to unnecessarily high levels. It will also remove most US demand for international credits, hampering the growth of projects and technology transfer to developing countries," said Milo Sjardin, who heads the North American division of New Carbon Finance.
The press release on New Carbon Finance’s website also states that the study predicts that, if US legislation does not allow domestic companies to purchase cheaper international carbon credits from projects in developing countries, the price of carbon will rise to $35 to $40 per metric tonne of carbon dioxide equivalent by 2015. At this price for carbon, the study predicts that the prices of electricity would rise by 20%, gasoline by 12%, and natural gas by 10%. Other prices for goods in the economy would also increase as a result of power and fuel price increases.
On the other hand, if the legislation allows the purchase of offsets from projects in the developing world, the price of carbon would be around $15 to $20. At a $15 per ton of CO2 equivalent, the effect on the economy would be reduced. The study predicts the price of electricity would rise by 7%, the price of gasoline 4% or about 13 cents a gallon, and natural gas would rise by 5%. The resulting economy-wide price increases would be less as well.
The real focus of the study appears to be on the differential in the price of carbon and the impact on the economy if greenhouse gas emitters are not allowed to purchase international carbon credits to offset their emissions. Under this analysis, any US legislation should permit international carbon trading to offset US greenhouse emissions to lessen the impact of greenhouse gas limitations on the US economy.
