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Sustain to gain: December 2010 Archives

Global annual fossil fuel carbon dioxide emiss...

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California has long been leading the US towards environmentally sound policies, starting with air quality standards in the early 1970s. The California Global Warming Solutions Act of 2006 (AB32) established a comprehensive program of regulatory and market mechanisms to achieve quantifiable, cost-effective reductions in greenhouse gases.

2010 was an exciting year for AB32. Oil companies tried to defeat AB32 on the ballot, but then were themselves defeated - the ballot didn't pass.

Cap and trade is the most prominent mechanism envisioned by AB32. Now - in December 2010, the Californian Air Resource Board endorsed the cap-and-trade regulation.

The decision is a huge step forward towards climate protection - but also has drawbacks. The major drawback involves the free give-away of GHG allowances to polluters. As allowances still have a market value, energy companies can (partially) charge the value of allowances to consumers and generate windfall profits. While efficiency of the instrument may still be guaranteed, rewarding the polluter is inappropriate. California, by this, repeats the mistakes of the European Union.

On the big plus side, California tries to be comprehensive as soon as possible. In 2015, transport fuels and natural gas will already be included under the cap. In doing so, California overtakes the EU in terms of coverage (the EU does not cover the transport sector).

A recent study "Car Industry, Road Transport and an International Emission Trading Scheme" (CITIES)" of our group at TU Berlin and PIK, commissioned by BMW*, concludes that including transportation in cap and trade increases flexibility in abatement, and by this overall efficiency, without significantly increasing abatement costs for utilities.

A key finding of CITIES is that witht the rise of electric cars etc. the energy sector and transport sector become closer intertwined. The CO2 emissions will no longer be determined by the end-of-pipe emissions of the automobile alone, but to a large degree by upstream fuel production. To include the emissions from the transport sector at the fuel production level will provide for a more stringent macroeconomic treatment of the greenhouse gases. The respective responsibilities of the actors will be more precisely defined with an emission trading for fuel producers and complementary efficiency regulation for automobile manufacturers.

Including transport into cap and trade, hence, will leverage the effectiveness of cap and trade, and increase efficiency. While the US Senate blocks any action on climate change and global warming, individual states, like California make leeway, and signal to the world that - at state level - the US takes action.

REFERENCE: F. Creutzig, Flachsland, C., McGlynn, E., Minx, J., Brunner, S., Edenhofer, O. (2010) CITIES: Car industry, road transport and an international emission trading scheme - policy options. A report commissioned by BMW. (pdf)

* Find here a press release of BMW supporting the cap and trade scheme.


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