The West is the Best? Leaking carbon from the patchwork quilt
A patchwork of climate regulation may be a way forward in the wake of COP15 and the US rejection of economy wide cap and trade at the federal level. Individual systems must be joined or harmonized across space to avoid leakage in the gaps.
Movements at the federal level in the US have shown that a nationwide cap and trade system – recently thought to be virtually inevitable – is “dead”, in the words of Senator Graham, a proponent of a new climate bill (see
here). The senate simply did not have enough political votes in favour of cap and trade for nationwide regulation to pass. As we saw in Copenhagen (see
here), the binding agreements that cover countries and societies that are economically linked are hard to come by. There are too many interests that pull such complex negotiations toward stalemates, even though the multinational companies that link many of these economies may be helped by comprehensive climate policy (see
here). Instead, we end up with a variety of regional initiatives that create regulations in one area, none in another and, at the moment, are not harmonized to create comprehensive coverage. The patchwork quilt of carbon reductions has some distinctly large gaps in it.
While DC figures out what a comprehensive climate bill might look like, regional efforts continue apace, defining emissions reductions and placing a price on carbon. The Western Climate Initiative signed by independent jurisdictions, states, provinces and Native Sovereign Nations (see
here) aims to put a price on carbon by 2012 with its own cap and trade system. It will be four times bigger than any existing cap and trade systems in the US (see
here). Good news: pretty comprehensive cover for these jurisdictions: reducing emissions and spurring the green economy.
Western Climate Initiative connects into the eastern electricity markets and creates opportunities for carbon leakage.
But, recent WCI analysis has pointed to the fact that because of the way WCI jurisdictions in the East (see attached picture) trade electricity with the Eastern states (Eastern Interconnection), an increase in the price of carbon in WCI jurisdictions (and therefore short term electricity prices), means fewer electricity exports (see
here). Therefore non-WCI electricity generation and carbon emissions go up. This is known as leakage (emissions ‘leak’ out of an area not covered by regulation). However, if the WCI jurisdiction places an energy import tariff (what is called in the report: FJD, First Jurisdictional Deliverer) on non-WCI energy (i.e. east to west electricity), leakage is reduced because non-WCI energy becomes less competitive to import. Interestingly, the reductions in non-WCI emissions weren’t affected by the amount of the tariff – as long as it was there, leakage would be reduced, but never eliminated. Where there is a price on CO2 allowances in the WCI, even import tariffs won’t eliminate increased emissions in the East. As the study shows, the best way to reduce overall emissions is by linking with other regulatory schemes (such as the RGGI, MGGRA – see
here for overview), or a federal system that places a price on carbon everywhere.
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Adam Bumpus is pursuing Advanced Research Work with the distinguished Sauder School of Business UBC.
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