Soil Carbon Center at Kansas State University

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America’s Climate Security Act:

A Bill To Establish A Cap-and-Trade System in the U.S.

One of the “climate change” bills that has been proposed in the U.S. Senate is the Lieberman-Warner Climate Security Act (S. 2191). If it becomes law, this bill would set mandatory greenhouse gas emission limits and create a cap-and-trade system for greenhouse gases in the U.S. for the first time.

Senators Joe Lieberman (ID-CT) and John Warner (R-VA) introduced this bill in October 2007 in order to reduce United States greenhouse gas emissions, including CO2 and five other gases.

The bill establishes a market-driven system of tradable emission allowances and permits the use of domestic offsets and international credits.

The bill states that it is possible and desirable to cap greenhouse gas emissions at the current level in 2012, and to lower the cap each year between 2012 and 2050. Also called the America's Climate Security Act (ACSA), it is projected to reduce total U.S. greenhouse-gas emissions by as much as 19 percent below the 2005 level (4 percent below the 1990 level) in 2020, and by as much as 63 percent below the 2005 level in 2050, according to an October 2007 press release from Sen. Lieberman’s office. See: http://lieberman.senate.gov/newsroom/release.cfm?id=285619

The main provisions of the Climate Security Act includes the following provisions:

* Economy-wide coverage:

-- Upstream on petroleum and natural gas, as well as manufacturers of fluorinated gases and N2O

-- Downstream on coal facilities that use more than 5,000 tons of coal per year

* GHG emission targets for covered sectors (targets decline in each calendar year):

2012: 5,775 MtCO2e

2020: 4,924 MtCO2e

2030: 3,860 MtCO2e

2050: 1,732 MtCO2e (70 percent below 2005 emission levels from covered facilities)

* Establishes a market-driven system of tradable emission allowances

* Establishes a separate cap and trade system for the consumption of HFCs (halofluorocarbons)

* Domestic offsets may be used to meet 15 percent of compliance obligation

* International credits may be used to meet 15 percent of compliance obligation

* Establishes a Carbon Market Efficiency Board

* Set-asides for agriculture and forestry sequestration, as well as landfill and coal mine methane

* Bonus allowances for carbon capture and storage technology (CCS)

* International reserve allowance requirement

The U.S. Environmental Protection Agency (EPA) recently completed an analysis of the Act. The complete EPA analysis can be found at:

http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf

The key results and predicted impacts of the Act according to EPA’s analysis:

Emissions Impacts

* Total U.S. greenhouse gas (GHG) emissions would be approximately 40 percent lower than reference case emissions in 2030 (about 11 percent below 1990 levels) and 56 percent lower in 2050 (about 25 percent below 1990 levels).

* The Act covers 82 percent of total U.S. GHG emissions in both 2030 and 2050.

* While the impacts of S.2191 on global CO2 concentrations are not explicitly analyzed here, based on EPA’s previous analysis of the Lieberman-McCain bill (S. 280) and the fact that S.2191 requires greater emissions reductions than that bill, the incremental impact of S.2191 on global CO2 concentrations would likely be greater than 25 parts per million (ppm) in 2095. Assuming Kyoto countries (excluding Russia) reduce emissions to 50 percent below 1990 levels by 2050, and all other countries adopt GHG emissions targets in 2025 and return emissions to 2000 levels by 2035, the global CO2 concentration in 2095, while not stabilized, would likely be lower than 491 ppm if the U.S adopts S.2191.

Sector Impacts

* The greatest emission abatement under S.2191 would occur in CO2 emissions from the electricity sector.

* The transportation sector would provide a relatively small proportion of CO2 emissions abatement. The price signal provided by S.2191 (about a 53-cent increase in the price of gasoline in 2030 and about a $1.40 increase in 2050), is not high enough to cause large changes in the demand for transportation or changes in how transportation services are provided.

Economic Impacts

* In the S.2191 scenario, modeled allowance prices range between $61 to $83/tCO2e in 2030, and $159 to $220/tCO2e in 2050.

* The average annual growth rate of consumption is about 0.08 percentage points lower than the reference case. In 2030, per household average annual consumption is about $1,375 lower, and gasoline prices increase about 53 cents per gallon. In 2050, per household average annual consumption is about $4,377 lower, and gasoline prices increase about $1.40 per gallon.

* Between 2010 and 2030, gross domestic product grows about one percent less than if the bill is not passed.

The Climate Security Act will not shift U.S. GHG emissions abroad in what the EPA calls “international emissions leakage,” according to the analysis. Exports of U.S. energy-intensive products to developing nations would increase, and imports of energy-intensive products from those countries would decrease.

If the bill becomes law, the price of an emission allowance would range from $22 per ton of CO2e in 2010 to $121 in 2050, according to the March 26, 2008 edition of Carbon Market North America from Point Carbon News. This scenario assumes that the necessary clean technology is deployed and that developing nations begin to accept caps on emissions in 2025. It also stated that carbon prices are significantly altered by the use of offsets in a cap-and-trade program.

EPA’s study added that if the use of domestic offsets and international credits is unlimited, then allowance prices fall by 71 percent compared to the bill as written.

For a discussion of the ACSA, see Carbon North America March 26, 2008:

http://www.pointcarbon.com/getfile.php/fileelement_135841/CMNA20080326_1.pdf

-- Katie Starzec, CASMGS Communications, Kansas State University

kstarzec@ksu.edu

-- Steve Watson, CASMGS Communications

swatson@ksu.edu