Cap and Trade: The Kyoto Protocol, Greenhouse Gas (GHG) Emissions, Carbon Tax, Emission Allowances, Acid Rain SO2 Program, Ozone Transport Commission, NOX, Carbon Markets, and Climate Change (Government Series)

GOVERNMENT SERIES
Cap and
Trade
The Kyoto Protocol, Greenhouse Gas
(GHG) Emissions, Carbon Tax, Emission
Allowances, Acid Rain SO2 Program,
Ozone Transport Commission, NOX,
Carbon Markets, and Climate Change
Compiled by TheCapitol.Net
GOVERNMENT SERIES
Cap and
Trade
The Kyoto Protocol, Greenhouse Gas (GHG)
Emissions, Carbon Tax, Emission Allowances,
Acid Rain SO2 Program, Ozone Transport
Commission, NOX, Carbon Markets,
and Climate Change
Compiled by TheCapitol.Net
Authors: Jonathan L. Ramseur, Larry Parker, Peter Folger, Ross W. Gorte,
Renee Johnson, Kelsi Bracmort, James E. McCarthy, Donald J. Marples,
Sam Napolitano, David L. Sokol, Richard Newell, Robert Greenstein, Sonny
Popowsky, Steven L. Kline, Michael Carey, A. Denny Ellerma, Gilbert E. Metcalf,
Karen Palmer, Chad Stone, Ray Kopp, Ted Gayer, and Jonathan M. Banks
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v1
Cap and Trade, softbound:

ISBN: 158733-184-5
ISBN 13: 978-1-58733-184-8
Summary Table of Contents
Introduction .................................................................................. xix
Chapter 1:
“Cap and Trade: Essentials,” U.S. Environmental Protection Agency . . . . . . . . . . . . . . . . . 1
Chapter 2:
“Cap and Trade: Multi-State NOx Programs,”
U.S. Environmental Protection Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Chapter 3:
“Cap and Trade: Acid Rain Program Basics,”
Chapter 4:
“Annual Energy Outlook 2010 Early Release Overview December 2009,”
Energy Information Administration, U.S. Department of Energy . . . . . . . . . . . . . . . . . . . . . . . 7
Chapter 5:
“Annual Energy Outlook 2010 Reference Case,”
Energy Information Administration, U.S. Department of Energy . . . . . . . . . . . . . . . . . . . . . . 19
Chapter 6:
“The Role of Offsets in a Greenhouse Gas Emissions Cap-and-Trade
Program: Potential Benefits and Concerns,” by Jonathan L. Ramseur,
CRS Report for Congress RL34436, May 18, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Chapter 7:
“Potential Offset Supply in a Cap-and-Trade
Program,” by Jonathan L. Ramseur, CRS Report
for Congress RL34705, October 14, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Chapter 8:
“Allowance Markets Assessment: A Closer Look at the Two Biggest
Price Changes in the Federal SO2 and NOX Allowance Markets,”
U.S. Environmental Protection Agency, April 23, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Chapter 9:
“Carbon Tax and Greenhouse Gas Control: Options and
Considerations for Congress,” by Jonathan L. Ramseur and
Larry Parker, CRS Report for Congress R40242, March 10, 2009 ................... 95
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Chapter 10:
“The Carbon Cycle: Implications for Climate Change
and Congress,” by Peter Folger, CRS Report for
Congress RL34059, February 18, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Chapter 11:
“Measuring and Monitoring Carbon in the Agricultural
and Forestry Sectors,” by Ross W. Gorte and Renee Johnson,
CRS Report for Congress RS22964, August 6, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Chapter 12:
“Climate Change: The Role of the U.S. Agriculture
Sector and Congressional Action,” by Renee Johnson,
CRS Report for Congress RL33898, November 9, 2009 ............................. 183
Chapter 13:
“Forest Carbon Markets: Potential and Drawbacks,”
by Ross W. Gorte and Jonathan L. Ramseur,
CRS Report for Congress RL34560, July 3, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Chapter 14:
“Methane Capture: Options for Greenhouse Gas Emission Reduction,”
by Kelsi Bracmort, Jonathan L. Ramseur, James E. McCarthy,
Peter Folger, and Donald J. Marples, CRS Report for
Congress R40813, September 17, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
Chapter 15:
“Cars and Climate: What Can EPA Do to Control Greenhouse
Gases from Mobile Sources?” by James E. McCarthy,
CRS Report for Congress R40506, December 9, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Chapter 16:
“Aviation and Climate Change,” by James E. McCarthy,
CRS Report for Congress R40090, August 4, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285
Chapter 17:
“Cap and Trade Programs for Air Emissions,” by Sam Napolitano, Clean Air
Markets Division, Office of Air and Radiation, U.S. Environmental Protection
Agency, Presentation for the Clean Air Conference, December 4, 2009 . . . . . . . . . . . 299
Chapter 18:
“Climate Change and the EU Emissions Trading
Scheme (ETS): Kyoto and Beyond,” by Larry Parker,
CRS Report for Congress RL34150, November 24, 2008 ........................... 321
iv Copyright ©2010 by TheCapitol.Net. All Rights Reserved. 703-739-3790 www.thecapitol.net

Chapter 19:
“Climate Change: Potential Regulation of Stationary
Greenhouse Gas Sources Under the Clean Air Act,”
by Larry Parker and James E. McCarthy, CRS Report
for Congress R40585, December 10, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Chapter 20:
Testimony of David L. Sokol, Chairman, MidAmerican Energy
Holdings Company Before the Subcommittee on Energy
and Environment, Committee on Energy and Commerce,
U.S. House of Representatives, June 9, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
Chapter 21:
Testimony of Dr. Richard Newell, Administrator, Energy Information
Administration, U.S. Department of Energy before the Committee
on Energy and Natural Resources, U.S. Senate, October 14, 2009 . . . . . . . . . . . . . . . . 407
Chapter 22:
Testimony of Robert Greenstein, Executive Director, Center on Budget
and Policy Priorities, House Committee on Energy and Commerce,
Subcommittee on Energy and Environment, March 12, 2009 . . . . . . . . . . . . . . . . . . . . . . . 423
Chapter 23:
Testimony of Sonny Popowsky, Consumer Advocate of Pennsylvania
Before the House Committee on Energy and Commerce,
Chapter 24:
Testimony of Steven L. Kline, Vice President, Corporate
Environmental and Federal Affairs, PG&E Corporation
Before the Subcommittee on Energy and Environment of the
House Energy and Commerce Committee, March 12, 2009 . . . . . . . . . . . . . . . . . . . . . . . . 451
Chapter 25:
Testimony of Michael Carey, President, Ohio Coal Association
Before the Subcommittee on Energy and Environment of
the House Energy and Commerce Committee, March 12, 2009 . . . . . . . . . . . . . . . . . . . . 461
Chapter 26:
Testimony of A. Denny Ellerman, Center for Energy and
Environmental Policy Research, Massachusetts Institute
of Technology, Before the Senate Committee on Energy
and Natural Resources, October 21, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467
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Chapter 27:
Testimony of Gilbert E. Metcalf, Professor of Economics,
Tufts University, Before the Senate Committee on Energy
Chapter 28:
Testimony of Karen Palmer, Darius Gaskins Senior Fellow,
Resources for the Future, Before the Senate Committee
on Energy and Natural Resources, October 21, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495
Chapter 29:
Testimony of Chad Stone, Chief Economist,
Center on Budget and Policy Priorities, Before the Senate
Committee on Energy and Natural Resources, October 21, 2009 .................. 505
Chapter 30:
Testimony of Ray Kopp, Senior Fellow and Director, Climate
Policy Program, Resources for the Future, Before the Senate
Committee on Energy and Natural Resources, December 2, 2009 . . . . . . . . . . . . . . . . . 519
Chapter 31:
Testimony of Ted Gayer, Brookings Institution,
Before the Senate Committee on Energy and
Natural Resources, December 2, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525
Chapter 32:
Testimony of Jonathan M. Banks, Climate Policy Coordinator,
Clean Air Task Force, Before the Senate Committee on
Energy and Natural Resources, December 2, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529
Chapter 33:
Resources from TheCapitol.Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539
Chapter 34:
Other Resources ........................................................................... 541
vi Copyright ©2010 by TheCapitol.Net. All Rights Reserved. 703-739-3790 www.thecapitol.net

Table of Contents
Introduction .................................................................................. xix
Chapter 1:
“Cap and Trade: Essentials,” U.S. Environmental Protection Agency . . . . . . . . . . . . . . . . . 1
Chapter 2:
“Cap and Trade: Multi-State NOx Programs,”
Chapter 3:
“Cap and Trade: Acid Rain Program Basics,”
Chapter 4:
“Annual Energy Outlook 2010 Early Release Overview December 2009,”
Energy Information Administration, U.S. Department of Energy . . . . . . . . . . . . . . . . . . . . . . . 7
Chapter 5:
“Annual Energy Outlook 2010 Reference Case,”
Energy Information Administration, U.S. Department of Energy . . . . . . . . . . . . . . . . . . . . . . 19
Chapter 6:
“The Role of Offsets in a Greenhouse Gas Emissions Cap-and-Trade
Program: Potential Benefits and Concerns,” by Jonathan L. Ramseur,
CRS Report for Congress RL34436, May 18, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Introduction
Offsets: An Overview
Offset Types and Examples
Biological Sequestration
Renewable Energy Projects
Energy Efficiency
Non-CO2 Emissions Reduction
Potential Benefits of Offsets
Cost-Effectiveness
Potential Co-Benefits
Potential Benefits to Developing Nations
Other Potential Domestic Benefits
Potential Concerns
Integrity Concerns
Additionality
Measurement
Double-Counting
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Permanence
Leakage
Delay of Technology Development
Transaction Costs
Concerns in Developing Nations
Considerations for Congress
Figure 1. Emission Allowance Price at Three Offset Scenarios Under Framework of S. 2191
Figure 2. CERs Issued to Data by Project Type (as of May 1, 2009)
Figure 3. 2012 Projections for CERs by Project Type (as of May 1, 2009)
Table 1. Comparison of Offset Treatment in GHG Emission Control Proposals
in the 111th Congress
Table 2. Comparison of Offset Treatment in GHG Emission Control Proposals
from the 110th Congress
Table 3. Comparison of Offset Treatment in GHG Emissions Reduction Initiatives in the U.S. States
Table 4. Comparison of Offset Treatment in International Emissions Trading Programs
Chapter 7:
“Potential Offset Supply in a Cap-and-Trade
Program,” by Jonathan L. Ramseur, CRS Report
for Congress RL34705, October 14, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Introduction
Factors Affecting Offset Supply
Mitigation Potential
Elements of Uncertainty
Estimates from Agriculture and Forestry Activities
Estimates from Other Activities
Policy Choices
Design of the Cap-and-Trade Program
Actions in Other Nations or U.S. States
Other Policy Influences
Economic Factors
Emission Allowance Price
Other Factors
Offset Use in a Cap-and-Trade Program
Figure 1. Illustration of Inputs and Variables That Affect Potential Offset Supply
Figure 2. Estimated Offset Use Under S. 2191 If International and
Domestic Offsets Limited to 15% of Allowance Submission
Figure 3. Estimated Offset Use Under S. 2191 If Domestic and International Offset Use Unlimited
Figure 4. Estimated Offset Use Under S. 2191 If Domestic Offset Use Unlimited
and International Offset Use Limited to 15%
Table 1. EPA and USDA Estimates of Mitigation Potential for Afforestation
and Soil Sequestration (in 2025)
Table 2. EPA Estimates of Mitigation Potential for Other Agriculture and Forestry Activities (in 2025)
Table 3. EPA Estimates of Mitigation Potential from Other Activities (in 2010)
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Chapter 8:
“Allowance Markets Assessment: A Closer Look at the Two Biggest
Price Changes in the Federal SO2 and NOX Allowance Markets,”
U.S. Environmental Protection Agency, April 23, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Chapter 9:
“Carbon Tax and Greenhouse Gas Control: Options and
Considerations for Congress,” by Jonathan L. Ramseur and
Larry Parker, CRS Report for Congress R40242, March 10, 2009 ................... 95
Introduction
Cost or Quantity Control: An Overview
Economic Theory vs. Uncertainty
A Stark Choice or a Policy Continuum?
A Flexible Emissions Cap
A Flexible Carbon Tax
Limits of the Policy Continuum
Potential Advantages of a Carbon Tax
Economic Efficiency
Basis for the Argument
Underpinnings of the Argument
Modeled Efficiency Gains
Economic Efficiency Versus Precaution
Price Stability
Tax Revenue Applications
Potential Implementation Advantages
Transparency
Administrative Issues
Policy Modification
Potential Disadvantages
Uncertain Emissions
Political Feasibility
What’s in a Name?
Support from Industry?
Support from Environmental Groups?
Consideration of International Efforts and Cooperation
Coordination with Existing International Efforts
Maximizing Participation
International Implementation Concerns
Implementation of a Carbon Tax
Point of Taxation
Where to Impose a Carbon Tax?
CO2 Emissions or All GHG Emissions?
Which Emissions Sources to Control?
Level of Taxation
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Tax Based on Estimates of Costs and Benefits
Tax Based on Meeting an Emissions Target
Tax Revenue Distribution
Estimates of Tax Revenues
Uses of Tax Revenues
Policy Considerations of Different Revenue Applications
Distributional Impacts
Conclusions
Figure 1. Illustration of Price Versus Quantity
Figure 2. Bridging the Gap between Price and Quantity Control
Figure 3. Illustrative Scenario with a Relatively Flat Marginal Benefits Curve
Figure 4. Illustrative Scenario with a Relatively Steep Marginal Benefits Curve
Figure 5. Illustrative Scenario with Marginal Costs and Marginal Benefits
That Are Higher Than Expected
Figure 6. “Phase 2” Emission Allowance Prices in the European Union’s
Emission Trading System
Figure 7. Illustration of Options for Points of Taxation within the Energy
Production-to-Consumption Chain
Figure 8. Emission Allowance Price Estimates under S. 2191
Figure 9. Relative Differences in Efficiency Costs between Different Applications of Tax
(or Auction) Revenues and No-Cost Allowance Distribution in a Cap-and-TradeProgram
Figure A-1. Illustration of Relationship between the Stock of CO2 in Atmosphere
and Annual CO2 Emissions
Table 1. CO2 Emissions Per Unit of Energy for Fossil Fuels
Table 2. Selected Sources of U.S. GHG Emissions and Potential Applications
of a Carbon Tax
Table 3. Estimates of Potential Tax Revenues from Carbon Tax Proposals
from the 110th Congress (in 2005 dollars)
Table 4. Distributional Effects of Carbon Tax with Different Applications
of Carbon Tax Revenues
Table A-1. Comparison of Estimated Carbon Tax-Related Price Impacts
to Fossil Fuels and Motor Gasoline from Selected Carbon Tax Rates
Appendix. Additional Information
Chapter 10:
“The Carbon Cycle: Implications for Climate Change
and Congress,” by Peter Folger, CRS Report for
Congress RL34059, February 18, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Introduction
Carbon Storage, Sources, and Sinks
Carbon Flux, or Exchange, with the Atmosphere
How Much Carbon Is Exchanged
How Fast Carbon Is Exchanged
Land Surface-Atmosphere Flux
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The “Missing Sink”
Ocean-Atmosphere Flux
Policy Implications
Figure 1. (a) Storage or Pools (GtC); and (b) Annual Flux or Exchange of Carbon
(GtC per year)
Table 1. Carbon Stocks in the Atmosphere, Ocean, and Land Surface,
and Annual Carbon Fluxes
Chapter 11:
“Measuring and Monitoring Carbon in the Agricultural
and Forestry Sectors,” by Ross W. Gorte and Renee Johnson,
CRS Report for Congress RS22964, August 6, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Purpose of Measuring Forest and Agricultural Carbon
Decisions Needed in Setting Measurement Requirements
Scale and Baseline
Periodicity
Verification
Measurement Techniques
On-Site Measurement
Indirect Measurement with Off-Site Tools
Estimation Using Process Models or Inferences
Appendix. Forestry and Agricultural Activities for Carbon Sequestration
and/or Emission Reduction
Chapter 12:
“Climate Change: The Role of the U.S. Agriculture
Sector and Congressional Action,” by Renee Johnson,
CRS Report for Congress RL33898, November 9, 2009 ............................. 183
Agricultural Emissions and Sinks
Source of National Estimates
Agricultural Emissions
Direct Emissions
Electricity-Related Emissions
Land Use and Forestry Emissions
Uncertainty Estimating Emissions
Potential for Additional Emission Reductions
Agricultural Carbon Sinks
Carbon Loss and Uptake
Agriculture-Based Sequestration
Other Land Use and Forestry Sequestration
Uncertainty Estimating Carbon Sinks
Potential for Additional Uptake
Enhancing Carbon Sinks
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Conservation Practices that Promote Mitigation
Federal Programs
Conservation Programs
Other Farm Programs
State Programs
Agriculture Conservation and Land Management Programs
State and Regional Climate Initiatives
Congressional Action
Energy and Climate Legislative Proposals
2008 Farm Bill Provisions
Figure 1. Agricultural GHG Emissions, Average 2003–2007
Figure 2. National Distribution of Anaerobic Digester Energy Production
Figure 3. Carbon Sequestration in Agricultural Soils
Figure 4. USDA Conservation Spending, FY2005
Table 1. Estimated Current GHG Emissions and Carbon Sequestration:
U.S. Agricultural and Forestry Activities, Average 2003–2007
Table 2. Carbon Sequestration Potential in the U.S. Agriculture Sector,
Alternative Scenarios and Payment Levels
Table 3. Conservation and Land Management Practices
Appendix. Primer on Agriculture’s Role in the Climate Change Debate
Chapter 13:
“Forest Carbon Markets: Potential and Drawbacks,”
by Ross W. Gorte and Jonathan L. Ramseur,
CRS Report for Congress RL34560, July 3, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Forest Carbon Markets
Compliance Offset Markets
Kyoto Protocol
European Union’s Emission Trading Scheme
Regional Initiatives in the United States
Mandatory U.S. State Requirements
Proposals in the 110th Congress
Voluntary Offset Markets
Retail Offsets
Chicago Climate Exchange
Reporting and Registry Programs
1605(b) Reporting Program
California Registry
The Climate Registry
USDA Guidelines
Forestry Projects for Offsets
Afforestation and Reforestation
Long-Term Wood Products
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Forest Management
Avoided Deforestation
Potential Drawbacks of Forestry-Related Projects
Additionality
Verifiability
Measurement
Monitoring
Enforcement
Leakage
Emissions Leakage
Product Leakage
Permanence
Forward Crediting
Figure 1. Trading Volume and Market Value of the Clean Development Mechanism (2005–2007)
Figure 2. Estimated U.S. GHG Mitigation Totals by Activity: Annualized Averages, 2010–2110
Chapter 14:
“Methane Capture: Options for Greenhouse Gas Emission Reduction,”
by Kelsi Bracmort, Jonathan L. Ramseur, James E. McCarthy,
Peter Folger, and Donald J. Marples, CRS Report for
Congress R40813, September 17, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
Introduction
Policy Options for Addressing Methane Capture
Market-Based Emission Control Programs
Carbon Offsets
Emission Performance Standards
Maintain Existing Programs/Incentives
Legislative Proposals Concerning Methane Capture
Methane: A Primer
Global Warming Potential
Sources of Methane
Domestic
International
Methane Use and Storage
Opportunities and Challenges for Methane Capture
Agriculture
Landfill Gas
Oil and Natural Gas
Coalbed Methane
Concerns Applicable to All Sources
Federal Support for Methane Capture
Methane-to-Markets Partnership
Voluntary Methane Programs
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Federal Energy Management Program
Tax Incentives
DOE Methane Hydrate Research and Development
Figure 1. 2007 U.S. Sources of Anthropogenic Methane Emissions
Figure 2. U.S. Underground Natural Gas Storage Facilities, Close of 2007
Table 1. Selected Sources of U.S. Methane Emissions and Potential Number
of Entities Subject to Emission Control Program
Table 2. Selected Legislation Proposed in the 111th Congress Relevant to Methane
Table 3. Top Five Methane-Emitting Countries in 2005
Table 4. U.S. Methane Emissions by Source
Chapter 15:
“Cars and Climate: What Can EPA Do to Control Greenhouse
Gases from Mobile Sources?” by James E. McCarthy,
CRS Report for Congress R40506, December 9, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Introduction
Option 1: Cap-and-Trade
Option 2: A Carbon (or GHG) Tax
Option 3: Regulation Under Existing Authority
The Entry Point: Massachusetts vs. EPA
The ANPR
The Obama Administration’s Approach
Going After Mobile Sources: Title II Authorities
New Motor Vehicles
Ships
Other Nonroad Engines
Aircraft
Fuels
Summary of Mobile Source and Fuel GHG Emissions
Figure 1. Motor Vehicle Greenhouse Gas Emissions
Table 1. Petitions for Regulation of Greenhouse Gas Emissions Under the Clean Air Act
Table 2. Motor Vehicle GHG Emissions, 2007, by Source Category
Table 3. Nonroad Sector CO2 Emissions, 2007, by Source Category
Table 4. Categories of Sources Whose GHG Emissions Could Be
Regulated Under Title II of the Clean Air Act
Chapter 16:
“Aviation and Climate Change,” by James E. McCarthy,
CRS Report for Congress R40090, August 4, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285
Introduction
Aircraft Emissions
Reducing Emissions: Non-Regulatory Factors
Fuel Cost
Air Traffic Control
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Regulating Aircraft Under the Clean Air Act
Proposed Legislation
International Developments
European Union
ICAO
Conclusion
Table 1. CO2 Emissions from U.S. Aviation, 1990–2007
Table 2. Greenhouse Gas Emissions from U.S. Transportation Sectors, 1990–2007
Chapter 17:
“Cap and Trade Programs for Air Emissions,” by Sam Napolitano, Clean Air
Markets Division, Office of Air and Radiation, U.S. Environmental Protection
Agency, Presentation for the Clean Air Conference, December 4, 2009 . . . . . . . . . . . 299
Chapter 18:
“Climate Change and the EU Emissions Trading
Scheme (ETS): Kyoto and Beyond,” by Larry Parker,
CRS Report for Congress RL34150, November 24, 2008 ........................... 321
Overview
National Allocation Plans and the ETS
Need for Further Emissions Reductions
Need to Adjust ETS Allocations
Issues Arising in Phase 2 NAPs for the ETS
Supplementarity
Auction Policy
New Entrant Reserves
Closure Policy
Benchmarking
Allocation and Energy Policy
Looking to Phase III
Eliminating NAPs
Expanding Coverage
Auctions
Summary and Considerations for U.S. Cap-and-Trade Proposals
Emission Inventories and Target Setting
Coverage
Allocation Schemes
Flexibility and Price Volatility
Figure 1. ECX CFI Futures Contracts: Price and Volume
Figure 2. EU-15 Greenhouse Gas Emissions and Projections for the Kyoto Period: 2008–2012
Table 1. ETS Annual Allocations for Phase 2: 2008–2012
Table 2. JI/CDM Limits for Phase 2: 2008–2012
Table 3. Value of Annual Allocation for New NGCC Powerplant
Table 4. Annual ETS Cap Figures for Proposed Phase 3
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Chapter 19:
“Climate Change: Potential Regulation of Stationary
Greenhouse Gas Sources Under the Clean Air Act,”
by Larry Parker and James E. McCarthy, CRS Report
for Congress R40585, December 10, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Introduction
The Entry Point: Massachusetts vs. EPA
The Advance Notice of Proposed Rulemaking (ANPR)
Potential Implications for Stationary Sources
Potential Paths for GHG Stationary Source Control
Path 1: Regulating GHG through National Ambient Air Quality Standards (NAAQS
Importance of NAAQS
NAAQS and Controlling GHGs
Path 2: Regulating GHGs through Section 112 as Hazardous Air Pollutants
Importance of Section 112
Section 112 and Controlling GHGs
Path 3: Regulating GHGs through Sections 111 as Designated Air Pollutants
Importance of Section 111
Controlling GHG through Section 111
Going Off the Beaten Path: Regulating under Section 115 or Title VI
Section 115: International Pollution
Title VI: Stratospheric Ozone Protection
Potential Control Approaches for Stationary Sources
Forcing Commercialization of Technology Through a Regulatory Requirement:
An Example from the SO2 New Source Performance Standards
Potential for Cap-and-Trade
Potential Under Section 111
Potential Under Other Sections
Implementation Issues
New Source Review
Issue of Case-by-Case BACT Determinations
Title V and the Size Threshold
Section 304: Citizen Suits
Conclusion
Figure 1. Number of FGD Units and Cumulative Gigawatt
(GW) Capacity of FGD Units: 1973–1996
Table 1. Selected U.S. Stationary Sources of Greenhouse Gases
Table 2. Simplified Requirements under Title I for Most Stationary Sources
Chapter 20:
Testimony of David L. Sokol, Chairman, MidAmerican Energy
Holdings Company Before the Subcommittee on Energy
and Environment, Committee on Energy and Commerce,
U.S. House of Representatives, June 9, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
xvi Copyright ©2010 by TheCapitol.Net. All Rights Reserved. 703-739-3790 www.thecapitol.net

Chapter 21:
Testimony of Dr. Richard Newell, Administrator, Energy Information
Administration, U.S. Department of Energy before the Committee
on Energy and Natural Resources, U.S. Senate, October 14, 2009 . . . . . . . . . . . . . . . . 407
Chapter 22:
Testimony of Robert Greenstein, Executive Director, Center on Budget
and Policy Priorities, House Committee on Energy and Commerce,
Chapter 23:
Testimony of Sonny Popowsky, Consumer Advocate of Pennsylvania
Before the House Committee on Energy and Commerce,
Chapter 24:
Testimony of Steven L. Kline, Vice President, Corporate
Environmental and Federal Affairs, PG&E Corporation
Before the Subcommittee on Energy and Environment of the
House Energy and Commerce Committee, March 12, 2009 . . . . . . . . . . . . . . . . . . . . . . . . 451
Chapter 25:
Testimony of Michael Carey, President, Ohio Coal Association
Before the Subcommittee on Energy and Environment of
the House Energy and Commerce Committee, March 12, 2009 . . . . . . . . . . . . . . . . . . . . 461
Chapter 26:
Testimony of A. Denny Ellerman, Center for Energy and
Environmental Policy Research, Massachusetts Institute
of Technology, Before the Senate Committee on Energy
Chapter 27:
Testimony of Gilbert E. Metcalf, Professor of Economics,
Tufts University, Before the Senate Committee on Energy
Chapter 28:
Testimony of Karen Palmer, Darius Gaskins Senior Fellow,
Resources for the Future, Before the Senate Committee
on Energy and Natural Resources, October 21, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495
Chapter 29:
Testimony of Chad Stone, Chief Economist,
Center on Budget and Policy Priorities, Before the Senate
Committee on Energy and Natural Resources, October 21, 2009 .................. 505
Copyright ©2010 by TheCapitol.Net. All Rights Reserved. 703-739-3790 www.thecapitol.net xvii

Chapter 30:
Testimony of Ray Kopp, Senior Fellow and Director, Climate
Policy Program, Resources for the Future, Before the Senate
Committee on Energy and Natural Resources, December 2, 2009 . . . . . . . . . . . . . . . . . 519
Chapter 31:
Testimony of Ted Gayer, Brookings Institution,
Before the Senate Committee on Energy and
Natural Resources, December 2, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525
Chapter 32:
Testimony of Jonathan M. Banks, Climate Policy Coordinator,
Clean Air Task Force, Before the Senate Committee on
Energy and Natural Resources, December 2, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529
Chapter 33:
Resources from TheCapitol.Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539
Capitol Learning Audio CoursesTM
Live Training
Chapter 34:
Other Resources ........................................................................... 541
Internet Resources
Think Tanks
Books
xviii Copyright ©2010 by TheCapitol.Net. All Rights Reserved. 703-739-3790 www.thecapitol.net

Introduction
Cap and Trade
The Kyoto Protocol, Greenhouse Gas (GHG) Emissions, Carbon Tax,
Emission Allowances, Acid Rain SO2 Program, Ozone Transport
Commission, NOX, Carbon Markets, and Climate Change
The Kyoto Protocol, set to expire in 2012, established binding reductions of greenhouse gas
(GHG) emissions for thirty-six countries. The United States was not a party to the treaty. Reducing
GHG emissions through cap-and-trade programs is generating widespread discussion, including
consideration by the U.S. Congress. Debate is ongoing as to cap and trade’s effectiveness, costs,
inequities, and questionable reductions in pollution, to name a few.
Cap and trade is a policy approach for controlling large amounts of emissions from a group of
sources. The approach sets an overall cap, or maximum amount of emissions per compliance
period, for all sources under the program. The cap is chosen in order to achieve a desired
environmental effect.
Authorizations to emit in the form of emission allowances are then allocated to affected sources,
and the total number of allowances cannot exceed the cap. Individual control requirements are
not specified for sources; instead, sources report all emissions and then surrender the equivalent
number of allowances at the end of the compliance period.
Allowance trading enables sources to design their own compliance strategy based on their
individual circumstances while still achieving the overall emissions reductions required by the cap.
A compliance option in a cap and trade program is an offset. An offset is a measurable reduction,
avoidance, or sequestration of GHG emissions from a source not covered by an emission reduction
program. If allowed, offset projects could generate "emission credits" which could be used by a
regulated entity to comply with its reduction requirement.
Examples of cap-and-trade programs in the United States include the Acid Rain SO2 Program
and the Ozone Transport Commission NOX SIP call, while in Europe the European Union Trading
System spreads across the bloc’s twenty-seven member nations.
Copyright ©2010 by TheCapitol.Net. All Rights Reserved. 703-739-3790 www.thecapitol.net xix

Chapter 1: Cap and Trade: Essentials
Cap and Trade:

Essentials
Cap and trade is an environmental policy tool that also accurately measure and report all emissions in a timely
delivers results with a mandatory cap on emissions manner to guarantee that the overall cap is achieved.
while providing emission sources flexibility in how they
comply. Successful cap and trade programs provide strict When Is Cap and Trade Effective?
environmental accountability without inhibiting In EPA’s experience, cap and trade programs have proven
economic growth, and reward innovation, efficiency, highly successful in the context for which they are best
and early action. suited: reducing emissions on a regional or larger scale
from multiple sources that exhibit a range of control
What Is Cap and Trade? costs. While achieving significant reductions on a
Cap and trade is a policy approach for controlling large regional scale, cap and trade programs can deliver
amounts of emissions from a group of sources. The substantial air quality improvements. As effective as these
approach first sets an overall cap, or maximum amount of programs are, however, they may not be the solution to
emissions per compliance period, for all sources under the every problem. For example, eliminating localized
program. The cap is chosen in order to achieve a desired concentrations of pollution is not their primary purpose.
environmental effect. Authorizations to emit in the form of The cap and trade approach is best used when:
emission allowances are then allocated to affected sources, • the environmental and/or public health concern
and the total number of allowances cannot exceed the occurs over a relatively large area;
cap. Individual control
requirements are not specified • a significant number of
sources are responsible for
for sources; instead, sources The remarkable efficiency the problem;
report all emissions and then
surrender the equivalent and reduced costs of a cap and trade • the cost of controls varies
number of allowances at the from source to source; and
end of the compliance period.
program should not overshadow the
• emissions can be
Allowance trading enables purpose of the cap – that is, consistently and
sources to design their own
compliance strategy based on to yield public health and accurately measured.
their individual circumstances
while still achieving the
environmental results. Under the right circumstances,
overall emissions reductions cap and trade programs have
required by the cap. Affected proven extremely effective,
units can tailor their compliance plans to each source. providing substantial emission reductions, complete
Compliance strategies in well-designed cap and trade accountability and unprecedented data quality and
programs require no prior approval, allowing sources to access. Existing cap and trade programs – the Acid Rain
respond quickly to market conditions and government Program and the NOx Budget Program – have the force
regulators to remain focused on results. Sources must of federal and state standards behind them, including
national health-based air quality standards. This ensures
Power Generation SO2 Emissions that local public health needs are met in conjunction with
With and Without the achievement of regional or national emission reductions.
30
Acid Rain Program
25
Guiding Principles for
Without
Acid Rain
Program
Program Design
20
Three features critical to designing and implementing
Millions of Tons
15 Allowable environmentally effective and economically efficient trading

Emissions
Actual
programs are 1) the cap on emissions, 2) accountability,
10 Emissions
and 3) simplicity of design and operation.
5
Cap on Emissions. The cap on emissions is the central
0
element of an effective and efficient cap and trade
1980
1984
1988
1992
1996
2000
2004
2008
program. A mandatory cap on emissions is critical to

SO2 emissions have been reduced dramatically under the Acid
protect public health and the environment and to sustain
Rain Program. Early reductions under the first phase of the that protection into the future. The cap also serves to
program were banked to provide a gradual transition into the provide stability and predictability to the allowance
more stringent second phase.
Source: www.epa.gov/airmarkets
trading market.
Copyright ©2010 by TheCapitol.Net. All Rights Reserved. 703-739-3790 www.thecapitol.net 1

Goverment Series: Cap and Trade
Accountability. The accurate measurement and reporting of emissions Continued Accountability

is essential, along with the rigorous and consistent enforcement of As the cap and trade mechanism is applied to new environmental
penalties for fraud or noncompliance. Also critical is transparency, problems, EPA is very cognizant of the importance of ongoing
such as public access to source-level emissions and allowance data. assessment to ensure that environmental and public health goals are met.
The coupling of stringent monitoring and reporting requirements The remarkable efficiency and reduced costs of a cap and trade
and the power of the Internet makes it possible for EPA to provide program should not overshadow the purpose of the cap – that is, to
access to complete, unrestricted data on yield public health and environmental
trading, emissions, and compliance. results. Whether the cap has been set at
This promotes public confidence in the
environmental integrity of the program
Allowance trading enables sources a level adequate to achieve the desired
public health and environmental protec-
and business confidence in the financial to design their own compliance tions is an issue that warrants study and
integrity of the allowance market. It also evaluation. The Acid Rain Program and
provides an additional level of scrutiny strategy based on their individual the NOx Budget programs have been
to verify enforcement and encourage
compliance. Finally, accountability requires
circumstances while still achieving highly effective in reducing emissions.
Though long-term environmental
ongoing evaluation of the cap and trade the overall emissions reductions monitoring has affirmed the programs’
program to ensure that it is making effectiveness, studies have shown that
progress toward achievement of its required by the cap. further reductions in emissions beyond
environmental goal. the current caps are necessary to protect
public health and the environment.
Simplicity. Rules should be clear and easily enforced. Markets EPA continues to closely monitor and publish results, and is
function better and transaction costs are lower when rules are pursuing additional analyses of localized impacts under cap and
simple and easily understood by all participants. Moreover, the trade programs in order to help inform ongoing evaluation and
environment is more likely to be protected when rules are clear and policy making.
consistently enforced. To the greatest extent possible, simplicity should
be applied to all elements of the program, including applicability For more information, see “Tools of the Trade: A Guide to Designing
thresholds (determining which sources are affected), trading rules, and Operating a Cap and Trade Program for Pollution Control”
reporting requirements and penalty assessments. Program operation http://www.epa.gov/airmarkets/international/tools.pdf
for both emission sources and regulating authorities is more certain,
more effective, and less costly and time-consuming if the rules are
not overly complex and burdensome.
A well-designed cap and trade program delivers:

• Greater environmental protection at lower cost
• Broad regional reductions, facilitating state efforts to
address local impacts
• Early reductions, a result of allowance banking and
market incentives
• Environmental integrity and transparent operations
and results
• Fewer administrative costs to government and industry
• Efficiency and innovation incentives
• Incentives for doing better and consequences
for doing worse
• Accounting for all emissions
• Partnership with existing requirements to ensure
protection of the local population and environment.
2 Copyright ©2010 by TheCapitol.Net. All Rights Reserved. 703-739-3790 www.thecapitol.net

AEO2010 Early Release Overview
Energy Trends to 2035 the alternative cases prepared for AEO2010, EIA has
In preparing the Annual Energy Outlook 2010 (AEO- examined many proposed policies at the request of
2010), the Energy Information Administration (EIA) Congress in 2009, and reports describing the results
evaluated a wide range of trends and issues that could of those analyses are available on EIA’s web site.2
have major implications for U.S. energy markets.
Key updates in the AEO2010 reference case include:
This overview focuses primarily on one case, the
AEO2010 reference case, which is presented and com- •This year, for the first time, a projection period
pared with the updated Annual Energy Outlook 2009 that extends through 2035
(updated AEO2009) reference case released in April
20091 (see Table 1). Because of the uncertainties in- •Revised handling of corporate average fuel econ-
omy (CAFE) standards to reflect the standards
herent in any energy market projection, particularly
proposed jointly by the U.S. Environmental Pro-
in periods of high price volatility, rapid market trans-
tection Agency (EPA) and the U.S. Department of
formation, or active changes in legislation, the refer- Transportation’s National Highway Traffic
ence case results should not be viewed in isolation. Safety Administration (NHTSA) for light-duty ve-
Readers are encouraged to review the alternative hicles (LDVs) in model years 2012 through 2016
cases when the complete AEO2010 publication is re-
leased in order to gain perspective on how variations •Updated projections of investment costs for many
in key assumptions can lead to different outlooks for categories of capital-intensive energy projects
energy markets.
•Recognition of changes in environmental rules at
To provide a basis against which alternative cases and both the Federal and State levels
policies can be compared, the AEO2010 reference
case generally assumes that current laws and regula-
•Implementation of a new lower 48 onshore oil and
natural gas supply submodule that improves
tions affecting the energy sector remain unchanged EIA’s ability to address issues related to changes
throughout the projection (including the implication and improvements in technology, access to land
that laws which include sunset dates do, in fact, be- for exploration and production, and legislative
come ineffective at the time of those sunset dates). policies
EIA considers this practice to be a prudent approach
to addressing the impact of legislation and regula- •Updated characterization of natural gas shale
tions. Currently, there are many pieces of legislation plays, reflecting the continued evolution of “shale
and regulation that appear to have a high probability gas” resources and extraction technologies.
of being enacted in the not-too-distant future, and
some laws include sunset provisions that may be ex- Economic Growth
tended; however, it is difficult to discern the exact •Real gross domestic product (GDP) grows by 2.5
forms that the final provisions of pending legislation percent per year from 2008 to 2030 in the AEO-
or regulations will take, and sunset provisions may or 2010 reference case (similar to the GDP growth
may not be extended. Even in situations where exist- rate in the updated AEO2009 reference case) and
ing legislation contains provisions to allow revision of by 2.4 percent per year from 2008 to 2035. The
implementing regulations, those provisions are not Nation’s population, labor force, and productivity
exercised consistently. grow at annual rates of 0.9 percent, 0.6 percent,
and 2.0 percent, respectively, from 2008 to 2035.
As in past AEO editions, the complete AEO2010 will
include many additional cases. The standard set of •Beyond 2011, the economic assumptions under-
cases in the complete AEO will be expanded to include lying the AEO2010 reference case reflect trend
additional cases that reflect the impact of extending a projections that do not include short-term fluctu-
variety of current energy programs beyond their cur- ations. The near-term scenario for economic
rent expiration or the permanent retention of a broad growth is consistent with that in EIA’s September
set of current programs that are currently subject 2009 Short-Term Energy Outlook.
to sunset provisions, among others. In addition to
1 The AEO2009 reference case, originally released in December 2008, was updated to reflect the provisions of the American
Recovery and Reinvestment Act (ARRA), enacted in mid-February 2009.
2 See “Responses to Congressional and Other Requests,” at www.eia.doe.gov/oiaf/service_rpts.htm.
2 Energy Information Administration / Annual Energy Outlook 2010

Chapter 4: Annual Energy Outlook 2010 Early Release Overview, December 2009
Energy Prices investment in exploration and drilling contribute

Crude Oil to additional non-OPEC oil production (Figure 2).
Also, with the economic viability of Canada’s oil
•World oil prices declined sharply from their
sands enhanced by higher world oil prices and ad-
mid-2008 peak in the latter half of 2008 but have
vances in production technology, production from
generally risen throughout 2009. Prices continue
oil sands reaches 4.5 million barrels per day in
to rise gradually in the reference case (Figure 1),
2035.
as the world economy rebounds and global de-
mand grows more rapidly than liquids supplies Liquid Products
from producers outside of the Organization of the •Real prices (in 2008 dollars) for motor gasoline
Petroleum Exporting Countries (OPEC). In 2035, and diesel in the AEO2010 reference case are
the average real price of crude oil in the reference $3.68 per gallon and $3.83 per gallon in 2030,
case is $133 per barrel in 2008 dollars, or about lower than in the updated AEO2009 reference
$224 per barrel in nominal dollars. Alternative case, largely due to the lower crude oil prices in
cases in the complete AEO2010 will address the the AEO2010 reference case. In 2035, real gaso-
impacts that higher and lower world crude oil line and diesel prices reach $3.91 per gallon and
prices have on U.S. energy markets. $4.11 per gallon. Diesel prices are higher than gas-
oline prices throughout the projection because of
•The AEO2010 reference case assumes that limita- stronger growth in demand for diesel than for mo-
tions on access to energy resources restrain the
growth of non-OPEC conventional liquids pro- tor gasoline.
duction between 2008 and 2035 and that OPEC •Retail prices for E85 (a blend of 70 to 85 percent
targets a relatively constant market share of ethanol and 30 to 15 percent gasoline by volume)
41 percent of total world liquids production. are projected to shift from a volumetric basis to an
energy-equivalent basis relative to motor gaso-
•Contributing to world oil price uncertainty is the line, in order to meet the renewable fuels standard
degree to which non-OPEC countries and coun-
tries outside the Organization for Economic Coop- (RFS) legislated in Public Law 110-140, the
eration and Development (OECD), such as Russia Energy Independence and Security Act of 2007
and Brazil, restrict economic access to potentially (EISA2007). In 2022, the retail price of gasoline is
productive resources. Other factors causing un- $3.41 per gallon while the price of E85 is $2.63 per
certainty include OPEC investment decisions, gallon, reflecting the higher energy content of gas-
which will affect future world oil prices and the oline versus E85 and delivering a similar cost for
economic viability of unconventional liquids. the two fuels per mile traveled.
Natural Gas
•The AEO2010 reference case also includes sig-
nificant long-term potential for supply from non- •The price of natural gas at the wellhead is lower
OPEC producers. In several resource-rich regions in the AEO2010 reference case than in the up-
(including Brazil, Russia, and Kazakhstan), high dated AEO2009 reference case due to a more rapid
oil prices, expanded infrastructure, and further
Figure 2. Change in conventional liquids
Figure 1. Energy prices, 1980-2035 (2008 dollars per production by top non-OPEC producers, 2008-2035
million Btu) (thousand barrels per day)
35 Russia
History Projections 2008 2035
30 Electricity
Brazil United States
25
Crude oil Kazakhstan
20 China
2035 2008
15 Mexico
10 Norway
Natural gas
Canada
5
United Kingdom
Coal
0
1980 1990 2000 2008 2015 2025 2035 0 2,500 5,000 7,500 10,000 12,500
Energy Information Administration / Annual Energy Outlook 2010 3

Table 1. Comparison of projections in the AEO2010 and Updated AEO2009 reference cases, 2008-2035
2020 2030 2035
Energy and economic factors 2008 AEO2010 AEO2009 AEO2010 AEO2009 AEO2010
Primary energy production (quadrillion Btu)
Petroleum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.08 15.51 15.01 15.68 18.00 15.87
Dry natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.14 20.54 20.13 23.00 23.67 23.92
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.86 23.71 24.56 24.68 25.42 25.19
Nuclear power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.46 9.26 9.14 9.29 9.29 9.41
Hydropower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.46 2.96 2.95 2.98 2.96 2.99
Biomass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.97 5.63 6.19 7.93 8.58 9.27
Other renewable energy. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.17 3.01 2.97 3.17 3.08 3.36
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.10 0.89 0.93 0.92 1.01 0.81
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74.23 81.51 81.88 87.63 92.02 90.83
Net imports (quadrillion Btu)
Petroleum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.06 20.83 20.35 21.23 17.90 21.30
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.04 2.66 1.92 1.91 0.42 1.53
Coal/other (- indicates export) . . . . . . . . . . . . . . . . . . . . . . -1.11 -0.37 0.11 0.08 0.47 0.53
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.99 23.11 22.37 23.22 18.78 23.36
Consumption (quadrillion Btu)
Liquid fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.35 39.36 38.67 41.08 40.30 42.02
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.91 23.27 22.13 25.01 24.15 25.56
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.41 23.01 24.36 24.25 25.42 25.11
Nuclear power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.46 9.26 9.14 9.29 9.29 9.41
Hydropower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.46 2.96 2.95 2.98 2.96 2.99
Biomass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10 3.93 4.28 5.19 5.60 5.83
Other renewable energy. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.17 3.01 2.97 3.17 3.08 3.36
Net electricity imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.24 0.20 0.18 0.20 0.16 0.22
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.09 105.00 104.67 111.18 110.96 114.51
Liquid fuels (million barrels per day)
Domestic crude oil production . . . . . . . . . . . . . . . . . . . . . . 4.96 6.13 5.79 6.20 7.14 6.27
Other domestic production . . . . . . . . . . . . . . . . . . . . . . . . . 3.38 4.58 4.58 5.26 5.35 5.73
Net imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.19 9.72 9.51 9.91 8.38 10.00
Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.53 20.56 20.05 21.48 20.92 22.06
Natural gas (trillion cubic feet)
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.62 20.04 19.65 22.44 23.09 23.34
Net imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.95 2.57 1.85 1.84 0.38 1.46
Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.25 22.63 21.53 24.33 23.50 24.86
Coal (million short tons)
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,172 1,183 1,223 1,260 1,272 1,285
Net imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49 -15 7 2 22 20
Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,122 1,183 1,240 1,276 1,305 1,319
Prices (2008 dollars)
Imported low-sulfur, light crude oil (dollars per barrel) . . . . 99.57 108.28 119.36 123.50 133.80 133.22
Imported crude oil (dollars per barrel) . . . . . . . . . . . . . . . . 92.61 98.14 117.02 111.49 127.09 121.37
Domestic natural gas at wellhead
(dollars per thousand cubic feet) . . . . . . . . . . . . . . . . . . . . 8.07 6.03 6.94 7.31 8.19 8.06
Domestic coal at minemouth (dollars per short ton). . . . . . 31.26 30.01 27.99 27.43 28.48 28.10
Average electricity price (cents per kilowatthour). . . . . . . . 9.8 9.0 9.5 9.7 10.3 10.2
Economic indicators
Real gross domestic product (billion 2000 dollars). . . . . . . 11,652 15,416 15,398 19,883 19,875 22,362
GDP chain-type price index (2000=1.000) . . . . . . . . . . . . . 1.225 1.497 1.521 1.849 1.896 2.059
Real disposable personal income (billion 2000 dollars) . . . 8,753 11,967 11,903 16,069 16,014 18,168
Value of manufacturing shipments (billion 2000 dollars) . . 4,014 5,006 5,019 5,680 5,631 6,010
Primary energy intensity
(thousand Btu per 2000 dollar of GDP) . . . . . . . . . . . . . . 8.59 6.81 6.80 5.59 5.58 5.12
Energy-related carbon dioxide emissions
(million metric tons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,814 5,852 5,905 6,176 6,207 6,320
Notes: Quantities reported in quadrillion Btu are derived from historical volumes and assumed thermal conversion factors. Other production
includes liquid hydrogen, methanol, and some inputs to refineries. Net imports of petroleum include crude oil, petroleum products, unfinished oils,
alcohols, ethers, and blending components. Other net imports include coal coke and electricity. Coal consumption includes waste coal consumed
in the electric power and industrial sectors, which is not included in coal production.
Sources: AEO2010 National Energy Modeling System, run AEO2010R.D111809A; and AEO2009 National Energy Modeling System, run
STIMULUS.D041409A.
12 Energy Information Administration / Annual Energy Outlook 2010

Chapter 5: Annual Energy Outlook 2010 Reference Case
Shale gas and Alaska production offset declines in supply to

meet consumption growth and lower import needs
trillion cubic feet

History Projections
25
Alaska
20 Shale gas
Coalbed methane
15
Non-associated onshore
10
Non-associated offshore
5
Associated with oil
Net imports
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 17
Growth in electricity use continues to slow
3-year rolling average percent growth Period Annual Growth

History 1950s 9.8
14 1960s 7.3
Stru 1970s 4.7
12 ctur
al C 1980s 2.9
han
ge i 1990s 2.4
10 n Eco
nom 2000-2008 0.9
y - Hi 2008-2035 1.0
8 ghe
r pric
es - St Projections
6 and
ard
s - Im
pro
4 ved
ef ficie
ncy
2
-2
1950 1960 1970 1980 1990 2000 2010 2020 2030

Natural gas and renewables account for the majority of

capacity additions from 2008 to 2035
2008 capacity Capacity additions
2008 to 2035
Hydropower* Hydropower*
99 (10%) 1 (0.4%)
Nuclear
Coal 8 (3%) Coal
Nuclear 312 (31%) 31 (12%)
101 (10%)
Other Other
renewables renewables 250
1,008 92 (37%) gigawatts
40 (4%)
gigawatts
Other Other
119 (12%) 2 (1%) Natural gas
116 (46%)
Natural gas
338 (33%)
* Includes pumped storage
Renewables gain electricity market share; coal share declines
billion kilowatthours and percent shares
6,000 History Projections
5,000
17.0
4,000 Renewable
9.1 20.8
Natural gas
21.4
3,000
2,000 48.5 Coal 43.8
1.5 Oil and other 1.4

1,000
19.6 Nuclear 17.1
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Chapter 5: Annual Energy Outlook 2010 Reference Case
Nonhydropower renewable sources meet 41% of total

electricity generation growth from 2008 to 2035
billion kilowatthours
600 History Projections
500
400
Biomass
300
200 Wind
100 Solar Geothermal
0 Waste
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Assuming no new policies, growth in energy-related CO2 is

driven by electricity and transportation fuel use
2008 2035 Buildings and

Electric Power Electric Power Industrial
Buildings and
2,359 (41%) 2,634 (42%) 1,571 (25%)
Industrial
1,530 (26%)
5,814 6,320
million metric million metric
tons tons
8.7% growth
0.3% per year
Transportation
1,925 (33%) Transportation
2,115 (33%)

Chapter 6: The Role of Offsets in a Greenhouse Gas Emissions Cap-and-Trade Program





Chapter 7: Potential Offset Supply in a Cap-and-Trade Program


Chapter 7: Potential Offset Supply in a Cap-and-Trade Program


Chapter 9: Carbon Tax and Greenhouse Gas Control
Carbon Tax and Greenhouse Gas Control:

Options and Considerations for Congress
Jonathan L. Ramseur
Analyst in Environmental Policy
Larry Parker
Specialist in Energy and Environmental Policy
March 10, 2009
Congressional Research Service

7-5700
www.crs.gov
R40242
CRS Report for Congress
Prepared for Members and Committees of Congress

Carbon Tax and Greenhouse Gas Control: Options and Considerations for Congress
Summary
Market-based mechanisms that limit greenhouse gas (GHG) emissions can be divided into two
types: quantity control (e.g., cap-and-trade) and price control (e.g., carbon tax or fee). To some
extent, a carbon tax and a cap-and-trade program would produce similar effects: Both are
estimated to increase the price of fossil fuels, which would ultimately be borne by consumers,
particularly households. Although there are multiple tools available to policymakers that could
control GHG emissions—including existing statutory authorities—this report focuses on a carbon
tax approach and how it compares to its more frequently discussed counterpart: cap-and-trade.
If policymakers had perfect information regarding the market, either a price (carbon tax) or
quantity control (cap-and-trade system) instrument could be designed to achieve the same
outcome. Because this market ideal does not exist, preference for a carbon tax or a cap-and-trade
program ultimately depends on which variable one wants to control—emissions or costs.
Although there are several design mechanisms that could blur the distinction, the gap between
price control and quantity control can never be completely overcome.
A carbon tax has several potential advantages. With a fixed price ceiling on emissions (or their
inputs—e.g., fossil fuels), a tax approach would not cause additional volatility in energy prices. A
set price would provide industry with better information to guide investment decisions: e.g.,
efficiency improvements, equipment upgrades. Economists often highlight a relative economic
efficiency advantage of a carbon tax, but this potential advantage rests on assumptions—about the
expected costs and benefits of climate change mitigation—that are uncertain and controversial.
Some contend that a carbon tax may provide implementation advantages: greater transparency,
reduced administrative burden, and relative ease of modification.
The primary disadvantage of a carbon tax is that it would yield uncertain emission control. Some
argue that the potential for irreversible climate change impacts necessitates the emissions
certainty that is only available with a quantity-based instrument (e.g., cap-and-trade). Although it
may present implementation challenges, policymakers could devise a tax program that allows
some short-term emission fluctuations, while progressing toward a long-term emission reduction
objective. Proponents argue that short-term emission fluctuations would be preferable to the price
volatility that might be expected with a cap-and-trade system.
Although a carbon tax could possibly face more political obstacles than a cap-and-trade program,
some of these obstacles may be based on misunderstandings of the differences between the two
approaches or on assumptions that the tax would be set too low to be effective. Carbon tax
proponents could possibly address these issues to some degree, but there remains considerable
political momentum for a cap-and-trade program.

Contents
Introduction ................................................................................................................................1
Cost or Quantity Control: An Overview.......................................................................................3
Economic Theory vs. Uncertainty .........................................................................................3
A Stark Choice or a Policy Continuum?.................................................................................5
A Flexible Emissions Cap ...............................................................................................5
A Flexible Carbon Tax ....................................................................................................6
Limits of the Policy Continuum.......................................................................................6
Potential Advantages of a Carbon Tax .........................................................................................7
Economic Efficiency.............................................................................................................7
Basis for the Argument....................................................................................................7
Underpinnings of the Argument..................................................................................... 10
Modeled Efficiency Gains ............................................................................................. 13
Economic Efficiency Versus Precaution......................................................................... 14
Price Stability ..................................................................................................................... 14
Tax Revenue Applications ................................................................................................... 15
Potential Implementation Advantages.................................................................................. 16
Transparency ................................................................................................................ 16
Administrative Issues .................................................................................................... 17
Policy Modification ...................................................................................................... 18
Potential Disadvantages ............................................................................................................ 18
Uncertain Emissions ........................................................................................................... 18
Political Feasibility ............................................................................................................. 19
What’s in a Name? ........................................................................................................ 20
Support from Industry? ................................................................................................. 21
Support from Environmental Groups? ........................................................................... 22
Consideration of International Efforts and Cooperation ....................................................... 22
Coordination with Existing International Efforts............................................................ 22
Maximizing Participation .............................................................................................. 23
International Implementation Concerns ......................................................................... 24
Implementation of a Carbon Tax ............................................................................................... 24
Point of Taxation................................................................................................................. 24
Where to Impose a Carbon Tax? ................................................................................... 25
CO2 Emissions or All GHG Emissions?......................................................................... 27
Which Emissions Sources to Control?........................................................................... 28
Level of Taxation ................................................................................................................ 32
Tax Based on Estimates of Costs and Benefits............................................................... 33
Tax Based on Meeting an Emissions Target ................................................................... 35
Tax Revenue Distribution.................................................................................................... 37
Estimates of Tax Revenues............................................................................................ 37
Uses of Tax Revenues ................................................................................................... 38
Policy Considerations of Different Revenue Applications .............................................. 40
Distributional Impacts................................................................................................... 41
Conclusions .............................................................................................................................. 44

Figures
Figure 1. Illustration of Price Versus Quantity .............................................................................4
Figure 2. Bridging the Gap between Price and Quantity Control ..................................................6
Figure 3. Illustrative Scenario with a Relatively Flat Marginal Benefits Curve.............................9
Figure 4. Illustrative Scenario with a Relatively Steep Marginal Benefits Curve ........................ 10
Figure 5. Illustrative Scenario with Marginal Costs and Marginal Benefits That Are
Higher Than Expected............................................................................................................ 13
Figure 6. “Phase 2” Emission Allowance Prices in the European Union’s Emission
Trading System ...................................................................................................................... 15
Figure 7. Illustration of Options for Points of Taxation within the Energy Production-to-
Consumption Chain ............................................................................................................... 25
Figure 8. Emission Allowance Price Estimates under S. 2191 .................................................... 36
Figure 9. Relative Differences in Efficiency Costs between Different Applications of Tax
(or Auction) Revenues and No-Cost Allowance Distribution in a Cap-and-Trade
Program................................................................................................................................. 41
Figure A-1. Illustration of Relationship between the Stock of CO2 in Atmosphere and
Annual CO2 Emissions........................................................................................................... 46
Tables
Table 1. CO2 Emissions Per Unit of Energy for Fossil Fuels ...................................................... 27
Table 2. Selected Sources of U.S. GHG Emissions and Potential Applications of a
Carbon Tax ............................................................................................................................ 31
Table 3. Estimates of Potential Tax Revenues from Carbon Tax Proposals from the 110th
Congress (in 2005 dollars)...................................................................................................... 38
Table 4. Distributional Effects of Carbon Tax with Different Applications of Carbon Tax
Revenues ............................................................................................................................... 42
Table A-1. Comparison of Estimated Carbon Tax-Related Price Impacts to Fossil Fuels
and Motor Gasoline from Selected Carbon Tax Rates ............................................................. 47
Appendixes
Appendix. Additional Information............................................................................................. 46
Contacts
Author Contact Information ...................................................................................................... 47

Introduction
A variety of efforts that seek to reduce greenhouse gas emissions (GHG)1 are currently under way
or being developed on the international, national, and sub-national level (e.g., individual state
actions or regional partnerships). One option (of many, see text box below—“Other Policy
Options for Addressing GHG Emissions”) for controlling GHG emissions is to apply a tax or fee
on GHG emissions or the inputs that create them. This type of approach is commonly called (and
referred to in this report as) a carbon tax,2 whether it would apply to CO2 emissions alone or to
multiple GHGs, including some that may have no molecular carbon.3 This report does not provide
a comprehensive comparison and analysis of the multiple policy tools available to Congress that
would address climate change. Instead, this report focuses on the policy considerations of using a
carbon tax to control GHG emissions.
Governments may impose taxes for a variety of purposes. The primary reason that governments
impose taxes is to raise revenue to fund various objectives or services: e.g., national defense,
public education, social security, etc. Generally, governments raise these revenue streams by
placing a tax on activities that are recognized as desirable (“economic goods”) such as income,
employment, and investment. While this tax placement ensures a relatively steady flow of
revenue (often the primary objective of the tax), economists generally describe such taxes as
distortionary, because the taxes discourage the “good” activity. For example, many economists
have argued that payroll and income taxes discourage employment and investment.4 If these taxes
were reduced, the incentives to increase labor and investment would be greater.
Economists maintain that levying a charge on pollution (sometimes referred to as a Pigouvian

tax)5 would be an efficient way to correct an inherent failure in a particular market. A basic
economics principle is that market prices may not reflect the social cost of resource use (e.g.,
fossil fuel combustion) when economic activities result in pollution (e.g., CO2 emissions). If
social costs are not included, the market price of the resources will not reflect their true costs. For
example, in terms of climate change policy, the price of using fossil fuels, particularly coal, does
not reflect the costs—i.e., climate change-related damages—associated with CO2 emissions.
1
The major GHGs discussed include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulfur hexafluoride
(SF6), hydrofluorocarbons (HFC), and perfluorocarbons (PFC). Recent GHG reduction proposals have also included
nitrogen trifluoride (NF3).
2
As discussed in this report, terminology is a key issue. Some proponents of the “carbon tax” approach describe the
policy instrument as a user fee or user charge. There are multiple reasons that proponents may seek to change the
nomenclature. Perhaps the primary concern is the political stigma associated with the word “tax.” Regardless, the term
“carbon tax” is the one that is most commonly associated with the GHG control policy instrument discussed in this
report.
3
Non-carbon GHGs could still be subject to the tax based on their contribution to global warming in relation to CO2.
Global warming potential (GWP) is an index of how much a GHG may contribute to global warming over a period of
time, typically 100 years. GWPs are used to compare gases to carbon dioxide, which has a GWP of 1. For example,
methane’s GWP is 25, and is thus 25 times more potent a GHG than CO2. The GWPs listed in this report are from:
Intergovernmental Panel on Climate Change, Climate Change 2007: The Physical Science Basis (2007), p. 212.
4
See e.g., Gilbert Metcalf, A Green Employment Tax Swap: Using a Carbon Tax to Finance Payroll Tax Relief (2007);
Nathaniel Keohane and Sheila Olmstead, Markets and the Environment (2007), Island Press; Ian Parry “Fiscal
Interactions and the Case for Carbon Taxes over Grandfathered Carbon Permits,” in Climate Change Policy (Dieter
Helm, editor), Oxford University Press (2005).
5
Named after A. Cecil Pigou, author of a landmark economic work, Economics of Welfare (1920).
Congressional Research Service 1

In economics parlance, the social cost not reflected in the market price is called an “externality.”
A pollution tax would internalize the external costs by making the party who profits from the
polluting activity include the external costs in the price of the good or service. Policymakers
could place a pollution tax on GHG emissions or the inputs that create them. By attaching a price
to GHG emissions, a carbon tax would stimulate GHG emission reduction. If the tax were placed
on emissions, entities directly subject to the tax, such as power plants, would have an incentive to
take actions—e.g., energy efficiency improvements or equipment upgrades—to lower tax
payments. If the tax were placed on emission inputs—e.g., fossil fuels—the price of carbon-
intensive energy sources, primarily coal, would increase relative to low-carbon fuels (Table A-1
of this report—located in the Appendix—includes estimates of price increases to fossil fuels and
motor gasoline based on different carbon tax rates). Energy consumers—e.g., power plants,
industry, households, etc.—would be encouraged to (1) switch to less carbon-intensive fuels; (2)
use less energy or use energy more efficiently; and (3) prefer products or services that are lower-
priced by virtue of incorporating less emission tax. Each of these activities would reduce GHG
emissions compared to a business-as-usual track.
These expected behavioral changes mirror the activities that are forecast for a potential cap-and-
trade program. Both a carbon tax and a cap-and-trade system would place a price on carbon. Both
a carbon tax and cap-and-trade system are intended (and expected) to increase the price of coal,
oil, and natural gas. Under either program, these price increases would ultimately be borne by
energy consumers, both businesses and households. These price increases are integral to a
market-based approach to GHG emission reduction, because they send more accurate information
to purchasers about the full cost of their choices.
This report begins with an overview of the fundamental choices involved between a cost (tax) and
a quantity (cap) control instrument. This includes a discussion of policy tools that could be
employed to bridge the gap between a carbon tax and a cap-and-trade program. Following this
overview, the report analyzes the potential advantages and disadvantages of a carbon tax. In many
cases, carbon tax attributes are compared with those of a cap-and-trade program. The next section
discusses implementation issues for a carbon tax, including where to apply the tax, at what level
to set the tax, and options for distributing tax revenues. The final section provides conclusions.
Other Policy Options for Addressing GHG Emissions

For policymakers considering actions to address climate change, a variety of policy instruments is available. Although
current attention has largely focused on market-based mechanisms, primarily cap-and-trade systems, non-market
policy tools may be the most practical option to address some emission sources. Moreover, Congress may consider
complementary approaches to market mechanisms to improve their effectiveness. In particular, many experts
maintain that the GHG emission targets specified in recent legislation would require development and deployment of
improved (low-carbon) technologies. To further this effort, some argue that Congress should address technology
stimulation directly or as a supplement to the primary climate change mitigation policy. In addition, Congress has
already addressed some specific sectors (cars and light trucks, and government buildings) through performance
standards. These standards may be further strengthened, independent of climate change legislation.
Efforts are under way to address GHG emissions using the existing Clean Air Act (CAA) statute. The Environmental
Protection Agency (EPA) has received at least eight petitions asking it to use its CAA authority to regulate GHG
emissions from multiple categories of mobile sources. The agency faces lawsuits seeking GHG regulations (per CAA
authority) from power plants, refineries, and other stationary sources. In 2007, the Supreme Court found
(Massachusetts v. EPA) that GHG emissions are air pollutants under the CAA, and that EPA has the authority to
promulgate GHG emission controls.
For more information, see CRS Report R40145, Clean Air Issues in the 111th Congress, by James E. McCarthy; and CRS
Report RL34513, Climate Change: Current Issues and Policy Tools, by Jane A. Leggett.

Cost or Quantity Control: An Overview

If policymakers choose to establish a market-based mechanism to control GHG emissions, a
fundamental decision would be whether to use a price instrument, such as a carbon tax, or a
quantity instrument, such as an emissions cap.6
Economic Theory vs. Uncertainty

In an economically efficient market with perfect information, either a price (carbon tax) or
quantity control instrument (cap-and-trade system) could be designed to achieve the same
outcome. 7 Figure 1 illustrates this basic economic principle. The intersection of marginal costs8
and marginal benefits9 would provide the point (of economic efficiency) at which to set the price
or quantity limit. At this point in the figure, the abatement costs10 equal benefits received from
abatement. Per economic theory, emission abatement above or below this point would not be
economically efficient. 11 The dashed lines indicate the efficient price (tax) and quantity (cap)
limits. This figure illustrates that (with perfect information) if either a tax or cap is selected, both
the emission abatement level and cost of abatement would be identical. For instance, if a cap were
chosen, covered sources (e.g., power plants) would abate emissions until they reach the cap of
Q*, at which point the marginal cost of abatement would equal P*. If a tax were chosen, sources
would abate emissions until the marginal cost of abatement reached the tax level (P*), at which
point the emission abatement level equals Q*. In either case, total abatement is Q*, and the total
cost of the program is the shaded area under the marginal abatement cost curve.
6
See also, CRS Report RL33799, Climate Change: Design Approaches for a Greenhouse Gas Reduction Program, by
Larry Parker; CRS Report RL34513, Climate Change: Current Issues and Policy Tools, by Jane A. Leggett.
7
See e.g., William Pizer, Prices vs. Quantities Revisited: The Case of Climate Change (1997), Resources for the Future
Discussion Paper 98-02.
8
The marginal cost curve indicates the cost of an additional unit (e.g., one ton of GHG emissions) of emission
abatement at different emission levels. A rising marginal cost curve (as depicted in Figure 1) signals that as each
incremental unit of GHG emission abatement is made, the cost of abatement (per unit) increases.
9
The marginal benefit curve indicates the benefit of an additional unit (e.g., one ton of GHG emissions) of emission
abatement at different emission levels. A declining benefit slope (as depicted in Figure 1) illustrates that with each
incremental unit of abatement, the per unit benefit decreases.
10
Abatement may include emission reductions, emissions avoided, and sequestration activities.
11
In other words, for abatement above this level, it would cost more than the value of the benefits received. Society
would be paying too much; money would be better spent for other purposes.

Climate Change: The Role of the U.S. Agriculture Sector
anaerobic digesters and methane projects; wind, solar, or other renewable energy use; and forest
restoration. Similar programs also have been initiated in Illinois (Illinois Conservation and
Climate Initiative), Indiana (Environmental Credit Corporation), and the Northwest (Upper
Columbia Resource Conservation and Development Council). Another, Terrapass, has among its
projects two large-scale dairy farms that use anaerobic digesters and methane capture for energy
production.69
These programs “aggregate” carbon credits across many farmers and landowners. These credits
may later be sold on the Chicago Climate Exchange.70 Farmer participation in such programs may
help offset farm costs to install emissions controls and/or practices that sequester carbon by
providing a means for them to earn and sell carbon credits.
Congressional Action
Energy and Climate Legislative Proposals

Congress is currently considering a range of energy and climate policy options. In general, the
current climate proposals would not require GHG emission reductions in the agriculture and
forestry sectors. However, if enacted, provisions in these bills could potentially raise farm input
costs for fossil fuels, fertilizers, energy, and other production inputs. These higher costs could
potentially be offset by possible farm revenue increases should farmers participate in carbon
offset and renewable energy provisions that are part of this legislation. For example, within cap-
and-trade proposals being debated in Congress are provisions that could provide tradeable
allowances to certain agricultural industries, and provisions that could establish a carbon offset
program for domestic farm- and land-based carbon storage activities. In addition, the renewable
energy provisions contained in these bills could potentially expand the market for farm-based
biofuels, biomass residues, and dedicated energy crops. These and related bills and issues are
currently being debated in Congress. More detailed information on these bills is provided in other
CRS Reports.
2008 Farm Bill Provisions

The omnibus 2008 farm bill (Food, Conservation, and Energy Act of 2008, P.L. 110-246)
included a new ecosystem services market provision that expanded the scope of existing farm and
forestry conservation programs in ways that could more broadly encompass certain aspects of
these climate change initiatives. The 2008 farm bill’s so-called environmental services market
provision seeks to facilitate the participation of farmers and landowners in environmental services
markets, focusing first on carbon storage .71 This provision was also intended to help address
69
For more information, see North Dakota Farmers Union at http://www.ndfu.org, Illinois Conservation and Climate
Initiative at http://www.illinoisclimate.org, Environmental Credit Corporation at http://www.envcc.com; and Terrapass
at http://www.terrapass.com/projects.
70
The Exchange is a voluntary, self-regulated, rules-based exchange. Its emission offset program constitutes a small
part of its overall program, which includes methane destruction, carbon sequestration, and renewable energy. See
http://www.chicagoclimatex.com/.
71
P.L. 110-246, Section 2709, included new language amending Section 1245(f) of the Food Security Act of 1985.
Ecosystem services refers to the environmental goods and services and other benefits that the society obtains from the
environment and ecosystems, both natural and managed. Examples include water filtration, flood control, provision of
(continued...)

Chapter 14: Methane Capture: Options for Greenhouse Gas Emission Reduction
Methane Capture: Options for Greenhouse Gas Emission Reduction
Appendix. World Methane Emissions by Sector in

2005
Source: Climate Analysis Indicators Tool (CAIT) Version 6.0 (Washington, DC: World Resources Institute, 2009).

Chapter 17: Cap and Trade Programs for Air Emissions
2010 Coal Controls for SO2 and NOX
Virtually all coal-fired units have

electrostatic precipitators, baghouses, or
other advanced controls for high levels of
particulate removal.
Source: Updated NEEDS and Data & 32

Maps, EPA, 2009
Installed and Planned Scrubbers since 1990
Coal Steam FGD Capacity, by Installation Year
25
20
15
GW
10
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: EPA
33

Coal Production by Type 1970-2007
1400
Anthracite Coal
1200
Lignite Coal
1000
Million Short Tons
800
Sub bituminous Coal
600
400
Bituminous Coal
200
0
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
34
Source: Energy Information Administration/Annual Energy Review 2008
Allowance Distribution
• Considerations: Equity, incentives, certainty, efficiency, revenue
impacts, price effects, profitability
– Allowance allocation should balance the need for certainty and changing
circumstances
• Experience: Generally allocation does not change the environmental
outcome. (The emission caps and option for “banking” of allowances
over time drive the environmental performance). Allowance allocation
can substantially influence compliance expenses by individual firms
and the total distributional effects of a program.
• Approach: Many options, none are perfect
– Direct allocation to sources based on historical and/or current emissions,
energy use (input), or production (output, e.g. electric generation), with the
option of set-asides within the cap for certain sources and/or actions (new
sources, renewables, demand side efficiency)
– Auction
– Hybrid
– Auction phase-in following allocation
35

Chapter 20: Testimony of David L. Sokol
Testimony of David L. Sokol
Chairman, MidAmerican Energy Holdings Company
Subcommittee on Energy and Environment, Committee on Energy and Commerce
U.S. House of Representatives
June 9, 2009
Thank you, Mr. Chairman. I am David Sokol, Chairman of MidAmerican Energy
Holdings Company, which has $41 billion in energy assets in 20 states and around the world
serving 7 million end-use customers. Our two domestic utilities serve retail electric and natural
gas customers in ten states, and our generation capacity mix consists of about 22% renewables
(of which about half is wind), 48% coal, 24% natural gas, and the rest nuclear and other assets.
I. Caps, Not Trading
I want to be absolutely clear at the outset: Cap-and-trade is two concepts. The electricity
sector can meet the Waxman-Markey interim and ultimate caps of reducing greenhouse gas
emissions to 80% below 2005 levels by 2050, but the bill’s trading mechanism will impose a
huge and unacceptable double cost on customers: first to pay for emission allowances, which
will not reduce greenhouse gas emissions by one ounce, and then for the construction of new
low- and zero-carbon power plants and other actions that will actually do the job of reducing
these emissions. This bill will cost hundreds of billions of dollars, and we think it is wrong to
saddle customers with these unnecessary and duplicative costs that provide them with absolutely
no benefits. We should work instead on an alternative mechanism that empowers state regulators
to work with their utilities to comply with the emission caps but without the trading.

$77$&+0(17
MEC CO2 Emissions Projection
30,000,000
Cost of Compliance Transfer of Wealth Combined Cycle Plants 140%
$3.6 Billion @ $25/Ton $9.3 Billion @ $25/Ton 7 Units = $5.3 Billion (09$)
130%
25,000,000
120%
Load Growth Mitigation
Renewables and Energy Efficiency 110%
Gas Unit CO2 Emissions

20,000,000 100%
Coal Unit CO2 Emissions
Allocated Allowances 90%
ons)
% of Baseline
80%
WaxmanMarkey
15,000,000
70%
e ofBaselineEmissions
60%
CO2 Emissions(To
10,000,000 50%
Percentage
40%
30%
5,000,000
20%
10%
0 0%
Copyright ©2010 by TheCapitol.Net. All Rights Reserved. 703-739-3790 www.thecapitol.net

1
2005
2008
2011
2012
2013
2014
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2017
2018
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397
Chapter 20: Testimony of David L. Sokol
398

PacifiCorp CO2 Emissions Projection
60,000,000
Cost of Compliance
p Load Growth Mitigation
g 110%
$0.1 Billion @ $25/Ton Renewables and Energy Efficiency
100%
Gas Unit CO2 Emissions
50,000,000
Transfer of Wealth Coal Unit CO2 Emissions
Allocated Allowances 90%
$23 5 Billion @ $25/Ton
$23.5
% of Baseline
WaxmanMarkey 80%
40,000,000
70%
ns)
Combined Cycle Plants
Percentage
12 Units = $9.1 Billion (09$)

60%
30,000,000
50%
CO2 EEmissions(Ton
40%
20,000,000
e ofBaselineEmissions
30%
Copyright ©2010 by TheCapitol.Net. All Rights Reserved. 703-739-3790 www.thecapitol.net

10,000,000 20%
10%
0 0%
2005
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Chapter 22: Testimony of Robert Greenstein
820 First Street NE, Suite 510

Washington, DC 20002
Tel: 202-408-1080
Fax: 202-408-1056
center@cbpp.org
www.cbpp.org
Testimony of Robert Greenstein,

Exe cuti v e Di re ct or , C ent e r on Budge t and Policy Priorities
H o us e C o m m i t t e e o n E n e rg y a n d C o m m e r c e
S ub c o m m i t t e e o n E n e r g y a n d E n vi r o n m e n t
March 12, 2009
Thank you for the opportunity to testify today. The main message of my testimony is that climate
change legislation can fight global warming effectively while protecting consumers if it is designed
appropriately. Here is the issue in a nutshell.
Fighting global warming requires policies that significantly restrict greenhouse gas emissions. The
most cost-effective ways to do that are to tax emissions directly or to put in place a “cap-and-trade”
system. Either one will significantly raise the price of fossil-fuel energy products — from home
energy and gasoline to food and other goods and services with significant energy inputs. Those
higher prices create incentives for energy efficiency and the development and increased use of clean
energy sources. But they will also put a squeeze on consumers’ budgets, and low- and moderate-
income consumers will feel the squeeze most acutely.
Fortunately, climate change policies can be designed in a way that preserves the incentives from
higher prices to change the way that we produce and consume energy, while also offsetting the
effect on consumer budgets of those higher prices. Well-designed climate policies will generate
substantial revenue that can be used to offset the impact of higher prices on the budgets of the most
vulnerable households, to cushion the impact substantially for many other households, and to meet
other legitimate needs such as expanded research on alternative energy sources.
To capture this revenue in a cap-and-trade system, it is essential that most or all of the allowances
or permits used to limit emissions be auctioned for public purposes rather than given away free to
emitters. Giving away, or “grandfathering,” allowances is sometimes portrayed as a way to keep
down costs for consumers, but that argument does not stand up to scrutiny. Rather, if allowances
are given away free to firms that are responsible for emissions, the firms and their shareholders will
reap unwarranted benefits. As CBO has explained, these firms would receive “windfall profits:”
they would be able to charge higher prices for their products due to the effects of the emissions cap
but would not have to pay for their emissions allowances. Ordinary consumers would get no help in
dealing with the strain that the higher prices put on their budgets. Greg Mankiw, former chair of the
Council of Economic Advisers for President George W. Bush, has written in a similar vein that
consumer prices will rise regardless of whether allowances are given free to emitters and that
grandfathering the allowances would constitute “corporate welfare.” There is little disagreement
among economists about this effect.

Chapter 23: Testimony of Sonny Popowsky
BEFORE THE
UNITED STATES HOUSE OF REPRESENTATIVES
COMMITTEE ON ENERGY AND COMMERCE
SUBCOMMITTEE ON ENERGY AND ENVIRONMENT
Testimony of
SONNY POPOWSKY
CONSUMER ADVOCATE
OF PENNSYLVANIA
Regarding
Consumer Protection Policies for Climate Legislation
Washington, DC
March 12, 2009
PA Office of Consumer Advocate National Association of State

555 Walnut Street Utility Consumer Advocates
Forum Place, 5th Floor 8380 Colesville Road, Suite 101
Harrisburg, PA 17101-1923 Silver Spring, MD 20910
(717) 783-5048 – Office (301) 589-6313 - Office
(717) 783-7152 – Fax (301) 589-6380 - Fax
E-mail: spopowsky@paoca.org E-mail: nasuca@nasuca.org
109826

SUMMARY OF TESTIMONY
The National Association of State Utility Consumer Advocates (NASUCA) supports the
enactment of federal legislation to reduce greenhouse gases on an economy-wide basis. It is
NASUCA’s position, however, that any greenhouse gas emission reduction program for the
electric industry “should provide appropriate emission reductions while minimizing the cost to
consumers, and must not produce windfall gains for electric generators at the expense of electric
consumers.”
The primary focus of the Congressional debate has been on the development of a cap and
trade program for carbon dioxide emissions. This focus is understandable, given the great
success of the cap and trade program for sulfur dioxide emissions under the Clean Air Act of
1990. Congress must recognize, however, that the electric industry of 2009 is far different from
the electric industry of 1990, particularly in those states that have restructured, or deregulated,
the generation function of our electric utilities.
Under the 1990 Clean Air Act, allowances were initially allocated free of charge to utility
generators, and the benefits of those free allowances were effectively passed through to
customers through their cost-based rates in states across the Nation. The same result will not
occur today, particularly in “restructured” states where electric generation rates are no longer
based on the actual cost of service, but rather are based on unregulated wholesale market prices.
If allowances are given for free to carbon-emitting generators in deregulated markets, those
generators will nevertheless include the market value (or opportunity cost) of the allowances in
the prices that they bid into the market, and consumers will pay the market value of these
allowances in generation prices, even though they cost the generator nothing. Moreover, under
the “single market clearing price” method that is used to establish generation prices in
restructured markets, if the market clearing price reflects the cost (or market value) of an
emission allowance, this price will be paid to all generators that are operating in that hour,
including nuclear units that do not need to purchase allowances and do not incur any carbon
compliance costs. As a result of these factors, consumers could pay many billions of dollars in
increased generation prices with only modest reductions in actual carbon dioxide emissions.
To the extent that allowances are to be given at no cost to any segment of the utility
industry, those allowances must not be given to unregulated generators, but to regulated local
distribution companies, which should include state-regulated investor-owned utilities as well as
rural cooperatives, and municipal and other publicly owned companies. The benefits of those
free allowances must be flowed back to consumers through such means as customer rebates,
energy efficiency programs, and low-income energy assistance. A similar result can be
achieved if allowances are distributed to the states, as in the Regional Greenhouse Gas Initiative,
and the states then auction the allowances to generators with the proceeds of those auctions
utilized for the benefit of that state’s consumers. Alternatively, the allowances can be auctioned
directly to generators by the federal government, but it is important that proceeds from such an

Chapter 25: Testimony of Michael Carey


Chapter 28: Testimony of Karen Palmer
Hearing on
Costs and Benefits for Consumers and Energy Price Effects

Associated with the Allocation of Greenhouse Gas Emissions
Allowances
WRITTEN TESTIMONY OF KAREN PALMER

Darius Gaskins Senior Fellow, Resources for the Future, Washington, DC
Prepared for the U.S. Senate Committee on Energy and Natural Resources
October 21, 2009
Summary of Testimony
This testimony focuses on the effects of different methods of allocating carbon dioxide (CO2)
allowances on the price of electricity paid by consumers and the cost of a cap-and-trade program.
The traditional approach of allocating emissions allowances to electricity generators will result in
regional disparities in the electricity price effects of a climate policy, in part because of different
regulatory frameworks across states. In those states where prices are set by regulators, the price
of electricity will not reflect the value of emissions allowances that the utility obtained free of
charge. However, in regions with deregulated generation markets, the value of emissions
allowances used to produce electricity will be reflected in the electricity price even if they were
received for free. Two ways to reduce this disparity are to auction a greater share of allowances
or to allocate allowances to local distribution companies instead of to generators. As regulated
entities, local distribution companies are expected to pass the value of the free allocation on to
their customers, thus reducing the impact of a cap-and-trade policy on electricity consumers.
However, this approach is likely to result in higher allowance prices and thus could ultimately
leave households worse off than they would be if more allowances were auctioned. Greater
reliance on a cap-and-dividend approach, under which a portion of the value of emission
allowances is distributed to households on a per capita basis, could improve the delivery of
compensation to households and lower the overall cost of the policy.

Hearing on
Costs and Benefits for Consumers and Energy Price Effects

Associated with the Allocation of Greenhouse Gas Emission
Allowances
WRITTEN TESTIMONY OF KAREN PALMER

Mr. Chairman, thank you for the opportunity to testify before the Senate Committee on Energy
and Natural Resources. My name is Karen Palmer, and I am a senior fellow at Resources for
the Future (RFF), a 57-year-old research institution based in Washington, DC, that focuses on
energy, environmental, and natural resource issues. RFF is independent and nonpartisan, and
shares the results of its economic and policy analyses with environmental and business
advocates, academics, government agencies and legislative staff, members of the press, and
interested citizens. RFF neither lobbies nor takes positions on specific legislative or regulatory
proposals. I emphasize that the views I present today are my own.
From both scholarly and practical perspectives, I have studied the performance of emissions cap-
and-trade programs, including evaluation of the sulfur dioxide (SO2) emissions allowance trading
program created by the 1990 Clean Air Act Amendments. I have conducted analysis and
modeling to support both state and regional efforts to design trading programs, including the
Regional Greenhouse Gas Initiative in the Northeast and the California carbon dioxide (CO2)
cap-and-trade program under AB32. Currently I serve on the New York State RGGI Advisory
Committee, advising the New York State Energy Research and Development Authority on how
to use the RGGI allowance auction revenue, and on the New York State Independent System
Operator Environmental Advisory Council. Additionally, I serve on the EPA Science Advisory
Board’s Environmental Economics Advisory Council. Recently, with colleagues at RFF, I have
conducted economic analysis of mechanisms to contain the costs and the variability of costs of
implementing climate policy.
**************
Today I will focus on the effects of different methods of allocating CO2 allowances on the price
of electricity paid by consumers and the cost of a cap-and-trade program. The electricity sector is
responsible for 40 percent of U.S. CO2 emissions, but, according to the recent EIA analysis of
the Waxman Markey cap-and-trade bill, it will be responsible for over 80 percent of total
domestic CO2 emissions reductions from energy use during the early years of the program.
I want to highlight four main points about cap and trade and allowance allocation within the
electricity sector:
x The traditional approach of allocating emissions allowances to electricity generators will
result in regional disparities in the electricity price effects of a climate policy, in part
because of different regulatory frameworks across the states.

Purchased Offsets
2,000
1,800
EIA Waxman-
1,600 Markey
CATF Waxman-
1,400 Markey/Sectoral
1,200
1,000
MMTCO2e
800
600
400
200
Figure 6. From CATF modeling of sectoral policies and EIA modeling of HR 2454
What modeling does not show is the complexity (both political and technological) of
creating and enacting any climate policy, including a sectoral-based approach. For
sectoral, some of this complexity could be managed by passing multiple pieces of
legislation or sectoral titles. This would allow for fine-tuning of the program, and could
provide a more adaptable policy framework over the long haul. This would also narrow
the number of key stakeholders to a more manageable set of groups that need to come to
the table on each piece of the policy.
Currently many in the power and industrial sector have publicly stated that they do not
want a sectoral climate policy. What exactly drives this, we do not know with certainty.
It could be the fear of potentially being the only industry regulated. It may also be simply
that economy wide policy is the devil we know. It has been the subject of the legislative
process for the last 8 years. Industry and members of Congress have engaged and have
staked out positions and voiced their concerns. Of course, the launch pad for the last
eight years was actually a sectoral approach known as the Clean Smokestacks Act.
What you and your colleagues have to decide is whether the concerns expressed
regarding the current proposals in the Senate are best dealt with through further
refinement of the overall economy wide proposal, or in the end whether it will be
necessary to look to policy alternatives. Regardless of the answer to that question, the
imperative to take the first step forward on climate remains. I would be happy to answer
any questions you might have.
For more information and additional charts, please visit our website:
www.catf.us/advocacy/legal/
10

Chapter 33: Resources from TheCapitol.Net
Resources from TheCapitol.Net

Capitol Learning Audio Courses™
<www.CapitolLearning.com>
• The Appropriations Process in a Nutshell

ISBN: 1587330431
• Authorizations and Appropriations in a Nutshell

ISBN: 1587330296
Live Training
<www.CapitolHillTraining.com>
• Understanding Congressional Budgeting and Appropriations

<www.CongressionalBudgeting.com>
• Advanced Federal Budget Process

<www.BudgetProcess.com>
• The President's Budget

<www.PresidentsBudget.com>
• Capitol Hill Workshop

<www.CapitolHillWorkshop.com>
• The Defense Budget

<www.TheDefenseBudget.com>

Chapter 34: Other Resources
Other Resources
Internet Resources
• U.S. EPA, Cap and Trade
<www.epa.gov/captrade/>
• Cap and Trade101
<www.epa.gov/captrade/captrade-101.html>
• Cap and Trade Markets
<www.epa.gov/capandtrade/allowance-trading.html>
• EPA Clean Air Markets

<www.epa.gov/airmarkets/>
• Allowance Trading Basics
<www.epa.gov/airmarkets/trading/basics.html>
• Buying Allowances
<www.epa.gov/airmarkets/trading/buying.html>
• What Is the System for Keeping Track of Allowances?
<www.epa.gov/airmarkets/trading/factsheet.html#whatis>
• Allocations
<www.epa.gov/airmarkets/trading/allocations.html>
• Annual Auction
<www.epa.gov/airmarkets/trading/auction.html>
• Types of Trading (pdf)
<www.epa.gov/capandtrade/documents/tradingtypes.pdf>
• NOx Trading Programs
<www.epa.gov/airmarkets/progsregs/nox/index.html>
• Environmental Defense Fund, “The Cap and Trade Success Story”

<www.edf.org/page.cfm?tagID=1085>
• Council on Foreign Relations, Interview, Chandler: More Flexibility

Needed for Effective Emissions Cap-and-Trade Policy, Sept. 20, 2007
<http://www.cfr.org/publication/14203/>
• Council on Foreign Relations, Backgrounder, “The Debate over

Greenhouse Gas Cap-and-Trade, by Toni Johnson, July 7, 2009
<http://www.cfr.org/publication/14231/debate_over_greenhouse_gas_capandtrade.html>
• Carbon Trade Watch, “Carbon Trading – How it Works and Why It Fails”, November 24, 2009
<http://www.carbontradewatch.org/>
• Democracy Now!, “Cap & Trade: A Critical Look at Carbon Trading,” December 15, 2009
<http://www.democracynow.org/2009/12/15/cap_trade_a_critical_look_at>

• Carbon Trade Watch, Fact Sheet 1, “Cap and Trade” December 2009 (pdf)
<http://www.thecornerhouse.org.uk/pdf/document/fact1captrade.pdf>
• Carbon Trade Watch, Fact Sheet 2, “Carbon Offsets” December 2009 (pdf)
<http://www.thecornerhouse.org.uk/pdf/document/fact2offsets.pdf>
• Carbon Trading: A Critical Conversation on Climate Change, Privatisation and Power by

Larry Lohmann (editor) published by Dag Hammarskjold Foundation, Durban Group for
Climate Justice and The Corner House first published September 2006 ISSN 0345-2328 (pdf)
<http://www.dhf.uu.se/pdffiler/DD2006_48_carbon_trading/carbon_trading_web.pdf>
• SinksWatch, “Carbon Trading 101”

<http://www.sinkswatch.org/>
• “Carbon Trading: How it works and why it fails,” Dag Hammarskjold Foundation Occasional
Paper Series, no. 7 November 2009, Tamra Gilbertson and Oscar Reyes ISSN 1654-4250 (pdf)
<http://www.dhf.uu.se/pdffiler/cc7/cc7_web.pdf>
• Annie Leonard presents The Story of Cap & Trade

<http://www.storyofstuff.com/>
• Cap and Trade www.taxfoundation.org

<http://www.youtube.com/watch?v=Si-htSSHxsE>
• Cap and Trade 101: A Climate Policy Primer,

July 2009 Federal Policy Edition, Sightline Institute
<http://www.sightline.org/research/energy/res_pubs/>
• The Cap and Trade Success Story, Environmental Defense Fund

<http://www.edf.org/page.cfm?tagID=1085>
• We Need a Well-Designed Cap-and-Trade program to Fight Global Warming,

Rachel Cleetus, UCS climate economist, Union of Concerned Scientists
<http://www.ucsusa.org/global_warming/solutions/
big_picture_solutions/cap-andtrade.html>
• Household Cap-and-Trade Burden Calculator, Tax Foundation

<http://www.taxfoundation.org/capandtrade>
Think Tanks
• “Discounting and Climate Change Economics: Estimating the Cost of Cap and Trade,”
by David Kreutzer, Ph.D., The Heritage Foundation
<http://www.heritage.org/Research/EnergyandEnvironment/wm2705.cfm>
• “The “Kyoto II” Climate Change Treaty: Implications for American Sovereignty,”
by Steven Groves, The Heritage Foundation
<http://www.heritage.org/Research/EnergyandEnvironment/sr0072.cfm>

Chapter 34: Other Resources
• “The Climate of Belief: American Public Opinion on Climate Change,”

by Barry Rabe and Christopher P. Borick, The Brookings Institution
<http://www.heritage.org/Research/EnergyandEnvironment/sr0072.cfm>
• “The EPA Tackles Greenhouse Gas,” by Ted Gayer, The Brookings Institution
<http://www.brookings.edu/opinions/2009/1228_greenhouse_gas_gayer.aspx>
• “More on “Negative Costs” of Reducing Greenhouse Gases,”

by Ted Gayer, The Brookings Institution
<http://www.brookings.edu/opinions/2009/1230_negative_costs_gayer.aspx>
• “All Cost, No Gain,” by Ted Gayer, The Brookings Institution

<http://www.brookings.edu/opinions/2009/0706_capandtrade_gayer.aspx>
• “Offsets Chipping Away at the Cap,” by Ted Gayer, The Brookings Institution
<http://www.brookings.edu/opinions/2009/0623_offsets_gayer.aspx>
• “Equity and Efficiency in Cap-and-Trade: Effectively Managing the

Emissions Allowance Supply,” by Adele Morris, The Brookings Institution
<http://www.brookings.edu/papers/2009/
10_cap_and_trade_emissions_allowance_morris.aspx>
• “Designing a Cap-and-Trade System for the United States,” an Energy Security

Initiative Event, November 4, 2009 at the Brookings Institution (full event audio)
<http://www.brookings.edu/events/2009/1104_cap_and_trade.aspx>
• “Cost Containment for Cap-and-Trade: Designing Effective Compliance

Flexibility Mechanisms,” by Bryan K. Mignone, The Brookings Institution
<http://www.brookings.edu/papers/2009/
09_cap_and_trade_cost_containment_mignone.aspx>
• “Prices in Emissions Permit Markets: The Role of Investor Foresight

and Capital Durability,” by Bryan K. Mignone, The Brookings Institution
<http://www.brookings.edu/papers/2008/11_carbon_market_mignone.aspx>
• “The Intractable Flaws of Cap-and-Trade Scheme,” by Kenneth P. Green,

American Enterprise Institute For Public Policy Research
<http://www.aei.org/article/100590>
• “When the Cap isn’t a Cap, the Trades Are a Charade,” by Kenneth P. Green,
American Enterprise Institute For Public Policy Research
• “The Cap-and-Trade Bait and Switch,” by David Schoenbrod

and Richard B. Stewart, American Enterprise Institute For Public Policy Research

Books
• “Carbon Markets An International Business Guide,” by Arnaud Brohé, Nick Eyre and
Nicholas Howarth with a Foreward by Nicholas Stern, (Earthscan 2009), ISBN: 9781844077274
• Leveling the Carbon Playing Field: International Competition and US Climate Policy
Design,” by Trevor Houser, Rob Bradley, Britt Childs, Jacob Werksman, and Robert Heilmayr,
(The Peter G. Peterson Institute for International Economics and the World Resources
Institute 2008), ISBN: 978-0-88132-420-4
• Carbon Finance: The Financial Implications of Climate Change, by Sonia Labatt and Rodney
R. White, (John Wiley & Sons, Inc. 2007), ISBN-13: 978-0-471-794677; ISBN-10: 0-471-79467-8
• Emissions Trading: Principles and Practice, by Professor T.H. Tietenberg,

(Resources for the Future 2006), ISBN: 1-933115-30-0 ISBN: 1-9331115-31-9
• International Trade and Climate Change: Economic, Legal, and Institutional Perspectives,
(Environment and Development Series) by The World Bank, (The International Bank for
Reconstruction and Development/The World Bank 2008), ISBN: 978-0-8213-7225-8
• Voluntary Carbon Markets: An International Business Guide to What They Are and How
They Work, (Environmental Markets Insight Series), second edition, by Ricardo Bayon,
Amanda Hawn, and Katherine Hamilton, editors, (Earthscan 2009), ISBN: 978-1-84407-561-4
• Carbon Tax and Cap-and-Trade Tools: Market-Based Approaches for Controlling Greenhouse
Gases (Climate Change and Its Causes, Effects and Prediction), Nelson E. Burney, editor,
(Nova Science Pub., Inc., January, 2010), ISBN-10: 1608761371 ISBN-13: 978-1608761371
• The Skeptical Environmentalist: Measuring the Real State of the World,

by Bjorn Lomborg, ISBN 10: 0521010683
• Cool It: The Skeptical Environmentalist's Guide to Global Warming,

by Bjorn Lomborg, ISBN 10: 030738652X
• Unstoppable Global Warming: Every 1,500 Years, Updated and Expanded Edition,
by Fred Singer, ISBN 10: 0742551245
• A Primer on CO2 and Climate, 2nd Edition, by Howard C. Hayden, ISBN 10: 0971484562

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Cap and Trade:

15 Allowable environmentally effective and economically efficient trading

program. A mandatory cap on emissions is critical to

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Accountability. The accurate measurement and reporting of emissions Continued Accountability

A well-designed cap and trade program delivers:

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AEO2010 Early Release Overview

2 Energy Information Administration / Annual Energy Outlook 2010

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AEO2010 Early Release Overview

Energy Prices investment in exploration and drilling contribute

Energy Information Administration / Annual Energy Outlook 2010 3

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AEO2010 Early Release Overview

12 Energy Information Administration / Annual Energy Outlook 2010

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Shale gas and Alaska production offset declines in supply to

trillion cubic feet

Growth in electricity use continues to slow

3-year rolling average percent growth Period Annual Growth

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Natural gas and renewables account for the majority of

Renewables gain electricity market share; coal share declines

billion kilowatthours and percent shares

6,000 History Projections

2,000 48.5 Coal 43.8

1.5 Oil and other 1.4

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Nonhydropower renewable sources meet 41% of total

100 Solar Geothermal

Assuming no new policies, growth in energy-related CO2 is

2008 2035 Buildings and

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