SOLAR TODAY - June 2009

For certain, economy-wide emissions reductions,
ASES urges Congress to adopt an
upstream cap-and-auction system immediately.
By DAVID G. HILL, PH.D.

ASES recommends the federal government establish an upstream cap-and-auction system to regulate carbon in fossil fuels at the points where they enter the economy. As described in Denis Hayes’ January/February SOLAR TODAY article, “Under a cap-and-auction system, it will be illegal to sell a unit of any fossil fuel in the United States unless the seller possesses a permit for the amount of carbon it contains.” Permits can be traded, banked, bought and sold, encouraging least-cost compliance — but each unit of fossil fuel that is sold must have a permit. In this regard, cap-and-auction is similar to cap-and-trade mechanisms. The important distinction is that in a cap-and-auction system, all of the allocations are auctioned to upstream sources of carbon rather than allocated to existing emitters.

ASES recommends that 100 percent of the carbon emission allowances be auctioned rather than allocated to polluters. This is a critical difference compared with the U.S. acid rain and the European greenhouse gas cap-and-trade systems, which allocated emissions allowances to existing sources. Directly allocating emissions credits to existing sources without requiring an auction payment provides windfall profits to existing emission sources. Auctioning allowances provides an important source of revenue that can be invested in efficiency and renewable energy. This revenue can also help reduce costs for carbon reductions or address other national economic and policy objectives.

The annual cap reductions for the cap-and-auction system should average 3.3 percent annually from 2010 to 2030. To ease the transition, the cap could be set at a 1 percent reduction in the first year, and increase over time to meet the targets. If the 111th Congress fails to act quickly to implement this system, the president should direct the Environmental Protection Agency to implement a system with the following features:

• Economy-Wide. Rather than addressing

only the largest emitters or specific sectors (for example, electric generation), national policy should include all sectors and emissions. Eventually, the cap-and-auction system should address all greenhouse gases, although — to ensure a rapid start — phased development may be necessary, starting with carbon in 2010.

• Upstream (requiring permits where carbon enters the economy). The most effective method for ensuring that carbon regulation is economy-wide is to establish control points at the roughly 2,000 points (coal mines, natural gas and oil wells, import terminals and so on) where carbon enters the economy. This is much less burdensome than trying to regulate the millions of sources of emissions (ranging from large power plants to individual households and vehicles).

• Hard Cap. The ultimate measure of success for national carbon legislation is the absolute reduction in emissions. Many factors, including weather, economic activity and structural changes in the economy, are driving factors — but adjustments to the absolute caps, to reflect changes in these factors or to account for other carbon offsets, only serve to undermine progress.

• Long- Term and Deep Reductions. Carbon legislation needs to begin making immediate progress toward a low-carbon economy in which total emissions by midcentury are 60 percent to 80 percent below current levels. A clear schedule that includes initial ramp-up, interim targets and sustained orderly progress will help markets adjust and plan for the necessary reductions.

• Revenue-Generating. Over time, auctioning 100 percent of the carbon permits for each year will generate significant revenues. These can support energy efficiency and renewable energy (thus lowering costs of reaching targets), provide transition support for industries and states that are disadvantaged by the shift away from carbon-based energy, and

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SOLAR TODAY
JUNE 2009
VOL. 23, No. 5

David Hill is a managing consultant at Vermont Energy Investment Corp. (veic.org), a national energy-efficiency and renewable energy organization with headquarters in Burlington, Vt., and additional offices in New Jersey and Massachusetts. Hill is the American Solar Energy Society’s Policy Committee chair and a member of the ASES Board. Contact him at dhill@veic.org.

ASES Presents
Recommendations
for 111th Congress

The American Solar Energy

Society (ASES) has established a comprehensive set of federal policy recommendations to generate 37 million U.S. jobs in renewable energy and energy efficiency by 2030 — while reducing greenhouse gas emissions 80 percent by 2050 (compared to 2006 levels). ASES assembled leading experts in renewable energy and energy efficiency to develop these recommendations for speeding the transition to a sustainable energy economy.

The report, “ASES’ Policy Recommendations for the 111th Congress,” builds on ASES members’ earlier research regarding strategies for mitigating climate change (“Tackling Climate Change” report) and a green economy (“Green-Collar Jobs” report). Together these documents provide a road map for promoting energy efficiency and renewable energy as economic drivers, while addressing the need to dramatically reduce greenhouse gas emissions. Access the reports at ases.org.