Energy Market and Economic Impacts of a Proposal to Reduce Greenhouse Gas Intensity with a Cap and Trade System

摘要

This report responds to a request from Senators Bingaman, Landrieu, Murkowski, Specter, Salazar, and Lugar for an analysis of a proposal that would regulate emissions of greenhouse gases (GHGs) through a national allowance cap-and-trade system. Under this proposal, suppliers of fossil fuel and other covered sources of GHGs would be required to submit government-issued allowances based on the emissions of their respective products. The gases covered in this analysis of the proposal include energy-related carbon dioxide, methane from coal mining, nitrous oxide from nitric acid and adipic acid production, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. The program would establish annual emissions caps based on targeted reductions in greenhouse gas intensity, defined as emissions per dollar of Gross Domestic Product (GDP). The targeted reduction in GHG intensity would be 2.6 percent annually between 2012 and 2021, then increase to 3.0 percent per year beginning in 2022. To limit its potential cost, the program includes a safety-valve provision that allows regulated entities to pay a pre-established emissions fee in lieu of submitting an allowance. The safety-valve price is initially set at $7 (in nominal dollars) per metric ton of carbon dioxide equivalent (MMTCO2e) in 2012 and increases each year by 5 percent over the projected rate of inflation, as measured by the projected increase in the implicit GDP price deflator. In 2004 dollars, the safety valve rises from $5.89 in 2012 to $14.18 in 2030.