U.S. legislation benefits from EU lessons
The greenhouse gas cap-and-trade legislation being considered in the United States incorporates important lessons learned from the European Union. These lessons can help reduce the economic burden on consumers and businesses while producing real emissions reductions
The biggest lesson coming from the EU's Emission Trading System is that you need reliable emissions baseline data to determine and allocate allowances. Fortunately, the United States has that data from many sectors. For example, the electricity sector has submitted emissions data to the EPA since 1993, and the EPA recently finalized greenhouse gas reporting regulations which will collect additional emissions information.
With this information in hand, we can avoid problems seen in Europe, which began collecting data as it was imposing the emissions cap and issuing the allowances. It was this lack of information which resulted in an artificially high emissions baseline and an over-allocation of allowances. The U.S. is able to set a well-documented baseline to ensure real reductions.
The U.S. legislation also works to avoid carbon price volatility and the "windfall profits" seen in Europe in the initial years. Most U.S. utilities are regulated by state utility commissions that will allow the utilities only to recover the costs of compliance, not make a profit. For utilities operating in states with competitive markets, appropriate requirements on the use of allowances to benefit consumers is included in the legislation.
Finally, a U.S. program allowing allowances to be banked for the full term of the program would ensure that companies can use their allowances when it best meets their compliance requirements. That was missing in Europe.
There is still important work to be done on the U.S. legislation to ensure protections for consumers. However, a cap-and-trade approach with no-cost allowances for utilities and others is the most practical approach. A balanced allocation program based on actual emissions data would avoid the outcomes experienced in the EU, ensure electricity reliability and protect consumers.
Posted by: infuse | November 15, 2009 12:48 PM
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