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"Cap and Trade is Not Enough: Improving U.S. Climate Policy"

Constantine Samaras, Jay Apt, InÍs L. Azevedo, Lester B. Lave, M. Granger Morgan and Edward S. Rubin

SUMMARY: A market-based mechanism (e.g. cap and trade or a carbon tax) is likely to be a key part of America's strategy to reduce carbon dioxide (CO2) emissions. We need to do this soon so that a framework for emissions reductions is established. However, for at least the next decade, a market-based approach alone will not induce the investments in long-lived technology needed to put the nation on a track to achieve a 50 to 80% reduction in emissions of carbon dioxide by mid-century. The range of prices for CO2 being discussed will be too low to make this happen.

In addition to instituting a cap and trade regime, Congress should simultaneously design, integrate and implement these targeted strategies:
1. For electric power:

  • A tradable carbon emission portfolio standard (CPS) that gradually
    reduces the average amount of CO2 emitted per kW-hour for the electricity that companies sell to end users;
  • Promotion of strategies that separate utility profit from the amount
    of electricity it sells so that utilities can earn profit from increasing energy efficiency;

2. For buildings and appliances

  • Higher and more inclusive efficiency standards for building design
    and construction, appliances, equipment, and lighting;
  • Federal incentives to induce localities to adopt building codes that
    lower the annual energy use in new buildings by at least 50% compared to conventional buildings;

3. For automobiles

  • Efficiency standards that at least double miles per gallon of
    automobiles and light trucks over current vehicles (CAFE);
  • Reduce the number of miles driven with road pricing,
    pay-as-you-drive insurance, and by encouraging transportation alternatives.

On the pages that follow we explain why we recommend each of these targeted strategies, and suggest how they might be implemented.

In the rush to reduce CO2 emissions, and improve energy efficiency, there is a risk that inefficient, but well-intentioned policies may mandate technologies that cost dramatically more than more efficient routes to the same goals. Both Congress and the Executive Branch need to support careful, but rapid, engineering-economic analysis that can be performed in 90 days before undertaking any specific mandates. Such analysis can be performed more rapidly than most legislative and executive processes, and should not be an excuse for delaying action.