Dr. Daniel Fine of NMCEP on Cap and Trade

I found these Q & A on Cap and Trade to shed new light on the policy and politics behind the highly debated issue of cap and trade. I encourage everyone to take a look…::::::::

The questions below concern the discussion by Panel 2: “Renewable Energy and Crisis, Cost and Carbon.” Each question was submitted by attendees of the 2009 Energy Conference.

Q: Do you favor a Carbon Tax or carbon Cap & Trade? Since carbon Cap & Trade is fertile ground for abuse and a huge bureaucracy to support it, how would it be imposed? Europe imposed Cap & Trade and it was rife with fraud and failed.

A: I favor carbon Cap & Trade with the condition that offsets are provided. This allows investment in low or no-carbon emissions projects, e.g., reforestation and landfill methane mitigation. If an oil company invests in such ventures and they are effective in offsetting its carbon emissions from extraction or refining, then there is clearly a business outcome and an avoidance of GHG status quo output.  A second condition is that the Federal government establish regulatory reform that would limit speculation and manipulation of the price of carbon dioxide. Senator Bingaman has moved in this direction with provisions for government intervention as a seller of credit or allowances if price volatility occurs and threatens the sustainability of trading. Dr. Daniel Fine, NMCEP Research Associate at New Mexico Tech

Q: What are the advantages to Carbon Credit buyers? Are they allowed to emit more GHG if they buy more credits? How does that regulate GHG and what happens when everyone regulates their emissions leaving no carbon credit buyers? Won’t operational costs rise?
A: Cap & Trade assumes a phased-in lower Cap over time which compels more credit buyers to buy.  Operational costs are theoretically anticipated to fall as the choice of new abatement technologies replace the need to buy credits for existing emissions.  In short, lower emission technologies equal lower operational costs under amortization schedules and carbon credit buying decreases. Dr. Daniel Fine, NMCEP Research Associate

Recently, Rep Mike Conaway intimated in an article in the Midland-Reporter (Permian Basin Oil Report- Sunday – April 12, 2009 –  page 4F). He stated that the “Cap and Trade system is mentioned that could be very negative for Texas” He went on to say that higher electricity costs could cost individual families (an average family) $3100 a year. Where will the average family come up with the cash to do this? And if that is true for Texas, what would be the case for NM?

A: The number of $3100 per family per year as a cost of cap & trade depends on the auction or free distribution to the utility industry of carbon credits.  Following the conference, the utility would be given free 35% of the total of emissions (cap).  This is pending action by the U.S. Senate.  It, alone, reduces the $3100 cost significantly. Dr. Daniel Fine, NMCEP Research Associate at New Mexico Tech

Q: Can Cap & Trade be structured so that tracking and accountability required of Cap & Trade does NOT suck all the benefits out of developing new energy systems? Explain how.

A: Yes. Tracking and accountability would require the EPA and possibly the EIA  (Energy Information Agency of the Department of Energy) to develop these capabilities.  In addition, I recommend a SEC role to monitor the “trade” in Cap & Trade.  New energy systems must attract capital in competition with conventional energy systems plus government tax and direct subsidy support.  Some of the government revenue stream from a sale of allowances and credits, whatever the amount, can be allocated to new energy systems support. Dr. Daniel Fine, NMCEP Research Associate at New Mexico Tech

For more q&A from the New Mexico Center for Energy Policy go to–>http://nmcep.nmt.edu/index.php/2009-Energy-Conference/2009-conference-q-a-group-2.html