UNIT 6 DB PT 2

Looking at the research you have done so far on the cap-and-trade assignment, create 3-5 bullet points around the data you have found and argument you are thinking of making. You may also include any visualizations you either created or found on the topic.

In response to your peers, what do you think about the bullet points presented? Is there additional and connected data you would think about using?

5/27/2024
ACTION: Supporting a Cap-and-Trade System for Carbon Emissions
MEMORANDUM FOR THE SECRETARY (OR THE DEPUTY SECRETARY)
FROM:
Component Head Name Title (if not on the letterhead)
SUBJECT:
Emissions
Recommendation on Supporting a Cap-and-Trade System for Carbon
Purpose
This memorandum recommends that the Secretary of State support a carbon trading
mechanism limiting the amount of carbon emitted. This decision is crucial and instrumental in
shaping policies on the issue and the international community’s commitment to implementing the
system to curb climate change. It will also lay down plans on how to approach the issue of the
environment and its impact on the US’s position concerning climate issues around the world. The
decision entails thoroughly analyzing the environmental, economic, and political implications. It
considers the economic and societal impact of balancing emission reduction and development.
Background or Context
Cap-and-trade is an economic mechanism adopted to decrease the emission of gases that
cause the greenhouse effect. This has a permit limit on pollution and allows individuals to trade the
permits for the set pollution amount. Firms are forced to limit their emission levels to offset the
cost of compliance or gain revenue from the sale of extra allowances. In general, systems that allow
cap-and-trade use have been previously applied on the regional level. The most extensive cap-andtrade programs are situated in several nations. This includes The European Union Emissions
Trading System (EU ETS), established in 2005. The primary system in the United States is the
Regional Greenhouse Gas Initiative (RGGI), which works in the northeastern region. California has
PRE-DECISIONAL/DELIBERATIVE
an extensive cap and trade system, which is, however, connected with Quebec. These examples
afford optimism by providing a framework of possible advantages. Some laws that have promoted
the use and implementation of cap-and-trade in the US include the Clean Air Act, which permits
controlling greenhouse gases. Paris Agreement yet again sheds light on prudent climate change
mitigation techniques as the intended nationally determined contributions call for emission
reduction plans that involve signatory nations setting and achieving climate goals. This decision
involves several actors, each of whom stands to benefit in their specific ways. Non-governmental
organizations in environmental conservation mainly endorse cap-and-trade schemes because they
can lead to effective and acceptable emission reduction. The response from business and industry
groups is somewhat divided, with some supporting the aims related to market flexibility as foreseen
in the IAS 39.
In contrast, others express worry over the costs of implementing these standards. As with
just about everything else, political opinions are also polarized and, more often than not, can be
seen as aligned with either the left-leaning or the right-leaning political spectrum. The following
are some pertinent reasons why adopting the approach can bring more progress.
1. Environmental impact: Capping and trading reduced emissions from the sectors under the
scheme to a level 35% below that of 2005 by 2019. This decrease portrays the level of
efficiency of the system in reducing emission levels to the atmosphere.
2. Economic efficiency: Using cap-and-trade systems is generally cheaper as a portfolio for
reducing emissions than command and control measures. Among the available
instruments, this approach is easily seen regarding efficacy, costs, and encouragement of
clean technology. This cost-effectiveness is vital in preventing instability and increases in
economic costs.
PRE-DECISIONAL/DELIBERATIVE
3. Innovation incentives: The RGGI has resulted in $4 billion in additional economic
benefits, increased clean energy and energy efficiency investments, and technological
advancement, thus creating job opportunities.
4. Market flexibility: The options provide businesses with the tools for comprehensive longterm planning to achieve emission reductions. This minimizes the cost of compliance and
encourages investments in cleaner ways. This is because the cap-and-trade program was
launched to provide California with the structure necessary to achieve its climate change
goals at a manageable cost.
5. Revenue generation: One of the most important benefits of using cap-and-trade systems is
the ability to get a substantial amount of money from the sale of allowances. California’s
program has raised over $12 billion to support numerous climate initiatives to improve
public health and pull through infrastructural development. This revenue has also been
distributed across various sectors. The following chart shows the revenue distribution for
each industry (Statista, 2024).
PRE-DECISIONAL/DELIBERATIVE
6. Political feasibility: Cap-and-trade systems can easily enjoy bipartisan support because
they establish regulatory controls linked to market instruments. This can suit the
environment/preservation-leaning thinkers and those who favor market principles and
systems.
7. Global leadership: A commitment to the cap-and-trade system would also strengthen the
US commitment to international climate targets, improve its role in climate change
agreements, and encourage more countries to become involved.
8. Public health benefits: Regulatory measures such as cap-and-trade systems can have
emission reduction goals. This has positive effects on public health, including reduced
cases of respiratory ailments and deaths. This has been observed in regions with active
programs, like California.
Recommendation
It is recommended that the Secretary of State endorse implementing a cap-and-trade
system for carbon emissions in the United States. This endorsement aligns with several strategic
objectives:
1. Environmental stewardship: The cap-and-trade mechanism helps decrease emissions,
contributes to global climate action and goals, and commits itself to sustaining the
environment.
2. Economic viability: That way, with the costs of reductions, the system focuses on
supporting environmental and economic interests.
3. Innovation and competitiveness: Promoting the development of clean technologies
promotes advancement in American industry in the global green economy.
PRE-DECISIONAL/DELIBERATIVE
4. Revenue for climate initiatives: Revenue, in turn, can subsidize significant climate and
public health programs that positively impact people’s lives.
5. Bipartisan appeal: Using principles of cap-and-trade policy is more market-based and can
be more effective at gaining supporters across bi-partisan lines.
Endorsing the cap-and-trade program will show what kind of leadership the United States
is willing to take within its borders and worldwide. It will also give a solid base for effecting key
measurable emission reduction goals without affecting the economy’s growth.
Approve/date__________________________ Disapprove/date______________________
Modify/date ________________________ Needs discussion/date____________________
PRE-DECISIONAL/DELIBERATIVE
CLASSMATE 1
Hello everyone,
based on the research conducted on the cap-and-trade system for the last assignment, several
compelling arguments and data points highlight the benefits and considerations of implementing such a
system:
•
Environmental Effectiveness: Cap-and-trade systems have a proven track record in reducing
greenhouse gas emissions. For example, the European Union Emissions Trading System (EU
ETS) has successfully reduced emissions by approximately 35% since its inception in 2005
(European Commission, 2022). This significant reduction illustrates the system’s capacity to drive
substantial environmental improvements by limiting emissions and allowing market mechanisms
to identify the most cost-effective reduction strategies. I have also attached a diagram (Figure 1)
illustrating the emission reductions achieved under the EU Emissions Trading Scheme. This
demonstrates the system’s ability to achieve significant environmental benefits.
• Economic Benefits: The implementation of cap-and-trade systems can generate substantial
economic advantages. California’s cap-and-trade program, established in 2012, has raised over
$9 billion, which has been reinvested in clean energy projects and other climate initiatives,
stimulating economic growth and job creation (California Air Resources Board, 2021). This
substantial revenue generation showcases how cap-and-trade can be a powerful tool for reducing
emissions and funding initiatives that further bolster the state’s economy and environmental
health. These investments help create green jobs and support sustainable development.
• Innovation and Flexibility: Cap-and-trade systems incentivize companies to innovate and find
the most cost-effective methods to reduce emissions. This has led to technological
advancements such as carbon capture and storage (CCS), with investments in CCS increasing
by 40% since 2015 (International Emissions Trading Association, 2023). The flexibility offered by
cap-and-trade systems allows businesses to choose the best strategies for compliance, fostering
a competitive environment where innovation thrives. These technological advancements are
crucial for achieving deep decarbonization and maintaining economic competitiveness in a lowcarbon future.
• Global Adoption and Leadership: Many countries adopt cap-and-trade systems, indicating a
global consensus on their effectiveness. China’s national cap-and-trade program, launched in
2021, is expected to become the world’s largest carbon market, covering over 4 billion metric tons
of CO2 emissions annually (World Bank, 2021). Similarly, Canada and several other nations have
implemented or are developing cap-and-trade systems, reflecting a growing international trend
towards this market-based approach to emissions reduction. By adopting a cap-and-trade
system, the United States can enhance its leadership role in global climate policy, ensure a level
playing field for international businesses, and contribute significantly to global efforts to mitigate
climate change.
• Potential Risks and Mitigation: One notable risk of cap-and-trade systems is market volatility,
which can lead to fluctuations in allowance prices and economic uncertainty for businesses. The
early years of the EU ETS experienced significant price volatility, raising concerns about market
stability and the predictability of compliance costs for companies. Implementing robust regulatory
measures such as price floors and ceilings to mitigate this risk can stabilize the market and
provide predictable price signals (European Commission, 2022). These measures help ensure
that the market operates smoothly and businesses can confidently plan their investments and
operations.
In summary, adopting a cap-and-trade system for carbon emissions in the United States offers a viable
path toward achieving significant environmental, economic, and technological benefits. The success of
existing programs like the EU ETS and California’s cap-and-trade program, along with the potential for
innovation and alignment with global efforts, makes a compelling case for this approach.
References:
California Air Resources Board. (2021). California’s Cap-and-Trade Program. Retrieved
from https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-program
European Commission. (2022). EU Emissions Trading System (EU ETS). Retrieved
from https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets_en
International Emissions Trading Association (IETA). (2023). Investment trends and outcomes in the global
carbon credit market. Retrieved from https://ieta.b-cdn.net/wpcontent/uploads/2023/09/IETA_Report_TroveCreditInvestment_Sept2023.pdf
World Bank. (2021). State and Trends of Carbon Pricing 2021. Retrieved
from https://openknowledge.worldbank.org/handle/10986/35620
Figure 1- Emission Reductions under the EU Emissions Trading System (2013-2022).pdf (53.882 KB)
CLASSMATE 2
Hi Everyone,
Regarding the research conducted for last week´s assignement on cap-and-trade assignment, the main
data points,
The implementation of a national cap-and-trade system for carbon emissions in the United States offers
significant environmental, economic, and political advantages. Evidence from existing programs supports
the effectiveness and feasibility of such a system. For instance, California’s cap-and-trade program has
successfully reduced emissions to 1990 levels by 2020 and aims to cut emissions 40% below 1990 levels
by 2030. This achievement demonstrates that cap-and-trade systems can lead to substantial emission
reductions, aligning with global climate goals (Environmental Defense Fund, 2020).
Economic efficiency is another critical advantage of cap-and-trade systems. According to the
Congressional Budget Office (CBO), cap-and-trade systems are more cost-effective compared to direct
regulation, potentially reducing compliance costs by up to 50%. This market-based approach allows
businesses to innovate and find the most cost-effective ways to reduce emissions, fostering economic
growth while achieving environmental targets (CA.Gov, 2024).
The financial benefits of cap-and-trade systems are also significant. The Regional Greenhouse Gas
Initiative (RGGI), a cooperative effort among several Northeastern and Mid-Atlantic states, has generated
over $4.7 billion in net economic benefits since its inception. These funds can be reinvested in renewable
energy projects and climate resilience initiatives, furthering both environmental and economic objective
(C2ES, n.d.)
Moreover, cap-and-trade systems provide strong business incentives. By allowing companies to trade
emission permits, businesses that can reduce emissions at lower costs can sell their surplus permits,
creating a financial incentive for innovation and efficiency. This flexibility encourages companies to
develop and adopt new technologies, contributing to overall economic efficiency and technological
advancement.
Political feasibility is another critical factor supporting the adoption of a national cap-and-trade system.
Cap-and-trade systems have garnered bipartisan support due to their market-based approach, making
them a politically viable solution for achieving significant emission reductions. The broad support for these
systems ensures that they can be implemented and sustained over the long term.
In conclusion, supporting the implementation of a national cap-and-trade system for carbon emissions
aligns with the goals of reducing carbon emissions, promoting economic efficiency, and ensuring a
sustainable future. The proven success of state-level programs like California’s and RGGI provides a
compelling case for expanding this approach nationally. It is a balanced strategy that leverages market
forces for environmental benefits while maintaining economic growth and innovation.
References:
California Air Resources Board. (2021). California’s Cap-and-Trade Program. Retrieved
from https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-program
C2ES (n.d). Region al Greenhouse Gas Initiative. https://www.c2es.org/content/regional-greenhouse-gasinitiative-rggi/
CA.Gov. (2024). Cap and Trade Program. https://ww2.arb.ca.gov/our-work/programs/cap-and-tradeprogram
Emission Reductions in California’s Cap-and-Trade Program (2012-2020).png (33.066 KB)
CLASSMATE 3
Hey everyone,
-Problem: Climate change has severe negative impacts on nature, humans, and the economy (European
Commission, n.d. -a). For example, a 0.01°C temperature deviation from the historical norm lowers
income growth by 0.05% a year (Gössling & Humpe, 2020). Moreover, even if the Paris Agreement’s goal
of reducing global warming below 2°C is achieved, a 1.07% reduction in global income by 2100 is
estimated (Gössling & Humpe, 2020). However, since we are not on track to reach this goal (IPCC,
2023), economic damages are likely to be much higher. Therefore, it is essential to take action against
climate change.
-Greenhouse gas emissions are the main driver of global warming (Mikhaylov et al. 2020). So
limiting the emission by a cap-and-trade system seems correct. As evidenced by the cap-and-trade
system in the EU, they are capable of reducing emissions. For example EU’s Emission Trading System
reduced the emission from power and industry plants by 37% from 2005 (European Commission, n.d. -b).
-The US has a major impact on greenhouse emission emitting 11.19% of the global emissions
(European Commission, 2023), so a cap-and-trade system in the US could be helpful in reducing global
emission, since climate change is a global phenomenon. Countering the argument that one country alone
can’t make a change. Adding to that as already mentioned the European Union already participates in
such a system.
-Risks: The important thing to be aware of when implementing the system, however, is that the cap-andtrade system shouldn’t be built on the consumers’ back. Since innovation for reducing emissions or
buying the permits costs money, a system like that would impact the profits for companies. That is why it
is likely that these costs are reflected in prices, thus making the consumers pay for them. For example,
the energy sector, as a strong emitting industry, will be impacted by such a system. As seen in Germany
since the start of the Ukraine War, an energy price inflation of 40% has significantly driven inflation over
the past two years in the country (Jaganmohan, 2024), indicating what such a system can do to
consumer prices. The government should be aware of this and act to mitigate it.
-Argument: To bring the whole point together, rising climate change concerns drive the urgency to act.
As shown by the example of the EU cap-and-trade system, it could help reduce emissions and thus
counteract potential economic and humanitarian risks. Moreover, since the US emits over 10% of global
emissions, the introduction of such a system could make a real difference for global climate change.
Lastly, an important risk is the higher costs associated with such a system, which increases the costs for
companies and might drive prices higher.
References:
European Commission. (n.d. -a). Consequences of climate change. European Commision. Date
Retrieved: 2024, May 28. Consequences of climate change – European Commission (europa.eu)
European Commission. (n.d. -b). What is the EU ETS?. European Commission. Date Retrieved: 2024,
May 28. What is the EU ETS? – European Commission (europa.eu)
Gössling, S., & Humpe, A. (2020). The global scale, distribution and growth of aviation: Implications for
climate change. Global Environmental Change, 65, 102194. Long-Term Macroeconomic Effects of
Climate Change: A Cross-Country Analysis (nber.org)
IPCC. (2023). Summary for Policymakers. In: Climate Change 2023: Synthesis Report. Contribution of
Working Groups I, II and III to the Sixth Assessment Report of the Intergovernmental Panel on Climate
Change. IPCC, Geneva, Switzerland, pp. 1-34, doi: 10.59327/IPCC/AR69789291691647.001. https://www.ipcc.ch/report/ar6/syr/downloads/report/IPCC_AR6_SYR_SPM.pdf
Jaganmohan, M. (2024, May 22). Energy price inflation rate in the European Union 2019-2024, by
commodity. Statista. Date Retrieved: 2024, May 28. EU: energy inflation rate by commodity 2024 |
Statista
Mikhaylov, A., Moiseev, N., Aleshin, K., & Burkhardt, T. (2020). Global climate change and greenhouse
effect. Entrepreneurship and Sustainability Issues, 7(4),
2897. https://www.researchgate.net/profile/AlexeyMikhaylov/publication/342372335_Global_climate_change_and_greenhouse_effect/links/5f576af2299bf1
3a31ab136c/Global-climate-change-and-greenhouse-effect.pdf