For the Public Record

July 24, 2017

To: Virginia Department of Environmental Quality

Re: Comments on the Proposed Regulation for Emissions Trading [9 VAC 5 ? 140]

Thank you for accepting these comments on the Proposed Regulation for Emissions Trading [9 VAC 5 ? 140], (NOIRA Stage: Reduce and Cap Carbon Dioxide from Fossil Fuel Fired Electric Power Generating Facilities (Rev. C17)).  I am a co-founder of the Center for Climate Protection, and I have been an active commenter on California’s Cap & Trade system since 2006.[1]  I would encourage you to read some of my writings on the subject, including my archive related to California’s Cap & Trade program and my blog on HuffPost.[2]  

My comments focus on these design elements of a carbon pricing system: 1) an upstream system, 2) auctioning permits, 3) returning auction revenues to households as a climate dividend.  

An upstream system

The point of regulation should be upstream:  The most comprehensive and easiest to administer point of regulation would be upstream.  An upstream system would require only upstream companies to hold permits.  They would be the buyers at the permit auction. An upstream system is the most comprehensive, and requires the least amount of administration from DEQ.  An upstream system would also encompass transportation fuels, an important source of emissions.

Auction permits

Because of the European Emissions Trading System (ETS) choice of administrative (free) allocations to emitters based on historic emissions instead of auctioning, the ETS had to figure out the change to the baseline to the aviation industry due to the volcano in Iceland.  Virginia would have to recalculate free allocations to industry after every perturbation in the fuel and electricity markets.  A hurricane or an oil spill in the Gulf of Mexico could change the price of oil, and then companies would claim they need more free allowances.  The ETS is overallocated, and the price of permits is very low, yielding few emission reductions. 

By auctioning, Virginia could avoid subjecting the DEQ to lobbying and political manipulation that free allocation entails.  Administratively, it would be much easier to just let companies figure out for themselves how many permits they need and let them buy them for themselves at auction.

Likewise, auctioning is an important lesson from California’s Cap & Trade program.  The auction and price floor are primary factors contributing to the success the program has had thus far.  I believe the program would have had the disappointing results of the European Emissions Trading System (ETS) without them.  However, the California program is not perfect.  It has missed opportunities to increase the amount of allowances auctioned, reducing the free allowances to industrial emitters, and returning more revenues collected back to households as a dividend.

Return carbon price revenues to households as a “climate dividend”

California’s Economic and Allocations Advisory Committee (EAAC) report[3] recommended that, “The largest share (roughly 75%) of allowance value should be returned to California households..."  The best way to return the value to consumers is through a dividend.[4]  The formula to do so is simple: auction allowances and return the funds to people. 

Many people do not understand climate dividends.  It is about transforming the economic system, not about funding specific projects.  I urge ARB staff to read Peter Barnes’ books, including Who Owns the Sky?, Capitalism 3.0, and With Liberty and Dividends for All.    His most recent article is titled, “$200 a Month for Everyone.”[5] Climate dividends are similar to anti-poverty movements focusing on the concept of “basic income,” and international development efforts promoting “unconditional cash transfers.”

Problems with spending revenues on projects

It is tempting for government to want to spend auction revenues on large infrastructure projects.  What politician would not want to see their name on a plaque in front of a huge green energy project, paid for with Cap & Trade funds from polluters?  However, there are good arguments against this approach.[6]  One often overlooked problem with using funds on large infrastructure projects to reduce emissions is that the emission reductions may simply reduce the price of allowances, or change relative price of emissions between sectors, but result in no net emission reduction because the reductions achieved only create space for new emissions from other sectors under the cap.  In other words, the space below the cap created by the infrastructure investment is simply filled up by emissions in other sectors. 

The goal of a carbon pricing program is not to build big capital projects.  It is to provide an economic incentive to Virginians to change their economic behavior.  Behavior change is better accomplished by returning the funds to Virginia households through a dividend.  Spending revenues only on projects would neglect the regressive impacts of a carbon price on low-income families.

Principles for an environmentally just carbon market

• The atmosphere is a gift to all of us.  If the atmosphere has economic value, that value belongs to everyone.

Who owns the sky?  Either no one does, or we all do, equally.  Fossil fuel companies may use the sky, but we all own it together.  It’s a Commons.  The equitable ownership of the commons should be a central theme in the design of a cap and trade system.

• The fossil fuel industry and other large emitters should pay to use the atmosphere.

If the sky belongs to us all, but its use becomes limited, then companies who use the sky should compensate citizens (all of us) for its use.  As long as pollution is free and has no price, companies may externalize those costs onto society.  In many areas of environmental policy, fees on companies are used to raise funds to pay for clean-up and also made less-polluting alternative technologies more cost-effective.

Technology alone is insufficient – We need an escalating carbon price

My theory of change is as follows:

1)         Price on carbon

2)         Dividends returned to people

3)         Political acceptability for higher price on carbon

4)         Actually affecting economic choices across all sectors, giving incentives to companies to produce lower carbon products, and for people to buy them

5)         New technologies, transform the economy

Unfortunately, most people seem to ignore the potential of a price on carbon, and get swept up in the technophilia of gadgets and just go straight to step #5 without doing steps 1-4.  This rule making is a chance to create a climate change program with a carbon price that returns revenues to the people of Virginia, and creates a new model for other states (including California), the nation, and internationally.

Sincerely,

Mike Sandler

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Mike Sandler
8706 Shadowlake Way
Springfield, VA 22153

www.carbonshare.org

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[1] https://climateprotection.org/our-work/price-on-carbon/

[2] http://www.carbonshare.org/californiaAB32.html; http://www.huffingtonpost.com/author/mike-sandler

[3] http://www.climatechange.ca.gov/eaac/index.html

[4] http://www.dividendsforamerica.org/resources.html

[5] http://triplecrisis.com/200-a-month-for-everyone/

[6] http://www.carbonshare.org/docs/Howtospendtherevenues3_8x11PDF.pdf