How to Regulate CO2 – A Modest Proposal

It’s time to move on to CO₂ regulation and apply what’s been learned from the RFS RIN market to a more significant challenge. Future posts will describe a program to regulate CO₂ and other greenhouse gases (“GHGs”) fairly across the entire economy. Market Driven Compliance or MDC addresses GHG emissions without a tax; an auctioned cap-and-trade scheme; low-carbon fuel, clean energy or vehicle mileage standards or a clean power plan. MDC establishes a single standard for all measurable emission sources – a unified policy addressing GHGs, without distortion, broadly and consistently for all emitting sectors. MDC can replace existing piecemeal regional and national measures, including automobile mileage and other standards. While my main interest is ocean acidification, the proposal is equally applicable to climate change.

In a nutshell, the proposal would establish a national emission standard for GHGs (“CO_2e”) framed as CO_2e tons per million dollars of revenue (“T/$M”). Multiplying this standard times each emitter’s annual revenue creates an annual ton-per-year (“TPY”) emission limit specific to that entity. The market will trade “Tons-Not-Emitted”, or TNE, created when a regulated party emits less than its annual limit. A polluter exceeding its limit must purchase TNE. TNE may also be banked for future use or sale. Government’s only roles will be to ensure emissions and revenues are accurately measured and reported, to set the standard at an acceptable level or on a glide path to that end and to act as a clearinghouse for TNE trades. No revenues from taxes or cap-and-trade auctions will enter government’s black hole. Money changing hands will remain exclusively in the private sector. This is the most conservative approach to regulating GHGs. MDC improves on the astoundingly successful gasoline sulfur and benzene programs for petroleum refineries.

Future posts will address these subjects, perhaps in this order, perhaps not.

• Why ocean acidification is important.
• Why a T/$M emission standard is appropriate for GHG regulation.
• Can we establish a T/$M emission standard for all emitters?
• Why not a carbon tax or auctioned cap-and-trade?
• How to address international trade to minimize competitive imbalances and emission leakage.
• Anything else that comes to mind along the way.

Best,

Bob