The US will be home to a US$1 trillion carbon emission market by 2020 if federal and state policymakers continue on their current path toward a comprehensive cap-and-trade program confined to the domestic market, according to a new Carbon Finance Report. The report, which analyses the 13 climate change bills under consideration by Congress, also found that a capand- trade system that permits only domestic trades will produce a carbon price of US$40/metric ton as early as 2015, resulting in a 20 per cent increase in retail electricity prices, a 10 per cent increase in natural gas costs and a 12 per cent increase in gasoline prices. The researchers add that they believe an economy-wide cap-and-trade system for US greenhouse gases is “inevitable” in the next four to five years, and that it will dwarf the European carbon market.
Even if President Bush vetoes a bill to cap greenhouse gas emissions this year, each of the four remaining presidential candidates has voiced support for a mandatory cap-and-trade system, the consultant says. The study also says that all of the bills under consideration by lawmakers would either bar or severely restrict the transfer of allowances from trading systems in other parts of the world, including the European emissions trading scheme and the CDM and JI programs under the Kyoto Protocol, which allow emitters to seek offsets in developing countries. “Excluding or limiting … international project credits in any US carbon cap-and-trade system will have to important consequences,” says New Carbon Finance North American division head Milo Sjardin. “For the US market, it will rule out a significant source of inexpensive abatement, pushing the carbon price to unnecessarily high levels,” he says. “It will also remove most US demand for international credits, hampering the growth of projects and technology transfer to developing countries,” adds Sjardin. The report says that allowing carbon-constrained US firms to trade with firms in China or India, for example, where emission-reduction measures are cheaper, would yield an estimated US carbon price as low as US$15/metric ton, saving the US economy US$145 billion annually. At that price, the increase in electricity prices would be held to seven per cent, while gasoline prices would rise only four per cent and natural gas prices would increase five per cent, it adds.