The New Carbon World

Miles Tolbert
Secretary of the Environment

Environmental Federation of Oklahoma

October 11, 2007

A New Climate

• Debate has
shifted
• Major carbon
legislation
coming
• Carbon tax,
or cap-and-
trade?

1
 The Shift in the Debate
Factors and Trends

All Aboard

2
 Other Shifts in Policy Environment
• Democratic-controlled
Congress
• More States pursuing
carbon controls
• Supreme Court rules
that Clean Air Act
applies to greenhouse
gases
© NATURE.COM – Ability to regulate
carbon WITHOUT new
legislation

Corporate Chorus

3
 Carbon Regulation “Inevitable”
The entire discussion has progressed from “nothing is going to
happen” to wrestling over the details. BUSINESS WEEK

It seems inevitable that . . . Congress will pass

legislation meant to cut greenhouse gas
emissions. •WALL STREET JOURNAL

There will be carbon regulation of some sort… whether it will be

a direct tax, carbon cap-and-trade or some other instrument.
•DAN ARVIZU, NREL DIRECTOR

Most Likely Options

Cap-and-Trade vs. Carbon Tax

4
Cap-and-Trade Mechanics
• Government sets
national emission limit
(“cap”)
• Carbon sources are
allocated allowances
• Excess allowances can
be sold to sources
needing more (“trade”)
• Favored method of most
politicians
• Employed (with mixed
success) in Europe

Cap-and-Trade Beneficiaries
• Electric Utilities
– Likely to be largest share of allowances
• Sources of Offsets
– Primarily agriculture
• Major financial institutions
– Trade in new commodity

5
Cap-and-Trade Criticisms

• Potential Windfalls
• Perverse Incentives
• Measuring Offsets
• No Limit to Potential
Costs

Carbon Tax Mechanics

• Government sets tax rate
per ton emitted
• Cost of carbon emissions is
fixed
• Carbon intensive activities
become more expensive
• Appealing to economists
due to relative ease in
administration

6
Carbon Tax Beneficiaries

• Early Adopters
• Utilities with
large non-coal
fleets
• Biofuels

Carbon Tax Criticisms

• A carbon tax is still a tax

• Extent of CO2 reductions
uncertain, though cost of
emissions certain

7
Conclusion
• An Observation
• A Recommendation
• A Charge