Study: Carbon market to lift gas prices 5%-10%

Gas Daily February 15, 2008

 

The US will be home to a $1 trillion carbon-emissions 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, consultant New Carbon Finance said in a report Thursday.

The report, which analyzes the 13 climate-change bills under consideration by Congress, also found that a cap-and-trade system that permits only domestic trades will produce a carbon price of $40/metric ton as early as 2015, resulting in a 20% increase in retail electricity prices, a 10% hike in natural gas costs and a 12% increase in gasoline prices.

The researchers added that they believe an economy-wide cap-and-trade system for US greenhouse gases is “inevitable” in the next four to five years, adding 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 noted.

The report said all of the bills under consideration would either bar or severely restrict the transfer of allowances from trading systems in other parts of the world, including the EU’s Emissions Trading System and the Kyoto Protocol’s.

Clean Development Mechanism and Joint Implementation programs, which allow emitters to seek offsets in developing countries where they are relatively cheap to achieve.

“Excluding or limiting ... international project credits in any US carbon cap-and- trade system will have to important consequences,” Milo Sjardin, head of New Carbon Finance’s North American division, said in a statement.

“For the US market, it will rule out a significant source of inexpensive abatement, pushing the carbon price to unnecessarily high levels,” Sjardin said. “It will also remove most US demand for international credits, hampering the growth of projects and technology transfer to developing countries.”

The report said 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 $15/metric ton, saving the US economy $145 billion annually.

At that price, it said the increase in electricity prices would be held to 7%, while gasoline prices would rise only 4% and natural gas prices would increase 5%.