Upstream cap on CO2 seen as less costly than downstream cap

Washington (Platts)--15Mar2006

An upstream cap on carbon dioxide emissions would create economy-wide incentives to reduce consumption of carbon-intensive goods and services, and would be less costly than a downstream system, according to the Congressional Budget Office.

The CBO submitted its assessment in response to a Senate Energy Committee white paper requesting suggestions about designing a mandatory market-based greenhouse gas regulatory system. The committee has received more than 500 comments and plans to post them on its website by the end of this week.

The committee has scheduled a global warming conference April 4, and it will select specific comments to frame the discussion. However, committee Chairman Pete Domenici, Republican-New Mexico, said last week the panel will not write climate change legislation this year because no consensus has emerged on the elements of such a bill.

The CBO, which released its comments on Monday, said an upstream cap would reduce emissions at lower cost than if the cap and the resulting incentives for reduction were restricted to one downstream sector. In addition, an upstream cap, which would require regulating a limited number of suppliers of fossil fuels, would be significantly less complex and costly than a comprehensive downstream system, which could potentially entail regulating millions of emitters.

However, an upstream cap "may not provide an incentive to adopt post-combustion technologies that facilitate the capture and sequestration of carbon emissions," the report said. "Such an incentive could be created by a downstream system that determined allowance requirements on the basis of monitored emissions."

Capping greenhouse gas emissions would impose costs throughout the economy in the form of higher prices, reduced profits and lower wages, CBO said.

The US Chamber of Commerce said in its submission that it has seen no indication "there has ever been a careful assessment of the long-term economic consequences and impacts of any legislatively proposed mandatory [greenhouse gas] emissions control regime." Such a legislative initiative is sure to place the US at a competitive disadvantage in a global marketplace" where developing countries are not participating in mandatory regimes, the Chamber said. --Gerald Karey, gerry_karey@platts.com

For more information, take a trial to Platts Oilgram News at http://oilgramnews.platts.com.

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.