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Lulu Yu   Eva Wu

Summary of this policy

The NOx Budget Trading Program is a market-based cap and trade program which created to reduce emissions of oxides of nitrogen (NOx). The main NOx polluters are heat-engine plant in the eastern United States.  NOx has been linked to a variety of health effects, the severity of which depends on concentration, length of exposure, and breathing rate. The NOx Budget Trading Program was designed to reduce NOx emissions during the w ozone season (May 1- September 30) when ground-level ozone emission are most serious.

The goal of this programme is to get 392 facilities to reduce annual NOx emissions by a total of nearly 510,000 tonnes from 2007 levels.

Coverage of the policy

(Contains two parts, one is the Geographical Scope and the other is Species Coverage)

The OTC consists of representatives from the Northeast and Mid-Atlantic states, the States that will now be involved include Alabama, Connecticut, Delaware, Illinois, Indiana, Kentucky, Massachusetts, Maryland, Michigan, North Carolina, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Virginia, West Virginia and the District of Columbia.

The main objective of implementation of this project was the large pollutant in States who make significantly contribute to the pollution. The EPA requires them to control NOx emissions in response to the Section 126 Final Action rulemaking. Some fossil fuel boilers or combustion turbines who serve an electric generating are also included in this trading programme. The standard was output of greater than 25 MW or that have a maximum rated heat input capacity of greater than 250 mm Btu/h.

How it works

First of all, during the “ozone season” NBP set a regional “budget” (or cap) on emissions from power plants and other combustion sources during the “ozone season”. Sources were required to reduce emissions significantly below baseline levels in each participating state to meet the budget. States allocated allowances to sources (each allowance equaled one ton of emissions) and sources could use emissions trading to achieve the most cost-efficient reductions possible.  If emissions were below budget levels, sources could “bank” unused allowances and use or trade the banked allowances to cover emissions in a subsequent ozone season.  

Secondly, the OTC created flow control system to control the overuse of allocated NOx allowances. Flow control was triggered when the total number of allowances overused for all sources exceeded 10 percent of the total overall (regional) budget for the next year. Then EPA calculated the flow control ratio, they will dividing  10 percent of the total regional NOx trading budget by the number of banked allowances The resulting flow control ratio established the percentage of banked allowances that could be deducted from a source’s account on a 1:1 ratio of one allowance per one ton of emissions. The remaining banked allowances, if used, were deducted at a 2:1 ratio of two allowances per one ton of emissions.

Implementation

Montioring system was widely used during the implementation of this project. This project begin monitoring on May 1, 2002.  If sources do not have enough allowances to cover their emissions based on their initial allocation, they may buy allowance from other sources who didn’t used up the allowance. This cap and trade system works really flexibility and sources have two months time to ensure they hold adequate extra allowance which was until November 30 each year. Usually the way sources ensure they hold adequate emissions allowances through two ways. One was the standardized monitoring and the other was reporting procedures. Usually budget sources must monitor and report their actual emissions to the EPA to ensure demonstrate compliance. Under the trading system, sources with large NO_x emissions must monitor their emissions using continuous emissions monitoring systems. Sources with lower NO_xemissions may use simpler estimation methods.

The sources had two option to evaluate the allowance. One was to allocate allowances based on each source’s share of statewide ozone season heat input. The other was based ozone season outputto reward sources that generated more energy with less fuel input.

Cost-effectiveness

About 290,000 NO_x allowances will be allocated in total region-wide to sources every year. Sources that retire will continue to receive allocations until the next allocation update. EPA  also making additional allowances available to participating sources through a compliance supplement pool during the initial two years of the programme, the. These allowances will be distributed among sources which made early reductions during the 2001 and 2002 ozone seasons. Sources may use these allowances for compliance purposes as they would other allowances for the 2003 and 2004 compliance periods. However, the EPA will retire all remaining pool allowances from the allowance tracking system after the 2004 ozone season compliance determination process is completed. New sources entering into the programme will be allocated allowances from a portion of the State budget that is set aside for new sources

A new source is eligible to receive allowances from the new source set-aside until it has sufficient operating data to receive an updated allocation as an existing source. Each new electric generating unit will be allocated allowances based on the product of either a NO_xx emissions rate of 0.17lbs/mm Btu or the unit’s permitted limited, whichever is less, times their actual utilisation for the control period. Sources that are not currently subject to the programme but undergo major modifications and are subsequently required to participate in the programme are initially treated as new sources and therefore are eligible to receive allowances from the new sources set-aside. After compliance has been determined, any allowances remaining in the new source set-aside will be redistributed to existing sources.

Result

There’s a significant outcome in NOx. In 2006, under the NOx Budget Program, the budget sources emitted 491,483 tons, which means a reduction of NOx by more than 38,000 tons, or 7 % from the emission in 2005 and 74 % from 1990 emissions. In addition, like improvements in NOx, there’s also changes in ozone. Ozone concentrations in urban and rural areas had decreased during 2004-2006 in comparison to that during the period 2000-2002. The average reduction in ozone concentrations in states participating NOx Budget Program was estimated as 5%.

In 2009, CAIR’s NOx ozone season program began, effectively replacing the NBP in the East and achieving further summertime NOx reductions from the power sector.

Rescource

http://www.epa.gov/airmarkets/progress/docs/otcreport.pdf

http://www.epa.gov/airtransport/pdfs/SNPRAllocations.pdf

http://daq.state.nc.us/monitor/eminv/noxbudget/nox_budget_program_overview.pdf

http://ekh.unep.org/files/GP-10.pdf

Carbon Tax Policy Brief for Netherlands

Lulu Yu   Eva Wu

The Coverage of RET

The regulatory energy tax (RET) was forced to implement on January1, 1996 in Netherlands as a consequence of the Netherlands’ second National Environmental Policy Plan. In order to avoid economic risk the initiate RET was mainly focusing on small scale energy consumption for large industrial energy user. The main purpose of the tax was stimulating additional energy conversation.

The implementations of the RET were generally consisting of two parts: before and after 2004.Before 2004 there was a Benchmark Protocol which proving effective in inducing large energy consumers to save energy, exposing them to the economic risks of an unilateral tax was felt to be unwarranted. So the main fuels being taxed before 2004 was small scale energy like NG (natural gas) and mineral oil products which can be used as substitutes for gas by households. Apart from this, mineral oil products which can be used as substitutes for gas by households or small commercial establishments are also taxed (home heating oil, light fuel oil, non-transport applications of LPG/butane/propane). RET is expected to generate extra energy conservation majorly through the price impact on the demand side. After 2004 also the large scale energy consumption is brought under RET on the basis of the implementation of the new European directive on energy taxation and the incorporation of a part of the tax on fuels in the RET. In order to prevent double taxation, natural gas used in the generation of electricity is exempted. Also fuels used to power road vehicles are not subject to this regulatory tax. Besides the greenhouse horticulture sector in the Netherlands is characterized by a unique combination of features. The European Commission allowed the use of the zero-rate until the end of 1999. Nevertheless, beginning in 2000 the greenhouse horticulture sector also have to pay a (also in 2004 still rather low) tax on natural gas and mineral oil products.

RET was first introduced in1996 .However, at first the tax was aimed to influence behaviour. Then the tax rate was gradually into force.  Zero-rate and waste incineration plants for electricity were introduced in 1998. Then in coming 1999 several new tariff groups were introduced. Because of the faster growth of the use of electricity than of the other products, the tax rate for electricity had a big change in 2000. During 2001-2003 there were also some changes in the tax rate. In 2004 most of the tax was stopped because of the European directive tax on energy was implemented.

Compared with the previous tax system (for example the Fuel), RET is a stronger tax system for small scale NG consumption. However, RET converted the tax policy from “input” tax to “output” tax. Instead of tax NG input for producing electricity, RET tax on per unit of energy content. Therefore, RET failed to provide direct incentives for electricity producers to reduce co2emissions by substituting input.

Distributional Effects of RET

In 2004 RET generate the most part of environmental tax revenue  reached at €3213 billion, which occupied the 3% of total tax in Netherlands.The main purpose of RET is to reduce the consumption of “grey” energy by household and small business. According to the CPB calculation, € 1.4billion additional tax revenue will lead to a  reduction of 1.7-2.2Mton co2 emissions. In addition, the tax stimulate users to choose alternative sustainable energy, which have positive impacts equal to reduction of 0.7-6.5 Mton CO2 emission.

On general, this policy has many positive effects. Firstly, the tax raised a large amount of tax revenue and many of them are being recycled back to taxpayer (both household and business). For households, they changed the personal income tax like reduction in the rate charged over the first income bracket. For business, there were two main ways. The one was a reduction in the wage component paid by employers to cover social premiums paid by employee tax deduction for energy investments. The other was the accelerated depreciation of investments in environmental equipment and the tax deduction for energy investments. Secondly, the RET actually finished the goal which was the CO2 emission reduction increases from the initiate 1.7 to 2.7 million tons by the end of 2000. Thirdly, the tax and recycling had some positive effects on job creation.

RET is an innovative instrument created to balance budget (green tax reform).RET introduced some abatement incentives by subsidising the non-fossil fuel products. First, parts of the revenue raised by RET used to subsidize households of using energy efficient products .Since 2000, government introduced the “energy premium” to provide positive fiscal incentives for green energy users. For example, using solar power for buildings can receive benefit. Simultaneously, firms who use solar power, biomass, and wind for electronic generation can obtain the subsidies. Second, the revenue is used to reduce the income tax and corporate tax, which help alleviate the impacts from other taxes. For example, government reduce the tax rate for lower income group and decrease income tax for senior citizens. Third, the revenue reinvested in the environmental equipment to improve energy efficiency. The government provide free-interest for certain environmental investment.

RET stimulated the long-term growth of innovations by different fields in Netherland. According to the research, RET combined with previous policies help Netherland improve the energy-efficiency technology in various industries, including instance insulation, high-efficiency boilers, solar energy and lighting. For example, Phillips has become a pioneer in the lighting industry, which is due to the positive impacts of the environmental policy.

Actually, the RET policy has significant impacts on the energy price and labour market. First, higher energy price could induce extra investment. One the one hand, the extra jobs will be created in the service and construction sector. On the other hand, labour shortage might occur in the labour market. Second, instead of the direct investment in job creation program, the RET created a modest way to keep balance social benefits among different groups. For example, direct subsidies will the purchasing power of lower income groups, which is not beneficial for the development of labour market. Third, the RET tried to reduce the risk of double compensation for employees. For example, if employees claimed extra compensation for their cost on energy my increase the overall wage rate, which increase cost for employers and   create difficulties on job creation.

Resources:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=500863

http://ec.europa.eu/research/energy/pdf/nn/the-netherlands_annex-viii-report_en.pdf

http://www.wind-works.org/FeedLaws/Netherlands/NLEnergytax2004.pdf

http://www.wind-works.org/FeedLaws/Netherlands/NLgreentaxes2.pdf