Thread by @SeanCasten

This week's #energytwitter nerd thread: an overview of the Tradeable Performance Standard (GHG pricing) bill I released yesterday. It's the best GHG pricing bill ever. Read on to find out why! Thread:

1/ First for those who just want to read the text, here's the bill: casten.house.gov/sites/casten.h…

2/ I've been working on this for a LONG time. Started based on conversations with @kacolburn when RGGI was being developed in the early 2000s. Later sketched out an overview for Grist in 2008: grist.org/article/carbon…

3/ The basic idea is a market-based, revenue-neutral GHG regulation that will get the electric and transportation sectors to zero CO2 by 2040 WITHOUT raising the price of energy to consumers.

4/ It combines the best elements of cap & trade, carbon tax and clean energy standards while leaving out their flaws (overallocation of permits in C&T, all stick no carrot CT, all carrot no stick CES)

5/ In short, it addresses all the challenges of GHG pricing models that I explained here:

https://twitter.com/SeanCasten/status/1295350566999252992?s=20

6/ And doesn't include the transportation sector for the reasons I noted here:

https://twitter.com/SeanCasten/status/1309470544048381952?s=20

7/ The crux of the idea is to move to an output based regulatory model. Most environmental regs are "input based" - if you can only emit X parts per million, your emission scales with fuel combustion (your input)

8/ But algebraically, you can reformulate the same level of absolute annual emissions on an output basis - parts per MWh of electricity, for example.

9/ By reformulating on an output basis, we incentivize efficiency and ensure that what matters to consumers - the price of energy - is factored into the regulation.

10/ What we've done here is to set a declining schedule whereby the electric and thermal sectors decline to zero emissions per MWh (or per MMBtu) by 2040, and then give every generator an allowance based on the point in a given year.

11/ Today's electric grid emits a little over 900 lbs of CO2/MWh. So in a year where the new level is mandated to be 800, a coal plant at 2,000 is allowed to enter 1200 but must buy 800. A solar plant at 0 has 800 to sell. And every combination in between for other techs

12/ But note - and this is key - generators that REDUCE emissions are paid by generators that INCREASE emissions. There is no government intermediary. This makes it revenue neutral and prevents any expanding federal bureaucracy.

13/ It also ensures that GHG markets work like electricity markets (or any other market, for that matter). The price a buyer pays for a ton of pollution is the same revenue a seller receives to reduce a ton. AND...

14/ ...since the transaction is tied to MWh of generation, the wealth transfer occurs between generators and nets to zero for consumers. The price of pollution is monetized, but consumer rates don't increase.

15/ Next wrinkle: ideally, we really want people to build new clean generators. But since the pollution allowance is declining over time, so too is the value of a unit of clean generation. We fix that by giving an option for long-term contracts.

16/ Specifically, any dirty generator who enters into a contract with a NEW clean generator that is at least 10 years long gets to lock in at the current allowance. This gives an incentive for both parties to enter into contracts that make it easier to finance clean projects.

17/ I've framed all this based on power, but we do the same thing for thermal sources (boilers, furnaces, etc.) and tie them together so that power plants that recover otherwise-wasted energy via #CombinedHeatAndPower technology get an added incentive

18/ Bottom line is we end up with the sticks of a carbon tax, the carrots of a clean energy standard and the market discipline of cap & trade. (I meant it when I said this is the best GHG pricing ever!)

19/ Now to be fair, it doesn't provide government revenue for deficit reduction / tax rebates / just transitions / other pet projects. But that's because it prioritizes lowering CO2 as quickly and as cheaply as possible.

20/ And I would point out that cutting GHG emissions cheaply leaves more $ in our pocket for all those other good and necessary things. As we said in our Climate Crisis report, carbon pricing is necessary, but not sufficient - we still need lots of other complementary policies.

21/ Realistically, this isn't going to pass before the end of this Congress. But here's to 2021 being the year where we finally get serious about climate change, and to using this approach to profitably reduce GHG emissions when we do.

Onward to the 117th. /fin

Postscript: here's a write up of the bill from E&E this morning: eenews.net/eedaily/2020/1…

...And our press release with more detail: casten.house.gov/media/press-re…