May 31, 2008

Putting A Price On CO2 Could Mean 10% Cut in Emissions

A new analysis by researchers at Carnegie Mellon University’s Tepper School of Business shows possible positive short-term effects of establishing a mandatory price for CO2 emissions.

The study titled “Short Run Effects of a Price on Carbon Dioxide Emissions from U.S. Electric Generators,” which appeared in Environmental Science & Technology, suggests that a $35 price on CO2 emissions would result in up to 10 percent reductions in emission levels by prompting changes in both power company investments and consumer behavior.

Facilities in the Northeast and Midwest, for example, would see a higher drop in emissions resulting from the price, while emissions in states with relatively larger numbers of natural gas facilities would see less significant reductions.

The first two trades of the Regional Greenhouse Gas Initiative allowances were announced earlier this year, establishing the first ever U.S. regional carbon compliance trades. Both trades were in the range of $5-$10 per ton — much higher than the official price estimate of $2.32 per ton.

Point Carbon predicted in February that the global carbon market would see 4.2 billion tons carbon emissions transacted during 2008 — a 56-percent increase from last year — making the market worth $92 billion.

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