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N.M. Should Take Lead in Global Warming Fight

By Michael Hartranft
Copyright © 2010 Albuquerque Journal Journal Staff Writer
          Cap and trade is the most flexible, cost-effective way to curb greenhouse gas emissions believed to be contributing to global warming, the New Mexico Environment Department contends.
        The agency argues that putting the state on a path to do its part to avoid catastrophic effects of climate change can be achieved with a modest, likely positive, impact on the state's economy and provide a springboard for other economic opportunities such as renewable energy development.
        The consequences of doing nothing, it says, are far greater: A $3.2 billion added cost to the state due to increased health problems, more droughts, decreased water supplies and wildfires, and higher energy costs and a host of other impacts.
        New Mexico is a founding member of the Western Climate Initiative, a coalition of seven states and four Canadian provinces that designed the basic program sought by NMED.
        It calls for each participant to establish a cap along with annual reduction requirements through 2020. So far, only three provinces and California — whose participation depends on referendum Tuesday — appear ready to go with New Mexico, which NMED contends is enough to get the program rolling.
        The plan would regulate 63 mostly oil and gas businesses and electric utilities that emit more than 25,000 tons of carbon dioxide a year. Starting in 2012, each would have to cut its emissions by 2 percent a year from baseline 2010 levels, or buy allowances for what they emit over the cap, through 2020. There are three three-year compliance periods and a mandatory reassessment of the rule before 2016. The program would sunset if a national program with equivalent reduction levels is adopted.
        Unlike "command and control" measures that dictate what regulated industries must do, cap and trade is a market-based program that affords more flexibility for achieving compliance while reducing overall emissions, said NMED's Sandra Ely, environmental and energy policy coordinator.
        To start, NMED would allocate each source a free allowance for each ton of greenhouse gas emissions it emitted in the baseline year. The allocation would shrink each year as the cap size decreases.
        A source such as a refinery that can't come in under the cap would be able to buy allowances to cover its excess emissions — at a price determined by the market — from a regulated source in the region that is able to achieve more reductions than required. Or, it could buy "offsets" from any unregulated source in North America — such as a dairy that captures methane to reduce emissions — to satisfy the regulation.
        There is no restriction on how many allowances a company can purchase and it could even "bank" them for future years, Ely said.
        "That's the beauty of cap and trade," she said.
        NMED's economic analysis of the cap and trade program is built on a Western Climate Initiative regional analysis. It shows a range of outcomes using different assumptions, including a range of prices for allowances, energy prices and the effectiveness of complementary policies proposed by WCI such as clean car standards, energy efficiency and programs to reduce vehicle miles. Depending on the variables, economist Adam Rose said the state could see an increase of about 2,500 jobs or a loss of up to 3,100 through 2020.
        The best estimate, he said, which assumed a $5 allowance price and complementary policies, is that there would an increase of 2,171 jobs and $542 million increase in gross state product without any impact on state tax revenues or increase in electric rates.
        The scenario showing the 3,100 job loss, as well as a negative $1.03 billion impact on the gross state product, assumed a $50 allowance price and lower effectiveness of energy efficiency and vehicle mile policies.
        Janie Chermak, an economics professor at the University of New Mexico who helped with the NMED analysis, said results of the various models done for the cap and trade proposal varied depending on the model type and assumptions. But more significantly, she said, they all showed a relatively small impact on the state's economy.
        "They were all within a plus or minus 1 percent change in state gross product and showed a relatively small gain or loss in employment," Chermak said.
        Chermak said it is true that reducing New Mexico's emissions would have little impact globally. But she added, "It's easy to say, yeah, we should wait for somebody else, but at some point, somebody might have to be the first one to say we're going to do this as an insurance policy for the probability of a bad event in the future."
        Jonathan Overpeck, coordinating lead author for the Intergovernmental Panel on Climate Change Four Assessment, addressed the recent Climategate scandal during his testimony for NMED, but said the scientific evidence remains valid.
        Climategate involved the leaking of hundreds of e-mails from one of the world's leading climate research centers. They showed researchers speaking in scathing terms about critics, discussing ways to stonewall skeptics, and talking about how to keep opponents' views out of peer-reviewed journals.
        An independent review found the science honest and reliable, but criticized the scientists at the University of East Anglia's Climatic Research Unit for failing to share their data with critics.
        "Climate change is not a hypothetical issue for the Southwest," Overpeck said.

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