'Investment strategy' needed to cut emissions 

"A successful cap-and-trade programme will be designed as a market-based overlay on an entire suit of clean energy policies," Cowart stressed, pointing out that as an advisor to cap-and-trade designers in the US, he learned from experience that three-quarters of targeted emission reductions would need to come from complementary policies.

The highest priority should be given to energy efficiency, where countries across the globe are underperforming, the energy advisor argued.

"Every time there is a research decision to be made, the first question should be, 'can we [... ] meet this need through deeper investment in energy efficiency rather than adding additional supply?" he stressed.

While the US has been looking at the EU's emissions trading scheme (EU ETS; see EurActiv LinksDossier) when working out the details of its proposed cap-and trade system, Europe could learn from the emphasis placed on energy efficiency in the draft American climate legislation, Cowart argued. He pointed out that the only similar provision in the reviewed ETS from 2013 is a mechanism to set aside credits for carbon capture and storage (CCS; see EurActiv LinksDossier) and innovative renewable energy projects.

"The Waxman-Markey bill that passed the House has provisions that would permit a significant fraction of carbon revenues to be dedicated to end-use energy efficiency and other clean energy technologies," the advisor said. This all stems from experiences in California and the Regional Greenhouse Gas Initiative (RGGI) in north-east USA, he pointed out.

"We discovered in doing the models for RGGI that a cap-and-trade programme would be much less costly to consumers if, number one, allowances were auctioned, and number two, those auction revenues were invested in clean energy programmes, especially energy efficiency. I call this the cap-and-invest strategy," he said.

As a result, the RGGI ended up allocating almost 80% of allowance value to clean energy, most of it to energy efficiency. 

Nevertheless, Cowart cautioned, the propotion of revenues that should be allocated to the low-carbon transition is a matter of judgement, depending on factors like carbon prices. Moreover, countries will have to consider whether there is the capacity to "prudently invest the revenues in efficiency and low-carbon power in each programme year" or whether the amount should increase over time as the capacity of individual programmes ramps up, he emphasised.

A high share was appropriate for RGGI that generates relatively little revenue as a result of a fairly low carbon price, ranging between $2 and $3 per tonne, the advisor pointed out. But the EU would have a much larger amount of money to invest if it decided to earmark a similar share of ETS revenues to low-carbon measures, he said.

"Right now, if we tried to dump a huge amount of money in energy efficiency in many member states, we don't have the institutional capacity to spend that money wisely and cost-effectively," Cowart said. "While I'd like to see a strong practice throughout the member states of recycling carbon revenue particularly for efficiency but possibly for other low-carbon policies, I would also of course want to work with any member-state government to figure out how to really cost-effectively and intelligently build programmes so that over time we get there.

As a result, Europe should over time get to the point where it spends half of its ETS revenues on the transition as recommended in the directive, the advisor said.

"The other half might be spent on alleviating fuel poverty, assisting industries that are impacted by the carbon policy, or perhaps investing in the assistance that is needed for less developed countries in order to support a global deal," Cowart added. He warned against treating carbon revenue simply as another source of government funding without targeting it at meeting climate objectives.

Richard Cowart was speaking to Susanna Ala-Kurikka.

To read the interview in full, please click here.