Carbon Tax Center

Rep. Doggett on Waxman-Markey: “I Cannot Support It.”

06/26/2009 by Charles Komanoff

Following is the statement delivered by Rep. Lloyd Doggett during today's House floor debate on the Waxman-Markey “American Clean Energy and Security Act of 2009” (H.R. 2454, or “ACESA”). Rep. Doggett, a Democrat, has represented Texas's 25th CD (central Texas, including Austin) since 1995, and is a senior member of the House Ways and Means Committee.

This energy bill's fine print betrays its laudable purpose. The real cap is on the public interest and the trade is the billions from the public to polluters. It is too weak to greatly spur new technologies and green jobs.  An Administration analysis shows that doing nothing actually results in more new renewable electricity generation capacity than approving this bill.

Vital authority for the EPA is stripped, but 2 billion additional tons of pollution are authorized every year, forever.  Residential-consumer protection incredibly is entrusted to the mercy of utility companies.  Exempting a hundred new coal plants and paying billions to Old King Coal leaves him, indeed, a very merry old soul.

This bill is 85% different from what President Obama proposed months ago.  No wonder his Budget Director called this type of bill 'the largest corporate welfare program in the history of the United  States.'

Until greatly improved, until families share in the billions this bill grants powerful lobbies, I cannot support it.

(Click here to view a video of Rep. Doggett's floor statement. Other CTC posts immediately prior to this present more detailed critiques of the Waxman-Markey bill.)

Photo: Flickr / jrwolivet.

Action Alert: Overhaul or Scrap ACESA

06/23/2009 by James Handley

The House of Representatives is scheduled to vote later this week on the “American Clean Energy and Security Act of 2009” (H.R. 2454, “Waxman-Markey” or “ACESA”). We cannot endorse the bill. The hundreds of provisions in ACESA’s 1,000-plus pages do not add up to the steps needed to avert catastrophic climate disruption. Moreover, the bill’s emissions trading provisions create vested interests that would block future reforms.

A growing chorus of environmental and progressive voices is urging Congress to overhaul or scrap the bill. For example, the Progressive Democrats of America and Friends of the Earth are urging their supporters and members of Congress to oppose Waxman-Markey. To see their action alerts, click here and here.

There is little hope of shifting to a low-carbon economy without a clear, transparent price on carbon emissions. While ACESA’s proponents claim that its cap-and-trade provisions “put a price on carbon,” the Congressional Budget Office (CBO) estimates that CO2 allowances would rise to only $26 per ton a decade from now. That equates to a puny 26 cents a gallon of gasoline — in ten years! And ACESA neutralizes increases in the price of coal-generated electricity by giving 35% of the pollution permits to local electricity distribution companies (LDCs) with instructions to pass on that value to consumers.  If utilities pass through allowance value to customers, that will suppress the all-important price signal, and if utilities keep the free allowances they'll reap a windfall.

The Carbon Tax Center advocates revenue recycling to protect consumers, particularly those with lower incomes, while still providing an effective price signal. In contrast, ACESA’s free allowances to LDCs would not only mute the price signal, but would enrich commercial and industrial firms that use 60% of electricity.

Effective climate legislation is urgently needed, and the upcoming Copenhagen treaty negotiations plus EPA’s process to regulate greenhouse gas emissions have created a much-needed sense of urgency in Congress. But ACESA’s complex, opaque and volatile cap-and-trade provisions are the wrong way to start an international system of carbon pricing. Trying to link cap-and-trade systems across borders would lead to instability, incentivize lax regulation and enforcement, and promote outright fraud as countries compete to become the cheapest supplier of allowances and offsets. We believe that clear U.S. commitments to specific emissions reductions and to funding for international efforts would set the stage for meaningful negotiations far more effectively than trying to build an international treaty around the convoluted structures embodied in ACESA.

As if these major flaws aren’t enough, ACESA has these as well:

1) Weak cap further weakened by offsets: ACESA’s greenhouse gas pollutant standard represents reductions of only 1-4% below 1990 levels by 2020, and 68-71% below 1990 levels by 2050. The Intergovernmental Panel on Climate Change concluded that the industrialized nations must cut far more aggressively to maintain atmospheric CO2 levels at or below 450 parts per million to avoid severe climate impacts including widespread drought, deadly storms, pervasive flooding, and sea level rise inundating entire cities and triggering massive refugee crises.

Weak greenhouse gas reduction goals in ACESA are further undermined by the two billion tons of carbon “offsets” available annually — up to two-thirds from international sources. If fully utilized, these offsets will allow U.S. emissions to keep increasing until at least 2040. Moreover, carbon offsets are difficult to monitor and enforce, raising serious doubt about their environmental value. [Ed note: As of 6/24, ACESA’s offset provisions have been further weakened by the Agriculture Committee.]

2) Weak Renewable Energy Standard: ACESA’s Renewable Energy Standard (RES) appropriately focuses on electric utilities and originally mandated that 25% of U.S. electricity come from renewable sources by 2025. That made sense, since the coal-fired electricity sector is the U.S. largest emitter of greenhouse gases. The bad news is that the mandate has now been watered down to just 15% by 2020, a level barely greater than “business-as-usual.” In addition, ACESA now defines “renewable energy” to include waste incineration and also authorizes a “Clean Energy Deployment Administration” to fund dirty energy like nuclear power and coal.

3) Handouts for the Coal and Oil Industries: Through free allowances and a hidden utility tax, the coal industry would receive approximately $150 billion over the lifetime of the bill for “deployment” of carbon capture and sequestration (CCS) technology that presently doesn’t exist and for technological and economic reasons may never materialize. Even if feasible and economical, CCS would require far more coal to be mined, transported and burned to produce the same amount of electricity. Coal mining is destroying communities throughout Appalachia and in other coal mining regions. In addition, ACESA would also give approximately $24 billion to oil refiners under the pretext that the world’s most profitable industry needs still more financial assistance.

4) ACESA over-compensates trade-exposed energy-intensive industries: ACESA allocates 15% of allowances to energy-intensive trade-exposed industries at least through 2025. While some industries merit protection from competitors in unregulated markets, a number of studies indicate that these industries can improve energy efficiency within a few years and that ACESA’s assistance is roughly double the additional cost that energy intensive firms would face.

5) Pre-emption of EPA Authority: ACESA would pre-empt EPA’s authority to regulate sources of greenhouse gas emissions under the Clean Air Act, while also overriding stronger laws at the state and regional levels. By disabling this regulatory backstop, ACESA thus ensures that its failure as climate policy will be catastrophic.

Overhaul or Scrap ACESA

The need to address climate change is urgent, but that urgency should not be used as an excuse to pass seriously flawed legislation. Congress should skip ACESA’s complexities and go back to the drawing board to develop a revenue-neutral carbon tax, managed price or cap-and-dividend approach.

Photo: James Dennett / Flickr.

Waxman-Markey: Politics-as-Usual Meets Climate Change

06/3/2009 by Charles Komanoff

Guest Post by Robert Shapiro

Shapiro, a former U.S. Undersecretary of Commerce for Economic Affairs, is now founder-director of Sonecon, a Washington, DC consulting firm, and co-chair of the U.S. Climate Task Force. Shapiro spoke at the Carbon Tax Center's December 2008 Capitol Hill briefing. This post first appeared on Sonecon's blog, The Point, on June 2.

The House Energy and Commerce Committee’s recent approval of the Waxman-Markey cap-and-trade bill presents a crucial test for serious advocates of measures to control climate change. It won committee approval with backing from some environmental groups that have promoted cap-and-trade for 15 years, as well as industry groups representing companies that produce most of our greenhouse gases. The disappointing fact is, the bill combines the inherent problems of cap-and-trade long noted by economists, with a long catalog of giveaways and exceptions for industries now supporting it.

By any measure, the bill would do little to address the climate challenge. For example, the International Panel on Climate Change figures that the United States will have to reduce its greenhouse gas emissions by 2025 to 25 percent less than in 1990. The official line is that the bill would cut emissions in 2020 to 17 percent less than 2005 levels — and that comes to just 3 percent less than the 1990 levels. Moreover, the actual reductions would be even less: Greenpeace has calculated that because the bill provides “offsets” to power companies and energy–intensive industries — letting them emit more greenhouse gases so long as they take “offsetting” steps such as planting trees — its actual caps “could be met without any reduction in fossil fuel emissions for more than 20 years.”

[Ed. note: See also Charles Komanoff's recent post in this space, Wanted: Cloudsplitter, for a disquieting analysis of the weak reduction targets in the Waxman-Markey bill.]

Or consider the bill’s implicit price for the permits to emit carbon. Climate scientists figure that a price of $50 per-ton of carbon dioxide should be sufficient to discourage people from using carbon-intensive fuels and encourage businesses to develop and adopt more climate-friendly energy and technologies. The bill, however, would end up pricing carbon dioxide at less than $20 per-ton, less than half the level needed to spur the green changes necessary to protect the climate. To make matters worse, it would give away 90 percent of the permits to the utilities and other industries that produce most of the emissions. The result, in the judgment of Carl Pope, head of the Sierra Club, is a “congressional bailout” for carbon-intensive industries, as well as a bonanza for Wall Street institutions that would happily reap windfall profits from the trading and speculation in some $1 trillion in new permits.

The bill also does nothing about the deep economic drawbacks of all cap-and-trade schemes. It has no provisions to prevent insider trading by utilities and energy companies or a financial meltdown from speculators trading frantically in the permits and their derivatives. It also ignores the basic conundrum of capping emissions when we don’t know what the demand for energy will be in any year — because we can’t predict how cold the winter will be or how fast the economy will grow. The result in every cap-and-trade system ever tried has been enormous volatility in permit prices. For example, the price of permits in the European cap-and-trade scheme moves up and down by an average of more than 20 percent per-month. Imagine that on top of normal fluctuations in energy prices, gasoline moved up or down by another 70 to 80-cents per-month. And without a predictable price for carbon, businesses and households won’t be able to calculate whether developing and using less carbon-intensive energy and technologies makes economic sense.

There’s a much better, more fair and progressive way to deal with climate change: Apply a steady tax of $50 per-ton of CO2 and use the revenues to cut payroll taxes and help average Americans deal with the higher energy prices, and to support climate-friendly R&D and technology deployment. It’s the approach long supported by Al Gore, by Jim Hansen, the NASA scientist who first drew public attention to climate change, by a growing number of environmental groups, and most recently, even by some large energy companies. Its only drawback is political: It can’t be easily gamed by powerful industry groups, and it’s not the approach a few environmental groups have used for a generation to recruit new members. With the planet’s climate lying in the balance, politics-as-usual has to give way to sound environmental and economic policy.

Photo: Flickr / Look Harder.

Wax-A-Mole: Moles Lead 85 to 15

05/29/2009 by James Handley

Washington, DC: Like moles, countless industry lobbyists popped up to beg for free allowances as the House Energy & Commerce Committee drafted the Wax-a-mole, oops, Waxman-Markey cap-and-trade bill. By the bill’s unveiling in mid-May, the moles had gobbled up an astonishing 85% of the allowance pie and were promised 2 billion tons of carbon “offsets,” (up to 75% from outside the U.S.) effectively postponing serious U.S. carbon reductions for over a decade while demolishing the vaunted “emissions certainty” of the “cap.”

A lion’s share (35%) of allowances would go to utilities (effectively, to coal), with other slices for natural gas companies, oil refiners, “energy-intensive” industries and the “clean coal” money pit. While the bill provides a sliver or two for low-income energy assistance and energy efficiency, it also features the Orwellian inclusion of nuclear, garbage-burning, and coal-mine waste in its  “renewable” energy handouts. Along with the allowance giveaway, the bill tosses a juicy new market for carbon allowances to the sharks on Wall Street.

Ironically, during the Waxman-Markey markup, British Columbia Premier Gordon Campbell and his centrist Liberal Party were sailing to re-election in what his opponents billed as a referendum on his revenue-neutral carbon tax. Campbell, an avowed fiscal conservative, stood firmly behind his year-old carbon tax, gaining support from many of the Province’s leftist New Democrats and Greens.

BC’s carbon tax in a nutshell:

· No offsets.

· No allowances and no give-aways.

· All revenues distributed to households and businesses via dividends and tax cuts.

· No trading.

· No bubble.

And, again: Campbell won re-election.

In the face of cap-and-trade's failure to reduce emissions in the European Union, Waxman-Markey’s defenders argue that the Europeans just didn’t do it right. They gave away too many allowances, their “cap” was too loose. Did Waxman-Markey avoid those flaws? No, it scaled them up.

Cap-and-trade advocates contend that Waxman-Markey is the best our political system can deliver, implying that U.S. voters are too browbeaten to accept the inconvenient truth that building a low-carbon economy requires predictably raising the relative price of fossil fuel over alternatives and conservation. So, they say, we have to “hide the price,” build in a trove of cheap offsets and pretend that this will magically lead to reductions… later. Yet the bill's 2020 cap is so innocuous that the 2009-2020 reduction rate in emissions implies only a 46% drop by 2050, not the promised 80%, as CTC’s Charles Komanoff pointed out in this space last week.

Waxman-Markey advocates insist this can be fixed, down the road. But as Gar Lipow pointed out in Grist last week, once a system as complex and heavily-lobbied as this is entrenched, the infestation will be nearly impossible to eradicate. Every interest that has gotten a piece of the pie — the free-allowance holders, the traders, the purveyors of offsets — will be invested in the status quo, whether or not it yields real reductions. Subsidies to the corn-to-ethanol industry (started in the name of “energy independence”) are just one example of a government program that serves no useful purpose but which will not die because its lobbyists maintain an intravenous feed of taxpayer life support.

Instead of handing out allowances to fat cats, British Columbia’s revenue-neutral carbon tax distributes revenues to families and businesses. Rep. Larson’s America's Energy Security Trust Fund Act of 2009 would do likewise. Across the aisle, the GOP's Rep. Inglis recently introduced a similar “Raise Wages / Cut Carbon” bill.

Once Waxman-Markey is reported out of the Energy & Commerce Committee, it will be “scored” by the Congressional Budget Office for budget implications and referred to other House committees, including Ways & Means, which has been considering ways to bypass trading altogether and just set a predictable price on carbon. At more than 900 pages, it’s doubtful that anyone has carefully scrutinized the bill. Ways & Means members understand the volatility problem of emissions trading and have heard about the specter of subprime carbon, but most other members aren't yet on the learning curve.

We have our work cut out: members of Congress need to be educated about the fatal flaws in the Waxman-Markey approach, and encouraged to consider the more transparent and effective alternatives that Ways & Means has introduced.

Photo:  "Whac-a-Mole" by Thomas Hawk (flickr)

Wanted: Cloudsplitter

05/22/2009 by Charles Komanoff

(Originally posted on May 21 on Grist, under the title, Waxman-Markey: ‘80% less by 2050’ is too hard, let’s do 46%.)

I’ve read humongous books in my time, most memorably Cloudsplitter, Russell Banks’ magisterial cinderblock-sized novel of John Brown, the anti-slavery warrior whose “Bloody Kansas” campaign in the 1850s helped provoke the Civil War.

The similarly supersized Waxman-Markey bill couldn’t be more different - not just in genre, but in attitude. Where Brown gave his life to abolish slavery, the “American Clean Energy and Security Act of 2009” seems intent on postponing Americans’ day of reckoning with climate-damaging fossil fuels.

In a bid to pick up support from coal state Democrats, Waxman and Markey this week pruned their cap-and-trade “20% by 2020” greenhouse gas (GHG) reduction target to 17%. The actual reduction will almost certainly be even less, thanks to the bill’s generous “offset” provisions and the economic collapse that has pushed emissions way below levels from the 2005 base year.

Worse, if a larger share of the GHG reductions comes from “other” greenhouse gases such as methane and nitrous oxide, then reductions from fossil fuel burning will be disproportionately smaller. While that won’t necessarily hurt the climate, it will mean that many of the ancillary but vital benefits from reducing carbon emissions, such as reduced oil dependence and diminished environmental destruction from coal mining, will be watered down.

To make my points, I’m going to go quantitative and speak of emissions in “CO2 equivalent terms,” in which emissions of methane and other GHG’s are scaled up to reflect their true heat-trapping capacities. All figures are in millions of metric tons (“Tg” or trillion grams). Ready?

Total U.S. GHG emissions in 2005 were 7,130 Tg, of which 6,074 Tg was carbon dioxide. A 17% reduction (Waxman-Markey’s 2020 target) requires trimming that by 1,033 Tg to reach 5,042 Tg. But I estimate that due to contractions in driving, flying and use of electricity, CO2 emissions this year will be just 5,770 Tg, or roughly 300 Tg less than in the 2005 base year. Hence, the required reduction from 5,770 to 5,042, which is 728 Tg, is just 12.6% of current emissions. That’s one-fourth less than Waxman-Markey’s advertised 17%.

Worse, non-CO2 emissions, which accounted for 1,056 Tg in 2005, are probably fertile territory for quick and cost-effective fixes. If that component could be shrunk at twice the overall target rate, i.e., by 34%, it would contribute 359 Tg of the necessary 1,212 Tg total reduction. This would allow a mere 853 Tg of CO2 to be cut from the 2005 base year, or only 549 Tg to be cut from this year’s estimated CO2 emissions of 5,770 Tg. The latter drop, a paltry 9.5%, could be gotten with annual reductions averaging just 0.9%. And of course the use of offsets will dilute those reductions even further.

Let’s round that 0.9% annual CO2 reduction rate from 2009 to 2020, to 1%, and take it out to 2050. At that rate, in 2050 CO2 emissions would have fallen from today’s levels by only one-third. Even if non-CO2 GHG emissions were completely eliminated, total U.S. emissions of greenhouse gases in 2050 would still be down by less than half (46%) from those in the 2005 base year. There’s a world of difference, alas, between that and the ostensible 80% reduction.

I ran a few of these numbers past a journalist I know who follows climate policy. He replied that “The political deal was to eviscerate short-term drivers [reductions and price rises] in order to get a long-term framework in place.” Maybe so, but what’s troubling is that the first GHG reductions are supposed to be easier to get than the last. Not to mention that U.S. environmentalists once had pretensions of making our country a model for the world, and weren’t going to settle for anything less than science-driven reductions.

I know, I know, investments take time to bear fruit, and the bulk of the reductions to mid-century will come via economies of scale and tech breakthroughs and societal tipping points. But at this stage that’s a matter of faith as much as of empirical evidence (as well as a subject for a separate post). And, last time I checked, Congress had not abolished the Law of Diminishing Returns and its corollary about low-hanging fruit.

Some say that Waxman-Markey, while imperfect, is at least a step on the road toward ridding society of fossil fuels. With the anemic numbers shown here, it smacks more of accommodation than abolition. Our atmosphere still awaits its John Brown.

On the same day this was posted to Grist, the Economist ran an editorial, Compromise has enfeebled America’s cap-and-trade bill. A carbon tax would be better, roundly criticizing the Waxman-Markey bill. While the entire editorial is worth reading, the conclusion is particularly trenchant:

The weakening of this bill illustrates one of the central problems with cap-and-trade systems. They are complex, obscure and therefore susceptible to horse-trading. A chunk of allowances can be handed out to one lobby, a sliver to another, and soon the system’s effectiveness has been sliced away. The corresponding attraction of a carbon tax, which this newspaper has always supported, is its simplicity. The government sets the rate. Everybody can see what it is. Voters get transparency. Businesses get certainty. And the government gets a large chunk of revenue—not to be sniffed at in these difficult times.

This is an important moment. Thanks to much effort on the part of many well-intentioned people, America is prepared to legislate to control carbon. The country needs to seize this opportunity and introduce a simple carbon tax. Sceptics will howl about the initial cost, but it will be transparent and far, far cheaper than the impact of serious climate change.

Photo: Flickr / fpsurgeons photostream

Good News: There’s a Climate Bill. Bad News: It Stinks.

05/20/2009 by Charles Komanoff

Guest post by Daphne Wysham, originally posted on AlterNet. Daphne is a Fellow at the Institute for Policy Studies, co-director of the Sustainable Energy & Economy Network, and co-host of Earthbeat Radio.

First, the good news: One of the most comprehensive pieces of energy and climate legislation ever drafted by members of the U.S. Congress has finally seen the light of day. After lots of haggling among fellow moderate and conservative Democrats, Representatives Henry Waxman (D-CA) and Edward Markey (D-MA) released their "American Clean Energy and Security Act of 2009."

Now the bad news: Their bill stinks. I'll spare you the many odiferous details and just highlight three particularly bad aspects: 1) It won't protect the poor from price-hikes as the price of carbon is slowly internalized into our energy bills, but will protect polluting industries by allowing them free pollution permits; 2) It opens the door to fraud and shell games instead of real climate action by setting up a huge carbon derivatives market; 3) It makes a mockery of our common understanding of "renewable energy," favoring dirty smokestacks over truly clean, renewable energy.

Right out of the starting gate, the bill provides a ridiculous number of giveaways to industry -- something President Barack Obama campaigned against as unfair to consumers: Upwards of 85 percent of pollution allowances are being given away for free to the electricity sector, with many of these free permits not phasing out until 2030. This means little to none of the revenues coming into the public coffers from this "cap and trade" scheme will be used to protect low and moderate households from energy price increases, as envisioned by Obama.

[Editor's Note: The Waxman-Markey bill's Proposed Allowance Allocation would give away 85% of allowances, with the largest share (35%) going to electric utilities. "Energy-Intensive, Trade-Exposed Industries" would receive 15% of allowances. Natural gas distribution companies would receive 9% and oil refiners 2% of allowances. 15% would go to low-income assistance programs and 10% to states for energy efficiency and renewable energy programs. The allocation includes several other, smaller giveaways of allowances including funding for Carbon Capture and Sequestration, a/k/a "clean coal." In general, these free allowances would be phased out or reduced over time with differing timetables.]

This bill would open up the single largest market in carbon in the world, with the potential to reach $2 trillion by 2020. Not only would the Waxman-Markey bill allow for carbon trading between industries, it would open up the so-called "sub-prime carbon" market in carbon offsets -- whereby industries can claim emissions reductions by investing in various projects around the world that theoretically reduce greenhouse gas emissions. The legislation allows 2 billion tons of carbon offsets -- half from developing countries and half from domestic sources -- which represents almost 30 percent of all U.S. greenhouse gas emissions.

Yet the Government Accountability Office (GAO) claims it's virtually impossible to verify whether carbon offsets represent real emissions reductions. And numerous other studies have found that carbon offsets in developing countries often subsidize business-as-usual projects such as hundreds of large hydropower dams in China, many of which were already under construction when they claimed to be providing "emissions reductions."

Industrial hog farms have found ways of tapping the carbon offset market without making the slightest contribution toward getting society off its fossil fuel addiction. The logic is this: If you capture and flare methane from pig manure, you are turning methane (a potent global warming gas) into CO2 (a less potent global warming gas). Pig farms benefit by selling that difference in greenhouse gas potency to big fossil fuel polluters as a carbon offset, allowing them to continue their business as usual.

And if "carbon offsets" are a misleading term, the words "renewable energy," as used in this bill, have an Orwellian ring. Do you think "renewable energy" means windmills or solar panels? Think again. The windmills and solar panels of our renewable energy dreams are being supplanted by the smokestacks of our nightmares. All it takes is a little imagination -- and a high-paid lobbyist -- to claim that just about anything is "renewable energy."

Take biomass burners: There are plans afoot to cut down 100-year-old trees, throw them into a burner, and call this "renewable energy." Never mind that trees can't match coal for stored energy, which would make it necessary to plant whole planets of trees to fuel industry. Just focus your mind on the idea that they grow back!

Or consider the municipal solid waste incinerator duplicitously recast as "waste to energy" projects. This waste could otherwise be recycled (generating 10 times as many green jobs as an incinerator, by the way) or composted, providing rich fertilizer. But, in the twisted logic of the Waxman-Markey universe, incinerators are "renewable" because there is an endless supply of waste going to landfills; if one burns that waste and turns the heat into energy -- presto, change-o -- this, too, becomes a "renewable" form of energy. This in spite of the fact that burning garbage produces more CO2 per unit of electricity generated than the dirtiest coal power plants.

While industry lobbyists may have worked their magic tricks on members of Congress in the name of "bold climate legislation," Planet Earth is likely to remain unmoved by these sleights of hand. At 385 parts per million CO2 and rising, our atmosphere is on a steady course to climate catastrophe unless these charlatans and their henchmen in Congress get real. Though the pigs may rule in Animal Farm, they shouldn't be running our climate politics.

Photo: Flickr / JollyGreenGirl.

Climate and Policy Experts Warn Watered Down Cap-and-Trade Bill Won’t Prevent Catastrophic Climate Change

05/15/2009 by James Handley

The Carbon Tax Center and the Climate Crisis Coalition issued this press release today:

[Washington, DC] “The revised Waxman-Markey climate bill is too watered down to qualify as a positive step for avoiding catastrophic climate disruption,” said Dr. James Hansen, leading climate scientist and prominent advocate of a revenue-neutral carbon tax to curb climate change.

Hansen was referring to an announcement by House Energy & Commerce Committee Chairman Henry Waxman of a revised version of “The American Clean Energy and Security Act of 2009,” the cap-and-trade bill known as Waxman-Markey, which now goes to markup in the Energy & Commerce Committee.

The revised bill’s greenhouse gas emissions “cap” would aim to cut 2020 emissions to only 14-17% below 2005 levels, well short of the 20% reduction in the March 31 Waxman-Markey discussion draft. Many scientists have concluded that even 20% reductions by 2020 would be woefully insufficient to head off catastrophic climate change. The revised draft allows firms to purchase “offsets” amounting to almost half of current U.S. emissions.

Those weak reduction goals combined with large quantities of offsets would allow U.S. emitters to postpone substantial emissions reductions for at least another decade, according to Hansen. “The fundamental problem is that dirty fossil fuels are the cheapest energy,” he said. “We must increase the price of fossil fuels steadily and predictably so that efficiency and renewables can supplant fossil fuels.”

Waxman-Markey's "Proposed Allowance Allocation" released today takes the opposite approach, giving away 85% of allowances (emission permits), overwhelmingly to industry, assertedly "to protect consumers from energy price increases." But it's far from clear that handing free allowances to industry would "protect" consumers. Furthermore, any muting of price signals would undermine a key incentive to reduce emissions. Douglas Elmendorf, director of the non-partisan Congressional Budget Office testified to the Senate Finance Committee on May 7 that:

Firms that used [cap-and-trade] emission allowances for CO2 would generally pass along to consumers the cost of using those allowances in the form of higher prices for their products — regardless of whether the government sold emission allowances or gave them away.  Such price increases... would be the most important mechanism through which businesses and households were encouraged to make investments and behavioral changes that reduced CO2 emissions.

Waxman-Markey's provisions giving away carbon allowances to industry would leave far less money available to help consumers cope with higher energy prices, for example by recycling revenue back to taxpayers, through direct "dividends" or offsetting tax deductions.

President Obama often pledged during the 2008 campaign to require 100% auctioning of permits under a cap-and-trade bill, instead of giving them away for free as windfalls to polluting industries. As recently as last week, the Administration’s OMB director, Peter Orszag suggested that there would be “no change” in that position.

Policy experts and a series of CBO reports also raise grave concerns about the tendency of carbon trading to increase energy price volatility, as well as the potential for “gaming the system” inherent in the approach. Economists and experts warn that trading allowances will spawn a lucrative secondary market speculating in derivative products which would further aggravate price volatility.

Clinton Administration Undersecretary of Commerce Robert Shapiro, who heads the U.S. Climate Task Force, recently wrote that after the Wall Street meltdown, carbon trading looks like a “dead policy walking.” Both Hansen and Shapiro have urged policymakers to support a simpler and more transparent alternative of setting prices through a carbon tax which would increase gradually and whose revenues would be recycled back to taxpayers. This would raise carbon prices in an orderly, predictable way without subjecting consumers to price volatility and without delivering windfall profits to companies receiving free allowances or fueling speculative trading on secondary markets.

“Predictably raising the price of carbon-based fuels is essential to promote investment in low-carbon renewable energy and efficiency,” said Charles Komanoff, economist and co-director of the Carbon Tax Center. Komanoff suggested that “We will need a range of policies to avert climate disaster, but without clear, orderly price signals, there simply is no hope of creating the economy-wide incentives we need to become a low-carbon economy.”

“There is a time to compromise -- to accept the best that you are likely to get. This is not one of those times,” said Tom Stokes, coordinator of the Climate Crisis Coalition. “We understand the need to get behind an effective climate bill.  Dr. Hansen's scientific findings are serious and compelling. Waxman-Markey doesn't comes close to addressing the dire challenge we all face.  As a model for effective and fair climate legislation, we urge the Energy and Commerce Committee to take a hard look at Rep. John Larson’s carbon tax bill, America's Energy Security Trust Fund Act of 2009 (H.R. 1337).  Larson's bill combines aggressive goals, quick implementation, predictable carbon fees and an equitable recycling of the revenues back to the people."

Photo: Melting Greenland Ice Cap by Gary Jordan (flickr)

BC Voters Stand By Carbon Tax

05/13/2009 by Charles Komanoff

Climate campaigners across North America awoke this morning and smelled the coffee: a resounding electoral victory in British Columbia.

Voters in Canada’s third-largest province yesterday returned to power, for a third four-year term, BC premier Gordon Campbell and his Liberal Party, who last July instituted the Western Hemisphere’s first major carbon tax.

We’ll let AFP news service report for us (emphases added):

British Columbia re-elects Liberals (May 13)

VANCOUVER, Canada (AFP) — Voters in Canada's westernmost province kept a controversial carbon tax by re-electing the provincial government and rejected a landmark referendum for proportional representation.

As the British Columbia elections agency reported more than 60 percent of votes had been counted, the pro-business Liberals held a strong lead, with nearly 46 percent of votes compared to slightly more than 42 percent for the left-wing opposition New Democratic Party.

Two hours after the polls closed, New Democratic leader Carole James conceded defeat…

The Liberals and New Democrats, the province's two main parties, had sparred during the campaign over issues including the economy, homelessness and several local scandals. But the environment -- and especially the carbon tax -- became the key election issue.

The tax, the first straight carbon tax in North America, was introduced by the government of British Columbia Premier Gordon Campbell in 2007 [ed. note: 2008] to help fight climate change. The tax is revenue neutral -- the collected tax money is paid once a year to provincial residents.

The New Democrats, led by Carol James, fiercely opposed the carbon tax, arguing that it especially hurt rural residents. But the party's opposition to the tax cost them the support of almost all environmental organizations, which sided with Campbell solely on the issue, while the nonpartisan Conservation Council launched a campaign telling voters to choose "anybody but James."

The Green Party, which garnered slightly more than eight percent of total votes in early results, supported the carbon tax. But Green Party leader Jane Sterk was defeated in her home riding on Vancouver Island.

The election win gave Campbell a third term -- a rare occurrence in the province -- with his party holding a majority of British Columbia's 85 legislature seats.

While elections are not referenda, the AFP report makes clear that the carbon tax stood front and center in the BC voting. After scanning hundreds of articles on the two-month campaign (and being interviewed for a handful, as well as appearing on Vancouver radio), our reading is that voters rewarded the Liberals for sticking to principle and standing up to the NDP’s withering attacks, as much as for the substance of the carbon tax itself.

The BC carbon tax took effect on July 1, 2008 at a rate of $10 (Canadian) per metric ton of carbon dioxide. Converting currencies and metrics, it equates to a very modest $7.80 per ton of CO2. However, the tax is to rise each year through 2012 by half the original amount, reaching the U.S. equivalent of around $11.75/ton this July 1 and, in 2012, around $23.50.

A U.S. carbon tax at that level would raise petrol prices by approximately 23 cents a gallon and national-average electricity prices by around 1.7 cents a kilowatt-hour. (Virtually all power generation in British Columbia is hydro-electric, so the carbon tax effectively exempts electricity.)

The BC tax is revenue-neutral, with revenues returned to taxpayers through personal income and business income tax cuts. The Feb. 19, 2008 BC Budget and Fiscal Plan spells out the tax’s rationale, impacts and mechanics, and is essential reading for any carbon tax advocate seeking to master communication tools for making a carbon tax palatable to the public.

In an e-mail to the Carbon Tax Center yesterday, American climatologist and climate campaigner James Hansen said, “The important thing is to get on the right policy track at the beginning — the policy must attack the fundamental problem, that dirty fossil fuels are the cheapest energy because they are not made to pay their costs to society.” Yes, carbon taxes must eventually reach high levels, but what matters now is that one major jurisdiction has gotten on the right policy track.

U.S. climate campaigners, mired in cap-and-trade murk, could learn from yesterdays' election. At the very least, we owe a big debt of gratitude to BC Premier Gordon Campbell and his Liberal Party for political courage, and likewise to the voters of British Columbia for rewarding that bravery in the voting booth.

Photo: Flickr / Skagit IMS

Lipstick on a Pig?

05/12/2009 by Daniel Rosenblum

Buzzwords: Rephrasing Obama's Lexicon, in today's LA Times, describes Obama administration efforts to change the words describing its cap-and-trade proposal -- "Words that have been vetted in focus groups and polls are seeping into the White House lexicon, while others considered too scary or confounding are falling away." According to the LA Times:

Now when Obama talks about forcing companies to bid at auction for the right to emit greenhouse gases, he is more apt to mention "market-based" proposals and "clean energy jobs," hinting at a rich new employment source.

Why the change? According to the same article, a recent survey tested 19 phrases and found "clean energy jobs" had the widest appeal; "cap-and-trade" ranked next to last.

Interestingly, substance does play a role.  A "strategist" is quoted as saying "the term 'trade' reminded people of the volatile stock market, which made them uneasy about the underlying policy." People should be worried about the sophisticated financial instruments that are being proposed as part of cap-and-trade.  Having already lost their retirement funds due to Wall Street, Americans have good reason to worry about trusting the same people to protect them from climate change.

Putting lipstick on a pig?  Not really, since the Obama's administration is at least proposing a relatively good form of cap-and-trade that includes auctioning emissions allowances rather than giving them away for free to the worst polluters.  As of last week, the administration remains committed to auctioning.

If you want to see lipstick on a pig, wait to see the "compromise" Waxman-Markey proposal that's expected to be released later this week.  If press reports are correct and the proposal gives away a large proportion of allowances for free and relies on offsets rather than real emissions reductions from real coal plants, it's going to take a lot of lipstick.

12 Reasons for Cap-and-trade’s Popularity in the Climate Policy Community

05/8/2009 by Charles Komanoff

Guest post by Michael Hoexter, Ph.D., LEED-AP

Michael blogs about climate and energy policy and marketing issues at www.greenthoughts.us. Through his work selling energy efficiency programs to businesses in California, he concluded that cap-and-trade’s carbon price volatility does not provide a strong price signal to CFOs and other financial decision-makers to invest in energy efficiency. A frequently asked question to CTC is how cap-and-trade became, and remains, mainstream environmental groups' preferred approach for pricing carbon emissions -- despite the financial sector's unraveling.  Michael has compiled a dozen factors that go a long way toward explaining cap-and-trade's persistent hold over some advocates. -- CTC

1) C&T already has its own bureaucracy. In the U.S., cap-and-trade systems are only beginning to be erected, but on a global scale thousands of people are now employed in administering various aspects of the Kyoto protocol programs, in particular the controversial CDM or “clean development mechanism” offset programs. Because of its complexity, cap-and-trade, notwithstanding its market-based label, is very bureaucracy-friendly, whether this bureaucracy is part of governments or part of non-governmental agencies.

2) No one really understands markets. Markets are complex social phenomena but the state of knowledge about them is riven with partisan contentions about their proper scope of applicability. Some think that almost everything should be a market while others think they should be controlled and circumscribed.

3) Markets became the object of uncritical veneration. From the late 1970s on, markets were viewed by many as panaceas for almost every social problem. Given our limited understanding of economies and markets, it was easy for a loose coalition of politicians and economists to ascribe all manner of positive attributes to markets. If we knew better what markets were we would be less likely to apply them to every social problem uncritically.

4) “Tax” became a dirty word. For the past several decades few people were willing to stand up for taxes as a means of paying for government services. The end-run around the “tax” word continues, though there are signs that President Obama may be willing to convey to Americans that taxes pay for valuable services. Anti-tax sentiment was stoked by the notion that the private market would deliver services that the government was either incapable of or did inefficiently.

5) Policy designers don’t generally have business backgrounds. While the microeconomics of investment decision-making aren't particularly arcane knowledge, many in the climate community are not well versed or sympathetic to the concerns of business (even as they attempt to influence these businesses to save the planet).

6) Cap-and-trade has buy-in from several political and economic constituencies. Cap-and-trade includes ideological and concrete monetary elements that serve several constituencies. The “cap” appeals to many climate activists and politicians who are largely innocent of the policy’s faulty on-the-ground microeconomics. The “trading” and “market-based” components are supposed to placate political conservatives and remunerate those committed to trading as a means of making a living. The Clean Development Mechanism has developed into a funding source for projects in developing nations. CDM has hitched two laudable goals together, the fight against global warming and fighting poverty in less developed nations. Additionally, the use of these CDM projects as offsets takes pressure off industrialized countries to innovate in the area of low-carbon technologies. Thus, the development community, the climate action community, polluters in the first world, and the aid recipients feel themselves to be served. However, cap-and-trade does not support or serve well its “frontline soldiers”, the businesses and individuals who need to respond to the carbon price or “work” the permit market.

7) The “cap” is a reassuring metaphor. While the cap in cap-and-trade is entirely virtual, realized only through pricing or administrative actions like penalties, the concrete image of a placing a physical object like a cap over emissions reassures that there is a limit to emissions somewhere. Yet without both a price for emissions and some pretty daunting penalties, the cap hovers in the air without any foundation at all; it remains simply a well-meaning “climate pledge.”

8 ) It is difficult to connect high ethical ideals to self-interest. Acting on climate change corresponds to high ethical ideals (among people who accept its reality) that understandably can have lulling and analgesic effects on those involved in the movement. Economics deals with more venal matters. To make the policy work, as straight a line as possible needs to be drawn between the high ethical ideal and its real world realization: this requires sober thought and a commitment to neither venality nor the “high” associated with ethical purity. Cap-and-trade has surrounded itself in a fog of good intentions that obscures key lapses in its “mechanics.”

9) The prestige of the U.N. and Global NGO’s. There are many smart, well-meaning people from all over the world at the U.N. and associated NGO’s. To many Americans, many of these urbane folk seem unbelievably knowledgeable, especially about remote parts of the world about which there is little broadly disseminated public information in the U.S. So some assume: how could they be wrong?

10) Cap-and-trade kicks the monetary “can” down the road.  People don’t like to confront large upfront costs; that’s why buying on credit is so seductive. Cap-and-trade does not name a price for climate mitigation upfront. (Thomas Friedman’s criticisms have touched on this aspect of cap-and-trade.) Furthermore, as in #8, above, pricing is considered to be venal, not part of a highly ethical enterprise.

11) Complexity can disguise weaknesses. Cap-and-trade’s complexity can hide its weaknesses compared to measures that come with an explicit price tag. Concern about climate is of varying importance in countries throughout the world but hardly anywhere is it number one. More effective measures of simpler design may have to bring the issue to a head before popular support can be organized.

12) Big mistakes are easier to hide in plain sight than little ones. People tend to accord others a basic level of competency they may not deserve, especially if they are using arcane terminology. Unfairly for some people who are basically “right” on a particular issue, small mistakes may stand out like a sore thumb in a basically sound context. Cap-and-traders have followed the dictum, popular in some circles: “make only big mistakes.”

Image: Flickr / hodgsonteacher