Hansen on Next Climate Steps: Charge Polluters; Pay People (dotEarth; updated, w/ slideshow)
Industries Allied to Cap Carbon Differ on the Details
Industries Allied to Cap Carbon Differ on the Details (NY Times)
Business Think-Tank Slams Cap, Tilts toward Tax
"A significant portion of the business community would prefer a carbon tax" to a carbon cap-and-trade system, an official of a leading pro-business lobby group declared today.
In an interview on E&E TV, Margo Thorning, senior vice president and chief economist at the American Council for Capital Formation, honed in on one of the key advantages of carbon taxes over the competing cap-and-trade approach — price certainty:
An advantage of a carbon tax … is that an investor knows, given the projected … set of increases in carbon prices from one year to the next, he knows what the carbon price will be and he can factor that in to what kind of capital equipment he buys, what sort of transport fleet he puts in place, and it provides more certainty.
ACCF’s board has been called "a who’s-who in big business," with past or present directors from the American Petroleum Institute, American Forest & Paper Association, Edison Electric Institute and other pro-industry trade associations, thus lending corporate gravitas to Thorning’s remarks, excerpted (and slightly edited) here (Note: subscription probably required):
E&E TV: One of the bill’s ideas is to set
up a financial board of sorts that would oversee the new greenhouse gas market. What’s your take on setting up a board of regulators?
Margo Thorning: I think the idea of expecting regulators to know what the price of carbon should be is probably not very well grounded. It does serve as a backstop in that if prices got so high that producers and households were experiencing severe economic pain they could say, well, just go ahead and emit. But it creates uncertainty, because for someone trying to invest in new equipment, if they don’t know what the price of carbon will be, that adds to the risk of the investment. That’s the problem with a cap-and-trade system and that’s what’s happening in Europe. Investors don’t know what the price of carbon will be from one month to the next or one year to the next and it’s been very volatile. So that makes the
cost of capital higher, investment more uncertain, and produces less investment. An advantage of a carbon tax, if you want to impose some sort of penalty on carbon use, is that an investor knows, given the projected set of increases in carbon prices from one year to the next, he knows what the carbon price will be and he can factor that in to what kind of capital equipment he buys, what sort of transport fleet he puts in place, and it provides more certainty. And a carbon tax provides a stream of revenue for the government to spend on new technology or to pay for offsetting the burden on low income
individuals of higher energy prices.
E&E TV: So, if you were given the opportunity to write your own proposal of how the U.S. should
reduce emissions and not hurt itself economically, you’d go with the carbon tax?
Margo Thorning: I would go with the carbon tax and more incentives for new technology development.
E&E TV: So, if a cap and trade is not the way to go as you’re saying, why has the business community come out in support of a cap and trade?
Margo Thorning: Well, a significant portion of the business community would prefer a carbon tax and there’s beginning to be more discussion about that. I think one reason some in the business community have supported a cap and trade is they expect to make money on it. They’ve maybe made emission reductions or expect to be able to make emission reductions. They expect to be winners. On the other hand, new companies or companies that are expanding that need more credits will be losers. So the winners under a cap-and-trade system, for example in Europe, the big electric utilities have been winners because they’ve been able to pass forward to consumers the price of the carbon credit even though they were given those credits by the government. So people who expect to make money on it naturally are supportive.
* * *
ACCF’s clear acknowledgment of the price-certainty advantage of a carbon tax, coupled with its outspoken criticism of carbon cap-and-trade, follows the contours of the American Enterprise Institute’s June report contrasting the two approaches. The myth that business unanimously favors carbon cap-and-trade over carbon taxes (or monolithically opposes carbon pricing in the first place) is crumbling.
Photo: le_rez / Flickr.
Lieberman Climate Bill Could Hand Polluters Trillions
Friends of the Earth released an important analysis today revealing who would be the real winners from the type of carbon cap-and-trade program being promoted by large corporate polluters. Senators Joe Lieberman (I-Conn.) and John Warner (R-Va.) are expected to introduce cap-and-trade legislation tomorrow that would reward polluters by giving them a substantial number of emission allowances for free. The Friends of the Earth analysis is based upon the allocation in an August draft and will be updated to reflect precise numbers in the pending legislation, but the message is clear — polluters would receive a windfall.
The Lieberman-Warner bill has exposed an important split in the environmental community, with Environmental Defense, the Natural Resources Defense Council and National Wildlife Federation supporting the legislation while Friends of the Earth, U.S. PIRG and Clean Air Watch oppose it, according to a story in E&E News (subscription required). According to the E&E News story, Senators Lautenberg (D-NJ) and Sanders (I-Vermont) today issued a joint statement in which they:
outlined their demands today for legislation whose targets are "bold, aggressive, and comprehensive enough to prevent the devastating effects of catastrophic climate change." They called for pollution credits to be distributed by an auction rather than being given for free to electric utilities and other U.S. sources of greenhouse gas emissions.
An auction isn’t ideal, but it is far closer to the "gold standard" of a carbon tax than a cap-and-trade program that gives away allowances. Friends of the Earth’s press release is reprinted verbatim below:
Lieberman climate bill could have record corporate giveaways
Oct. 17, 2007
For Immediate Release
For more information contact:
Nick Berning, 202-222-0748
Legislation’s allocation of permits to polluters could be worth trillions, says analysis from Friends of the Earth, and the coal industry stands to be the biggest winner
WASHINGTON — Global warming legislation expected to be introduced tomorrow could provide giveaways worth hundreds of billions or even trillions of dollars to polluting industries, according to an analysis of a draft of the legislation conducted by Friends of the Earth.
The cap-and-trade legislation, sponsored by Senators Joe Lieberman (I-Conn.) and John Warner (R-Va.), would attempt to limit U.S. greenhouse gas emissions by setting annual emissions limits for each industry. Under this legislation, a set amount of greenhouse gas pollution would continue to be allowed — and the way in which these transferable allowances, or permits, would be allocated could richly reward the country’s largest global warming polluters, as each permit could be sold or traded for cash just like a stock or a bond.
"What we’re looking at is the potential for corporate giveaways that are orders of magnitude larger than anything environmentalists have ever faced — potentially the biggest corporate giveaways in American history," said Erich Pica, one of the authors of the Friends of the Earth analysis of the August draft of the legislation. "Polluters should have to pay for their pollution, not be rewarded for it."
The Friends of the Earth analysis found that the coal industry in particular stands to benefit from this legislation, precisely because it is currently the industry most responsible for global warming pollution. Depending on market conditions, the coal industry could receive permits worth up to $231 billion in the first year alone, 48 percent of the total permit allocation. It could then sell or "trade" its permits to others for their cash value, or it could emit at no cost carbon that less fortunate industries would have to pay to emit.
"If Congress is going to implement a cap-and-trade system, it should auction off 100 percent of permits so that taxpayers reap the financial rewards. We could use that money to help Americans adjust to higher energy costs, and to subsidize clean, alternative forms of energy," Pica said. "Instead, Senators Lieberman and Warner have proposed auctioning off only 24 percent of permits at the outset of this legislation, setting up a rigged market in which most permits are handed out to polluting industries for free. If you see a lot of polluters lining up in support of this legislation, that’s why."
While the specific language of the legislation being introduced tomorrow could differ somewhat from the draft circulated in August, permit allocations will reportedly continue to be a problem. Friends of the Earth will update its analysis after the legislation is introduced to reflect the final numbers in the bill.
Friends of the Earth’s analysis of the Lieberman-Warner draft can be found here.
FoE’s August statement responding to the initial release of the Lieberman-Warner draft can be found here.
U.S. Carbon Trading Market Could Be Lucrative – or Perilous
The Daily Report, a Georgia-based "timely and indispensable guide to everything happening in the legal world," ran a provocative story today.
A U.S. Carbon-Trading Market Could Be Lucrative—or Perilous touches on just how complicated it will be to set up a cap-and-trade market. But the focus is on who will benefit most. The environment? There’s not much discussion of how effectively a cap-and-trade scheme will reduce emissions, but there are telling observations on who will get rich.
For those whose interest in climate change is secondary, the good news about carbon cap-and-trade is that:
It won’t just create work for environmental, energy trading and regulatory attorneys. It also will generate hours for those whose practices encompass business transactions and litigation, capital markets, project finance and even white-collar crime. Already, it’s lining the pockets of lobbyists in the nation’s Capitol and the 17 states that are moving even faster than the federal government toward considering regulation and trading of greenhouse gases, implicated as a cause of global warming.
Climate change deniers won’t be thrilled, but there’s good news for others:
For climate-change skeptics and deniers, it’s no doubt a frustrating time to be watching the 110th Congress. But for businesspeople and lawyers — regardless of their views on whether the Earth is warming and why — it’s nothing short of the opportunity of the century.
“The saying in Washington is anytime there’s a new program, the lawyers are the ones who get rich first,” says Charles A. Patrizia, a Paul, Hastings, Janofsky & Walker attorney who’s spent three decades inside the Beltway.
The good news, again for lawyers, is that there will be work to spread throughout the law firm:
If and when the U.S. government imposes carbon emissions restrictions, says Jones Day’s Holden, the amount of legal work generated by those regulations will be significant.
“The transactional side is going to be huge; the regulatory side, the litigation side is quite big; there’s patent, intellectual property; the international law side,” he says. “It’s hard to find an area of law that isn’t going to be impacted by a regulatory program that not only affects every manufacturing facility, but … [affects] all the products that go into what is manufactured.”
Will the focus of the interest groups that stand to gain from cap-and-trade be on the most efficient ways to reduce greenhouse gas emissions? Will the lawyers, traders, coal companies and others put aside their self-interest because a revenue-neutral carbon tax would provide more greenhouse gas emission reductions sooner, more efficiently and less expensively? Don’t hold your breath!
Photo: Krispy*Kreme / Flickr
Obama Extols Carbon Tax
This Q&A is from an interview with Grist magazine, published July 30. While Obama’s positive words about a carbon tax are encouraging, shouldn’t his next step be to ditch the substitute and go for the real thing?
Q. Do you believe that we need a carbon tax in addition to a cap-and-trade program?
A. I believe that, depending on how it is designed, a carbon tax accomplishes much of the same thing that a cap-and-trade program accomplishes. The danger in a cap-and-trade system is that the permits to emit greenhouse gases are given away for free as opposed to priced at auction. One of the mistakes the Europeans made in setting up a cap-and-trade system was to give too many of those permits away. So as I roll out my proposals for a cap-and-trade system, I will price permits so that it has much of the same effect as a carbon tax. [Emphasis added]
Is Cap-and-Trade Big Green’s Dead-End?
When we resolved late last year to create the Carbon Tax Center, we thought our big battles would be fought with climate-crisis deniers, plus occasional skirmishes with doctrinaire leftists decrying attempts to graft carbon taxes onto an unjust social and economic structure. Little did we dream that our most contentious disputes would be with fellow environmentalists who had made up their minds that carbon taxing is a political no-sale and that cap-and-trade is the only feasible way to put a price on carbon emissions. (For background on carbon tax v. cap-and-trade see our issue paper on the subject.)
So it’s with some surprise and dismay that we find ourselves debating “tax vs. cap” with the most outspoken Big-Green member of the U.S. Climate Action Partnership, Environmental Defense. The latest round, in May, has played out in the electronic pages of Gristmill. Here in chronological order are
- CTC’s Gristmill post of May 22, 2007 (also posted on Common Dreams)
- ED’s Response on Gristmill, also dated May 22, 2007
- CTC’s Riposte to ED.
We welcome your comments.
— Charles Komanoff, Dan Rosenblum
Strange Bedfellows in Climate Politics
Did lefty pundit Alexander Cockburn and corporate behemoth General Motors secretly agree to swap climate positions?
It looks that way. GM, swallowing hard, recently joined the U.S. Climate Action Partnership, the elite enviro-business coalition pushing cap-and-trade — a so-called “market-based system” for controlling carbon dioxide emissions. Meanwhile, the famously acidic Cockburn lacerated global warming orthodoxy in his column in the Nation magazine, deriding it as a “fearmongers’ catechism [of] crackpot theories” ginned up by “grant-guzzling climate careerists” and opportunistic politicians looking to ride the greenhouse “threatosphere” all the way to the White House. (Whew!)
But there’s less here than meets the eye. For as the inconvenient details of cap-and-trade schemes start to surface, USCAP is looking less and less like a CO2 control lobby and more like a corporate club seeking to cash in on the rising clamor against free carbon spewing. And Cockburn, it turns out, has been raining on the climate crisis parade for years.
Let’s dispense with Cockburn first. His Nation column is infested with nakedly inverted syllogisms, such as: Al Gore is alarmed by global warming, but Al Gore backed nuclear power as a congressman, ergo alarm over global warming is a ruse to push nukes. Or, The New York Times is alarmed by global warming, but The New York Times whitewashed the Bush Administration’s Iraq WMD lies, ergo alarm over global warming is a lie.
But Gore and the Times are easy targets. The heavyweight in the room is the international climate-science community. To take them down, Cockburn disingenuously recycled a charge by Science magazine’s global warming reporter, Richard Kerr, that “climate modelers have been ‘cheating’ for so long it’s almost become respectable.” It’s yet more illogic: Climate modelers cheat, which makes climate models part and parcel of the “reflexive squawk of the greenhouse fearmongers,” which makes global warming a hoax.
Worse, in the time scale of climate modeling, that “cheating” remark Cockburn lifted is positively ancient. It’s the lead from a May 16, 1997 Science article by Kerr heralding the first climate model to replicate actual climate records without fudge factors, developed at the National Center for Atmospheric Research. And much as the first four-minute mile back in the 1950s unleashed a torrent of sub-four-minute miles, NCAR’s breakthrough triggered a tidal wave of modeling progress that has largely done away with the fudge factors, along with the yawning error bars that surrounded the old forecasts. Twenty-three different models, all unfudged, support the terrifying new finding from the Intergovernmental Panel on Climate Change that the current trajectory toward doubled CO2 levels will raise the mean global temperature above the pre-industrial level by six-and-a-half degrees Fahrenheit, give or take a mere degree.
No doubt Cockburn would deride this forecast as “hysteria” propounded by IPCC “functionaries and grant farmers.” But perhaps it’s time for Alex to take playwright Harold Pinter’s advice to Bush to “look in the mirror chum.” After all, this is the same Cockburn who, in a nutty 2005 paean to his “aging fleet of 50s and 60s era Chryslers” provocatively titled “The Virtues of Gas Guzzling,” proclaimed: “I don’t believe in any effective role of man-made CO2 in global warming, a natural cyclical trend.” Cockburn then dug his hole deeper, writing that oil itself “doesn’t come from dead dinosaurs and kindred organic matter [but] is a renewable, primordial soup continually manufactured by the Earth under ultrahot conditions and tremendous pressures.” Earth to Alex: where does contrarianism end and madness begin?
But if Cockburn pretty much begs to be dismissed, the boys at the U.S. Climate Action Partnership are sober as pinstripes. From Shell to DuPont, from GE and now GM to the Natural Resources Defense Council and Environmental Defense, the 27-member USCAP is mustering a high-octane campaign (some would call it a stampede) to re-fashion the holy grail of climate protection — attaching a stiff price to carbon pollution — as an emissions-trading poker table with a billion-dollar minimum. Thanks in large part to USCAP, a half-dozen carbon cap-and-trade bills are circulating in Congress, and the A-list of Washington carbon-trading acolytes includes House Speaker Pelosi and Senators (and presidential contenders) McCain, Obama, and Clinton.
Yet cap-and-trade seems a curiously unpromising way to put a price on carbon. Making fossil fuels cost more portends a radical overhaul of the American way of life: people will drive and fly less, industries will rise and fall, cities will redevelop and suburbs will stop sprawling. To make that transition requires a pricing mechanism that’s simple, transparent, and equitable. A straightforward, ecumenical carbon tax meets that standard; devilishly complex cap-and-trade does not. The old Hollywood maxim that a story line can’t exceed 25 words should disqualify cap-and-trade systems from the get-go. And as Americans get wind of the legions of legal and financial functionaries swarming around carbon trading, they’ll likely feel disillusioned if not hoodwinked — and ripe for a reversion to unfettered carbon-burning.
There’s no mystery to General Electric’s and General Motors’ embrace of cap-and-trade. Daily, the climate handwriting on the wall grows clearer, and corporate America knows it’s only a matter of time before it is made to pay for using — and making products that require consumers to use — climate-altering fossil fuels. And unlike a carbon tax, which would resist gaming and could be started quickly, a cap-and-trade system would take years to formulate as powerful interests carved up the revenue pie.
Moreover, that revenue pie — a concomitant of “putting a price on carbon” — will eventually total hundreds of billions of dollars a year. Yes, the carbon price has to be high to internalize the costs of climate damage and for renewable solar and wind power and energy efficiency to be in position to displace and ultimately eliminate fossil fuels. Under a carbon tax, those revenues would be known in advance and could be dedicated to public purposes such as progressive tax-shifting and transition support for affected communities. In contrast, the costs of cap-and-trade systems are likely to become a hidden (and regressive) tax as dollars flow to market participants.
The more interesting question is why some big environmental groups are pushing carbon cap-and-trade. One reason is precedent: Environmental Defense conceived emissions trading in the 1980s and spent years convincing utilities and Congress to make it the vehicle for cutting acid rain pollutants (though in truth that “market” bears as much resemblance to a carbon market as did a French mud hut to the Palace of Versailles). In addition, at the time the green groups were laying the groundwork for USCAP — before Gore’s movie and before the Republicans lost their hold on Congress — the more politically dicey carbon tax alternative may have appeared out of reach. Settling for cap-and-trade may have seemed more sensible than vying for a carbon tax and coming away empty-handed.
Of course, there’s nothing to stop the “green” members of USCAP from pointing to the new facts on the ground and throwing in with the smaller but fast-growing carbon tax forces. No one should hold their breath, however. NRDC, ED, and their partners have invested too much institutional capital in building bridges to big business.
Dig deeper, moreover, and a harder truth emerges. NRDC and ED have gotten very skilled — and grown very prosperous — at cutting deals. What began benignly 20 years ago, with the groups persuading utility regulators to fund innovative energy-efficiency programs, appears to have mushroomed into a perceived entitlement to speak for environmentally concerned citizens, meaning most of us, while being accountable only to their own trustees.
This top-down style, in which “the ways that work,” to borrow ED’s slogan, are formulated in private and presented to the community as a fait accompli, won’t do with something as momentous as putting a price on U.S. carbon emissions. The stakes are too high in both dollars and lives for the environmental position to be decided by a handful of green groups, no matter how accomplished or well-meaning. The path to carbon pricing must be debated and ratified in the open, not negotiated in certified-green offices.
Cockburn knows this. Hell, it was Counterpunch’s reporting on those backroom utility deregulation deals in the 1990s that helped alert advocates like me to Big Enviro’s aversion to the democratic process. C’mon Alex, dump the ‘59 Imperial and the climate crisis conspiracy theorizing. You needn’t enlist with the Carbon Tax Center, but the members-only push for cap-and-trade is a worthy target. Load up and let ‘er rip.
Charles Komanoff, an economist and environmental activist, co-founded the Carbon Tax Center earlier this year.
Response from Environmental Defense: Top-down or bottom-up, the goal is cutting carbon
The following is a guest essay from Tony Kreindler of Environmental Defense, in response to Charles Komanoff’s post from earlier today, “Strange bedfellows in climate politics.”
Charles Komanoff’s post is entertaining, but a lot of what he says is wrong. His main proposition is that unlike “devilishly complex” cap-and-trade, a carbon tax is straightforward approach that will resist gaming by special interests. That raises a few questions: is there anything straightforward about the U.S. tax code? Has anyone ever gamed that system? Are there “no legal and financial functionaries” swarming around taxpayers?
Those questions aside, the fact is that a cap is the only way to guarantee the emissions cuts scientists say we need to avert the worst impacts of climate change. No one knows what level of carbon tax will produce what level of emissions cuts — and the science is pretty clear that we need to cut emissions by 80% from current levels by mid-century or we’re in trouble. Guess wrong on a tax and we’re all co-starring in a big-budget disaster movie.
Finally, a carbon cap can pass Congress and a tax can’t, so if we agree climate change is extremely urgent, we don’t have time to waste. Which brings us to the big corporations in USCAP. I’m sure they’ve all got a mix of reasons for pushing strong action on climate, but their motivations aren’t important — getting something passed into law is. There’s little doubt that the USCAP companies can help us get something passed.
Komanoff is worried about the process; we’re worried about cutting carbon emissions enough to avert a real environmental, economic, and human disaster. Top-down, side-to-side, stand-on-our-heads-till-we’re-blue — however it happens, the important thing is getting it done.
Rejoinder to Environmental Defense: Cap-and-Trade Is Looking Like Duck-and-Cover
Can any of ED’s three main points
stand up to scrutiny?
ED: A carbon tax can be gamed as easily as a carbon trading scheme.
CTC: A carbon tax may be subject to gaming, but cap-and-trade positively invites it. USCAP concedes that some allowances will be given out (not auctioned) at the outset, which means protracted, high-stakes negotiations (“a giant food fight,” a leading utility executive called it) over the free allowances that will be worth billions. How will these be allocated? What baseline year? Watch Earth burn as the polluters jockey for the baseline giving them the most allowances! With a carbon tax, by contrast, any tax preferences or exemptions will at least be visible and locked in, and thus potentially removable. This difference is part of why former Commerce Undersecretary Robert Shapiro wrote recently that carbon taxes, compared to cap-and-trade “are much less vulnerable to evasion and market manipulation, providing a more stable and transparent system for consumers and industry alike.”
ED: “A cap is the only way to guarantee the emissions cuts scientists say we need to avert the worst impacts of climate change. No one knows what level of carbon tax will produce what level of emissions cuts … Guess wrong on a tax and we’re all co-starring in a big-budget disaster movie.”
CTC: Thanks guys, but the movie has already started. Here’s what The Financial Times said about it last month: “Getting the amount of emissions a little bit wrong in any year would hardly upset the global climate. But excessive volatility or unduly high prices of quotas on carbon emissions might disrupt the economy severely. [Carbon] taxes create needed certainty about prices, while markets in emission quotas [i.e., cap-and-trade systems] create unnecessary certainty about the short-term quantity of emissions.” And how confident is ED that cap-and-trade won’t come without the dreaded “safety valve” (lift cap if price too high) that will blow its vaunted emissions certainty to smithereens?
ED: “A carbon cap can pass Congress and a tax can’t.”
CTC: A carbon tax may be the turtle, but as sure as the hare lost its lead, a cap will be sidelined for years as the financiers, lawyers and consultants work out the details — which they’ve been doing for four years and counting for the much-touted RGGI compact for capping Northeast U.S. utility emissions. That aside, the climate issue is moving very fast. We have a rare confluence of events that may actually make it possible to go the right route. It would be tragic to lock in an ineffectual approach that would block more effective action. A revenue-neutral carbon tax is no longer anathema, and it’s past time for ED and its brethren to give it the consideration it deserves.
Barnes on A Convenient Windfall
In A Convenient Windfall: Global Warming’s Big Cash Dividend, published on March 23, 2007 at www.commondreams.org, Peter Barnes makes the excellent points that “we need to make polluters pay for fouling the atmosphere” and that “we’ll earn an enormous cash windfall if we fight global warming the right way.” Unfortunately, his “right way” is a cap-and-trade program.
As Barnes acknowledges, polluters are arguing that they should receive future carbon emission permits free of charge to avoid being hurt by a cap and trade program. In fact, they have received free allowances under existing cap-and-trade programs for NOx and SO2 and they have good reason to expect that they will receive free allowances if there is a carbon cap-and-trade program. Barnes is correct that “there’s real-world evidence that privatizing the climate windfall would be a serious mistake” and that when the European Union gave out free carbon emissions permits to coal-burning utilities, “the undisputed results were windfall profits for the utilities, higher prices for everyone else, and zero public benefit.”
Barnes concludes that the permits should be auctioned rather than given away. The danger is obvious. When it comes to making deals in Congress, the coal-mining companies and the companies burning coal have tremendous clout and the inevitable result will be a cap-and-trade program with the allowances given to the polluters along with the cash windfall.
The good news is that we really can earn an enormous cash windfall by fighting global warming the right way. That right way is by implementing a carbon tax, which is superior to cap-and-trade programs for all the reasons set forth in our issue paper on Carbon Taxes vs. Cap-and-Trade.
Full house for Carbon Tax pitch on Capitol Hill
Close to 150 Congressional staffers, policy types and lobbyists jammed a Senate hearing room yesterday for a briefing on carbon taxes and cap-and-trade systems featuring CTC’s Charles Komanoff, along with Terry Dinan of the Congressional Budget Office and James Barrett of Redefining Progress.
The briefing was sponsored by the Environmental and Energy Study Institute. Attendance at EESI briefings generally runs between 75 to 100, and the packed house for the March 14 panel was taken as a sign of surging interest in carbon pricing.
Charles’s presentation may be accessed here. It’s an updated and more concise version of the PowerPoint on our Home Page.
Cap-and-Trade: Part of the Solution or Part of the Problem?
This post was contributed by Kevin Bell of Convergence Research, specialists in energy, water and transportation technical and policy analysis. — CTC
As yet another case of cowboy diplomacy on the part of the Natural Resources Defense Council and Environmental Defense recedes in the rear-view mirror, it’s important to look ahead to what is at stake here.
In a little less than two years, our current Federal executive branch will be replaced. Chances are that for the first time, we will see serious movement (as well as serious posturing) on a Federal level about limiting greenhouse emissions. The problem is that the stakes are enormously high, and the window of opportunity for doing something that will actually make a difference is very small — less than a generation, probably less than a decade. We don’t get a mulligan if we blow this.
Many of our nation’s most polluting industries are acutely aware of this political calculus, and are moving to get in front of the issue. The first effort out of the gate is the US Climate Action Coalition. In addition to NRDC and ED, it includes perennial favorites like PG&E, Duke Energy, FPL, Caterpillar, GE, BP, Alcoa, and more.
Now, all of these corporations are looking for policy certainty before making infrastructure plays that they will have to live with for most of this century. Some of them buy into the idea that climate change is the single biggest threat that we as a species face in this next century, and that we need to act like it (I would put BP in this category). Others are simply looking for a way to make a financial killing, or evade having to actually do very much. Of course, every party in this coalition intends to dominate the debate over how we actually go about substantially reducing greenhouse gas emissions in the United States.
So, what are they calling for? Their twelve-page “solutions-based” PR piece, A Call for Action, is long on rhetoric and short on specifics. But the specifics that are there should make you sit up and take notice.
The short-term and mid-term suggested target reductions, not to put too fine a point on it, are lame: 10%-30% reductions from current levels by, oh, around 2025. To put that in context, California plans to reduce emissions 15% from current levels by 2020, and 80% by 2050. The UK committed to 20% reductions below 1990 levels by 2010 a decade ago (they will probably get close to, but not quite hit that target). Both the UK and Germany have committed to further reductions on the order of 40% by 2025 if — and this is a very important if — the US makes a similar commitment.
But the “money quote” is in the discussion on mechanisms on page 8. Rejecting the idea of a uniform carbon tax out of hand, the report outlines a cap-and-trade solution and then says:
A significant portion of allowances should be initially distributed free to capped entities and to economic sectors particularly disadvantaged by the secondary price effects of a cap including the possibility of funding transition assistance to adversely affected workers and communities. Free allocations to the private sector should be phased out over a reasonable period of time.
A few days ago I was asked to elaborate on why implementation of the Clean Air Act and the failure of Phase One of the European Carbon Exchange are great examples of how to do the wrong thing with mitigating carbon.
Briefly, the biggest mistake of the Clean Air Act was exempting existing coal-fired powerplants from best available control technology rules. Originally seen as a temporary concession to dirty utilities with obsolete powerplants near the end of their useful lives, it has become a permanent fixture of the emissions landscape, killing hundreds of thousands of people and wasting the time of brilliant advocates that would have been far better spent dealing with issues like climate change. Grandfathering is a terrible idea. There is no chance, politically, that such a concession would “be phased out over a reasonable period of time.”
Furthermore, the decision to give sulfur dioxide credits away to polluters, instead of going to a 100% market-driven auction system, represented a huge subsidy (and another terrible precedent) for the nation’s dirtiest utilities. Make no mistake, this is the deal that NRDC/ED’s partners in USCAP are aiming for.
Phase One of the Euro Carbon Exchange failed for two reasons: each country was allowed to make its own estimate of its greenhouse emissions, and tradable carbon credits were given, for free, to the industries in each of those countries. The three countries that actually underbid (UK, Spain, Slovenia as I recall) had to actually pay. For the rest of the Eurozone, it was free money right up to the point where everybody realized that the market was awash in surplus carbon credits, and the price dropped by 95%. They did learn a lot about how much carbon each country actually generates, and Phase Two should be tighter. But less than 10% of the available credits in Phase Two will actually be in open auction. Once again, the vast bulk of credits will be given away to polluting industries, something that my sources in the UK government describe as a straight-up political power play by Europe’s largest corporations.
That’s the reality we’re all up against as we start to gear up for the critical fight to reduce global warming. What is troubling is that NRDC and ED have already signed onto Alcoa’s and Duke Power’s position on climate change, before the real discussion has even started.
For better or worse, NRDC and ED are the go-to national environmental organizations that corporations want to talk to. Occasionally the outcome has been positive. More often the result has been catastrophic. But always NRDC and ED seem fixated on a style of cowboy diplomacy that forecloses a substantive and genuinely progressive outcome, often for years to decades.
We don’t have years to decades to get this one right. I really, really hope that NRDC and ED don’t end up being part of the problem.
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