cap and trade
Manik Roy, vice president for federal government outreach, co-wrote this post.
By all indications, the climate bill is done for the year. A casualty of … well, you’ve been hearing the blamefest.
So what’s next?
Unfortunately, none of the problems we sought to fix with the climate bill have been solved by ignoring them.
Power companies and businesses still need to know what carbon emission requirements lie ahead of them before investing millions of dollars in new equipment – especially for carbon capture and sequestration, nuclear power, renewable energy, energy efficiency, and other low-carbon alternatives.
Cap and trade has gotten a bad rap. It’s been vilified as a national energy tax, an elaborate Ponzi scheme, and a giveaway to corporate polluters.
While these attacks are wrong, they succeeded in shaping the political discourse around national climate and energy policy, which undoubtedly contributed to last week’s decision by Senate leaders to delay consideration of legislation that would limit greenhouse gas emissions.
This is unfortunate. We need a national policy to reduce emissions, and, as our new white paper shows, cap and trade is still the best, most cost-effective way of doing so. When lawmakers turn their attention back to this issue — as they must — they should make cap and trade a foundational element of the policy response to climate change.
One of the major criticisms of cap and trade in general (and of some of the leading bills in Congress in particular) is that it’s too complicated. In fact, of the things one can do to reduce greenhouse gas emissions, cap and trade is not only the most effective and cost-effective, it is also relatively simple. Cap and trade simply means that the government sets an overall limit on greenhouse gas emissions, issues tradable allowances (permits to emit), and allows emitters the flexibility to decide how to reduce their emissions and whether to buy or sell these allowances. Since greenhouse gases are emitted from thousands of different activities throughout the economy, setting up specific command-and-control regulations for each emitter would be extremely complicated, if not impossible. As we learned from our experience with reducing acid rain, cap and trade programs are much easier to implement. Some people assert that a carbon tax would be simpler, but they obviously don’t fill out tax forms and haven’t been lucky enough to pore over the thousands of pages of the U.S. tax code.
The Pew Center just published a summary of many of the major clean energy policy developments of the past five years (2005 through 2009). This look back gauges progress on clean energy policy since the “10-50” Solution Workshop, sponsored by the Center and the National Commission on Energy Policy (NCEP) in 2004, which convened leading experts to discuss key technologies likely to enable a low-carbon future by mid-century (50 years henceforth) and to identify the critical policies necessary in the next 10 years to enable this long-term vision.
The Washington energy and environment community is abuzz with speculation about the fate of the energy-climate bill. Given the bruising partisan battles that lie ahead for health care reform, the jobs bill, financial service modernization, and so on, does Congress have the time and political capital left to tackle climate change in its expected energy bill? Would it not be best, some ask, to buy temporary relief, to put off climate for another day?
Temporary relief, unfortunately, will only buy us bigger headaches tomorrow. The energy-only proposals advocated by some would do little or nothing to address a host of issues that grow only more expensive, complicated, and politically challenging if we delay their resolution until, say, 2012. Here are some of the problems we begin to address with climate policy that are not resolved by the energy-only proposals we have seen:
- Power companies and businesses need to know the regulatory rules of the road before they will be willing to invest millions of dollars in new plants. This uncertainty inhibits investment today, as well the jobs that would go with the investment. In particular, it inhibits investment in coal carbon capture and storage and in nuclear power.
- China and other countries are investing heavily in clean energy and taking the lead in the booming global market in clean energy technologies. American ingenuity is second to none, but time is running out. Every year the United States delays in putting a price on carbon emissions we fall further behind in this race, and lose future jobs.
- The United States continues to be dependent on oil from countries that do not have our best interests at heart. Until we reward low-emitting transportation fuels and methods by putting a cost on carbon emissions, this dependency is expected to grow.
- Other countries whose support we need to achieve so many of our international objectives – including fighting terrorism and ensuring economic growth – are dismayed that the United States has sat out the climate issue for so many years. In Copenhagen, thankfully, we showed leadership. Other nations made clear their intent to contribute to global efforts in Copenhagen; we shouldn't walk away from ours. If we do not deliver on that promise by reducing our emissions, other countries may be more reluctant to ally with us on our other objectives.
- The States, our courts, and regulatory agencies have all taken actions to begin addressing climate change. What is needed is the comprehensive national policy that only Congress can produce.
- And, oh yes, climate change itself: Despite the campaign to convince the public otherwise, climate change is real, is happening now, is largely caused by human action, and presents our children and grandchildren grave risks if we do not start reducing our emissions now.
What would it take to begin to address these problems? The House of Representatives passed an energy-climate bill last year that includes a well-crafted economy-wide cap-and-trade provision, which would be our preferred approach. That said, there are many ways to integrate climate and energy policy to achieve multiple goals, including job creation, energy security, increased competitiveness in global clean energy markets, and reduced carbon emissions. There may be a way to build an effective climate and energy program in steps, for example, by establishing the cap first on the power sector's emissions, or even through a "clean energy standard." The basic test is whether the policy would reduce U.S. greenhouse gas emissions and make emissions increasingly costly, thereby rewarding businesses that invent and deploy clean energy and other low-emitting technologies.
Manik Roy is Vice President, Federal Government Outreach
COPENHAGEN - Governor Chris Gregoire made a presentation about the successes of Washington state in building a clean energy economy at an official COP 15 side event hosted by us and the World Business Council on Sustainable Development. A packed room listened to how the experience of the Washington out West should provide insight for national policymakers of the Washington in the East.
She detailed how, given an appropriate state policy framework, the private sector has made significant innovations in technology, making Washington a national leader in solar manufacturing and the state with the 5th most wind energy production. All of this development occurred despite the fact that the state does not have large wind or solar energy resources. The lesson here is that the innovativeness and drive of American business should never be underestimated, and there is nationwide potential for growth in a clean energy technology. New and existing American companies will find ways to flourish given the right incentives.
The Governor also spoke about states leading the way in implementing cap-and-trade programs to reduce greenhouse gas emissions. She pointed out that a multistate and multi-Canadian province effort, the Western Climate Initiative, is underway to enact a cap-and-trade program covering 20% of the US economy - despite the delays in development of a national program. The WCI is the not the only state-level effort underway, with the Midwestern Greenhouse Reduction Accord signed in 2007. Both of these efforts follow on the heels of an ongoing cap-and-trade program in the Northeast, which, as Gregoire pointed out, has proven that cap-and-trade programs can tackle greenhouse gas emissions without damaging the American economy – an important piece of empirical evidence as the nation and the world look towards developing emissions-reduction policy.
Of course, the government cannot do it alone. The people in Washington state have a commitment to technology, whether it’s aerospace, software, clean energy, or coffee. Now its time for legislators in Washington, DC to show the same commitment to technology promotion and emission reduction.
Michael Tubman is the Congressional Affairs Fellow
Yesterday morning, the Senate Environment and Public Works Committee passed S. 1733 – The Clean Energy Jobs and American Power Act. The bill would create a strong cap-and-trade program with aggressive emission reductions targets through 2050. The bill now becomes one piece of a puzzle that will include the energy bill passed by the Senate Energy and Natural Resources Committee earlier this year, contributions from as many as four other major Senate committees, and contributions from Senators acting outside the committee process.
The importance of the latter is suggested by the announcement Wednesday by Senators Kerry, Graham, and Lieberman that they will be working together to craft a climate bill that incorporates provisions of the EPW bill with other provisions in line with Kerry and Graham’s New York Times op-ed.
Pulling these disparate pieces together into a coherent whole and garnering the 60 votes necessary for passage of a bill through the Senate will surely require strong leadership in the legislative process by the Obama administration.
Michael Tubman is the Congressional Affairs Fellow
The menu of policy options for reducing greenhouse gas emissions and tackling climate change is pretty lengthy, and the portions offered are quite substantial. Congress now has to make the choice of which regulatory option to order, and as we saw in last week’s hearings at the Senate Environment and Public Works Committee, they are open to recommendations. One interaction on Thursday between Senator Arlen Specter (D-PA) and Fred Krupp, President of the Environmental Defense Fund, highlighted the need to pick a single, effective strategy to tackle climate change and not overstuff our economy with duplicative regulations. The exchange focused on whether the EPA should continue to proceed with regulations through the Clean Air Act’s New Source Review (NSR) program even if a comprehensive climate change program is enacted.
Given existing requirements, regulation of greenhouse gases under any provisions of the Clean Air Act will trigger NSR. Under NSR rules, the construction of new stationary sources and major modifications of existing ones must be permitted to ensure that they will not contribute to significant deterioration of air quality. While NSR has long been used to regulate traditional air pollutants, when it comes to feeding an appetite for climate change regulation, NSR doesn’t really hit the spot. NSR is rather inflexible, costly to implement, and results in relatively limited emission reductions. Given the difficulty in developing standards for the large number of sources that emit greenhouse gases and the need to provide incentives for technological change in order to achieve deep reductions over time, new source review simply isn't the right recipe for our current needs.
This chef’s recommendation: a well-designed cap-and-trade program that is aggressive enough to yield needed reductions in greenhouse gas emissions while spurring the technological innovations we need to make those reductions and grow our economy. Enactment of a cap-and-trade program means we can send back duplicative programs like NSR and still be satisfied.
Sure, we’ll need complementary policies that work in a coordinated fashion with a cap-and-trade program. These side dishes of the cap-and-trade meal are targeted programs that are designed to enhance cap-and-trade’s impacts without getting in the way of the functioning of the primary program. A comprehensive climate bill can work just fine without NSR.
Michael Tubman is the Congressional Affairs Fellow
No, Chairman Bingaman isn’t lurking around the Capitol avoiding calls from his landlord. We’re talking about economic rent.
This week, the Senate Energy and Natural Resources Committee continued its excellent series of hearings on climate change policy options. At issue this time was a hearing “on the costs and benefits for energy consumers and energy prices associated with the allocation of greenhouse gas emission allowances.” Whether or not cap-and-trade programs were more or less transparent and costly than carbon taxes and fees was a topic debate during the hearing, as it has been throughout the series.
Dr. Denny Ellerman, recently retired senior lecturer at the Sloan School of Management at MIT, kicked off the hearing with some powerful testimony, including thoughts on how different carbon control programs create economic rent. He offered:
Sen. Murkowski opened a briefing on Post-Combustion Carbon Capture at the Senate last week by asserting technology is the key to addressing our energy needs. The Senator said that advancing technology will allow the U.S. to move towards a low-carbon future. Sen. Murkowski is correct.
And cap and trade will guide us to just that: advancing technological innovation. As Sen. Murkowski put it, our current energy technology has an "environmental price," and a clear signal regarding the price of carbon is imperative to spur R&D in technologies with a lower environmental price. Cap and trade allows the government to set the policy objective – to reduce greenhouse gas emissions – and businesses to decide how to best achieve the objective in the most cost-effective manner. It will give industry experts exactly what they are seeking: a clear signal that financial incentives exist for low-greenhouse gas technological innovation, whether its carbon capture and sequestration discussed at the briefing, or nuclear, wind, tidal, or other technologies.
Read more about technology policies and their relationship to cap and trade here.