One of the least discussed flaws in the Waxman-Markey bill’s attempt to tackle the climate crisis also illustrates the fundamental problem with cap-and-trade. The bill strips the EPA[1] of much of its existing authority to regulate greenhouse gases, in return for the new, weaker authority granted under Waxman-Markey. The existence of this authority is one of the strongest levers that can be used to push through new climate legislation, and it should not be given up in return for something this weak. Under recent Supreme Court rulings, existing EPA is authority is quite strong, albeit required to be implemented in less than optimum ways.  The offset provisions, along with reduced targets during the first ten years, guarantee this bill will produce few or no emission reductions if passed.  In the name of not letting the perfect become the enemy of the good, Waxman-Markey lets the perfect become the enemy of the good. It trades actual emissions reductions for acceptance that cap-and-trade is the right means of reducing emissions.    

And ultimately filling up political space is what cap-and-trade does. When a cap-and-trade bill is on the table most of the conversation and political activism around climate change is concentrated on cap-and-trade.  Should we accept this version of cap-and-trade or fight for a stronger one? Or do some heretics want to question cap-and-trade? (When a cap-and-trade bill is off the table, most political effort is aimed at getting one on the table.)

The “trade” part of cap-and-trade is a way to put a price on carbon emissions. Such pricing is not the most important part of solving the climate crisis.  As Jeffery Sachs says (in the course of a note to Kevin Drum supporting the Waxman-Markey bill) : “… putting a market price on carbon emissions (through either a tax or permit system) is just one modest part of a truly comprehensive and effective carbon mitigation strategy, that must involve standards, R&D, demonstration projects, and many other kinds of incentives and public policies“.  When environmentalists and environmental groups put most of their climate efforts into winning an emissions price that is a tremendous misplacing of priorities.

But it is even worse when the mainstream chooses to support counterproductive means. Emission trading has historically  proven less effective than alternatives on a small scale, and failed  when used on a large scale [2].  Sulfur, considered the great triumph of emission trading, demonstrably reduced U.S. acid rain more slowly, by less than rule-based regulations did in France and Germany.  The much vaunted cost savings of sulfur trading compared to initial estimates overlook that most pollution reduction schemes, whether trading or standards-based cost less than initially estimated[3].   When trading was extended to multiple pollutants in the RECLAIM scheme in Southern California, this failed miserably, and had to be restarted – this time with the trading scheme reinforced by the type of regulation typically slandered as “command & control”.

So how did we get to the point where trading is seen as THE solution to the climate crisis, with everything else as mere reinforcement or an inadequate and unrealistic substitute? Long before the Kyoto treaty, most of the world knew emissions would have to be reduced. It was taken for granted that treaties would lead to national regulations, national public spending, probably reinforced by some sort of carbon tax.  But all this was happening during the ideological triumph of Reaganism and Thatcherism, long after the actual time in government of Reagan and Thatcher had passed.  Regulation? Taxing? Public spending? These were all seen as old fashioned failed policies. We needed something new and exciting, something that could be labeled as government free. And out there was the Sulfur trading story. Sulfur trading may not have worked as well as the U.S. as old fashioned standards based rules had in the EU. But it had not failed completely. Even though trading ultimately required the government to create a new property right, it looked as though the government was not involved, if you squinted, and closed one eye, and rubbed something in the remaining eye to blur its vision.

So when Kyoto came along, there was shock and awe from hundreds lobbyists from the EDF and the World Bank, and other environmental groups who thought themselves beyond left and right [4]. Complementary to this, Al Gore argued from the U.S. perspective for carbon trading[5].  Fight global warming the same way the U.S. fought acid rain[6].   

And how did this work out?  During the three year period where we have verified emissions, emission among traded entities rose by 1.8%[7]. (During that same period emissions for the EU as a whole fell[8].) According to preliminary figures emissions fell by 3.06% for 2008.  It is widely agreed that much of this was due to economic recession, and warmer weather, and widely argued that a substantial minority was due to the trading system.  However just as EU emissions fell a bit while ETS emissions rose, I suspect that once the data is out we will find EU emissions dropped much more steeply that the comparatively small drop in greenhouse gases from traded entities. The overwhelming evidence is that the European Trading Scheme is retarding rather that driving emission drops.   

Why has trading held on to shut a strong mindshare in the environmental community? Part of it is ideology: supporting trading is a way to be pro-environment and not be a Dirty F__ Hippie (DFH). Part of it is that a whole lot people make money from carbon trading, and a lot more want to.  So trading supporters get more money and resources, which lets them do a better job of presenting their views.  Part of it is tribalism: a lot of the people beloved by a certain type of centrist liberal support trading. So if Al Gore and Waxman and Markey think highly of trading, who the hell are Hansen or Greenpeace, or anyone not part of the magic circle to question their wisdom.   Part of it is a wish to rejoin the world again, to be part of a joyous reunion in Copenhagen where the U.S. is welcomed back in the circle of nations. The U.S (helped by elites in other nations) persuaded the world back in 1997 that emission trading was the right path. We sold that lemon; now it is our turn to suck it!


References

 [1.] http://snipurl.com/j5mal

John Larsen, Alexia Kelley and Robert Heilmayr; Brief Summary of the Waxman-Markey Draft; April 20 2009; World Resources Institute

# Prohibits EPA from:

    * Classifying GHGs as criteria pollutants on the basis of their climate impacts (Sec. 831, pg. 490)

    * Designating any GHG as a hazardous air pollutant on the basis of its climate impacts (Sec. 832, pg. 490)

    * Setting New Source Review standards for GHGs on the basis of their climate impacts (Sec. 833, pg. 490)

    * Considering the climate impacts of GHG emissions when issuing operating permits under Title V of the CAA (Sec. 834, pg. 490)

[2.] http://tinyurl.com/tradingfail

Gar Lipow, Emissions trading: A mixed record, with plenty of failure. Grist Magazine, Feb 19, 2007.

[3.] http://tinyurl.com/RegsCostLess

Hart Hodges, Falling Prices: Cost of Complying With Environmental Regulations

Almost Always Less Than Advertised – EPI briefing paper, Economic Policy Institute, 01-November-1997

[4.] http://snipurl.com/j5mmk

Carbon Trading: A critical conversation on climate change, privatization and power.

development dialogue  no. 48 september  2006

Larry Lohman (Ed.).  Chapter 2 ‘Made in the USA’ pp 31 – 69

[5.] http://climatelab.org/Kyoto_Protocol

Kyoto Protocol – Climate Lab.

” The United States played an important role in the international negotiations leading up to the drafting of the 1997 Kyoto Protocol. Vice President Al Gore was a main participant in putting together the text of the Protocol, and President Clinton said it was environmentally strong and economically sound.”

 [6] http://snipurl.com/j5mmk

Finding the Ratchet: The Political Economy of Carbon Trading Donald MacKenzie

At the insistence of the US, Kyoto gave its signatories sulphur-like flexibility in how to meet their commitments. A country with a Kyoto commitment can meet it by controlling emissions domestically. Alternatively, it can pay for reductions made via projects in developing countries without Kyoto targets (that Kyoto provision is the‘Clean Development Mechanism’) or via projects in other industrialised countries(such ‘Joint Implementation’ projects are mainly to be found in the former Sovietbloc). Indeed, a nation-state signatory can simply pay another signatory forreductions the latter has made beyond its commitments.

[7.] http://tinyurl.com/GhgRose

Emissions trading: 2007 verified emissions from EU ETS businesses, EUROPA,23-May-2008.

[8.] http://tinyurl.com/GHGfell3yrs

EC welcomes fall in 2007 greenhouse gas emissions for third consecutive year

May 29, 2009