Net Emission Reductions Under Cap-and-Trade Proposals in the 111th Congress, 2005-2050

Climate politics can be very strange indeed.  Because cap-and-trade bills like Waxman-Markey are seen as having no chance of passing the Senate, some enviros appear to be shifting their support to bills that are politically even less attractive and environmentally even less adequate.

The latest misguided missile is the Carbon Limits and Energy for America’s Renewal (CLEAR) Act put forward by Maria Cantwell (D-WA) and Susan Collins (R-ME) — full text and info here.  Supporters call it “Cap-and-Dividend,” but right now I think the best term for it is, “Cap-and-Divide,” since it has no chance whatsoever of becoming law but is serving to undercut the tripartisan effort by Graham, Kerry, and Lieberman to develop a bill that might get 60 votes.

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I’m all for pursuing innovative solutions to get a comprehensive climate and energy bill, which conventional wisdom keeps saying is highly improbable this year.  But to be a “solution,” such a bill would need to achieve the emissions reductions in 2020 required for a global deal — in the range of 17% –  and, of course, it has to be politically viable.

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Cap-and-Divide, however, doesn’t even pass the environmental viability test, as the first-rate researchers at World Resources Institute have shown (click to enlarge figure, full analysis here).  And while W-M is far from perfect environmentally, as I’ve said many times,   it would enable a global deal.  W-M’s biggest problem is that it can’t get 60 votes in the Senate or even close.   But “cap-and-divide” is certainly less politically viable than Waxman-Markey or Kerry-Boxer.

On the plus side — from a climate perspective — CLEAR doesn’t allow any offsets and it auctions all of the allowances.  Politically that would be fatal, of course, since it means little or no support for Cap-and-Divide from the utility industry, from the states with significant coal use, and from the agricultural states.

If I were king, I’d sharply constrain if not eliminate offsets, too.  But we live in a (slightly) more democratic world of 60 kings and queens.  In our world, a politically viable bill is going to have offsets.  In fact, no matter what we do, the rest of the world is certainly going to use offsets.  So we need to focus on making sure there is as much credible oversight as possible for those offsets.  I’d also sunset the offsets, as I’ve said, at least the international ones post-2020.

Also, while I would prefer not allocating as many permits in the early years as required in the deal the utilities struck to get their crucial support for Waxman-Markey, that deal has one huge equity advantage over Cap-and-Divide bills.  By giving permits to the regulated utilities proportional (in part) to their emissions, the House bill “targets the consumer benefits to those regions that experience the highest cost increases, such as the South East and Midwest, which is not only politically necessary but also equitable in our view” — as two leading progressive utility experts explained on CP last this year (see “Preventing windfalls for polluters but preserving prices — Waxman-Markey gets it right“).  Full auctioning is certainly preferable, but politically, you must address the regional equity issue.  The CLEAR Act’s FAQ says of the money distributed back to the public:

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The amount per person is determined on a per capita basis. There are no differences based on region or income or family make-up.

The CLEAR Act does offer some token efforts to achieve regional equity, as the FAQ explains, but given the political uproar over even a small amount of (mis) perceived inequity in the Waxman-Markey allocation formula — see “EPA analysis for Feingold appears doubly flawed: Climate bill allocations are not unfair to the Midwest” — this is one more reason the CLEAR Act approach is a political nonstarter.  And again, the allowance formulation in the House bill is far more reasonable than is widely understood (see also Robert Stavins: “The appropriate characterization of the Waxman-Markey allocation is that more than 80% of the value of allowances go to consumers and public purposes, and less than 20% to private industry”).

The Union of Concerned Scientists also released this statement in December about the other problematic part of the bill — its mandatory 2020 target — arguing “the bill is too weak to meet its purported goals”:

The CLEAR Act includes the aspirational goal of cutting heat-trapping emissions 20 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050. The long-term target is in line with the minimum reductions scientists say are necessary to have a reasonable chance of avoiding the worst effects of climate change. However, the bill provisions would not achieve those goals. In reality, the CLEAR Act would only cap carbon dioxide emissions at 6 percent below 2005 levels by 2020.

Additionally, the bill says that it would provide funds to achieve more emissions reductions, but doesn’t say how funds would be spent or how they would achieve emissions reductions. Further, all funds would go through a typical appropriations process and important emissions-reduction programs might not get funded at all.

The UCS also argues the bill does not appear consistent with what is needed for a global deal:

The bill also lacks provisions that would help secure an international climate agreement, such as deep near-term and
long-term emissions reductions as well as financial assistance to help protect tropical forests, support clean technology deployment in developing nations, and help vulnerable populations cope with the unavoidable effects of climate change.

Finally, Cap-and-Divide has a price collar, which could be a good idea — see How the Senate can fix cost containment in the climate bill with ‘price collar plus’ — BUT

  1. There’s a hard ceiling aka a safety valve aka unlimited printing of allowances if auction prices hit the ceiling, which is not an environmentally preferable approach (see “Safety Valves Won’t Make Us Safer“ and “The history of the ’safety valve’ debate“).
  2. The safety valve is especially undesirable in the CLEAR Act because the ceiling price starts at $21 in 2012 and rises only 5.5% per year plus inflation.  That’s much lower than the Kerry-Boxer bill and inadequate from an environmental perspective.

Yes, one of the main points of this bill is to not allow a secondary market for allowances, thus supposedly stopping speculation and the much-decried “derivatives” market.  In fact, such fears are wildly overblown — see Nobelist Krugman: Fear of carbon markets and speculation is “99% wrong and bad for the planet.” Senators typically spend little time trying to understand what the House does, so they aren’t even aware of the multiple measures in it that reduce if not eliminate the chance of serious market gaming (see “When Sen. Dorgan finds out what’s in the climate bill — hint, hint, White House — he might just support it“).

Still, it is clear that with the Wall Street meltdown and populist mood in the country, trading and derivatives and speculation are even more politically problematic than they were a few months ago.  So Graham, Kerry, and Lieberman need to come up with a bill that minimizes or avoid them entirely.   I suggest those three figure out how to take the good things in the CLEAR Act and incorporate them in into a final bipartisan climate and clean energy bill.

UCS noted last year:

A climate bill introduced yesterday by Sen. Maria Cantwell (D-Wash.) is proof that there is bipartisan support in Congress for deep emissions reduction goals.

I’m hopeful that ultimately the cosponsors of this bill will join in the larger bipartisan effort since that is the only hope to get 60 votes, save a livable climate, clean up our air, move closer to energy independence, and challenge the Chinese for the 20 million clean energy jobs will be created in the next two decades.