Tuesday, May 19, 2009

Assessing the Climate Bill

If you’re at all serious about climate change, you’ve hopefully been following the recent negotiations over the so-called “Waxman/Markey” bill, because it’s pretty much the biggest game in town right now when it comes to the environmental movement. The bill, introduced by Democratic representatives Henry Waxman and Ed Markey and known formally as the American Clean Energy and Security Act of 2009, will clear a major procedural hurdle this week if it can make it through a vote in the House Energy and Commerce Committee.

Notably, the bill would create a nationwide “cap and trade” system to oversee the long-term reduction of US carbon emissions. If you’re not quite up to speed on cap and trade, it essentially means that a national “cap” would be set on carbon emissions, decreasing over time to theoretically insure an 80 percent reduction by 2050. Emitters of carbon dioxide would then be able to “trade” emissions credits if they come in under the cap, or be forced to buy credits if they continue to emit more than the permitted amount of carbon dioxide.

Cap and trade systems are widely considered to be the most politically and economically viable way to reduce emissions on a large scale. Our country already operates a cap and trade system to contain emissions of sulfur dioxide, which has been highly successful. The world’s largest cap and trade system for carbon dioxide emissions has been operating in Europe since 2005; they call theirs an “emissions trading scheme,” which does sound decidedly more European.

For our proposed cap and trade bill, negotiations in the Energy and Commerce Committee have been pretty contentious. Republican Rep. George Radonovich of California called the Waxman/Markey bill “environmental socialism,” while Rep. Joe Barton (R-TX), the ranking Republican member on the committee, displayed with the following quote why the his party has little credibility left on any matter related to science:

"Wind is God’s way of balancing heat. That’s what wind is. Wouldn’t it be ironic if in the interest of global warming we mandated massive switches to wind energy, which is a finite resource, which slows the winds down, which causes the temperature to go up? I mean, it does make some sense."

Yeah…not exactly.

Despite the predictable Republican opposition, however, with large majorities both on the committee and on the full House floor, most of the debate over this bill has actually come within the Democratic Party, with centrist representatives from coal-producing areas (Pennsylvania, Ohio, West Virginia, etc.) especially concerned about the potential economic impacts of putting a price on carbon. Rep. Artur Davis (D-AL), who leads the centrist New Democrat Coalition, was responsible for leading an effort a couple of weeks ago to put the Waxman/Markey bill on the shelf indefinitely. “In the throes of a recession,” said Davis, “more of a burden on industry is not a good idea.”

Waxman, who chairs the Energy and Commerce committee, has forged ahead in search of a compromise. And as Mike noted last week, it hasn’t necessarily been pretty. The climate bill, released in final draft form last Friday and set for a vote potentially by the end of this week, has been watered down considerably from Waxman and Markey’s original proposal, and from President Obama’s own cap and trade preferences as laid out in his 2010 budget. As Mike mentioned, the initial emissions reduction target has been lowered from 20 percent by 2020 to 17 percent by 2020. This doesn’t seem like the biggest cut, but still – it’s the little things. More significantly, though, the bill, which originally proposed that 100 percent of emissions allowances under the cap and trade plan be auctioned off by the federal government, will now provide for 85 percent of the allowances to be allocated freely to utilities, oil refiners, heating companies, and various heavy industries like cement and steel. This is potentially troubling because the decision not to auction permits not only minimizes the incentive to invest in cleaner technologies; it also results in the loss of a significant revenue stream for the federal government that makes the debt-related concerns about Obama’s budget begin to shine brighter and brighter. Some of the money from the cap and trade scheme, estimated in Barack’s original budget proposal at over $600 billion, was also intended to promote renewable energy development. Without those funds, this becomes considerably more difficult, along with the quest to make Waxman and Markey’s bill “budget-neutral.”

There are a host of other concerns that should give pause to people concerned about the bill’s potential effectiveness. Standards for renewable energy use in electricity generation have also been trimmed, while provisions also exist for carbon emitters to “lower” their emissions by investing in carbon offsets, which essentially means taking the easy way out and not actually transitioning away from dirty technologies.

In light of all these compromises, how, as environmentalists, should we view the climate bill in its current state?

While I sympathize with Mike’s criticism that “negotiations in the Energy & Commerce Committee have severely limited the potential impact of Reps Waxman and Markey's cap and trade legislation,” I think I’d have to disagree with his characterization of the committee’s negotiations as a “FAIL.” We need to recognize that the most important thing right now, above all, should be putting a system in place, and establishing the fact that from this point forward, there will be a steadily decreasing cap on America’s carbon dioxide emissions. As long as this system works okay, even passably, the tinkering can come later to optimize the environmental and economic results.

We should ask ourselves what’s better: do we hold out for a perfect system that is (albeit sadly) probably not politically feasible right now, given the concerns among powerful members in our own party, with an understanding that this approach would probably compromise the more important goal of putting a price on carbon as soon as possible? Or do we understand that the legislative process is going to result in some compromises, and realize that this bill, while imperfect, is still a tremendous and necessary step in the right direction?

Take Europe for example. In setting up the EU Emissions Trading Scheme (EU ETS), they basically had the same debate about seven years ago that we’re currently having. The European Commission (the EU’s executive body), in the spirit of getting a functioning system together, worked closely with industry leaders and EU Member States to arrive at an initial ETS with a few key provisions that were against the Commission’s preferences. One of the areas in which the Commission caved? The EU’s decision to allocate allowances freely.

Europe’s initial failures with its emissions trading scheme have been well documented. During the scheme’s first, or “trial” phase, from 2005-2007, emissions in Europe actually rose by nearly 2 percent. Though the free allowances have been blamed, this was not the only reason for the ETS’ beginning troubles. Another big issue with the ETS in the trial phase was that many countries allocated significantly more emissions allowances than the EU-wide cap provided for, resulting in an over-supply that destroyed much of the market demand for allowances and caused the price of carbon to crash to just €0.02 per ton by the end of the trading period in December 2007.

The Commission introduced some key reforms for 2008, taking greater control of the allocation process to insure that the Member States allocated fewer permits. The demand for, and accompanying price of carbon recovered accordingly, combining with the economic recession to produce a 2 percent drop in emissions for 2008. The EU also negotiated some important reforms for the trading period from 2013-2020, which will see a greater use of allowance auctioning and a generally harder line taken on European polluters. Undoubtedly, the jury will remain out on Europe’s emissions trading scheme as more results continue to emerge. But two things that Europe’s experience suggests, at least initially, are important to consider:

-First, the price of carbon will likely be far more important than how the emissions permits are allocated. When the price of carbon in Europe was high (in 2008, and also before it crashed during the first trading period), efforts to reduce carbon emissions took place. When it was too low, those efforts fell off. In looking at our own proposed cap and trade system, we should worry less about auctioning and more about making sure that sufficiently few permits are allocated so that there is enough market scarcity for the price of carbon to remain high.

-Secondly, the Commission’s willingness to compromise in order to put a system in place has resulted in an ETS that is now credible enough to allow for reforms that will make it work better in the long term. Without those compromises, efforts to get the EU ETS off the ground would likely have failed.

Waxman and Markey appear to be especially cognizant of the second fact. It’s also what Paul Krugman wrote about the other day in the New York Times when he warned against making “the perfect the enemy of the good.” Adds Krugman: “After all the years of denial, after all the years of inaction, we finally have a chance to do something major about climate change. Waxman-Markey is imperfect, it’s disappointing in some respects, but it’s action we can take now. And the planet won’t wait.”

Presumably following this same line of thinking, Al Gore has voiced his support for Waxman/Markey in its current state, as have many environmental groups. Amazingly, the negotiations in the Energy and Commerce committee have produced a scenario where industry leaders are working with, as opposed to against, environmental interests, to come up with a scheme that is widely acceptable. I would of course like to see a more stringent cap and trade proposal, but I also recognize that as environmentalists, at a certain point we’re going to have to be more than intransigent tree-huggers.

What we’re seeing right now, I think, is the evolution of the environmental movement into a credible political body that can actually get things done as opposed to continually trying to beat down the door. The continued Republican opposition to Waxman/Markey is unfortunately predictable, but Democratic leaders are apparently rallying around the bill, which may be enough to (finally!) pass a workable cap on carbon emissions in the United States. As environmentalists, we should undoubtedly continue to advocate for the best bill possible, especially as it traverses the dangerous, dream-destroying legislative waters of the United States Senate. If Waxman/Markey makes it into law, we should follow it closely and make sure it works and continues to work as best as possible.

What we can’t do, however, is make the perfect the enemy of the good. The planet can’t support too many more years without a US carbon cap, which means it also can’t support an approach to environmentalism that rejects anything and everything that is not entirely ideal, or perfectly “eco-friendly.” Even in its present state, if we can get Waxman/Markey signed into law, I think we’ll all be happy for it going forward.

(Image courtesy Allianz Knowledge)

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