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The Cap and Trade Debate

Is ‘cap and trade’ a beginning or no solution at all?

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network, coming to you again from Washington, DC. If there’s going to be any binding agreement to deal with climate change, the country that’s going to have to take the first step is the United States if it’s going to be meaningful. Is legislation in front of Congress now meaningful or not? To help us answer that question, we’re now joined by Daphne Wysham. She’s from the Institute of Policy Studies. And Daniel Weiss—he’s a senior fellow and director of climate study at the Center for American Progress.

DANIEL J. WEISS, DIR. CLIMATE STRATEGY, CENTER FOR AMERICAN PROGRESS: Thanks for having me.

JAY: So, first of all, what’s before Congress? And why do you think, if you do, that it’s meaningful?

WEISS: The House of Representatives has already passed the American Clean Energy and Security Act. That would dramatically reduce global warming pollution. They have several ways to get at that. First, investment in energy efficiency. For example, buildings are responsible for nearly half of all pollution emissions. They would have to be 50 percent more of energy-efficient starting in 2016, new buildings. Second, there’s investments in renewable electricity, electricity from the wind, the sun, and the earth. Utilities would have a certain percentage of electricity that they would have to generate from solar or wind power. And then third is a reduction in global-warming pollution from large industrial sources, particularly coal-fired power plants, which is the number-one pollution source in the US. And what it would work as is that it would set a limit on pollution, and that pollution limit would decline over time, so that every year there’d be less and less global-warming pollution emitted from these major sources. We’re talking only about 7,500 industrial sources around the country would be affected by this.

DAPHNE WYSHAM, BOARD MEMBER, THE INSTITUTE FOR POLICY STUDIES: Well, there are some good provisions in the Waxman-Markey energy bill. The energy-efficiency guidelines, the renewable-energy guidelines are very strong. However, the emissions reductions that would be achieved under this bill could largely be achieved by the use of a new commodity, the carbon offset, which is entirely unverifiable. The US Government Accountability Office—.

JAY: So explain how this offset system works.

WYSHAM: Okay. One form—let’s just take trees.

JAY: This is cap and trade.

WYSHAM: This is cap and trade. It’s a part of—you have—okay, so you have the trading between industries. That’s the trade part. And then the carbon offset is actually a cheaper form of, quote-unquote, "emissions reductions", where instead of trading between industries in a country, you can actually buy a carbon offset in a variety of forms. One form—let’s just take an example—is trees, tree plantations, or preserving forests. You can say, "Well, I couldn’t achieve emissions reductions in my factory. Therefore I’m going to offset those emissions increases by planting thousands of trees, and I will calculate the carbon those trees and determine that my emissions are therefore neutralized by this forest." There are multiple problems with this. First of all, we just learned, just recently in a recent study, that the Brazilian Amazon actually gave off more CO2 in 2005 than the entire EU and Japan combined. Now, this is because the forests are under such stress due to climate change that they have ceased becoming a carbon sink. They are now a carbon source in some cases. We’re seeing rapid die-off of the Boreal forest due to the bark beetle, also a consequence of climate change. So, clearly, forests are not a permanent storage bank for carbon. They can go down in storms. They can go up in flames. And yet what we’re doing is creating a false equivalency between CO2 as it’s emitted from cars and factories and CO2 as it’s stored, maybe permanently, maybe not, in—.

WEISS: Well, it’s important to note, though, these offsets have to be measurable, reportable, and verifiable under the law. Taking the example that you just gave: if somebody’s going to create a tree plantation, it’s easy to measure how many trees are there. You can do satellite survey. If it’s in the US, you can send somebody over there to measure it. It’s easy to measure. It’s not that precise to measure how much carbon it’s saving, but that’s why the Department of Agriculture’s going to have to work with scientists from EPA to establish those protocols. It’s really important to note that the Environmental Protection Agency doesn’t believe that offsets are going to be used to offset that much carbon pollution in the way that Daphne fears. So I think between—.

JAY: Why?

WEISS: Why? Because they’re going to be expensive, and because the price of the carbon-pollution permits (you have to have a permit for every ton of pollution you emit) are going to be relatively cheap in the early years and then climb slowly over time. In the international sphere, European countries are also looking for offsets. And so the increased demand for offsets internationally will drive the price of those offsets up, so they may not be at all very competitive here. And EPA says that of the 1 billion tons in offsets that are going to be allowed domestically, about a third of that is actually going to be used. So I think the concern [inaudible] has is overblown.

WYSHAM: No. I mean, from our studies, we found that actually with the 2 billion tons of carbon offsets allowed per year under the Waxman-Markey bill, there would be no measurable, verifiable emissions reductions in the US until 2030. Now, Dan said that this is actually going to be an expensive form of carbon reduction.

JAY: Now, hold on, let’s go point by point. So let’s start with that point. How do you respond to that? If there’s nothing measurable, verifiable, till 2030, then what’s the [inaudible]

WEISS: That assumption, that [inaudible] which I haven’t seen, the study, I’m guessing, assumes that there’ll be a high level of offsets that people are going to purchase, whereas EPA has said that’s not going to occur, and we’ve seen—.

WYSHAM: Domestically.

WEISS: Domestically. And we’ve seen—.

WYSHAM: Internationally there’s unlimited.

WEISS: No, there’s a billion-tons limit internationally.

WYSHAM: One and a half billion.

WEISS: And so we’ve seen—but we’ve seen in Europe [inaudible]

JAY: Okay. We’ve got to make sure where we’re on the same page and where we are not. So let’s—to get clear, a certain amount of the offset can be done within the United States, which in theory could be more verifiable. A certain amount—. And you’re [inaudible] unlimited internationally or not?

WYSHAM: Yes. Okay. Under Waxman-Markey there was 1.5 billion tons allowed internationally and 0.5 billion domestically. They’ve now reversed that under Boxer-Kerry, although even there there’s confusion whether you could have up to 1 billion tons internationally and 1 billion domestically. The concern is that they cannot acquire enough offsets domestically, ’cause there simply aren’t as many offsets available, whereas internationally, in developing countries, there’s no cap on emissions. Therefore what is happening, and what Stanford University researchers have shown in countries like China, country after country is saying, "Oh, this dam that was already under construction or this gas-fired power plant that already had plenty of finance is going to qualify as a carbon offset because it’s a less—."

WEISS: Well, that’s why you need standards [inaudible]

WYSHAM: But what I’m trying to get at is, first of all, the carbon offset is a giant loophole. There’s no way we can monitor every single carbon offset in the developing world.

WEISS: Daphne, with any pollution-control program, there is no way you can measure every ounce or, you know, part per million of pollution.

WYSHAM: You can restrict [inaudible]

WEISS: And so that system is—there’s inexactness in any system that you have. Second, the international offsets that a US company would get, if you want to offset 4 tons of your pollution, you have to buy five offsets. So there’s—.

WYSHAM: So there’s a recognition that the international offsets are not really as valuable [inaudible]

WEISS: Well, no, it’s another way of achieving additional reductions or making the price so high that people [inaudible]

JAY: But there is some experience to go on. Europe has a kind of system somewhat like this.

WEISS: And it’s worked. It had a very rough start [inaudible] very rough start.

JAY: My understanding is that—like, this is me, a layman, who watches a documentary on television. Apparently, there was a study done looking at projects, and mostly in Africa, and I think to some extent in Asia, of where the projects that were getting the offsets in Europe, and it was something like 14 out of 15 of them—and this is layman’s data here—were projects that were happening anyway, and they were calling them "offsets" because they could get paid for it. And they were simply buying into something [inaudible]

WEISS: Well, there’s no question [inaudible] have standards to make sure [inaudible]

JAY: But the question is: how do you have standards you can enforce internationally?

WEISS: You have to make—well, first of all, [inaudible] part of the international regime, hopefully, [inaudible] end up being have a successful outcome of the process that’s beginning in Copenhagen and will continue next year. But secondly, that’s why you need the US EPA working with Department of Agriculture for domestic offsets and international agencies for international offsets to have standards.

WYSHAM: We don’t need offsets. We don’t need offsets. Cantwell and Collins have just submitted a bill that has zero carbon offsets in it. They do have trading. Their targets are not strong enough, but they have no offsets. The notion that we need a carbon-offset market to achieve emissions reductions as a concoction of Wall Street.

WEISS: How many votes will that bill get?

WYSHAM: Wall Street traders are very interested in the profits to be made in the carbon-offset market. They would get a guaranteed rate of 5 percent plus inflation as a result of carbon trading if this bill moves forward.

JAY: But is this bill based on domestic trading?

WYSHAM: Domestic trading and international.

JAY: [inaudible] and international.

WYSHAM: And international [inaudible]

JAY: Don’t you wind up with the same problem with international trading?

WYSHAM: Exact—well, and I would argue it’s worse internationally. The international offsets are far worse.

WEISS: Here’s the challenge. We’ve got a huge crisis facing us. The science is far outpacing both public opinion and political will. So what’s the solution? Do you let the perfect be the enemy of the good? Or do you take the first steps now? Let me give you an example of something that’s happened in this country the past decade. Twenty-eight states have what’s called renewable electricity standard, which is also included in the House-passed energy bill. It requires utilities to generate a certain amount of their electricity from the wind, the sun, geothermal energy, other renewable sources. Many of these renewable electricity standards were opposed by utilities in the states that brought them up. Nonetheless, they were enacted. Within a few years, half of the states had made the standards tougher. But had you tried to adopt the tougher proposal at the beginning, it never would’ve happened. The same thing happens here. If we like it or not, we have a political system where big money talks, and the big oil and big coal companies have been spending millions of dollars trying to defeat this legislation. One, Daphne and I could sit down in an hour, design the perfect system that would get the most amount of emissions reductions but would get the fewest votes. We’re not able to do that.

JAY: So what do you make of it? The political reality is this is—.

WYSHAM: Okay. Big money. Let’s talk about big money. Deutsche Bank, the IMF, Exxon Mobil all say cap and trade is not the way to go. Deutsche Bank says that this is not the way to achieve a massive investment.

WEISS: So you trust Exxon Mobil?

WYSHAM: I’m telling you—you’re talking about—what I’m saying is that environmental groups and nongovernmental organizations have made a mistake by shooting for what is politically feasible rather than what the science demands. And what I’m saying is, as long as we stick to our guns and speak the truth, which is these projects are not achieving emissions reductions; they will rise, the utility prices for the average consumer; we will not see a rebate, as we would under the Cantwell-Collins bill; we are giving away 80-plus percent of the permits away for free to [inaudible] huge profit-generating mechanism for—excuse me. It’s—in the EU emissions-trading scheme, coal and nuclear came out ahead, emissions went up, and also the consumer paid more. Yes, it was a huge cash cow for nuclear and coal. But was it a success? Absolutely not.

WEISS: First of all, it is a success: Europe is on track to meet its Kyoto reductions.

WYSHAM: Because of the economy collapsing.

WEISS: Second of all—excuse me. My turn. Secondly is that the system in the House bill would take these pollution allowances and return 80 percent of the value to either consumers or use them for other public purposes, like investing in clean energy. You know, we could design the perfect system here, but we’ve got to get something passed. If you looked at the 1957 Civil Rights Act, it didn’t do very much. But what Lyndon Johnson, when he was majority leader, tried to do is get a civil rights law through the Senate, and that helped set the ground for much more significant advances six or seven years later. The same thing is true here. We’ve got to start someplace. The bill—let me finish. The bill that is past the House would reduce our global-warming pollution by about 28 percent from 2005 levels, or about 13 or 14 percent from 1990 levels. Is it all that we need to do? No. Is it a giant step forward? Yes. If we try and hold out for something better [inaudible] there’s no support for, then we’ll end up doing nothing.

WYSHAM: Okay. The "no support" piece I’ll tackle right now, which is a recent poll found that Americans favor a carbon-tax shift, where they could actually get a rebate over cap and trade, two-to-one in all age groups, and those who knew more about climate change actually favored it by even a wider margin. So the notion—.

WEISS: If you’re referring to the AP poll, that also showed strong support for a cap-and-trade system.

WYSHAM: No, it’s not an AP poll. So Dr. Elaine Kamarck, who’s a former policy advisor to former vice president Al Gore, admits that basically only 2 percent of voters hold a positive view of cap and trade. The notion that this is somehow a political—you know, that there’s political support and momentum behind cap and trade is patently false. People realize that climate change is a serious problem. They want serious solutions. They don’t want giveaways to polluters. They want to see money coming back to them. That’s what the cap-and-dividend approach—that’s what Obama promised when he was elected. He promised 100 percent auctions. And he’s backed off of that as a result of a lot of groups caving in and saying that it’s okay to give most of the permits away free to polluters.

WEISS: You have to remember, as Robert Stavins, the economist at Harvard, said, 80 percent of value of those allowances will be returned to people in one form or another.

JAY: Let’s back up, back up, because you guys are in it and you move from topic to topic very quickly, but I want to make sure me and everybody watching move with you. Okay?

WYSHAM: Yeah.

JAY: Let’s go back to this point. Would you rather see this bill go down than go through with—the Waxman bill, than go through with cap and trade? Like, Jim Hanson, the climatologist at NASA, said better not at all then cap and trade. Is that where you’re at?

WYSHAM: The architecture is absolutely all wrong. It’s going to set up a profit-generating mechanism for polluters and for Wall Street traders and derivative traders that have brought us the economic crisis that we’re all suffering through. It would be far worse to put in place a structure that’s going to essentially create its own momentum around a negative approach. We should get the architecture right first, and then we should move forward, and this is not the right architecture.

JAY: So she’s saying it’s not about doing something perfect. She’s saying cap and trade would be wrong altogether.

WEISS: Well, first of all, a cap-and-trade system has already been used in the United States, and it has been quite successful. It was a big part of the Clean Air Act of 1990, and it reduced the pollution that causes acid rain for one-third the price that the government predicted and one-tenth of the price that the industry predicted. Second of all, that politics is the art of the possible: if it was possible to get a carbon tax that Daphne’s talking about through, someone would’ve tried that.

JAY: Hold on, hold on. No second-of-all’s; only first-of-all’s.

WEISS: Okay.

JAY: First of all, it’s worked in some places. In the United States, there’s some history to this. What’s your response to that?

WYSHAM: It’s apples and oranges, first of all. And secondly—.

WEISS: How come she gets a second one?

JAY: It was so short.

WEISS: You have to compare what regulation was able to achieve in countries like Germany, where they get much more drastic emissions reductions than cap and trade.

JAY: Okay. So let’s get down to the final point here. Is this really a debate about regulation versus various market mechanisms or not? Are you saying—are there any market mechanisms? Or is regulation—?

WYSHAM: No. I’m saying a tax-and-rebate approach is one market mechanism that has far more transparency that could work. But you have to have regulations with it. Waxman-Markey actually gets rid of the Clean Air Act’s authority under the EPA.

JAY: Has it worked or not? Give us one—where is your example that at worked? And what’s your argument [inaudible]

WEISS: The Clean Air Act of 1990 has reduced the sulfur emissions by the amount it was supposed to in order to reduce acid rain, and it did it for one-third the cost of what the EPA had predicted it would cost.

JAY: And it did it through a cap-and-trade mechanism.

WEISS: Absolutely. It was the first one really tried on a nationwide basis.

JAY: So what’s wrong with that?

WYSHAM: Well—.

WEISS: And it’s the same sources causing global warming pollution, which are power plants.

WYSHAM: The Clean Air Act used for acid rain, it was a very small number of chemicals that we were trying to restrict. CO2 is the fundamental—the engine of this economy and of the global economy. It’s an entirely different ball of wax with CO2. Secondly, as I was trying to say earlier, regulation actually achieved more dramatic emissions reductions in the case of acid rain in Germany than this cap-and-trade approach which is deemed such a laudable success.

JAY: But there was no offshore offsets—

WYSHAM: No offsets.

JAY: —in the acid rain issue, right?

WYSHAM: And there was no opening up of the derivatives and—.

JAY: You couldn’t trade for a non-American trade.

WEISS: No, because it was not a international pollution problem; it was a domestic pollution problem.

JAY: Alright. But isn’t that part of the big critique of cap and trade, that particularly internationally this is not a verifiable system? ‘Cause your example is a domestic example.

WEISS: Yes, but it’s possible to establish measurable, reportable, and verifiable standards for offsets—regulation, as Daphne would put it.

JAY: This is a process of people understanding this. We’re not going to do it in one debate. Let’s do another debate soon, where we break down what is the historical experience here, what really has happened in Europe, what’s the precedence in the US and California, has it worked, hasn’t it worked. Okay? And we’ll do that another time. Let’s do one more segment on the politics of all this. Let’s just focus on what’s achievable and what is the politics of what’s achievable. And there’s some precedent here, looking at what’s happening with health care. So please join us for the next segment of this panel discussion on climate-change issues on The Real News Network.