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Wednesday, January 28,2009

Cap, trade, tax

by Lawrence Cosentino
Courtesy Greenpeace

It’s crunch time for carbon in America, but who will do the crunching, and how?

This month, with the arrival of a new, carbon-averse administration, major players jockeyed hard to frame the long-delayed debate on how to cut the carbon emissions that cause global warming.

The biggest salvo came Jan. 15, when a coalition of industrial giants and environmental groups called for cuts in U.S. carbon emissions reaching 80 percent of 2005 levels by 2050.

The U.S. Climate Action Partnership, or USCAP, urged Congress to impose the cuts by doling out a limited number of allowances for factories, power plants, refineries and other big polluters to emit carbon.

The USCAP partnership takes in more than 30 large corporations, including Dow, DuPont, ConocoPhillips, General Motors Corp., Shell and Rio Tinto, and several environmental groups, including the Natural Resources Defense Council and The Nature Conservancy.

Under the plan, allowances could be traded like a commodity, allowing some companies to emit more carbon and others less. As the carbon cap goes lower, the allowances get pricier, like ration coupons, and industry is pressured to find carbon-free ways to do business.

Such a plan, known as “cap and trade,” has also been favored by President Barack Obama and Senate leaders and looks likely to take effect in some form during the next Congress.

Thomas Dietz, director of the Environmental Science and Policy Program at Michigan State University, is hopeful but wary.

“Cap and trade may work, but it involves immense complexities,” Dietz said. “Lots of industries and regions can game the system.”

Dietz, who is now studying how environmental change works in a democracy, said it’s “highly unlikely” that the alternative to cap and trade, a carbon tax, would get off the ground in the United States.

But some environmentalists have distanced themselves from the USCAP approach.
On Dec. 1, 2008, in anticipation of the announced plan, activists from a coalition of environmental groups, including Rising Tide and the Global Justice Ecology Project, took over the Washington office of the Environmental Defense Fund, which co-founded USCAP in 2007.

The activists compared cap-and-trade plans to rearranging the deck chairs on the Titanic.
Objections to cap-and-trade range from the practical to the ethical to the philosophical. Opponents say the allowances will leave loopholes and let big polluters buy their way out of compliance. Some object to turning air into a tradable commodity. Others say the plan will not reduce carbon fast enough to avoid catastrophe.

“Keep the cap, ditch the trade” was a common sign at the Washington demonstration.
Rachel Smolker, daughter of EDF founder Robert E. Smolker, broke with her father’s organization in December, saying it had “mushroomed into the darling of the corporate world” and would be “completely unrecognizable” to her father.

On Jan. 15, the day the USCAP plan was released, Steven Biel, global warming campaign director for Greenpeace, called it “a political document from polluters hoping to cut a favorable deal for themselves.”

When USCAP first called for a carbon cap-and-trade system in January 2007, Peter A. Darbee, CEO of PG&E of California, spoke openly of the coalition’s aims to The New York Times. “We have the opportunity to construct something more pragmatic and realistic while President Bush is in office,” Darbee said, noting that the next administration might produce “solutions less sensitive to the needs of business.”

For environmentalists, the debate cuts to the heart of a classic dilemma: At what point does cooperation with industry become co-opting by industry?

Even Biel of Greenpeace took a longer perspective.

“The good news is that the proposal represents how far the global warming debate has come,” Biel said. “Just a few years ago, some of these industries denied global warming was even a problem.”
After the plan was announced, a former partner of USCAP, the National Wildlife Federation, pulled out of the coalition, albeit delicately.

Spokesman Aileo Weinmann said his organization supports a “cap and invest” plan that combines features of a carbon tax with cap and trade.

“We look forward to continuing our dialogue with USCAP and its members, albeit in a different role,” he said.

Last month, one more heavyweight was heard from. On Dec. 29, 2008, Obama and his wife, Michelle, got an unusual personal letter from James Hansen, head of NASA’s Goddard Institute for Space Studies, often called the “grandfather of climate change.” Hansen was among the first scientists to warn Congress about climate change 20 years ago.

In the letter, Hansen called the cap and trade approach “ineffectual and not commensurate with the climate threat.”

“It could waste another decade, locking in disastrous consequences for our planet and humanity,” he wrote.

Hansen advised Obama to tax carbon at the source and redistribute the revenue equally among taxpayers.

David Gard, energy and air quality specialist for the Michigan Environmental Council, said Hansen has “proven himself prescient on these issues for decades.”

But the MEC isn’t opposed to cap-and-trade. Gard welcomed the “cap” half of the plan. “With a tax, you get a guaranteed price of carbon, but you let the market figure out how much reduction you get,” Gard said.

Gard said MEC quarrels mainly with a key provision in the USCAP plan recommending that “a significant portion of free allowances should be initially distributed” and phased our over time.
“We take the opposite position,” Gard said. “It makes more sense to auction the allowances off.”
Obama, too, has expressed support for auctioning off the allowances, using proceeds to invest in alternative energy and help low-income ratepayers meet increased power bills.

But Gard warned that the cap-and-trade plan would be “easier on paper than in practice.”
Dan Cronin, a spokesman for the Environmental Defense Fund, doubted that a tax would be any less murky or complicated.

“When you start going into the Federal tax code, you’re opening up a big can of worms,” Cronin said. “Move one period or one comma in that thing and you’re creating thousands of lobbyists.”

“There will be oversight [with cap-and-trade], like with everything else,” Cronin said.

MSU’s Dietz is cautious about the monumental legislative sausage making to come, but glad that action seems imminent. “Cap and trade, even if less than perfect, is far better than no system at all,” he said.


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