Cap-and-Trade Programs – Free Solar Heating Plans
In June 2009, the House passed the American Clean Energy and Security Act (ACES) – the most significant legislation ever designed to counter global warming (the gradual heating of the Earth’s surface as a by-product of human activities). Most scientists argue that if it is not reversed, global warming will one day have catastrophic consequences for the entire planet. The New York Times described the legislation as “the first time either house of Congress passed a bill imposing a limit on the emissions blamed for the warming of the planet.” A version of the legislation must now be passed by the Senate in order to be signed into law by President Obama (D).
ACES, more commonly known as the Waxman-Markey bill after its principal authors, Reps. Henry Waxman (D, Calif.) and Edward Markey (D, Mass.), includes a program known as cap-and-trade, which is intended to reduce emissions of carbon dioxide (CO2)–one of the chief gases blamed for global warming.
A cap-and-trade program, according to the Environmental Protection Agency (EPA), “is a market-based policy tool for protecting human health and the environment by controlling large amounts of emissions from a group of sources.” The “cap” refers to a limit on the amount of CO2 that U.S. industries as a whole may emit. The government would circulate permits to emit the allowable amounts of CO2 within those limits; companies would then be able to trade–buy and sell–those pollution credits. According to the EPA, the belief allows “the sale or buy of allowances, installation of pollution controls, and implementation of efficiency measures, among other options.”
Because a cap-and-trade program would accomplish it more expensive for companies to emit CO2, advocates say that those companies will be more inclined to invest in clean, alternative, non-polluting sources of energy. Obama has said that the program “will finally make natty energy the profitable kind of energy.” Supporters also argue that it will give energy producers a chance to profit from selling emissions allowances that they do not use.
Critics, but, argue that, by definition, any cap-and-trade plot will be costly to Americans. They note that, in order to succeed, the program would have to drive energy costs so high that customers would carve their energy use, which would in turn force companies to find cheaper, cleaner ways of generating energy. Is raising energy costs through a cap-and-trade program the best way to reverse global warming and save the planet? Should the Senate adopt a version of the Waxman-Markey bill for Obama to sign?
Critics say that cap-and-trade runs counter to free-market principles by artificially inflating energy costs. Those costs will be so high, critics say, that the U.S. economy will be devastated. Other, more liberal critics, argue that the cap-and-trade model is too kind to polluters. The House bill, they say, does not go far enough in forcing companies to reduce emissions and, if signed into law, will essentially be worthless.
Supporters of a cap-and-trade program insist that it is the most realistic, market-friendly scheme of addressing climate change. Studies of the program laid out in the Waxman-Markey bill, advocates say, show that the cost to American families will be minimal. Besides, supporters argue, any price is worth paying when the future of the planet is at stake.
Scientific Consensus on Climate Change Grows
In the late 1800s, scientists first noticed that the Earth’s temperature was gradually increasing. While the causes and extent of global warming were disputed by skeptics for many years, a consensus has emerged among scientists that the planet’s temperature is indeed rising due to human behavior.
Global warming is a result of the greenhouse effect, in which clear kinds of gases, known as greenhouse gases, trap solar heat in the Earth’s atmosphere. While that heat is indispensable to keeping the planet habitable, the presence of too many greenhouse gases in the atmosphere can be destructive to the planet.
Humans make greenhouse gases primarily by burning fossil fuels to generate energy. Fossil fuels, when burned, emit CO2, now one of the most plentiful greenhouse gases in the atmosphere. According to the Web station of the National Aeronautics and Space Administration (NASA), “Most of the burning occurs in automobiles, in factories, and in electric power plants that provide energy for houses and office buildings.” With the growth of human industry, that process has accelerated.
Scientists say that if global warming continues, the consequences for the planet could be dire. NASA warns:
[Global warming] might harm plants and animals that live in the sea. It could also force animals and plants on land to go to new habitats. Weather patterns could change, causing flooding, drought, and an increase in damaging storms. Global warming could melt enough polar ice to raise the sea level. In positive parts of the world, human disease could spread, and slice yields could decline.
Most of the world’s CO2 emissions come from a handful of nations that have, thus far, resisted pressure to decrease production. For many years, the U.S. was the world’s largest emitter of CO2. More recently, but, China has significantly increased its CO2 output, giving it the lead among industrialized nations. In 2006, China and the U.S. together accounted for roughly 40% of the world’s CO2 emissions. In 2001, the administration of President George W. Bush (R, 2001-09) withdrew the U.S. from the Kyoto Protocol, the international community’s most ambitious initiative to stem industrialized nations’ production of greenhouse gases.
Indeed, large U.S. energy producers fought for years against efforts to decrease CO2 emissions. Those producers funded organizations that attempted to refute claims of global warming scientifically. More recently, but, those same companies have conceded that human activities are responsible for global warming. In 2009, Alan Jeffers, a spokesman for the Exxon Mobil oil corporation, told The Recent York Times that the company had stopped funding “several public policy research groups whose position on climate change could divert attention from the vital discussion about how the world will secure the energy required for economic growth in an environmentally responsible manner.”
With few global-warming skeptics remaining, the tone of the climate change debate has changed; the current discussion focuses not on whether global warming exists, but rather on the best ways to reverse the warming trend and save the planet.
Many environmentalists have long favored the establishment of a carbon tax, which would force polluters to pay the government for emitting CO2. A cap-and-trade plot, but, has emerged recently as a more tenable plot to decrease the amount of CO2 in the atmosphere while allowing industries to continue to profit.
Several cap-and-trade systems have already been implemented. One such program, enacted by Congress as part of the 1990 Shipshape Air Act, was intended to slice emissions of the gas sulfur dioxide (SO2), the main contributor to acid rain. The program significantly reduced SO2 emissions in the decade after it was introduced; the Economist hailed the program in 2002 as “probably the greatest green success sage of the past decade.”
The U.S.’s SO2 cap-and-trade program inspired a similar plot in the European Union to reduce CO2 emissions. That program, but, has had mixed results. Businesses have complained that the CO2 cap has caused their costs to rise. Defenders of the program, but, note that it has succeeded in meeting its goal of CO2 reduction, with emissions produced by member states decreasing by about 3% in 2008.
Meanwhile, a coalition of seven western U.S. states and four Canadian provinces, collectively known as the Western Climate Initiative, has announced its own cap-and-trade program. Scheduled to start in 2012, the plot is expected to lower CO2 levels to 85% of their 2005 level by 2020.
The 2009 Climate Change Bill
While running for president in 2008, then Sen. Barack Obama (D, Ill.) strongly advocated a cap-and-trade program. After becoming president, Obama endorsed a comprehensive bill to reduce global warming. Then, in early 2009, Waxman and Markey started working on their own climate change bill. In its final version, ACES would cut CO2 emissions to 83% of their 1990 levels by 2020. The bill would also require utilities to accumulate power from well-kept, renewable sources, such as wind, solar and water energy, with such sources accounting for 15% of the electricity they provide their customers by 2020.
The bill underwent many changes between its inception and its passage, to ensure the votes of members of Congress representing powerful interest groups; the text of the legislation swelled to over 1,400 pages, from 648. According to the Recent York Times, the bill “grew stout with compromises, carve-outs, concessions and out-and-out gifts intended to win the votes of wavering lawmakers and the support of fantastic industries.”
The cap-and-trade program included in the bill differs from the one proposed by Obama. Whereas the president had questioned for a program in which CO2 allowances would be auctioned off to polluters, with profits from the sales going to the government, the bill passed by the House would give 85% of the credits to energy producers at no charge.
The debate over the bill involved extensive negotiations as to which industries and companies would receive free emissions permits. For example, the Times famed, “Oil refiners were frozen out at the beginning, but called on lawmakers from refinery-rich districts to press their case.”
ACES also provided billions of dollars for companies operating power plants to develop methods of limiting pollution–such as devices that would capture CO2 before it reached the atmosphere. Such unusual technologies would help those companies meet the pollution standards targeted by the bill.
The bill also allowed industrial polluters to pay other businesses to offset their CO2 emissions by conducting activities–such as planting trees–that reduce the amount of CO2 in the atmosphere. That provision was enthusiastically supported by representatives from states dominated by agricultural interests and would, according to the Times, “funnel billions of dollars in payments to agriculture and forestry interests.”
Reactions to Waxman-Markey varied greatly. Conservatives argued that the bill would raise energy costs so high that it would pain the economy. Environmentalists, meanwhile, insisted that the bill had become so watered down that it could no longer be effective. Waxman, but, defended the legislation, insisting, “We worked hard to craft compromises that addressed the legitimate concerns of industry without undermining the environmental integrity of the legislation…. Tackling hard issues that have been ignored for years is never simple.”
Cap-and-Trade Program Too Costly, Critics Say
Conservatives argue that a cap-and-trade program would make CO2-emitted during the cheapest energy production processes–artificially expensive, thus running counter to the principles of free-market economics. Harvard University economics professor Martin Feldstein wrote for the Washington Post that energy companies would “pass along the cost [of paying for] the permits in their prices, pushing up the relative price of CO2-intensive goods and services such as gasoline, electricity and a range of industrial products.”
Adopting a cap-and-trade program, such as the one in Waxman-Markey would, according to a Wall Street Journal editorial, “ruin the discipline of economics” and devastate the economy. The Journal opined:
The whole point of cap and trade is to hike the imprint of electricity and gas so that Americans will consume less. These higher prices will show up not impartial in electricity bills or at the gas site but in every manufactured excellent, from food to cars. Consumers will cut back on spending, which in turn will slit back on production, which results in fewer jobs made or higher unemployment.
Feldstein has said, “The proposed legislation would have a trivially small effect on global warming while imposing substantial costs on all American households.” Likewise, the Wall Street Journal characterized Waxman-Markey as “the largest tax in American history.”
Critics also charge that, because working-class families tend to spend more of their paychecks on driving to work and heating their homes than wealthy Americans do, the costs of a cap-and-trade program will be borne largely by the middle class.
Other critics of the plot charge that, because the program’s mandatory cap on CO2 emissions will be lowered as time passes, those emissions will become increasingly valuable. Therefore, critics say, investors will become interested in purchasing CO2 permits to resell to other companies or investors later on. Journalist Matt Taibbi wrote for Rolling Stone, “[T]his is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time.” Critics say the situation could extinguish up making a crisis similar to the financial crisis stemming from subprime mortgages–mortgages issued to borrowers with unpleasant credit records. The success of the subprime industry, fueled by expectations that real estate prices would keep rising, led to a brief economic sing that, when it finished, resulted in one of the most drastic economic downturns in over 75 years. Critics worry that a so-called subprime carbon industry might do as a result of a cap-and-trade program, with similarly disastrous results.
Indeed, critics charge that large investment banks have lobbied heavily for a cap-and-trade program because of the potential profits involved. The carelessness of those same banks during the subprime pronounce, critics note, resulted in losses so severe that the government was forced to enact a $700-billion economic rescue plot to maintain some of the world’s largest banks from collapsing. Taibbi complained:
Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they produce, cap-and-trade will allow a tiny tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to select taxpayer money before it’s even collected.
Environmentalists, meanwhile, charge that, by the time it was passed, the Waxman-Markey bill had become so watered down by special interests that it was useless. Those critics note that, while the bill would slash CO2 emissions to 83% of their 1990 level by 2020, scientists have argued that reducing emissions to 75% or even 60% of their 1990 level is required to avert an environmental catastrophe. If that goal is not met, those critics say, any attempt to reverse global warming will fail.
The environmental group Greenpeace has been one of the most vocal critics of the bill. The organization issued a statement criticizing Congress for working “extensively with the coal industry to edit the bill, which has translated into weakened targets and massive offsets.”
Environmentalists argue that the offsets included in the bill will not counteract the effects of CO2 the diagram their proponents claim they will. In fact, critics say, many of those offsets will attend industries that are just as polluting in other ways as those that emit CO2. Greenpeace argues:
The giveaways and preferences in the bill will really spur a new generation of nuclear and coal-fired power plants to the detriment of real energy solutions. To support such a bill is to abandon the real leadership that is called for at this pivotal moment in history. We simply no longer have the time for legislation this weak.
Other critics argue that, environmental and expense issues aside, Waxman-Markey is simply a poorly constructed bill. A Washington Post editorial argued that the bill “provides many avenues potentially to evade compliance. While in theory the bill relies on the market to find the most efficient alternatives to greenhouse-gas emitting energy sources, in practice its subsidies, regulations and exemptions could skew the outcome in costly ways.”
Many of Waxman-Markey’s critics do not oppose a cap-and-trade program in theory, and applaud Congress’s efforts to address climate change. But, those critics say, the implications of such a bill are so sweeping that no measure should be passed until it comprehensively addresses the world’s climate crisis. The Post asserted, “Congress should deliver a bill to Mr. Obama this year. But given that congressional action could set a template for years or decades, we reckon it’s too soon to settle for something that falls so far small of ideal.”
Cap and Trade Critical for Environment, Supporters Say
Defenders of ACES argue that, while far from perfect, the bill is the most significant attempt that the government has made to address global warming. The Senate, advocates say, must pass a similar bill immediately, which should be signed into law by the president as soon as possible.
The cap-and-trade program included in Waxman-Markey, supporters say, will go a long way towards reversing the planet’s warming in an economically friendly manner. According to the Environmental Defense Fund, ” ‘Cap and trade’ harnesses the forces of markets to do cost-effective environmental protection. Markets can achieve superior environmental protection by giving businesses both flexibility and a direct financial incentive to find quicker, cheaper and more innovative ways to reduce pollution.”
Advocates of the cap-and-trade model price that it is the only solution yet proposed for the global warming crisis that takes economic interests into account. Lisa Jacobson, the president of the Business Council for Sustainable Energy, a group that represents energy companies, has said, “The comprehensive approach to energy and climate change policy adopted by the [Waxman-Markey] bill provides regulatory clarity and sends strong and long-term signals to the market to invest in existing clean energy technologies.”
Supporters of a cap-and-trade system dispute the claim, made by critics, that such a program will drive up energy prices significantly. They point to a report by the Congressional Budget Office (CBO) indicating that, by 2020, the cap-and-trade plot would cost most American families an average of $175 per year–a cost well worth paying to assign the planet, they claim.
Advocates point to past cap-and-trade programs as evidence that such a program will not cause energy prices to skyrocket. The EDF notes that the cap-and-trade program enacted to nick SO2 emissions in the 1990s was far less expensive than predicted. Indeed, the EDF claims, although SO2 allowances were expected to sell for between $650 and $850, they really sold for between $100 and $200. According to the EDF, the entire program, which was initially estimated to cost about $6 billion annually, finished up costing only between $1 billion and $2 billion annually.
Defenders of the Waxman-Markey bill also dispute the claim that a cap-and-trade program will initiate up a “subprime” market for CO2 permits. Salon blogger Andrew Leonard wrote humorously, “I don’t reckon Wall Street is likely to build the same exact mistake twice in a row–the usual modus operandi is to find some kind of new mistake to make.” Leonard notes that while there is some potential for speculation in any new market, “a cap-and-trade system is the best we’re going to get, and our only real option is figuring out how to make it work, and then to improve it over time.”
Supporters of cap-and-trade argue that critics of the Waxman-Markey bill on both sides of the political spectrum have unrealistic goals. They note that, although conservatives complain about the costs of cap-and-trade, those critics have offered no alternative plans for reversing global warming. Leonard notes, “Republicans would prefer no restrictions on greenhouse gas emissions whatsoever.”
Nobel Prize-winning economist Paul Krugman has noted that many conservative critics still deny the existence of global warming despite a scientific consensus. He pointed to, for example, Regain. Paul Broun (R, Ga.), who referred to global warming as a “hoax” perpetrated by the entire scientific community. Krugman describes such critics as “people who point to no sign of being interested in the truth. They don’t like the political and policy implications of climate change, so they’ve chose not to believe in it–and they’ll grab any argument, no matter how disreputable, that feeds their denial.”
Supporters argue that environmentalists are equally unrealistic. Leonard has written that they refuse to accept “any kind of market-based system that tries to steer industry to the right behavior via the profit incentive.”
Most supporters of ACES acknowledge that the bill is far from perfect, and will likely require even further concessions to receive Senate approval. They note, but, that the 219-212 House vote approving the bill was so close that a tougher, better bill would be nearly impossible to pass. Barkley Rosser at James Madison University, in Harrisonburg, Va., wrote for the Web site EconoSpeak that while many considered the bill a “huge disappointment…I reckon it is a edifying achievement, at least potentially. That the vote was so close is a reminder of how much opposition to doing anything about global warming there is in the Congress.”
Other supporters of Waxman-Markey argue that the bill is a major step in the right direction and will change the way companies and politicians reckon about the environment. New York Times journalist Thomas Friedman has written:
[I]f the U.S. government puts a price on carbon, even a weak one, it will usher in a original mind-set among consumers, investors, farmers, innovators and entrepreneurs that in time will make a huge difference–much like the first warnings that cigarettes could cause cancer. The morning after that warning no one ever looked at smoking the same again…. [If the bill passes] every investment choice made in America–about how homes are built, products manufactured or electricity generated–will glimpse for the least-cost low-carbon option.
Carter Roberts, CEO of the conservation group the World Wildlife Fund (WWF), has said, “This bill is not everything we need, but it is a critical starting point, at a crucial time.”
Future of Climate-Change Legislation Depends on Senate
The Senate is expected to start work on its version of the climate-change bill in September. Both supporters and critics of the House bill have keenly anticipated the Senate’s version. A Unique York Times editorial that referred to the House’s approval of Waxman-Markey as a “remarkable achievement” stated that “all of the hard work–the hearings, the negotiating, the arm-twisting–will add up to zero if the Senate cannot be persuaded to do the same.”
Indeed, supporters of Waxman-Markey concede that the bill is only a first step. Krugman has noted that while it is “an incredible and inspiring political achievement” that the bill passed the House, it peaceful “fell well small of what the planet really needs–and despite this faces steep odds in the Senate.”
Obama, meanwhile, has staunchly supported the bill, even though it deviates significantly from the cap-and-trade program he originally espoused. He has said that “finding the right balance between providing new incentives to businesses, but not giving away the store, is always an art; it’s not a science because it’s never precise.”
But, the president has announced his opposition to a provision in the bill that would impose taxes on imported goods from industrial nations, such as China and India, that have not enacted similar legislation pledging to lower their CO2 emissions. Obama has argued that the provision amounts to protectionism and could spark a trade war. Supporters of the provision, but, argue that a bill to curb greenhouse gases in the U.S. will not reverse the global warming trend if other nations do not enact similar policies.
Meanwhile, in December 2009, the United Nations will hold its 15th annual Climate Change Conference. The meeting, which is expected to include representatives from 192 countries, is intended to establish a global climate agreement to curb greenhouse gas emissions. Many environmentalists have urged the U.S. to act decisively on greenhouse gases prior to that meeting.
Sources:
Broder, John. “With Something for Everyone, Climate Bill Passed.” Modern York Times, July 1, 2009, www.nytimes.com.
“The Cap and Tax Fiction.” Wall Street Journal, June 26, 2009, online.wsj.com.
“The Cap and Trade Success Tale.” Environmental Defense Fund, May 26, 2009, www.edf.org.
Clayton, Stamp. “On Global Warming, What US Can Learn from Europe.” Christian Science Monitor, Jan. 30, 2007, www.csmonitor.com.
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