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I'll take the loopholes if it gets us a global climate deal

Dane Pflueger | Monday 25th May 2009

Last week the US Climate Change Bill was formally introduced into the House and should come to a vote in the next week or two. The bill, relying on a cap and trade system, is derided by almost all environmental groups as watered down, full of corporate handouts, and ultimately not fit for the challenging task at hand. This is in all regards true.

Firstly, by not setting targets as high as the science suggests is necessary, it misses the point. As Greenpeace points out, "United States and other developed nations together must achieve emission cuts of at least 25-40 percent below 1990 levels by 2020, and 80-95 percent by 2050. But this legislation only sets a domestic target at approximately 4 percent below 1990 levels by 2020."

Secondly, the Economist is right in pointing out the unjustifiable loopholes and handouts to coal states and industries. The Bill gives away 85% of permits to industries. This practice is called grandfathering and only makes sense as a blatant giveaway to business. Grandfathering erects barriers to entry of cleaner technology firms who have to purchase all of their permits, it passes on even more costs to consumers because revenues from auctioning cannot be used to offset consumer costs, and it encourages companies to keep high-emitting plants in operation longer.

Finally, the allocation of permits is heavily skewed to certain special interests. In particular, coal gets off easy while oil takes a big hit. Energy companies get 35 % of the free permits, basically making them immune to the cost of carbon. This skews efficiency savings that the cap and trade system was designed to produce.

These flaws lead some environmental groups such as Friends of the Earth to rubbish the Bill altogether after all, what's the point of reducing carbon emissions if it won't stop global climate change? And why give away windfall profits to coal companies while increasing the cost of domestic oil?

I agree. This Bill reduces emissions in a very bad way, and ultimately does far too little. However, I also think that there are many good reasons for environmentalists to support this Bill vehemently.

The critical point, I think, is to put this Bill into an international perspective. The US cap and trade system is needed as a means of reducing US emissions but is needed more as a means of garnering international support for binding international targets in Copenhagen in December. After all, the US cap and trade system could be aggressive and administratively perfect but without an international agreement, it will be too little to stop the worst effects of climate change. Although a much better cap and trade arrangement would be beneficial to securing international agreement, just having one is the most important requirement before Copenhagen talks begin in earnest.

The EU Emissions Trading System experience shows that cap and trade systems need some getting used to and that after one or two years, their structure allows changes and more aggressive caps on emissions. The most important thing for the US to do now is establish a structure for emissions, even if it has loopholes and handouts. This will make US leadership at Copenhagen legitimate and help ensure the most important long-term goal of a global agreement on emissions.

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Ruchira Shah 26 May 2009

You know I am not a huge fan of cap and trade in general, but I am hopeful about Waxman-Markey, simply because it's what we've got. :)

I am a little concerned though about the international offsets. My worry is that there is 5% of the offsets reserved to combat deforestation, and I believe 3% which is combined for adaptation and technology transfer.

Now, I don't know how the international community will react to this, but my gut is it's too little adaptation, too little technology transfer, and I'm worried that the technical details won't be worked out correctly on the deforestation. Apparently the EPA is going to regulate the offsets, and that's great ... but as far as I'm aware, the regulatory panel they are conceiving of would be dominated by scientists.

Combating deforestation is important, of course, but it has to be done sensitively. If not, we could end up actually hurting our international standing with key players like Brazil. IMO. Sara probably has an opinion as well!