Thursday, February 25, 2010

THE LAST WORD: After Cap-and-Trade

It seems like a win-win scenario: the government sets a cap on carbon emissions, based on the latest scientific data and a comprehensive energy policy. Companies then determine how or when they wish to make reductions in their carbon emissions based on their own bottom line. Those who choose to make the capital investments to implement the necessary technologies and reduce their emissions end up with extra allowances that they can, in turn, sell. Those who decide it is more feasible to buy emissions allowances than to implement reduction measures may do so as well.

However, opponents of the current cap and trade proposal say that it is financial disaster. For starters, the technologies to reduce carbon emissions are simply not available, leaving energy producers with two choices—either cut operations or buy allowances. They estimate that cap and trade will reduce the GDP by $161 billion in 2020 and deliver a crippling blow to the American economy…all in the name of climate change, a scientific phenomenon that some are now openly calling into question.

In his 2010 State of the Union address, President Obama reiterated his commitment to clean energy and climate legislation, commending the House for passing the American Clean Energy and Security Act of 2009 but failing to mention cap and trade by name. The president’s proposed budget for 2011 reportedly eliminates revenues from the sale of emissions allowances as well, leaving many in Washington to speculate that the Obama Administration might be willing to consider other options. But if cap and trade is out, then what’s next?

EPA Regulations

In December, the EPA officially declared greenhouse gasses a danger to public health and welfare, opening the door to regulating those companies that produce greenhouse gas emissions. Proponents argue that regulations are the best way to reduce and eliminate emissions pollutants on both a large scale and in a timely manner. However, opponents argue that implementing punitive measures in advance of technological advancements is not a sustainable option and will cause nothing less than an economic catastrophe.

Carbon Tax

Given the threat of EPA regulations and the apparent lack of support for cap and trade, some policy makers and businesses are opting for a straightforward carbon tax. Proponents claim that, phased in over a period of years, a carbon tax program would allow businesses the time they need to plan for reducing emissions in a cost-effective manner. In addition, revenues from a carbon tax could be rebated to Americans through dividends or tax-shifting. Opponents claim that a carbon tax has all the disadvantages of cap and trade (i.e. companies still have to retrofit existing or build new facilities) without the advantages of being able to trade emissions allowances in the marketplace.

Voluntary Goals & Incentives

Many businesses are taking pro-active steps to measure and disclose their carbon emissions via independent organizations such as The Carbon Disclosure Project. Still others are participating in voluntary public-private partnerships including the EPA’s Climate Leaders and the DOE’s Climate VISION Programs which promote energy efficiency and emissions reductions. In addition, free market proponents have recommended the government reduce regulations for renewable energy start-ups and limit litigation against clean tech ventures in order to facilitate the adoption of greener sources of energy. However, opponents argue that voluntary goals and incentives are not enough; climate change demands government intervention now. Even those who remain agnostic about the effects of climate change acknowledge the importance of energy independence from both a national security and an economic point of view. The question is: What do we do now?

Perhaps the first step is to build consensus on what our end goal is. The focus of current regulations and proposed legislation seem to imply that our end goal is to reduce greenhouse gas emissions to acceptable levels. However, reduced emissions are actually a by-product of our end goal, which is (or should be) the creation of a domestic source of energy that does not produce pollutants in the first place. Any action that does not have that end goal clearly in sight will miss the mark.

More and more, the American public is making it clear: Environmental sustainability is certainly important, but so is energy security and economic prosperity. We need a plan that will allow us to achieve our end goals, not get side-tracked by the byproducts of those goals. And we want a government that will work with the businesses that provide jobs and economic stability—not against them—to achieve those goals. At the end of the day, we want a strategy that will actually help solve the problems that face us, not just control them.

First appeared on the Anderson Cooper 360 Blog - February 11, 2010