Cap and Trade Politics
In the days since Waxman-Markey has passed in the House, it’s been the object of a lot of political jockeying — fierce bromides from the climate denialists that have been terrifying the electeds, and agitation from progressives concerned that the milquetoast bill that got passed out of the House might not be enough.
The policy details haven’t been easy to find in any one place, but the Wikipedia article on the subject has a decently brief rundown:
- It sets a slightly higher target for reductions in emissions of carbon dioxide, methane, and other greenhouse gases than that proposed by President Barack Obama. The bill requires a 17-percent emissions reduction from 2005 levels by 2020; Obama has proposed a 14 percent reduction by 2020. Both plans would reduce United States’ emissions by about 80 percent by 2050.
- It includes a renewable electricity standard (almost identical to a renewable portfolio standard, but narrowly tailored to electrical energy) requiring each electricity provider who supplies over 4 million MWh to produce 20 percent of its electricity from renewable sources (such as wind, solar, and geothermal) by 2020. There is a provision whereby 5% of this standard can be met through energy efficiency savings, as well as an additional 3% with certification of the Governor of the state in which the provider operates.
Alternative compliance payments are $25/MWh in violation of the standard, adjusted for inflation beginning in 2010.
- It provides for modernization of the electrical grid
- It provides for expanded production of electric vehicles
- It mandates significant increases in energy efficiency in buildings, home appliances, and electricity generation.
The bill’s cap-and-trade program allocates 85% of allowances to industry for free, auctioning the remainder. 15% will be auctioned, the revenue from which shall be redistributed to low-income households. 30% of the allowances will be allocated directly to local distribution companies (LDCs) who are mandated to use them exclusively for the benefit of customers. 5% will go to merchant coal generators and others with long-term power purchase agreements.
Progressive criticism has come in a couple of forms: first and foremost, that the reduction targets included in this bill will not do enough to save the earth, which is the ultimate in non-petty concerns and seems to be backed up by scientific consensus.
Another concern relates to the auctioning of the emissions permits: the fact that the bill “allocates 85% of allowances to industry for free, auctioning the remainder.” In practice, that means that a lot of money will be made from these permits being bought and sold, only that the money will not go to your Supertrains and electric windmills and solar panels and other national infrastructure goodies. Obama’s budget proposal envisioned a 100% auction, which would have the somewhat counterintuitive impact of raising a lot of federal revenue without actually charging Joe and Jane public any additional money over the alternative scenario.
The current version also offends on the grounds of moral justice: the other 85% of the revenue will go to the same masterminds that set the economy on fire these last few years – Matt Taibbi’s article on Goldman Sachs connects the last several bubbles to the anticipated windfall from carbon offset trading. Believe what you like about Goldman, but this assessment sounds about right:
“If it’s going to be a tax, I would prefer that Washington set the tax and collect it,” says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. “But we’re saying that Wall Street can set the tax, and Wall Street can collect the tax. That’s the last thing in the world I want. It’s just asinine.”
It’s exhausting trying to defend the bill once you glean that the grand bargain sacrificed 85% of the infrastructure improvements so those trillions can sit in the trading accounts of the top .01%, collecting dust and dividends until the next big crisis — at which point there will be no money and no Supertrains. Goddamn it.
“But,” say the activists, “defend it we must!” Just because a few robber barons won’t let us save the planet without tripling their net worth doesn’t let us off the hook for actually saving the planet. Let them have their cash, because now the Senate needs to pass the bill, and the odds are that they’re going to make it even worse.
There are some post-fixes possible: John Larson, lead sponsor of a Carbon Tax bill which would have avoided this giveaway nonsense from the start (the awesomely-numbered H.R. 1337) has also in the past offered legislation regulating derivative speculation, and maybe an approach like that would work for carbon as well. If so, maybe the right time to set the dogs loose on carbon profiteering would be after the ACES energy bill goes through.
Also, Krugman pointed the way to this testimony (PDF link) suggesting that import tariffs to equalize the cost of domestic goods and those goods produced in nations with unchecked carbon emissions would be feasible, legal (under WTO guidelines) and enforceable — which could mean that the energy robber barons would primarily be picking the pockets of the cheap-stuff-for-Wal-Mart robber barons. That would allow the proposal to potentially be improved by after-passage action by legislators fearing this kind of criticism, expressed by GOP Congressional Wannabe Justin Bernier in the 5th CD:
“It will hurt our economy without helping the environment. Because only America is covered by Cap and Trade, this new tax will give corporations another excuse to outsource millions of jobs to China, India, Mexico, and other polluter paradises.”
I can’t say for sure that our delegation will engage in a little friendly carbon-protectionism to ward off this kind of criticism, but if a Republican is complaining about it then at least the incentives, to them, will look to be going in the right way. (Sigh.)
Finally, from that same link above (a once-a-week energy policy blog written out of the New Haven Register) another interesting issue is raised: how will the Federal cap-and-trade system interact with the regional cap-and-trade initiative that Connecticut already participates in?
Connecticut is one of 10 states in the Northeast that are part of a part of a cap-and-trade program. The participating states use the money generated by the Regional Greenhouse Gas Initiative (RGGI) auctions to fund clean and renewable energy programs.
The RGGI auction, which was held earlier this month, produced $4.7 million for Connecticut ’s clean energy and efficiency programs. Connecticut has received about $18.7 million from the four RGGI auctions held since last fall.
It’s unclear to me whether or not energy producers will need both the free Federal permits and the regionally-auctioned RGGI permits to operate: some of what I’ve been able to find makes RGGI permit-traders nervous (a good sign), like this report: (another PDF)
The current proposal allows the conversion of RGGI allowances into federal allowances in a way that RGGI bidders face no risk from paying too high a price for an allowance. This would create strong incentives for speculative bidding that would push the RGGI price much higher than its economic value. Such a price distortion would also negatively impact the federal cap‐and-trade program.
Since it’s already widely believed that the carbon market will be a hotbed of speculative trading, all this seems to mean is that while the Federal government plans to give away the store, the ten states in the RGGI program may reap a windfall of moneys directed towards their (read: our) own infrastructure projects.
Plus, if Waxman-Markey won’t decrease carbon enough to avert a climate catastrophe, I wonder if it’s possible for the RGGI-style cap to be benchmarked to a reduction based not on a historical point (i.e. “10% below 2002 levels” or some such), but rather a reduction above and beyond the Federal cap. If coal-state Congressmen can’t do the right thing, I imagine that us coastal-types might have an incentive to strengthen the policy however we can.