The Cap and Trade We Need

By Michael Shellenberger and Ted Nordhaus

We have a post up at Salon today that criticizes cap and trade legislation in the House (Waxman-Markey). We argue that it cannot achieve the clean energy revolution we need. Compromises will no doubt be necessary to pass climate legislation in Congress, but as currently drafted, Waxman-Markey looks like it will make all the wrong compromises, allowing firms to buy dubious and sometimes phony carbon offsets rather than invest in clean energy, giving away billions of pollution allocations to incumbent energy interests for free, and committing a fraction of the funds needed for direct public investments in clean energy research, development, and deployment.

We propose an alternative cap and trade, which would explicitly cap the price of carbon dioxide pollution at roughly $10 per ton, rising over time, would auction all pollution allowances with no free giveaways and no offsetting, and would use the vast majority of the revenues, about $60 billion a year, to fund the accelerated development and deployment of clean energy technologies. We believe that such a solution would more rapidly achieve the technological innovations we need at a lower cost. It is also great politics, given strong public support for government investment in clean energy technology. This is the same position we have held since 2007, when we laid out this basic approach in Break Through and other writings.

In Salon, Joe Romm of the Center for American Progress claims that we oppose a price on carbon, oppose environmental regulations, and are effectively part of the fossil fuel "global warming denial machine." Having addressed Romm's histrionics and his outdated and flat-out wrong views on energy technology elsewhere, we will refrain from it here. Suffice it to say that in his usual fashion, Romm misrepresents our position and then attempts to shout it down.

For the record, we have been clear and consistent about our position since our book Break Through came out in October 2007 and through a year and half of writing for magazines and journals. We believe that global warming poses an existential threat to human civilization, but that policy to address it, and the political case for doing so, are best focused around more immediate and tangible public benefits: building a clean energy economy, creating entire new industries that can become the basis for future American prosperity, and increasing energy security.

Meeting the global climate challenge will require us to rapidly and completely decarbonize the global energy economy. This will require that we do so not only in the United States, but also in places like China and India where most of the growth of future carbon emissions will come from. These developing nations and others like them require affordable and abundant energy in order to continue their rise from poverty. While clean energy technologies have made great advances in recent decades in terms of price and performance, they simply remain too expensive compared to fossil fuels. Yet as recent developments in both the U.S. Congress and international negotiations have made clear, the public in neither the U.S. nor China and India are willing to pay much (if anything) more for cleaner alternatives.

As such the central objective of U.S. climate and energy policy must be to rapidly drive the real, unsubsidized costs of clean energy technologies down as rapidly as possible to make clean energy cheap.

We support regulations, including a cap and trade system, provided they are designed with this critical objective in mind and effectively support energy technology innovation. We do not, however, imagine that these measures will be the primary mechanism through which the radical technological innovation necessary to achieve urgent reductions in global carbon emissions will occur. For this, we will need epic, and in many cases direct, public investment at every stage of the research, development, and deployment process. This approach is both good policy and good politics. Americans overwhelming support direct government investment in innovation to make clean energy cheap.

Given what is at stake, it would be useful to have a rousing debate over the substance of our differing positions. Climate and clean energy advocates, in the coming months, will be faced with hard choices as long held climate policy orthodoxies run headlong into hard political realities in the U.S. Congress. Unfortunately, ideological enforcers like Romm, who aim to shut down this kind of debate, leave serious advocates ill prepared to navigate those choices and the result will be the kind of compromise that is today emerging in Congress: a cap and trade program that will claim to establish ambitious emissions reductions targets but will not establish high carbon prices, will fail to make large technology investments to drive down the costs of clean energy alternatives, will transfer billions of dollars from American consumers to incumbent energy interests and providers of 'hot air' offsets, all while putting in place an entire new class of powerful rent-seeking interests that will make future efforts to strengthen or reform the cap and trade system virtually impossible.

Thankfully, it is not too late to avoid such an outcome. We remain committed to working with those who are willing to take a cold hard look at the facts and to finding a new way forward to secure urgently needed and effective climate and clean energy legislation.

Comments

I have been reading Climate Progress for over a year. It's entertaining and topical, but I agree with all your criticisms of Romm. He shuts down debate with anyone who disagrees with him in even the slightest detail.

I have now been moderated to death and then banned twice on his blog. If you read the comments that survive they are now all of the "Joe you're a fantastic guy I want to have your babies keep up the good work" variety.

By Robert on 2009 05 24

Nice tone. I read Romm. He's a smart guy, and I think his heart is in the right place on energy and the environment. But he doesn't seem to be capable of really weighing the facts in an impartial manner. This is easily apparent every time he attacks you guys. I wish Podesta would rein him in a bit and let him know that this whole debate and movement is about more than proving Joe Romm right or wrong. It's about getting the best energy and climate policy we can get, and as soon as possible.

By Jackson on 2009 04 25

I agree. A tough carbon emission price, with cap auction revenues dedicated to real solutions (including a renovated national grid), and no phony offsets, is the only hope of doing anything meaningful in the time (20 years) we have to make a difference on global climate change. It is also the only hope of making clean power attractive enough to stimulate investment in clean tech. I believe that a call to action will get a good response from the American people, provided they can be assured that this is not just another fraud on the part of their government to sneak through a tax to pay for more earmarks and bailouts and wars. Dirty power is cheap in America, and we should get used to paying what the rest of the world pays for clean power. However, the recent Senate vote on consumer indemnity amendments seems to indicate which way the wind is blowing. Consumers want their cheap power to continue, and are not willing to make substantial sacrifices to pay for pollution controls. Politicians therefore be under pressure to promise them that cap revenues will go to offsetting the rate hikes that can be expected when the utilities go to their friendly local PUCs. So what then is the purpose of the cap auction, if the proceeds will get shuffled around and wind up back in the power companies due to compensating rate hikes? Practically none of the proceeds will go to research and development because they are committed to consumer indemnity. And how about the possibility of a bait-and-switch to get more revenue for non-related spending, a repeat of Social Security? What prevents that?

By Wilmot McCutchen on 2009 04 23