Gung-ho about cap and trade

"Why are you so gung-ho about cap and trade? Don't you realize it's a corporate takeover of the atmosphere?"

I’m paraphrasing here, but this was the gist of an audience question I got while moderating a panel on Getting Carbon Market Governance right from Day One at the International Anti-Corruption Conference on Friday. The rest of the discussion was a frank exchange of ideas on how to ensure a workable, transparent carbon market. More on that later. For now a quick response to this question because I think it gets to the heart of why we do what we do. Why are we so "gung-ho" about cap and trade?

We ought to be polluting less because it's the right thing to do, not because someone else limits pollution and hands out allowances to companies. Well, yes. If everyone woke up tomorrow and decided that global warming pollution was bad and that we ought to stop dumping billions of tons a year into the atmosphere, far be it for me to stop them.

Things aren't quite that easy. We clearly ought to be moving toward a more coherent climate ethic. One of our panelists, ethicist Don Brown, made exactly this point. The question is how to get there.

No volunteers, please

Volunteerism simply won't do. Misguided collective action got us into this mess. Properly guiding collective action is the only way out. That means polluters ought to pay. Pollution must not.

There may be academic debates to be had on cap-and-trade versus carbon taxes, but fundamentally the best way in the real world is to put a firm limit on pollution. It worked for combating acid rain in the 1990s. A version of it works for combating overfishing. And the EU has shown that it works for carbon on a large scale.

Carbon markets around the globe

Global carbon markets operating, likely, and under consideration.Cap and trade might be "dead" in Washington at the moment, yet it is clearly alive and well and spanning the globe: from existing systems in the EU, the Northeastern US, Alberta in Canada, and New South Wales in Australia, likely systems in California, South Korea and Japan, to systems under discussion or in planning stages in Mexico, Chile, Brazil, and Russia—not to forget China, which will likely at least experiment with cap and trade as part of its 12th five-year plan, in place starting in 2011.

Good for the environment, good for business

Will there be business interests pulling for cap-and-trade? Hopefully. The task is to guide a $5 trillion-a-year fossil-fuel-based energy sector into a cleaner, leaner future. There better be—and there will be—plenty of money to be made in the greener economy.

Yet far from being a corporate takeover of the atmosphere, a well-designed carbon market is a way to make polluters pay for the costs they now shove off onto others by treating the atmosphere as a free dumpster.

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7 Comments

  1. Posted November 17, 2010 at 4:16 pm | Permalink

    I think education about what is going on in cap and trade regimes around the world is an important public service. It is quite clear that the international community could learn from each other what works and what does not.

    Along that line, will you publish links to informational descriptions of these cap and trade regimes as they develop??

  2. PB
    Posted November 18, 2010 at 3:32 pm | Permalink

    Gernot, would you agree that perhaps the first step of promoting these market based systems of carbon reduction would be to come up with a better moniker than Cap and Trade?

    From a marketing perspective, Cap and Trade doesn't cut it. And whether we like it or not, this solution must have better marketing, or else it will continue to fail at the federal level.

  3. Posted November 18, 2010 at 3:49 pm | Permalink

    DB, yes, that's exactly the kind of information we imagine we would provide here–next to more innate posts that hopefully generate some real discussions.

    PB, I'm not sure rebranding alone will do the trick. I can already see the home-made signs saying "XYZ = cap and trade." That said, sure, let's call it something else. "Puppies and babies" anyone? As long as we are clear that in the end the goal is still exactly the same: make polluters, not polluting, pay; and limit that pollution in the most economically cost-effective way. That's what cap and trade–sorry, puppies and babies–accomplishes.

  4. Posted November 19, 2010 at 12:29 pm | Permalink

    This is the best article/overview I have seen on the subject. It cuts to the heart and truth and clarifies the direction we should be taking in the realm of cap and trade. I totally agree that all sectors should be better educated in the subject and make informed policies and decisions within a framework of guidelines/measurement tools. It does need an overhaul in marketing as well. Totally agree. There has been considerable negative publicity and this needs to be countered to have common sense and facts prevail.

  5. Joshua Corning
    Posted November 19, 2010 at 1:50 pm | Permalink

    Obama's budget director, former Congressional Budget Office director Peter Orszag said this to congress about cap and trade:

    "…represent the largest corporate welfare program that has ever been enacted in the history of the United States. All of the evidence suggests that what would occur is that corporate profits would increase by approximately the value of the permits."

    There is a name for manipulating markets to produce an outcome desired from a special interest group: Cronyism.

  6. Aarthi S. Anand
    Posted November 23, 2010 at 8:40 am | Permalink

    Hi Gernot, I think your blog and posts are informative and would be really useful to dispel myths that this issue too often gets mired in, preventing public discourse on the real issues.
    I think we may need to reframe this debate, in limine eliminating the following red-herrings.
    1. Not a license to pollute – These emission reduction credits are only intended as bridges to enable companies and countries to transition to green energy and not a permanent license to pollute. (Straw-man to suggest cos can and would be willing to in perpetuity incur additional costs,lose market-share to competitors(run into losses) rather than implement emission reductions and reduce their costs in the longterm.)
    2. Cane or unequal punishment – By enabling cos and countries to reduce pollution and trade in them if they do even better, this mechanism not only sets limits but also rewards good behavior (incl. $ earnings) which I think is a positive, realistic approach to get more people on board (rather than making it a us v. them issue).

    Also, could we include India in the list of countries planning to set up markets – Indian regulators have announced plans to set up Renewable Energy Certificates (for utilities) and Perform Achieve Trade scheme for energy efficiency targets for energy guzzling industries. It of course remains to be seen when these will be operationalised, but nevertheless regulatory bodies have been designated to plan for these.

  7. Posted November 26, 2010 at 8:09 pm | Permalink

    Thanks for the insightful post Gernot! I'm getting more and more "gung-ho" about cap & trade the more I submerge myself into its underlying concepts. I'm reading The Climate War by Eric Pooley right now in which he does a great job showing how influential EDF has been in championing these market-based solutions to environmental problems. I've only just now come across this blog but plan on contributing to the conversation you all are facilitating from here on out. Are there any opportunities that EDF has for engagement around these topics in person as well?

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