Monthly Archives: August 2009

Cap and Trade: Economic Efficiency and Reduced Emissions

This is a guest post by Charles F. Wurster, Ph.D. He is Professor Emeritus of Environmental Sciences at the State University of New York at Stony Brook, and is a founding trustee of Environmental Defense Fund.

Global warming and climate change will severely affect life on Earth during this century. It is primarily caused by burning oil and coal, along with deforestation.  Numerous effects are already occurring around the globe. Yet the American Clean Energy and Security Act (ACES), intended to reduce climate change, passed the U.S. House of Representatives by a tiny 219-212 majority.  Why wasn’t it unanimous?

Some thought the bill too strong.  Others considered it too weak.  Some believed it would cost too much.  Others don’t take climate change seriously.   Only half of Americans think human activities are the cause.

Opponents of the bill have intentionally disseminated disinformation and confusion about climate change. Many companies also oppose the bill because they suspect it would reduce their profits.  There’s a vast amount of wealth and political power amassed in the status quo.  Why should they change?

Despite the many compromises needed to gain the votes for passage, Congress must pass ACES if we are to diminish climate change, the greatest issue of our time.  The basic structure of the bill is a cap-and-trade system, which is misunderstood by many Americans, including congressmen.   That hampers passage.

Cap and trade was pioneered in the 1980s by Dr. Dan Dudek, an economist with Environmental Defense Fund, to combat acid rain.  EDF convinced the first President Bush to include it in the Clean Air Act of 1990, and by 2000 emissions of sulfur dioxide, the cause of acid rain, were cut in half at a small fraction of the original cost estimates by the industry.  Compliance was 99% because its mandate was unavoidable.  Cap and trade became the most effective anti-pollution device in recent memory.

Now cap and trade is being applied to carbon dioxide (CO2) emissions, the main pollutant causing climate change.  Cap and trade was adopted internationally under the Kyoto Protocol, which was rejected by the second Bush Administration but ratified by 184 other countries.

To be clear about how cap and trade works, consider a simple example:

  • A company we will call “Easy Inc” is able to reduce CO2 emissions easily and cheaply, but has not done so for lack of an incentive.
  • Another company called “Difficult Inc” would find it difficult and costly to reduce its emissions.

Under cap and trade, next year they will only receive 90% of their present emissions allowances (the “cap”), so they must reduce emissions 10% next year. Here is what they do:

  • Easy, Inc., has no problem reducing emissions by 10%, but Easy can sell on the carbon exchange (the “trade”) any extra allowances if it abates more than its required 10%.  So Easy abates 20%.
  • Difficult, Inc.,  does not abate at all.  Instead, Difficult buys Easy’s extra 10% of allowances.

Under the C&T system, Easy has reduced emissions for both Easy and Difficult, and the average CO2 abatement of 10% has met the system requirement.  Easy has profited by selling its extra allowances to Difficult, and Difficult has abated through Easy at a lower cost than if it had done so itself.

Difficult also has an incentive to seek ways to reduce future emissions so that it doesn’t have to buy more allowances.  Everyone knows that available allowances, the cap, will continue to decline by law in the future.  The government does not tell polluters how to meet the requirements, thereby stimulating innovation, emissions are carefully monitored, there is no incentive to cheat, and compliance rates will be high.

The ultimate goal is an international treaty with a carefully structured and regulated cap and trade system that includes all nations, along with a marketplace for buying and selling CO2 allowances.  Abatement will therefore proceed by the cheapest and best technologies — economists call it economic efficiency — and investments are thereby channeled into clean, efficient, low-carbon energy systems throughout the world.  It will no longer pay to pollute; instead it will pay to abate pollution.

Cap and trade will set off a stampede toward energy efficiency because efficiency improvements are the cheapest, often most profitable, and quickest route to emissions abatement.  Countries with extensive rain forests, such as Brazil or Indonesia, can sell allowances to keep their forests intact, putting a value on standing forests with their vast carbon storage, instead of gaining short-term profits by cutting them down.  Preserved biodiversity is an additional huge benefit.

The ball is in our court and the time is now!  The rest of the world, already functioning under the limited Kyoto Protocol, waits to see whether the USA will act.  The climate bill containing the basic cap and trade structure, however much compromised to pass Congress, must become law for the world to build on that structure to limit climate change.

Posted in Climate Change Legislation / Read 2 Responses

Video: More on Those Forged Letters

People are using the word “astroturfing” a lot lately, but this video makes it clear that the people working for the lobbyists trying to block cap and trade legislation stooped to a level even lower than that.


Angry? Share the video with your friends!

Posted in Climate Change Legislation, What Others are Saying / Comments are closed

Full Analysis of National Manufacturers Association’s Flawed Study

I promised earlier today in my quick review of the flawed study from the National Association of Manufacturers that a full analysis was on the way. Here it is [PDF].

The analyis concludes, as I said this morning that “assumptions matter — and unrealistic assumptions make for outlandish results.”

Posted in Climate Change Legislation, Economics / Comments are closed

More Manufactured Numbers from the National Association of Manufacturers

The National Association of Manufacturers and the American Council for Capital Formation today continued their campaign of public deception against the American Clean Energy and Security Act with the release of an analysis that purports to show manufacturing declines and job losses if the bill passes.

Problem is, NAM’s numbers are about as trustworthy as the forged letters sent by their allies to members of Congress, which faked opposition to the ACES bill from local community groups. They are no more real that the Birthers’ imaginary Kenyan birth certificate for President Obama, which names a laundry detergent as the registrar. (Really.)

As you know, NAM has a long history of opposing virtually every major environmental law, often using similar bad arguments with flawed data. NAM/ACCF’s study from last year was seriously flawed – it claimed to look at that year’s Lieberman-Warner bill, but it ignored important provisions of the legislation and imposed artificial constraints on the economy’s ability to reduce emissions.

The analysis presumed there would be no banking of emission allowances and only limited use of offsets. The study also artificially constrained the use of renewable energy and carbon capture and storage.

In short, they applied make-believe assumptions to a make-believe bill, and they are doing it again:

  • NAM/ACCF’s conclusions assume that ACES will spur 10 to 25 GW in new nuclear power. Compare that to the Energy Information Administration’s base scenario, which predicts 10 GW without the bill – and as much as 95 GW with the bill.
  • NAM/ACCF assumes that 95 percent of cost-saving offsets will come from domestic projects and five percent from overseas. In fact, ACES provides for a 50-50 split between domestic and international offsets, and the latter are expected to be more cost-effective.

These are but two questionable assumptions from the very few that NAM and ACCF disclosed – from a model with a huge array of inputs. No one will ever know exactly how they reached their numbers, because important details about their analysis and underlying assumptions remain in a black box.

We’ll have a more detailed rebuttal to NAM/ACCF’s claims for you later today.

In the meantime, here’s what we already know from independent, transparent analysis:

  • The Energy Information Administration says the cap on carbon pollution in ACES can be achieved for $83 per year per household – or a dime a day per person. One of the reasons for the affordability is that increases in electricity and natural gas bills of consumers are substantially mitigated through 2025 by the allocation of free allowances to regulated electricity and natural gas distribution companies.
  • The Congressional Budget Office found [PDF] that ACES would cost the average household $175 a year by 2020, or about the cost of a postage stamp per day. The CBO also found that the poorest 20 percent of American households would actually see a net cash gain under the bill of about a $40 in 2020. The study factored in the value of emissions allowances that will be rebated to consumers.
  • The Environmental Protection Agency puts the cost of a carbon cap on at $88-$140 per household per year over the life of the program – or about a dime a day per person. (Sound familiar?)
  • The Energy Information Administration (see above) also says that ACES would reduce our dependence on foreign oil. The U.S. would reduce its consumption of oil by 344 million barrels in the year 2030 alone, a cut of more than 12 percent from predicted imports for the same year without the bill. To put that figure in perspective, 344 million barrels of oil are worth almost $26 billion today.
  • The United States Global Change Research Program found that America will face hundreds of billions of dollars in costs if we don’t take steps to stop climate change. The cost of inaction will include: sea level rise of as much as two feet that will destroy property along our coasts; stronger hurricanes and other storms that will damage cities; and severe droughts that will devastate agricultural sectors.
Posted in Climate Change Legislation, Economics / Read 1 Response

Stand Up to Big Oil: Attend a Town Hall Meeting

Why should you go to a Congressional town hall meeting and stand up for strong action on clean energy?

Because, according to the Wall Street Journal, the American Petroleum Institute, the lobbying group for Big Oil, is organizing their troops to pack town hall meetings.

Apparently, they admired the work of the anti-health insurance reform protesters, so they’re spending some of their billions in profits to make congressmen believe Americans don’t want clean energy.  As we wrote earlier, most Americans DO support clean energy. But that won’t matter if our elected officials don’t hear from our side, too.

So please see where your representatives are holding a town hall meeting, and go stand up for clean energy.

If there isn’t a town hall in your area, you can still weigh in. Call your Senator’s office and tell them how you feel.

Whichever way you speak up, the point is the same — Big Oil is trying to manufacture a picture of Americans that just isn’t true. And we don’t have to let them.

Posted in Climate Change Legislation / Read 1 Response

New Poll: Americans Like the Clean Energy Bill

Looks like the American Clean Energy and Security Act (ACES) is one of the most popular kids on the Capitol Hill campus.

In spite of months fear-mongering and outright lying by opponents, a new poll says 71 percent of likely voters favor the bill.

The Zogby poll sampled people across the country and found:

  • 71 percent favor the climate bill that was recently passed by the House of Representatives.
  • 67 percent think Congress is either “doing the right amount” or “should be doing more” to address global warming.
  • 51 percent think that “efforts to reduce global warming and promote clean energy” will lead to new job creation,  and
  • another 17 percent think the efforts will not affect American jobs at all — which means less than one-third are worried the bill will cause job losses.
  • Favorable views of the bill were high among all age and income groups; ditto for the belief that environmental efforts will create new American jobs.
  • Even Republicans aren’t as opposed to the bill as their party leaders might want them to be; 45 percent have a favorable view of ACES. (A whopping 89 percent of Democrats and 73 percent of Independents like the measure)

Says Zogby analyst Sam Rodgers:

Clearly, voters strongly favor the ideas outlined in the bill. Support for action on clean energy and energy efficiency was strong coming out of the election, and it is still strong today.

The moral of the story: Next time you read one of those opposition pieces about how support for ACES is eroding — don’t believe it. Americans see the potential in clean energy.

See the complete methodological statement on the survey.

Posted in Climate Change Legislation / Read 1 Response