Wednesday, April 15, 2009

US Cap-and-Trade: Obstacles and Solutions

The US Congress is discussing the details of a climate bill which includes cap-and-trade. Although some hold that the proposed legislation is crucial to America's future and the future of the planet, there are others who are resistant to cap-and-trade. Some Americans are worried about job losses, others are concerned about the fact that without the participation of nations like China cap-and-trade legislation would impose unfair restrictions on US businesses and still others rue the cost.

Opposition is expected from "brown state" Senators, who are concerned about unemployment. Ratification of the bill may come down to a collection of 15 moderate Democrats from the Midwest and the West known as the "Gang of 15." These 15 Democratic senators, represent rust-belt states that are dependent on carbon emitting industries like coal mining, steel production and heavy manufacturing.

China's involvement is crucial, according to Jonathan Lash, director of the World Resources Institute, “If the U.S. and China find agreement, the world will move.” A ClimateProgress article, goes further, saying that "Obama’s entire presidency and the fate of the planet depend on it. Getting the 67 U.S. Senate votes needed to ratify a treaty, will not happen without binding commitments by China to cap emissions by 2020."

Fiscally conservative “blue dog Democrats” share cost concerns with many Republican legislators. These concerns are compounded by the fact that several estimates exceed those of the White House. Most agree that the proposed climate change bill will increase costs for energy companies and businesses that are heavy energy consumers.

Despite these concerns, many in the business community are standing up in support of action on climate change. ConocoPhillips and Shell Oil are working with the Environmental Defense Fund in a coalition called the U.S. Climate Action Partnership to push Congress on greenhouse gas reduction. The Environment Defense Fund which helped organize U.S. CAP, comprises some of the biggest companies in America, all of which support cap-and-trade. Besides Conoco Phillips and Shell Oil, the list includes Caterpillar, GE, Dupont and Dow Chemicals.

Environmental author Miriam Horn points out that companies want clarity on the rules "so that they know how to write their 10-year plans and figure out how to deploy their own investments and where to take their own companies, but some of them like GE have had direct experience with the benefits that a cap-and-trade bring. When the first cap-and-trade was put in place for sulfur dioxide in 1990 to control acid rain, GE was one of the companies that started innovating better solutions to cleaning up that pollution from coal plants and they created this whole new profit center at GE. So these companies recognize the opportunity."

Small businesses owners that fear exorbitant costs need to understand that the proposed cap-and-trade legislation will not increase energy costs to small businesses as revenue from auctioning off carbon emission allowances will offset much of the higher energy costs. According to Tony Kreindler, an Environmental Defense Fund spokesman."There are more people saying 'Yes, we've got to do something' than there are saying 'no.' "

Cap-and-trade is a workable system with functioning examples already in operation around the world. The United Nations’ Clean Development Mechanism is an international greenhouse gas market. In the US, Climatebiz reports that the Regional Greenhouse Gas Initiative's (RGGI) is working well. "The third carbon allowance auction raised $117 million for energy efficiency and renewable energy programs in 10 Northeastern states. The system's cap is set at 188 million metric tons of carbon dioxide equivalent, which will be ratcheted down incrementally through 2018 for a 10 percent total reduction. Several reports, however, indicate emissions in 2008 were between 16 percent and 17 percent lower than the cap."

As a compromise some American legislators have indicated their support for a carbon tax over cap-and-trade. However, according to Horn, "there are a number of problems with a carbon tax but the biggest one, in terms of incentivizing technologies, is that there isn’t a way for capital to flow easily to these solutions. A tax just requires people to pay a fee and it doesn’t set any guaranteed environmental outcome. You have to guess where to set the tax. We know how much we have to reduce CO2 emissions. We don’t know how high we’d have to set a tax to achieve that. If we guess wrong we could hit one of these climate tipping points and be in real trouble."

In order to pass a climate bill, sponsors must craft a measure that satisfies both hard core supporters and more than a dozen Democratic and Republican moderates who speak for a cross-section of key industries and interest groups. By all accounts, the “Gang of 15” will be critical to achieving the additional support needed for ratification. For more information on US climate change legislation players and positions see Climate Debate.

Barbara Boxer, the chair of the Senate Environment and Public Works Committee said, "At the end of the day, when we act, we will not only avert the catastrophe of global warming, we will also create millions of green jobs," she said, "and so we are pushing harder than ever to address this issue."

America's adoption of a cap-and-trade plan would send a powerful signal to other countries in the world. And the case for cap-and-trade, is further bolstered by the fact that there is a legal basis for using trade measures to enforce environmental initiatives.

Cap-and-trade detractors point to the failure of the Lieberman-Warner Climate Security Act last year. Although previous attempts to legislate cap-and-trade did not succeed, the current economic and environmental crises present a once in a lifetime window of opportunity.

Next: US Cap-and-Trade: Part 3, Positioning Your Business

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