Cap, Trade and Skeletons

Did Waxman-Markey’s ancestors really deliver on their promises? 10

Smog over Los AngelesPresident Obama is betting that a cap-and-trade program can help solve the climate crisis. Southern California leaders hoped the same thing when they set up a cap-and-trade program to clean up the region’s air. The results? See above. Photo: jordansmall via Flickr

Nearly 20 years ago, a novel program called “cap and trade” was rolled out by Congress and the U.S. Environmental Protection Agency. The aim was to keep rural Northeastern lakes from being tainted by corrosive “acid rain” created by power plant emissions hundreds of miles to the west.

Under the cap and trade, everybody would win. A whopping half of all the sulfur dioxide-the key ingredient in acid rain-would be cut more quickly and cheaply than if the companies were forced to do it under straight regulation. Lakes, forests and streams, and the fish and people living in and around them, would be spared further ravages.

The program succeeded spectacularly, with emissions targets reached three years ahead of schedule, at an estimated 75 percent in industry savings.

But did it halt acid rain?

Not exactly. In fact, researchers say many lake and stream beds are still highly acidic, and the problem is now spreading to the Southeast. They estimate another 50 percent to 70 percent cut in the remaining sulfur emitted by power plants is needed to really lick the problem.

If the House American Clean Energy and Security Act survives the Senate, what exactly has Congress bought into on behalf of the American public? There is a long, little discussed track record for other cap-and-trade programs. Leaving aside the money, the results are sobering. Not one has definitively cleaned up a major environmental problem.  Adding insult to injury, environmental justice advocates say the market programs have allowed power plants and other industry routinely sited in poor, minority neighborhoods to keep spewing out toxic pollution by buying credits from elsewhere.

It’s true that some cap-and-trade programs are still new and others have demonstrably helped reduce pollution. But there is simply no precedent showing that a cap-and-trade system would deliver in time the significant cuts in greenhouse-gas emissions that scientists say are critical to prevent catastrophic climate change. To the contrary, past programs have been dogged by start-up challenges and, even more disquieting, surprises from Mother Nature.

It helps to think of existing programs as a family while delving through the acronyms and mind-twisting verbiage of cap-and-trade policy.  There’s the founding father patriarch in D.C., the “out there” California uncle people tend to forget about, the globe-trotting European cousin, and Reggi, the new kid on the block in the Northeast, jumping up and down yelling “look at me, Ma!”

Below is an overview of the cap-and-trade family tree based on interviews with staff and online documents. We’ll leave the shouting to others for now.

What is cap and trade?

The “cap” is a legal limit set on one type of air pollution. A coal fired power plant is told it cannot emit more than a certain number of tons of carbon dioxide per year, and is allocated one credit for each ton it is allowed to emit. Each year the cap is lowered, until the pollution is reduced to a level that scientists and regulators deem safe.

The “trade” refers to the market trading of those pollution credits. Polluters who clean up their act so much that they are well below their yearly cap can sell the leftovers for a tidy profit to others that cannot or will not meet their own cap. In some cases the government auctions the allowances instead of allocating them.

Janet Wilson is a senior fellow at USC Annenberg’s Institute for Justice and Journalism, and a veteran environmental reporter based in California.

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  1. enviroperk Posted 8:52 pm
    26 Jun 2009

    Janet, thank you for the effort here. This took some work. It is useful.Though I am left feeling a little frustrated that this lengthy work appears to be missing the conclusion at the end. IE: ok-- and your conclusion is ---? Possibly it is early in the article "But there is simply no precedent showing that a cap-and-trade system
    would deliver in time the significant cuts in greenhouse-gas emissions
    that scientists say are critical to prevent catastrophic climate change    "What I feel would be helpful here, is a summary of how this new bill may be improved, based on the experience of "cap and trade" in SO2 emissions, in the Senate version.Though, I still feel it shows that a straight CO2 tax would eliminate the special-interest-congressional-meddling that riddles the current bill and is the lightning rod for partisan criticism and likely resulted in the less-than-optimal success of the SO2 programs of the past.If your research has reached a conclusion, please state it. Though I understand the risks. :)

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  2. sukumar Posted 1:40 pm
    27 Jun 2009

    Thank you for that detailed tutorial. To me the whole emissions credits and cap-and-trade program looks like a giant bailout scheme for derivatives traders freshly laid-off from Wall Street.

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  3. Janet Wilson's avatar

    Janet Wilson Posted 5:19 pm
    27 Jun 2009

    Thanks for the comments! And yes, conclusion is at the top as you stated. EnviroPerk. I also decided to just lay out the facts as best as I could garner them, rather than calling up usual suspects to get reaction quotes. I agree that there's a lot of follow up reporting, discussion and work to be done on how the experiences form past trading prgrams can be applied to the bill in Congress now. Would have been too much for this one piece I think, but will try to write more! Chrs, Janet

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  4. ldmstr Posted 10:07 am
    28 Jun 2009

    Its amazing???  Greenies gone wild!!!  Again the libs in Congress have over reached and attempted to pass the all or nothing enviro bill.  The House wil of course pass it but the Senate will balk.  Spending billions to please a minority of activists is always the best way to make things happen with the enviromental problems we have.  Forgetting that the rest of the world do not have the billions to spend and we will be the only country to make the effort at risk to our economy and life style.  Yes we could change the way people think in the US but with the materialistic lifestyle we live there will be a limited response to the cry for change.  The best we can look for is a slow change in peoples minds while investing in change one step at a time.  Electric technology is not ready to take over for oil based fuels so a transition from gasoline to compressed natural gas to hydrogen to all electric is possible, but if you think you can force Americans to change look in the mirror and see that you yourselves will not change your minds on "Global Climate Change" without a fight, so where is the middle ground???  Its not an all or nothing argument.  Make the changes slowly making it affordable for everyone to get on the same road, and maybe we will get where we all want to be in the future.  Keep pushing all or nothing and we all loose.

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    1. OrganicCat Posted 8:06 am
      29 Jun 2009

      I think it's clearly evident that event slow changes get pushed back by the party of No.  Hard pushes are necessary for many reasons, one of which is because we can't sustain ourselves at our current level of consumption of resources and another (more obvious one) is that things get watered down so much that if we tried to implement "little" changes they'd be watered down into non-existence.  Larger pushes get changed into what we have here, not what we want, but better than nothing.  Could they try a more bi-partisan effect, maybe reducing the changes a LITTLE bit?  Probably, but in my (admittedly bias) opinion, we don't have the time to squabble over the pork and beans of it, we need to do it in a rational, efficient manner taking the vast majority of scientific evidence into account.As for the electrical comment, I kindly ask that you show evidence that electrical technology is somehow not up to standard for being able to replace current technology at the drop of a hat.  The only thing holding those technologies back are the money grubbing companies making billions off their old technology.  Fat lot of good that did them (like GE).

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  5. Clifford Wells's avatar

    Clifford Wells Posted 3:17 pm
    28 Jun 2009

    How to fix the cap 'n' trade of the old SO2 program, and similar ozone programs such as for NOx?  To me that issue can be resolved to some extent by imposing a "green tax" on the credits.  Often these are expressed as a percentaage such as 15%.  So if you document 100 tons of reductions, you actually get a credit for 85 tons.  One could increase the green tax higher.I didn't get all the way through your article, but another problem was on the issue of "allowances."  Back in the day, air pollution permits had a "maximum emission rate" expressed in watts, BTU, resulting pollution, etc.  These allowances were set very high, assuming dirty fuels such as coal or Bunker-C fuel oil.  All the company had to do was to convert to natural gas or import some Wyoming coal and the problem disappeared overnight - instant credits of thousands of tons.  I am not sure if the Waxman bill allows such gaming of the system.You can bet the lawyers will have a field day with this hot potato though, since they get to comment and sue over any agency regulations in addition to the Congressional votes.  Things should be interesting this fall when the Senate debates the bill, and then EPA and other agencies have to draft regulations such as an "advanced notice of proposed rulemaking" (ANPR).  Hah, they'll be fighting over the clear meaning of words buried in the thousand-page missive as opposed to "unclear legislative intent."  Oops, did I infer the rule is too dang long and is too darn laden with pork?  Me?? Should be interesting viewing!

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    1. ClaudeB Posted 6:25 pm
      28 Jun 2009

      Clifford, that's the point. The idea was to reduce SO2 and NOx levels. If, by substituting their fuel source, they reduced overall emissions at the lowest cost possible for them, that's exactly the point. The economy is all about incentives and profit is the biggest of all.

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      1. Clifford Wells's avatar

        Clifford Wells Posted 7:16 pm
        28 Jun 2009

        Hard to explain this, but Bunker C and high-sulfur coal was rarely if ever used, and only for "emergency" uses.  These were not normal emissions in the least.  What happened was that during the fuel crisis of the 70s and early 80s, facilities were allowed to amend their permits to use high sulfur fuels in case of a national emergency.  So a unit might go from 20,000 TPY to 35,000 TPY and the upper number became the "allowable" under which you could trade.  Hey, nice to be able to trade off 15,000 tons of SO2 credits at 70 dollars per ton, and not do a darn thing! I don't have a lot of good to say about the concept, no matter how good it sounds.  If it works so well, why are CO2 emissions not being significantly reduced in Europe?  Were folks trading phoney date plam tree and airline miles for credits that were used for extra in Eastern Europe?  From a practical standpoint, such Ponzi schemes never really worked as well as they were advertised. The alternative seems to be a carbon tax.  Excuse me, since when did a tax every help anybody?  I believe in helping the needy and stuff, but with a carbon tax?  You must be crazy.  The way to limit CO2 is by restricting CO2 and other greenhouse gas emissions in terms of grams per mile, pounds per million BTU, pounds per therm or million cubic feet of natural gas, grams per kilowatt-hour, kilograms per tonne of fuel, or whatever rate-based measure you can find.  Plain and simple. that's how you do it. 

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  6. Tr2828 Posted 6:20 am
    29 Jun 2009

    Look at the picture is being güvenlik kabini used gasoline in the  United States.

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  7. bmengr Posted 5:32 am
    08 Jul 2009

    We don't have to perfectly account for carbon emissions at the beginning.  Why not start with the easiest measure, which would require permits to sell fuel, give credit for carbon capture, and include the effects of large-scale agricultural activities?  Fine tuning the system could give bonuses for actions that will reduce carbon emissions in the future or take into account smaller actions (and the prospect of a cap being implemented could encourage people to use current, uncapped energy to make more solar, wind, etc devices).From the consumer's perspective, the costs are just built in, so there's no paperwork to be done.  When you pump your gas, the seller will have arranged for permits to cover its use.I'm certainly worried about the potential giveaway of billions of dollars worth of carbon permits to the energy industry, given corruption trends. If we imagine that it is politically possible to have a 100% auction system, however, there would be no reason for companies to pretend to be worse than they are, and thus there wouldn't be a "bunker coal" situation.  Two problems solved at once!  If money from the auction were distributed equally to all American citizens and maybe permanent residents, those consuming the least would come out ahead and there would be better incentives to reduce all around. It will be important to have the infrastructure in place for taking more dramatic action if it does turn out to be needed, or increase the cap if the earth is doing 'ok' and the models start looking more livable.  There's no reason auctions couldn't be held quarterly or even more often, and this would allow a rapid response to actual results.Cap and trade will increase costs or some people, but it will also reduce the extent to which the costs of consumption are externalized and produce a system that is more fair to those who use less.  The tradeoffs between different consumer choices will shift, so that a decision that is best for the environment is more likely to also be better for the purchaser's bottom line.  Hopefully water usage and trash production will also factor in somehow, so that these metrics don't worsen.Remember, we're not just talking about climate change.  Ocean acidification will probably cause the elimination of shellfish, reduce fish production, and kill off reefs - all within the lifetimes of most people here.   Personally, I like being able to eat fish.

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