Even as the tsunami of Bernard Madoff’s busted Ponzi scheme was submerging hapless rentiers around the world, another esoteric financial enterprise quietly took a step forward this week. At a couple of hundred million bucks, this new venture is just spare change alongside Bernie’s 50 billion. But in time it could grow to rival Madoff’s swindle in scope, and in the process thwart our planet’s last shot to head off climate catastrophe.
The new venture is a national carbon cap-and-trade system, and for its Phase I the traders have crafted a ten-state Northeast compact dubbed the Regional Greenhouse Gas Initiative. “RGGI,” which applies to CO2 emissions from electricity production, has been so long in the making—negotiations started in 2003—that it had largely fallen off my radar screen. But behold this week’s email blast from the NY League of Conservation Voters:
RGGI Nets New York $42 Million: The second auction of carbon credits in the Regional Greenhouse Gas Initiative generated funds for investment in energy efficiency, clean and renewable energy technologies. Proceeds for 2009 could total $217 million.
Funding energy efficiency and renewable energy is all to the good, of course, and we should tip our hats to the environmental advocates who demanded, and won, that the permits are auctioned rather than given away to the fossil-fuel generators. But there are several back stories that cast RGGI in a potentially Madoff-like light:
One is that the program allocations are being made through an insider-driven process over which major green players like the Natural Resources Defense Council and the Environmental Defense Fund wield considerable power. This may be why NRDC and EDF remain wedded to an arcane financial apparatus like cap-and-trade, and highly critical of the quicker, simpler and more transparent carbon-pricing alternative, revenue-neutral carbon taxing. The green groups get to run the action.
And while the action may be noble, it could have this profoundly damaging side-effect: as the revenue pie grows—which it must, exponentially, if the goal is to cause ever-deeper cuts in emissions—the proceeds allocated to investments, green or otherwise, will come right out of the pocket of families whom the rising energy prices will push further into the red.
The puny $3.38 average price paid under RGGI for each permit to emit a ton of CO2 thus bears the stamp of a Trojan horse. Although some Grist commenters claim the low price signals that cap-and-trade can destroy CO2 on the cheap, it is actually an indicator of both RGGI’s meager ambition and of cap-and-trade’s fundamental flaw of dictating quantity rather than price.
Why is the auction price so paltry? First, because RGGI’s emissions “cap” is held constant for six years—more than half the window Jim Hansen and others say remains to drive emissions far downward—before beginning a gradual decline. Second, because the tanking economy is busting electricity demand (and, hence, carbon emissions from electricity generation) largely through belt-tightening rather than permanent energy efficiency.
Assume, for argument’s sake, that Congress enacts a tight carbon cap. As the economy recovers, CO2 permit prices will go through the roof, blowing away the blandishments of some cap-and-traders that their scheme, based as it is on allocating the revenues instead of distributing them via revenue-neutral tax-shifting or “dividending,” won’t send fuel and energy prices to painful levels. The ensuing backlash could lead Congress to eviscerate the cap, setting back CO2 reduction for years and squandering what former Commerce Under-Secretary Robert Shapiro calls our one shot at saving the climate.
Meanwhile, RGGI has yet to accomplish much for climate protection, since the laudable but limited RE and EE programs that it finances leave most electricity usage untouched, not to mention the 60% of CO2 emissions that don’t derive from the electricity sector. Which didn’t stop NRDC CEO Francis Beinecke from touting RGGI and cap-and-trade in her recent Treehugger interview:
The cap and trade model for reducing global warming pollution is already being used in the European Union and a cluster of 10 Northeastern states. It is underway in California and several other states.
Beinecke went on to dismiss straight-up carbon taxing:
[T]he crisis of global warming is so urgent that we can’t wait for lawmakers, industry, and the American people to spend years hashing out the details of an entirely new system. We have to act now… Experts think [carbon taxing] is a slower mechanism for directing capital into clean
energy technology.
Calling a carbon tax slower than cap-and-trade is almost Orwellian, considering the five years it has taken to incubate RGGI, which covers one sector (electricity) in just ten states, vs. the weeks or, at most, months it would take to start administering a revenue-neutral national carbon tax.
And especially in light of the latest DOE data on gasoline usage, indicating that the short-run price-elasticity of U.S. gasoline demand shot up this year to just under 0.3—the highest level in years. Wasn’t it just two years ago that some West Coast experts were pegging gas price-elasticity at just 0.04? And that cap-and-traders were seizing on that figure as evidence that neither a gas tax hike nor a carbon tax could materially reduce U.S. gas consumption and carbon emissions?
Carbon cap-and-trade is an idea whose time has gone—and maybe never really came. After the spectacular self-immolation of similar financial Rube Goldberg machines on Wall Street, the public is rightly mistrustful of obscure gnomes manipulating vast quantities of money in a back room somewhere.
Even if the gnomes in question are Green as—well, Green as a greenback.
[UPDATED] While the big cats cower, time to build robust food economies
Messaging that can save the clean energy bill
Comments
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Gar Lipow Posted 3:50 am
28 Dec 2008
The problem overall is that long term elasticity for lowering emissions is about -.5. There are a few narrow exceptions where it is lower (fuel for electricity production) but also exceptions where it is worse (residential efficiency, and to a lesser extent transportation fuel).
But that is an equal problem for carbon taxes and cap & auction. Actually for reasons you point out it is a worse problem for cap & auction, because volatility under trading results in underestimates by businesses of future prices. That can, as in the case of RECLAIM lead to drastic capital underinvestment to meet future cap tightening. But even under a carbon tax scenario (or auction with a minimum price), where the volaility is eliminated or reduced, you still have the fundamental elasticity problem.
That is why the key is that carbon pricing in either the form of auctions or taxes is not the fundamental driver. Put in place extensive rule based regulation. Do large scale public investment. Still put in place a carbon price, but do it as a supplement, not as the main policy tool. Really large scale green investment, investment in the hundreds of billions of dollars, investment in today's efficiency technology is really the first policy step, the one the that both makes the changes that makes regulation and pricing more effective, and the politically makes them more palatable. Yeah, it is a cat-belling problem. Large scale public investment would have huge results but is in itself a huge thing to win. But that applies to anything effective against climate chaos. A univesal high carbon price with no loopholes is a huge and difficult political goal. A large scale set of regulations that sets standards for building, transport and electricity generation emissions is a huge policy goal Any of these are tough to win. All of them are needed. But public investment makes the other easier to obtain. Politically, people are less resistant to a high carbon price when they have alternatives in place that let them drop carbon use easily and cheaply. Economically elasticity will be higher when there are readily and easily available alternatives to make it cheap and simple to shift long term demand. And with the need for a "stimulus" we have a huge green public investment opportunity, even though green investment would be much more than a stimulus.
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stevenearlsalmony Posted 4:11 am
28 Dec 2008
QUESTION: Can we share an understanding of the attacks on Earth and climate scientists by saying loudly and clearly that their assailants' activities are venal efforts to spread garbage and junk science, based upon nothing more or less than the duplicitous promulgation of ideological idiocy?
ANSWER: The many arrogant and hostile efforts toward Earth and climate scientists are for the sole purpose of shoring-up and building trust in a con game; to support the most colossal pyramid scheme in human history.....a modern version of the ancient Tower of Babel. Only this modern 'edifice' is an Economic Colossus, one not made of stone but rather built out of filthy lucre as a house of playing cards. The entire game is a patently unsustainable, gigantic ruse perpetrated by a tiny, greedy minority of outrageous consumers, reckless consolidators and relentless hoarders of wealth and power.
Steven Earl Salmony
AWAREness Campaign on The Human Population
established 2001
http://sustainabilityscience.org/content.html?contentid=1 ...
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AlexSV Posted 9:21 am
28 Dec 2008
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Delay And Deny Posted 3:13 am
29 Dec 2008
Forget Cap and Gown...or whatever.
The Bailo Plan offers a simpler solution.
An Industry by Industry CO2 "diet".
Order the industries by CO2 smarminess.
Example: Coal Plants, Concrete, ...
Then, identify all the "factories".
Next, order the factories.
Ok, one by one, either bring each factory up to spec or mothball it with a replacement.
An honest man is always in trouble. --Henry Fool
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cavecanem Posted 3:25 am
29 Dec 2008
Retiring permits can also drive up the price; my site, Carbon Purging allows clients to purchase the rights to retire CO2 permits from RGGI AND the European Union Emission Trading Scheme.
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stevenearlsalmony Posted 5:06 am
29 Dec 2008
Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilityscience.org/content.html?contentid=1 ...
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GreyFlcn Posted 5:39 am
29 Dec 2008
Take the money via Cap & Auction.
Give the money via Carbon Reduction Grants.
-David Ahlport
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ttcmm Posted 8:23 am
29 Dec 2008
The price of EU emissions credits in just the past three months has nearly halved, and with it, the incentive to pursue emissions through innovation. In a shrinking economy, cap-and-trade risks settling for business as usual. Anyone who recognizes the possibility of prolonged economic contraction, and at the same time acknowledges that we need to reduce emissions as dramatically as possible -- meaning below, in all likelihood, where the targets of federal policymakers -- should not advocate cap-and-trade. That person should instead aim to wring whatever elasticity can be wrung from fossil fuel consumption ABOVE AND BEYOND business as usual during a downturn.
And as for elasticity, Gar Lipow is too breezy by half in stating that the long-term elasticity of "lowering emissions" at -0.5. Forget that the figure is uncited; assuming it is based on historical data from a flush economy characterized by cheap energy, in which profit margins allow, in fact encourage, people to travel far and often and factories to make big things in abundance, then the figure on elasticity is obsolete. Again, this is to suggest, not a doomsday scenario, but a trend to which the EU emissions system has already begun to react.
So what should one cite if not long-term elasticity of -0.5 and other historically derived figures? Better to cite nothing all. Better to focus instead on the enormous uncertainty in the economy and, therefore, with respect to emissions, and to advocate policies that offer high expected values of emissions reductions in a range of economic scenarios. In other words, for a carbon tax instead of cap-and-trade.
I do agree with Gar Lipow that carbon pricing need not -- and maybe should not -- be the centerpiece of a transformative energy policy. But why should it not be more politically "palatable" to hasten development of green alternatives using revenue-generating carbon pricing rather than revenue-draining subsidies? Methinks we green advocates have come to see subsidies as good, and their opponents bad, simply because green technologies happen to be the near-term beneficiaries. We haven't ceased to be taxpayers just because our favored representatives control the purse strings. Let's not be squeamish about taking what we can from polluters, and sparing future generations that much plus interest.
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GreyFlcn Posted 11:10 am
29 Dec 2008
"How would the pricing mechanism be done?
How would the cost of carbon increase?"
Would congress have to pass each increase?
Or would it be an automated annual escalator, indexed to inflation.
Or would there be some independent governing body like the Federal Reserve?
If you could answer that question, I think a lot of people might be more open to a Carbon Tax, instead of a Carbon Auction.
-David Ahlport
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Jon Rynn Posted 12:09 pm
29 Dec 2008
For me, public investment means spending hundreds of billions per year to construct a high-speed rail network, a national grid, even to put up the windmills if the yo-yoing price of oil makes the market act like a deer in headlights. Pour money into putting municipal utility PVs on everybody's roof. However it's done, the most direct form of public investment is to have the government doing the constructing (and to follow Pompey Road's advice, with competitive bidding and deadlines).
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Gar Lipow Posted 2:02 pm
29 Dec 2008
>And as for elasticity, Gar Lipow is too breezy by half in stating that the long-term elasticity of lowering emissions" at -0.5.
The reason I did not cite lit on elasticity was because I've done extensive work on the subject, which I posted a recent link to:
http://gristmill.grist.org/story/2008/12/17/225851/62 . And in the absence of extensive infrastructure I don't why price sensitivity should change. Now price is not the only thing demand is sensitive to. There is also income. If you don't have the money, you can't buy energy even if it is cheap. But that does not make price elasticity numbers obsolete.
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amazingdrx Posted 1:57 am
30 Dec 2008
Will cap and trade devolve into just another bubble/burst Ponzi scheme? That's an easy one to answer, when it is revealed where the money went that was collected so far. Are the permits being traded yet?
The mystery on cap and trade is exactly why its proponents are allowed a pass on addressing the demise of the "free" market efficiency argument behind these schemes. Observation seems to indicate that the good old appeal to authority is blocking any of the many inquiries all about why more "free" market methods should be accepted without question as a cure for the climate emergency.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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amazingdrx Posted 2:14 am
30 Dec 2008
The key missing piece for the widespread deployment of low-carbon technologies is an economy-wide cap & trade system with mandatory emission reduction targets. Only under such a framework can projects like FutureGen flourish - not through scant government funding but by leveraging the vastly larger financial clout of the private sector, with reliable public funding as a complement.
Maybe cap and trade money can fund a northeastern "nevergen"? I doubt any of it will go to support offshore wind power, hehey.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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ttcmm Posted 2:53 am
30 Dec 2008
Another commenter, Jon, wrote that we should focus on building what we need. I agree, and anyway, we're clearly heading in that direction. Outside of Wal-Mart, government business has become the only business in town. However, direct government expenditures have the same fiscal effects as subsidies, and it is those fiscal effects that concern me.
And color me conservative, but direct expenditures are dangerous tools. Municipal solar on every roof may prove wasteful. Why not geothermal under every lawn instead? The cost difference is significant, and policymakers are at this stage are not informed enough to choose cost-effectively between technologies.
Again, since we are going to spend money to support employment and transform our energy infrastructure, let's have polluters pay for it to the extent they're able. If it's politically, or morally, difficult to raise the price of gas o cash-strapped commuters, let's at least shrink the pre-determined profit margins of regulated utilities. And let's do so with a carbon tax, since utilities and other major polluters on top of demand trends won't pay much at auction for carbon credits likely to expire worthless.
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amazingdrx Posted 3:07 am
30 Dec 2008
Solar cogeneration (heat and electricity from the same installation) isn't suitable on every roof, but in a study of San Diego County, from a few years ago, it was found that suitable roofspace could provide 53% of their power. That was with 10% PV only, no heat. PV efficiency is climbing and cogeneration pulls in a big domestic hot water gain.
Geothermal (ground source heating/cooling is a less confusing term) is good under every lawn, in cities municipal water systems could double as ground source heat collection systems.
The combination of solar cogeneration with ground source heating/cooling could eliminate over 36% of human caused GHG.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Jon Rynn Posted 3:24 am
30 Dec 2008
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amazingdrx Posted 3:34 am
30 Dec 2008
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Gar Lipow Posted 4:57 am
30 Dec 2008
You will notice that Rynn and I agree that public investment, actually buying the clean energy we need is the best way to phase out emissions, along with regulation, and a carbon price as reinforcement. You might look at this
http://gristmill.grist.org/story/2008/11/25/17212/723 which is based on a spreadsheet Jon & I have both worked, and which links to it.
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ttcmm Posted 8:12 am
30 Dec 2008
That said, we still want to minimize the fiscal threat of public investment, don't we? So when the topic of cap-and-trade versus carbon tax comes up, my thoughts turn not just to which will be more effective at reducing emissions, but which will help the most to pay for public investment in clean energy, or residential electricity for seniors, or a missile defense system, or some such part of our exploding federal "budget." Since fiscal policy is what bothers the holdouts on clean energy, then green advocates may as well involve it in their consideration of carbon pricing.
There are other points of contention between cap-and-trade and a carbon tax, and though on balance I favor a carbon tax based on those other points, I'd suggest to an undecided that as long as we're running an absurd deficit with taxes from the financial sector liable be to elusive for several years, it's better to have polluters pay as significantly as possible directly into the public coffers, without bankers and brokerages skimming off the top, or no money whatsoever paid for unneeded credits. My original intention was to supplement the author's argument with another reason why cap-and-trade advocates often come off as either disingenuous or fanciful.
Now that I'm the only commenter not to link to anything, I'll note that New York's $2 million of proceeds from the 2008 RGGI auction are sufficient to fund not quite two weeks of the NYC Metropolitan Transportation Authority's 2009 deficit. While proceeds from the 2009 RGGI auction may be higher, I'd wager that the MTA's 2010 deficit will be, too.
Again, I appreciate the links, and the hard work that went into the research.
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stevenearlsalmony Posted 4:35 pm
30 Dec 2008
Bernie Madoff is a pyramid scheme "kingpin", the guy at the top of a pyramid scheme. Ordinary people seldom if ever get to see these individuals "fingered" or identified. What is also exceptional is that Bernie has been found out, or outed as it were. Of course, there are other kingpins; but at the moment they are "protected" by billions of dollars, literally hundreds of billions of dollars, that are being used currently to shore-up and build an even larger, more gigantic pyramid schemes than Bernie's 50 billion dollar pyramid.
The thousands of sub prime mortgage swindlers are not at the top of this or any other pyramid scheme. That is to say, they did not start the game. The sub prime mortgage swindle is another pyramid scheme, one bigger than Bernie's. These thousands of swindlers came along at a lower stage of the pyramid scheme's construction. Of course, this pyramid scheme is not only larger than Bernie's scheme but also not nearly as large as the incredible "house of cards" built out and named the global political economy.
We can see that pyramid schemes exist within pyramid schemes. Pyramids vary in size. What is important to understand is that the global economy, as it is currently organized and managed, is itself a colossal pyramid scheme, the largest of them all.
Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilityscience.org/content.html?contentid=1 ...
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stevenearlsalmony Posted 11:00 pm
30 Dec 2008
There are many minions who "spread the word" of these schemes. Con men operate pyramid schemes. They assure "plausible deniability" and "legal cover" for all that is said and done.
Only a telling of the truth is forbidden in their speech and actions. That is the one and only thing that is forbidden. Do not break their vow of silence by telling what is true about their schemes {ie, the only games in town, so they say}, because the "houses of cards" out of which the modern Tower of Babel is constructed immediately is exposed. These pyramidal constructions can withstand any force except that which is presented by speaking out loudly and clearly about what is somehow true. As soon as light of what is true was shed on Bernie's scheme, the house of cards he had constructed fell.
Bernard Madoff may be the first of my "Not So GREAT GREED GRAB Generation's" kingpins to find that his "house of cards" has collapsed; but I dare say, Bernie will not be the last. There are other kingpins and many too many minions ready, willing and able to play along in what looks like the greatest self-enrichment scam in human history.
Why not say that greed is not good? Why not assign value to personal honesty, accountability and transparency?
Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilitysoutheast.org/index.php
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