Andy Revkin at the NY Times has given a lot of ink to the cap-and-dividend plan (see here and here) by Peter Barnes, a founder of Working Assets. Revkin says Barnes "has long studied various bills and proposals for cutting emissions of carbon dioxide to limit global warming. He sees fatal flaws in every one."
I don't see any fatal flaws in either Obama's plan or Mrs. Clinton's -- they are both terrific and comprehensive, unlike Barnes'. His goal is the same as theirs -- to reduce emissions 80 percent by 2050. But his solution is fatally incomplete:
He proposes a "cap and dividend" system that charges a rising fee on sources of greenhouse-gas emissions (to propel a long-term shift away from such pollution) and returns the revenue to citizens, rich or poor, through a direct payment not unlike the checks that Alaska residents get every year from fees paid to the state by oil companies.
That's pretty much it. What caught my attention in Revkin's piece is Barnes' answer to the last question posed:
What about laws such as better efficiency standards? (Nancy Anderson)
N.Y. Times columnist Tom Friedman has made a crucial distinction between incremental policies and transformative ones. Cap-and-dividend is transformative. It will get us to 80% emission reductions and create a clean energy infrastructure in the process. Raising efficiency standards for autos, appliances and buildings is a good thing to do, but it won't transform our economy or cut emissions 80%.
That is, ironically, almost exactly backwards. Barnes apparently thinks plans like Obama's and Clinton's are loaded up with things like much tougher fuel economy standards and utility decoupling and federal clean-tech programs because the senators just love regulations and government spending (I know many of you conservatives out there think that). In fact, trying to stabilize at 450 ppm only using a price for carbon, as Barnes proposes, is wildly impractical and a political non-starter.
That's because, at its most basic level, a price for carbon most directly encourages fuel-switching (especially from coal), but does not particularly encourage efficiency. That's why most traditional economic models require a very high (read "unduly brutal" and "politically unacceptable") price for carbon to get deep reductions.
Indeed, in the months and years to come, you are going to see an unending stream of such models -- some funded by fossil-fuel companies, and some from credible-seeming places like the U.S. Energy Information Administration (EIA) -- all designed to scare the public into opposing serious action on climate. How bad will it be? In 1998, EIA concluded that merely meeting the Kyoto target, a 7 percent reduction below 1990 levels of GHGs by 2008-2012 would -- if such a reduction were achieved strictly through domestic reductions in energy-related emissions through a price mechanism -- require the price of carbon to reach $348 per metric ton, which, in their analysis, doubles the price for electricity! I kid you not (PDF).
The EIA analysis is dumb for many reasons, as I have testified [sadly I can't find the hearing, "Kyoto and the Internet: the Energy Implications of the Digital Economy" online -- I'll probably blog on this when EIA does their hit job on whatever comes out of the Senate]. But it contains one essential truth: Price alone is a lousy way to cut emissions. Probably the best way to see this is by looking at the (meager) impact of carbon prices on gasoline prices.
The key facts (PDF) to remember are that:
$50 per tonne of carbon corresponds to 12.5 cents per gallon of gasoline or 0.5 cents per kilowatthour for electricity produced from natural gas at 53% efficiency (or 1.3 cents per kilowatt-hour for coal at 34% efficiency).
That means a price of $400 per metric ton of carbon (whether achieved through a tax or a cap-and-trade system) would increase the price of gasoline a mere $1 a gallon. How much efficiency would that drive? Not bloody much! How do we know? How much efficiency did going from $2 a gallon to $3 a gallon drive? [Hint: Not bloody much.] Second, I was just in England, and they're paying over $8 a gallon -- how much more efficient are their cars than ours? [Hint: As of 2002, the average fuel economy of European Union vehicles was 37 miles per gallon, just a tad more than what the new energy bill requires, and their taxes are typically some $2 a gallon above ours.]
Note that $400-a-metric-ton carbon would add over 10 cents per kWh for traditional coal. So obviously the electricity sector has the most straightforward emissions reductions opportunities -- and gets whacked first and hardest if you only use price. But even if that were politically possible, and even if you go to near zero in the utility sector in four decades (no mean feat!), you still need to cut absolute transportation sector emissions at least 60 percent -- and we'll have some 50 percent more people in 2050 -- so per-car emissions will probably need to drop more than 70 percent (and that's assuming we can get the same percentage reductions in air travel and big trucks). So I think you understand why I say that we aren't going to meet a 450 ppm target by just raising carbon prices alone.
If you want efficiency, you need government standards and smart utility regulations. And absent efficiency policies, you need an absurdly high price for carbon that is politically untenable. [Note also that no country has ever successfully switched to an alternative fuel for consumer vehicles without a government mandate -- Europe certainly hasn't done it with even very, very high prices.]
Barnes, however, is a price-only guy:
How do you ensure that dividends get used towards carbon-reducing products and services, not more gas-guzzling SUVs? (Marguerite Manteau-Rao)
It is higher prices for carbon, not restrictions on how dividends can be used, that will induce consumers to conserve.
But that raises the logical question, won't high prices be politically untenable? Barnes' answer is remarkable, to say the least:
... under a tax, politicians set the prices, whereas under a cap, the market does. Politicians shouldn't be in the business of setting prices. They'll never get it right, and they have better things to do. If we want to cut emissions 80% through taxes, politicians will have to keep raising carbon taxes ever higher for half a century. This supposes unimaginable acts of political courage, year after year.
With cap-and-dividend, there's no need for sustained political courage. Once the system is created, politicians are off the hook. If voters complain about higher fuel prices, politicians can truthfully say, "The market sets prices, and you determine by your own energy use whether you gain or lose. If you conserve, you come out ahead."
As if! Just try doubling electricity prices for consumers and businesses by voting for Barnes' plan -- then not bothering to embrace a bunch of efforts to overcome the many barriers to energy efficiency -- and finally saying "hey, it wasn't me, blame that pesky market -- and your own failure to conserve." Two words: conservative landslide.
Honestly, we are way past the time when we can risk the climate on such politically naïve thinking. California has shown that amazing amounts of efficiency can be achieved with aggressive government programs, utility decoupling, and moderately higher electricity prices (but not higher electricity bills). That strategy makes much more economic sense -- and is far more consumer- and business-friendly, hence much more politically sustainable -- than trying to do everything with price, a strategy that is doomed to fail.
That's what Obama and Clinton understand. In this political season, it's good to know we can learn some things from the contending politicians.
This post was created for ClimateProgress.org, a project of the Center for American Progress Action Fund.
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Comments
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peterbarn Posted 2:24 pm
06 Jan 2008
Cap-and-dividend will transform our economy and ensure that we meet our emission reduction goals on time. It should be the keystone of US climate policy, but it does not eliminate the need for other measures that Romm cites and that are included in Obama's and Clinton's programs. Those are important too, and as Romm suggests, they will keep carbon prices from rising as high as they otherwise would. But without that declining upstream carbon cap, there's no assurance that they will get us to our goals on time, and markets won't transform our energy infrastructure as quickly as they will with an inexorably declining cap.
Romm also misses my point about `taking politicians off the hook.' They're not off the hook because they can blame markets for higher prices (though that shrinks the hook compared to voting for taxes). Mainly, they're off the hook because of the dividends. As prices rise, so will the dividends. A majority of Americans will come out ahead because of the dividends, and everyone will have the chance to come out ahead by conserving. Absent dividends that automatically rise with prices, the middle class will eventually rebel against carbon reductions.
The policies Romm (and Obama and Clinton) recommend are good, and I support them. They will stimulate emission reductions and keep the price of carbon from rising too high too fast. But they are not sufficient. They require both an upstream cap and dividends to (a) make sure we meet our goals on time, and (b) protect the middle class.
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stevenearlsalmony Posted 11:19 pm
06 Jan 2008
Can humankind reasonably and sensibly expect such a thing as much more, seemingly limitless economic globalization if there is not a viable living Earth from which the global economy can derive natural resources and ecosystem services?
If the human species keeps as we doing now by relentlessly growing economic production capabilities worldwide, adamantly condoning skyrocketing absolute global human population numbers, and continuously raising the level of per capita consumption of limited resources, are we not likely to keep getting what we are getting now........the reckless dissipation of Earth's resources, the irreversible degradation of global ecosystems, the massive extirpation of biodiversity and the destruction of Earth as a fit place for human habitation?
If we keep doing as we do now and getting what we are get now, is it yet evident that the relatively small and evidently finite planet we inhabit will soon reach a point in history when Earth's limited resources and frangible ecosystem services can no longer sustain either life as we know it or the human species?
What scientific evidence, reasoning or common sense explanation provides an adequate foundation for the idea that the current scale and unbridled growth of human over consumption, big-business overproduction and overpopulation activities now threatening to engulf the surface of Earth can be maintained much longer, much less to 2050?
Sincerely,
Steve
Steve Salmony
AWAREness Campaign on The Human Population, established 2001
http://sustainabilitysoutheast.org/
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Biodiversivist Posted 12:31 am
07 Jan 2008
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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amazingdrx Posted 1:37 am
07 Jan 2008
Because a rise in energy price is magnified all through the economy. Sure you can voluntarily conserve, but that won't be enough to offset this exponential inflation.
As with all "free" market solutions, this will be gamed by corporations. A real free market in energy innovation is what works. But how to do that with a market controlled and manipulated by the monopolies?
The control mechanism that results in monoplized markets is government subsidies for the GHG spewing status quo. Hillary wants to divert these subsidies to lower cost, renewable energy and conservation.
Dr. Huckabee proposed a billion dollar government funded prize for the developer of the first 100 mpg car. What he doesn't realize is that the 100 mpg plus car already exists, it's called a plugin hybrid.
Use that billion, and 10s of billions more, diverted from big oil, coal, nuclear, and fuel farming to create a mass market for these plugins with large orders for government vehicle fleets. That will get the GHG reduction we need. By stimulating mass production efficiency and price reduction for consumers for new, better technologies like plugin hybrids.
Follow along to geo heat exchange heating/cooling for government buildings and solar PV on government buildings and facilities, like military bases, powered by large wind machines. And so forth.
So-called "free" market solutions don't work in an unfree market. Free up the market with government policy and regulation and the best, cheapest, cleanest solutions will prevail.
Allow hegde fund gaming to erode the value of the currency, as with this fed lowering (during a time of enormous inflation hidden by politically skewed government statistics) to bail out the global banking system, and you end up with more wealth and power concentrated in the hands of fewer and fewer wealthy individuals.
And the general stadard of living dropping precipitously. That is what caused the mortgage crisis, people being payed in a currency that buys less and less of the necessities of life.
http://amazngdrx.blogharbor.com/blog
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Will Candler Posted 12:36 pm
07 Jan 2008
It is tempting to be entirely negative (for both Obama and Clinton, and probably Edwards) about a program that focuses on targets in 2050. But lets look at the glass as "half-full" and recognize that they are talking of auctioning caps. So far so good. Relevant questions are:
* How many caps do they intend to auction in 2009? And, what do they expect the resulting price to be?
* Will they allow carbon credits not based on under-cap emissions, so that total emissions may exceed total caps?
* Why do they think it is better to fix total emissions, rather than the price of emissions?
It is not good enough for candidates (or any of us) to argue general principles (or targets) far in the future. What specifically are we proposing be done next year, if not sooner?
Credit where credit is due. Peter Barnes has been talking about "putting a price on carbon" since 2001, moreover even then he finessed the dread "carbon tax" with a "carbon fee", as a charge for polluting the atmosphere. He got it right, before many current commentators had notice the problem.
I also notice a tendency to construct "straw-men". Some bloggers suggest that you can "put a price on carbon" or "set efficiency standards", but why not "both" as Pooh famously remarked when offered "honey or condensed milk" by Rabbit. By all means place a moratorium on new coal fired generation plants at the same time that a tax is being introduced that would make them unprofitable.
I was delighted to learn that EIA thought that a carbon tax of $348 per ton in 1998 would be required to double the price of electricity. I had calculated $250 per ton in 2006, to have the same effect ("Global Warming: The Answer. (The Energy Dividend)", Chapter 7). The nice thing about relying on a carbon tax is that it does not matter if EIA or my calculations are right: Introduce the tax at either level and we will either shrink demand a bit less or a bit more than estimated. Either tax is in the right direction, and in any case will need to be raised before we have totally eliminated the use of fossil carbon.
If we are to make progress we need to focus on what we can agree upon: It is better to charge for caps than to give them away free. O.K.? Then we can ask: What are the arguments for auctioning caps, rather than instituting a carbon tax? Surely it is better for investors to have the price of carbon fixed, than the quantity to be used? Just asking. I can be convinced, but I would rather invest in a wind farm knowing the price I had to beat.
A recent (12/28/2007) article in the Washington Post quotes Dr. James Hansen, Director, NASA Goddard Institute for Space Studies as saying that we've gone too far. "The evidence indicates we've aimed too high - that the safe upper limit for atmospheric CO2 is no more than 350 ppm". As all readers of this blog will know current ppm is about 386, so that increasing evidence of positive feed-back loops in global warming is to be expected.
So can we agree a program for 2009?
Will Candler
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amazingdrx Posted 2:12 pm
07 Jan 2008
Hillary's plan to divert subsidies from fossil and nuclear industries to renewables and conservation is the program to inform elected officials about. I would add diversion of subsidies for agribizz fuel farming to renewable and conservation too.
Carbon taxes, cap and trade, or other inexplicably complicated programs are political ambien. They will put voters to sleep while the no new taxers demagogue green politicians into oblivion. If cap and trade (dividend?) actually got passed it would have goals set decades from now, easily overturned by the next GOP congress, set to arrive in 2010.
And it will be gamed by the hedge funds, raising energy prices, creating a financial disaster similar to the mortgage crisis. In the home heating, home electricity cost, and family gasoline expense sphere.
Hillary mentioned FDR in relation to this program. Create a mass market for plugin hybrids, geo heat exchange heating/cooling devices, solar panels, wind systems, smart grid technology, and so forth with government orders for these devices. The funds coming out of subsidies now going to big oil, coal, and nuclear.
FDR instituted programs to create jobs and end the great depression, these green energy revolution jobs could end this global financial crisis and keep it from becoming another great depression.
These issues ought to be set in the minds of our representatives now, the very short 2009-2010 window to get this legislation passed will be filled up with more Iraq nonsense and health care reform. Not much room for energy policy!
http://amazngdrx.blogharbor.com/blog
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