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Friday, May 8, 2009
Cap and trade can help break the carbon addiction
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Cap and trade. If you haven’t educated yourself yet, it’s time. Fortunately, the capping of carbon emissions in the United States may well be upon us. Understanding how emissions caps work is in everyone’s interest as the environmental, social and economic consequences of a carbon cap will be significant.
The American Clean Energy and Security Act of 2009 (ACES) was recently released by its authors, House Energy and Commerce Committee Chairman Henry Waxman, D-Calif., and the dean of the Massachusetts delegation: Energy and Environment Subcommittee Chairman Edward Markey, D-Mass. Hearings and debate are under way; a House vote is anticipated before the summer recess. The act charts a remarkably comprehensive course to a clean energy economy.
A key part of the legislation places limits on greenhouse-gas pollution by use of a system that caps carbon emissions to specific levels and allows emitters to find the least expensive means of meeting those limits by trading their allowances.
The concept is similar to the program started in the 1990s to curb acid rain. The goal then was to cap national sulfur dioxide emissions at 50 percent of 1980 levels. Each year, EPA issues allowances within that cap to power plants covered by the acid rain program. Each allowance is worth one ton of sulfur dioxide released from the smokestack. Additional allowances are withheld and auctioned to help ensure that new power plants have a source of allowances beyond those allocated initially to existing plants. Plants are allowed to release as much sulfur dioxide as they have allowances. If a plant expects to release more than that, it has to secure more allowances, such as by buying them from another power plant that has reduced its sulfur dioxide emissions below its allowances and therefore has allowances to sell or trade. Allowances are also bought and sold by “middlemen,” such as brokers. There are stiff penalties for plants that release more pollutants than their allowances cover.
Many people opposed the acid rain program, assuming that the expense of reducing sulfur dioxide emissions would break the bank and result in outrageous electricity bills. They were wrong. The efficiency of the trading marketplace has resulted in the least amount of money being spent to achieve the greatest reductions in emissions at a fraction of the estimated costs.
The global warming provisions in the discussion draft of the Markey-Waxman bill are modeled closely on the recommendations of the U.S. Climate Action Partnership, a coalition of unlikely allies — electric utilities, oil companies, chemical companies, automobile and other manufacturers, energy companies and environmental organizations. The bill establishes a market-based program for reducing global-warming pollution similar to the successful program for acid rain. It covers emissions from electric utilities, oil companies, large industrial sources and other entities that together emit 85 percent of U.S. greenhouse-gas pollution. These entities will have tradable federal permits, i.e., allowances, for each ton of pollution emitted into the atmosphere. Entities that emit less than 25,000 tons per year of CO2 equivalent are not affected. The number of available allowances issued each year is reduced to ensure that aggregate emissions from the covered entities are reduced by 3 percent below 2005 levels in 2012, 20 percent below 2005 levels in 2020, 42 percent below 2005 levels in 2030, and 83 percent below 2005 levels in 2050.
To deliver these emission reductions at lowest cost, Congress would be wise to draw on lessons from the Regional Greenhouse Gas Initiative, the nation’s first greenhouse-gas cap-and-trade system. By auctioning more than 90 percent of emissions allowances and directing 70 percent of auction proceeds to energy-efficiency investments, RGGI provides the best model for affordable, achievable climate policy. Efficiency improvements reduce the demand for power and thereby reduce emissions. Lower emissions mean lower allowance prices and lower overall cost. What’s more, saving energy is cheaper than buying it from the power plant, and efficiency investments create employment weatherizing homes and replacing outdated equipment, while bolstering additional economic activity with energy bill savings.
My therapist sister once remarked, “To stop an addiction, change behavior.” Most of us know that’s easier said than done. So the only way to stop climate-change pollution is to stop polluting. A well-designed cap that draws on precedent guarantees time-certain results at the lowest cost to society. The Markey-Waxman bill deserves our enthusiastic support.
Bruce N. Anderson is CEO of Wilson TurboPower and co-chair of the New England Clean Energy Council. He can be reached at bruce.anderson@wilsonturbopower.com.
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