How green is 'cap and trade'? Will it save environment or just cost money and jobs?
This article first appeared in the St. Louis Beacon, July 24, 2009 - When it comes to predicting how Missourians will be affected by the cap-and-trade legislation moving through Congress, the size of the impact depends a lot on whose crystal ball you are using.
Few people dispute that there will be costs if a climate-control bill passes and is signed by President Barack Obama. The debate begins when you try to determine how large the increase will be -- and whether the higher price is worth paying for the cleaner environment that is supposed to result.
To Sen. Christopher "Kit" Bond, a Republican, the issue isn't support for a cleaner environment or even whether the effort to cut greenhouse gas emissions will lead to new jobs.
"I support green jobs," says Bond, who has been a persistent critic of cap and trade, "but not paying for them by raising millions of dollars in new energy taxes or killing millions of existing jobs."
To Melissa Hope of the Sierra Club, it's time to move beyond dependence on coal and oil -- industries she says have supported Bond politically and financially -- to a new economy.
"We have an opportunity to create jobs in Missouri in one of the worst depressions we've ever seen," she said, "and he's dissing these jobs and saying they're not going to happen when they're already being created."
To Saint Louis University Professor Robert Cropf, the debate is an opportunity to make a fundamental change in how the United States powers its economy -- a change that will have to be made sooner or later, with the expansion ambitions of nations like India and China looming.
"Ultimately, non-renewable energy sources by definition are going to run out," he said.
"Whether that is five years from now or 50 years or 500 years, I think it's prudent to assume it's going to be less time rather than longer. It just makes economic sense to come up with a solution that cuts our dependence on energy assets that are in the most troubled parts of the world and are unreliable."
THE BILL SO FAR
Last month, the House version of cap-and-trade, known as the Waxman-Markey bill, was approved by just seven votes. With health-care reform monopolizing congressional attention of late, it's unclear when the Senate may take up the issue; after that, it's sure to head to a conference committee to determine the final details.
Key provisions of the House bill include:
- Reducing carbon emissions by 17 percent by 2020 and by more than 80 percent by 2050, compared with levels in 2005.
- Investments of nearly $200 billion in energy technology, including energy efficiency, renewable energy, sequestration of carbon emissions, energy-efficient vehicles and basic research and development.
- Standards for energy saving for new buildings and appliances.
- Protection for consumers from prices increases for energy.
That last issue, the cost for consumers, has been one of the most hotly debated points of the legislation. According to a summary from the House Committee on Energy and Commerce, both the Environmental Protection Agency and the Congressional Budget Office estimate that the bill would cost the average American household less than 50 cents a day.
Other estimates vary widely, and with uncertainty surrounding the details of the Senate version, then whatever is ultimately sent to the White House -- if anything at all -- no one can pin the numbers down.
"If there's one thing we know for sure," says Lewis Mills, Missouri's public counsel, who represents ratepayers in utility cases, "it's going to change before it finally gets passed."
Adds Floyd Gilzow, the director of external affairs for the Missouri Public Utility Alliance:
"It's hard to gauge the effects because A, you have a moving target, B, you are relying on technology that does not exist today, and C, you are assuming that the American population is going to make the sorts of changes it has never had to make before, not only to use less of something that they have come to utilize on a regular basis but to use significantly less of it."
CAPS AND TRADES
The cap-and-trade system involves having the government set limits for the amount of permissible carbon dioxide emissions, with the limits declining every year as businesses are expected to reduce the emissions they produce.
While the details remain in flux, as the House-passed bill moves to the Senate, the basics of a cap-and-trade system are pretty much set. Here is how it works.
The program is designed to use market forces to reduce greenhouse gas emissions according to a set schedule.
The cap part comes when the government determines the amount of emissions that will be allowed. Such caps can be phased in over time, with the allowable emissions reduced as the program progresses.
Businesses that emit pollutants can get allowances to cover their emissions. If their emissions are more than their allowances, they can either reduce the emissions, to come in under the cap, or they can buy allowances from other companies already under their cap. They can also put them aside, banking them for the future. That is the trade part of the program.
Checks are made regularly to make sure that the emissions and the allowances match. If they don't, businesses may be subject to a fine.
One issue still being decided is how the allowances will be distributed. The government could allocate them for free, based on a business' history of emissions, or it could auction them off. A combination could also be used.
Each entity that emits greenhouse gases would receive a certain number of allowances a year. Companies that produce more emissions than allowed would face three choices: Increase efficiency to emit less, pay a fine for emitting too much, or buy allowances from other companies whose emissions are under what the government has allowed.
Another wrinkle is how the allowances will be determined: by government distribution, by auction or by some combination.
The permit approach, says Cropf, a professor of public policy, uses a free-market model, where the buying and selling of allowances are regulated by what companies can and are willing to pay, rather than a system where the government is in control.
"Companies that are really good at it are going to have some extra emission permits left over," he said, "and they can then go out and sell them to less-efficient companies. That will in essence reflect the social cost of pollution. Companies that pollute more will have to bear more of the cost, and companies that are more efficient in controlling emissions won't have those costs.
"All of this will get translated to the consumer and the workforce. Efficient companies will be able to get their product out at a lower cost to the consumer, and that will be translated into a bigger workforce, compared to those at less-efficient companies."
A bigger workforce -- or a smaller one -- is of course another way of talking about what effect the legislation will have on jobs. That topic has been where much of the debate and dispute has been.
Bond has taken the offensive on the issue, insisting that so-called "green jobs" -- ones created by moves toward more energy efficiency -- are not the answer in the current economic climate. Between the slowdown in the U.S. economy and growing competition from countries like China and India, he says, green jobs created with taxpayer subsidies are the wrong way to go.
He backs up his argument with research from a wide-ranging group of sources, including one from an unusual collaboration of the Sierra Club, the Teamsters and the Service Employees International Union. He cites the studies to back his contention that too many jobs are subsidized by too much taxpayer money -- in one case, he says, $71,000 per job.
Pointing to Missouri's work in biofuels and new battery technology, Bond described his preferred approach this way in a speech earlier this week:
"Nuclear power, clean coal technology, environmentally friendly drilling for oil and gas off our own shores -- these are American sources of energy that will create American jobs, keep us independent of our adversaries and ensure plentiful supplies to keep prices lower."
Environmental groups have a different take on the issue. They say Missourians showed their support for green initiatives by their solid approval last November of Proposition C, which requires investor-owned utilities in the state to get 15 percent of their electricity from renewable sources by 2021.
"I think people are smart enough to separate the facts from the fiction," says Vanessa Crawford, climate change coordinator for Missouri Votes Conservation.
"I think most people realize that good things cost sometimes, and polling bears that out. We're not talking about thousands and thousands and thousands of dollars. We're talking about 10 or 15 bucks a month, and it would be largely mitigated for folks that aren't able to cope with that.
"Our utilities are already moving toward this. It's not like we're getting caught flat-flooted. More Missourians voted for Proposition C in November than voted for Jay Nixon. They've already said overwhelmingly they are in favor of clean energy. Cap and trade is a rough concept to get your arms around, but people have said they are in favor of clean energy."
Adds Hope of the Sierra Club:
"The argument that seems to be prevailing, between the two factions, is really an argument between good public policy about how we do energy and an argument to continue to promote fossil fuel industries that are really quite powerful. Sen. Bond has come down on the fossil fuel industry side, and that's really quite disappointing."
LESSONS FROM ACID RAIN
One experience that some say could help predict how well the cap-and-trade program for greenhouse gases will work is a similar plan established in the Clean Air Act of 1990 to deal with acid rain, or sulfur dioxide. That problem has largely gone away, proponents of cap and trade say, and the system can work the same way with carbon dioxide.
"At that time," says Crawford of Missouri Votes Conservation, "people were screaming and yelling and stamping their feet saying they would be going out of business and it would cost all this money, but that just didn't happen.
"Business is in the business of meeting requirements at the lowest cost possible. None of the Armageddon scenarios they were talking about with the Clean Air Act came to pass. Business got done what it had to do at a cost it could afford."
Others say there are big differences this time around, particularly in the technology that is available. With sulfur dioxide, it was not a question of whether it could be done but how it would be paid for. With greenhouse gases, they say, the science still needs to take big steps forward.
"Here, you don't have that technology," says Gilzow of the Public Utility Alliance, "and the technology on the drawing board has such huge costs, at least in the laboratory versions, that it clearly will drive costs up.
"Capturing the gases is one thing. Putting them somewhere where they are benign, where they are controllable, is a totally different issue. If somebody has a magic box they can roll out tomorrow and put in production for hundreds of power plants across the country, we can possibly avoid increases in costs."
Cropf describes it as a cart-horse or a chicken-egg issue.
"The argument can be made that the technology was there when the law was passed in 1990," he says. "Another way of looking at it is that this is a spur to investing in efficient technology. If a company knows it can make a lot of money in selling off these permits or doing their production more efficiently, that is going to be a huge impetus to invest in these technologies."
POLITICAL WILL, FINANCIAL ABILITY
Ultimately, says Gilzow, the problem won't be solved only in Washington.
"This is a decision that the American population is going to have to make as a whole," he says. "There are going to be costs as an economy. The EPA study doesn't take into account the loss to gross domestic product that this will produce. Families will lose part of their disposable income, and that will have a ripple effect on the economy.
"That cost has to be compared to the cost to humanity by the reduction of global greenhouse gas levels in the atmosphere. At least one study has indicated that difference will be beyond measurement, it will be so small, particularly in light of the fact that India and China both continue to refuse to participate in any controls."
Cropf adds that wanting to operate in a greener fashion is one thing, but being able to pay for it may be another. Money for research into new technology can come from the government, or from selling pollution permits, or from auctioning off allowances. But in the end, he says, new ways of dealing with greenhouse gases will lead to a transformed economy. Even Wal-Mart, he notes, has taken on a new environmental consciousness.
"I think the opportunity exists to create a brand new economy with cap and trade," he says. "But when you do that, you create winners and losers. Winners are going to be new industries, low-carbon transportation, technology and renewable energy folks and all those people who try to capitalize on the emerging low-carbon economy.
"Conversely, you have the people who are in the high-carbon economy who are going to be big losers. If Missouri has lots of high-carbon companies, than it is going to suffer. If we have more of the emerging economy, we're going to see an uptick in their fortunes as a result."