The Voices in the Cap&Trade Debate

Who would have expected a belly laugh to end the recent VerdeXchange panel discussion on emissions trading? When an Asian man in the audience demanded to know why the U.S. was not prepared to move as quickly and efficiently to a global emissions trading system as China, a wag in the audience beat the panel to the answer. “They don’t have Republicans,” he called out.

In fact, the debate right now over a U.S. emissions trading system is not a Democrat-Republican debate but a 3-part disharmony between voices speaking for business interests, populist interests and cynical interests. Two of the three sides of the issue were well represented on the VerdeXchange panel. The third, however, loomed over the discussion like a specter.

The business community was represented by panel moderator Marc Stuart, a founder and Director with major emissions trader EcoSecurities, by Josh Margolis, Co-CEO at venerable emissions trading giant Cantor CO2e, and by Gary Gero, the President of the Climate Action Reserve offset registry.

The peoples’ interests were strongly represented by Peter Barnes, author of Climate Solutions, A Citizen’s Guide and Who Owns The Sky?.

The cynical interests, whose oversimplified or idealistic understanding of greenhouse gas emissions-trading prevent the world and the nation from reaching agreement on a way forward, merely loomed. With business and the people split over how best to answer the cynicism and implement measures to cap and cut back on GhGs, the worst effects of global climate change become ever more unavoidable. ::continue::

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Any cap&trade system implemented legislatively would be similar to the one used to control acid rain in the U.S. in the 1990s and to the one effectively being used to control greenhouse gas emissions (GhGs), despite pioneering difficulties, in the EU. It would put a hard cap on industrial scale emitters and create a market where they could buy extra allowances to emit (if that was the only way they could keep doing business) and sell excess allowances (if they used efficiencies and New Energies to do business with fewer emissions).

Companies that successfully shift to low-spew practices profit. Protections would be built into the legislated system, in the form of an apportioning of free and auctioned allowances, to protect industries that cannot do business without spew. There would also be protections for consumers, in the form of rebated auction revenues.

A small portion of offsets would likely be included in a cap&trade system that allow companies to pay for greenhouse gas emissions (GhG) cuts in emerging economies rather than make cuts in their own operations because GhGs are, after all, a universal and not a local problem.

The basic wisdom of cap&trade is that it gives business interests the opportunity to control their own destinies in the shift to an emissions-constrained economy…

A discussion on the auction of allowances, offsets and the politics of cap&trade followed. Details are available at The Voices in the Cap&Trade Debate.

…Stuart framed the concluding exchange with an introduction that summarized the debate.

“…I like to think emissions performance is an asset,” he explained, “something that companies should be trying to create on their balance sheet. I’m not sure that using a little less coal because coal costs a little more is necessarily incentivizing those…

“What we saw over the last 6-7 years, particularly in London, is asset classes emerge in financial markets. Billions were raised around funds to produce emission reductions, to a lesser extent venture capital into technology, into carbon trading companies…Looking where we are right now, and there is uncertainty in where we are politically, from each of you, where would you be putting money right now if you were looking for ways of benefiting from a low carbon economy, whatever the policy emerges may be?”

“The key thing we all agree on,” Barnes replied, “is the need to have a carbon price and where we disagree is some of the details of how to do that so…I think what I would call real investments, venture capital investments, investments in meeting the state renewable energy standards, these are things that are solid. They’re not gonna fluctuate wildly, so that’s where I would put my money. I’d be nervous about putting money in carbon securities at this point because the future does seem somewhat uncertain.”

Margolis went next. “I’m going to focus on emissions reductions that are facility specific, that have a story behind them, that when I run them up [key regulators’] flagpole, [they say] ‘those look pretty good.’ And that means I need to have a pretty good understanding of what [the key regulators] want…I think we have a pretty good understanding of some of the criteria that are necessary…

“So I think there are places we can go to get some pretty good certainty but once everything is certain, prices are going to go from $2 to $200. When we go from 8 billion tons, which is where we’re gonna be in 2050 with business as usual, to 1 billion tons [with necessary cuts] you will see costly carbon in a relatively short time because that’s what the scientists say we need to get to from 8 billion to 1 billion.”

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Except for the closing laugh, Gero got the last word.

“I want to focus on a kind of longer term goal,” he said,“because we all know that the whole point of this kind of system, these complex mechanisms, is to get us to the fundamental transformation of the energy economy, from a fossil fuel based economy that we have today to a clean energy economy. We’re not going to get to 80% reductions by 2050 in any other way…[So] I would make long term bets on clean energy technology.

But…trying to put some bookends on this conversation…there is skepticism in the general public and among policy makers [about] financial markets. We all know that financial markets are manipulable and we know they’ve been manipulated…Any system that is complex is subject to potential manipulation…I would venture to guess that if a cap&trade bill moves, it’s going to move with very very strong market oversight regulation provisions because that is the fundamental skepticism about cap&trade.”

So there it is again, looming like a specter. A mechanism complex enough to meet the complex challenge of global climate change can either be simplified or vigorously regulated but how does it answer cynical charges that it is a rigged system or a Big Government tax?

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The smart betting right now is that it won’t have the political support to answer the cynics this year. But, as CantorCO2e’s Margolis told NewEnergyNews, it won’t be over until Senate Majority Leader Harry Reid (D-Nev) says it is. All Reid has to do is get some kind of agreement from business, the people and the cynics. Too bad somebody didn’t say that. It would have gotten another big laugh.

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This post is based on The Voices in the Cap&Trade Debate, Herman K. Trabish, February 1, 2010, NewEnergyNews

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