Cap and Fade

New York Times, December 7, 2009

Op-Ed Contributor



By JAMES HANSEN

AT the international climate talks in Copenhagen, President Obama is
expected to announce that the United States wants to reduce its greenhouse
gas emissions to about 17 percent below 2005 levels by 2020 and 83 percent
by 2050. But at the heart of his plan is cap and trade, a market-based
approach that has been widely praised but does little to slow global
warming or reduce our dependence on fossil fuels. It merely allows
polluters and Wall Street traders to fleece the public out of billions of
dollars.

Supporters of cap and trade point to the 1990 Clean Air Act amendments that
capped sulfur dioxide and nitrogen oxide emissions from coal-burning power
plants — the main pollutants in acid rain — at levels below what they were
in 1980. This legislation allowed power plants that reduced emissions to
levels below the cap to sell the credit for these excess reductions to
other utilities whose emissions were too high, thus giving plant owners a
financial incentive to cut back their pollution. Sulfur emissions have been
reduced by 43 percent in the two decades since. Great success? Hardly.

Because cap and trade is enforced through the selling and trading of
permits, it actually perpetuates the pollution it is supposed to eliminate.
If every polluter’s emissions fell below the incrementally lowered cap,
then the price of pollution credits would collapse and the economic
rationale to keep reducing pollution would disappear.

Worse yet, polluters’ lobbyists ensured that the clean air amendments
allowed existing power plants to be “grandfathered,” avoiding many
pollution regulations. These old plants would soon be retired anyway, the
utilities claimed. That’s hardly been the case: Two-thirds of today’s coal-
fired power plants were constructed before 1975.

Cap and trade also did little to improve public health. Coal emissions are
still significant contributing factors in four of the five leading causes
of mortality in the United States — and mercury, arsenic and various coal
pollutants also cause birth defects, asthma and other ailments.

Yet cap-and-trade schemes are still being pursued in Copenhagen and
Washington. (Though I head the NASA Goddard Institute for Space Studies,
I’m speaking only for myself.)

To compound matters, the Congressional carbon cap would also
encourage “offsets” — alternatives to emission reductions, like planting
trees on degraded land or avoiding deforestation in Brazil. Caps would be
raised by the offset amount, even if such offsets are imaginary or
unverifiable. Stopping deforestation in one area does not reduce demand for
lumber or food-growing land, so deforestation simply moves elsewhere.

Once again, lobbyists are providing the real leadership on climate change
legislation. Under the proposed law, some permits to pollute would be
handed out free; and much of the money actually collected from permits
would be used to pay for boondoggles like “clean coal” research. The House
and Senate energy bills would only assure continued coal use, making it
implausible that carbon dioxide emissions would decline sharply.

If that isn’t bad enough, Wall Street is poised to make billions of dollars
in the “trade” part of cap-and-trade. The market for trading permits to
emit carbon appears likely to be loosely regulated, to be open to
speculators and to include derivatives. All the profits of this pollution
trading system would be extracted from the public via increased energy
prices.

There is a better alternative, one that would be more efficient and less
costly than cap and trade: “fee and dividend.” Under this approach, a
gradually rising carbon fee would be collected at the mine or port of entry
for each fossil fuel (coal, oil and gas). The fee would be uniform, a
certain number of dollars per ton of carbon dioxide in the fuel. The public
would not directly pay any fee, but the price of goods would rise in
proportion to how much carbon-emitting fuel is used in their production.

All of the collected fees would then be distributed to the public. Prudent
people would use their dividend wisely, adjusting their lifestyle, choice
of vehicle and so on. Those who do better than average in choosing less-
polluting goods would receive more in the dividend than they pay in added
costs.

For example, when the fee reached $115 per ton of carbon dioxide it would
add $1 per gallon to the price of gasoline and 5 to 6 cents per kilowatt-
hour to the price of electricity. Given the amount of oil, gas and coal
used in the United States in 2007, that carbon fee would yield about $600
billion per year. The resulting dividend for each adult American would be
as much as $3,000 per year. As the fee rose, tipping points would be
reached at which various carbon-free energies and carbon-saving
technologies would become cheaper than fossil fuels plus their fees. As
time goes on, fossil fuel use would collapse.

Still need more convincing? Consider the perverse effect cap and trade has
on altruistic actions. Say you decide to buy a small, high-efficiency car.
That reduces your emissions, but not your country’s. Instead it allows
somebody else to buy a bigger S.U.V. — because the total emissions are set
by the cap.

In a fee-and-dividend system, every action to reduce emissions — and to
keep reducing emissions — would be rewarded. Indeed, knowing that you were
saving money by buying a small car might inspire your neighbor to follow
suit. Popular demand for efficient vehicles could drive gas guzzlers off
the market. Such snowballing effects could speed us toward a pollution-free
world.

The plans in Copenhagen and Washington have not been finalized. It is not
too late to trade cap and trade for an approach that actually works.

James Hansen is the author of the forthcoming “Storms of My Grandchildren:
The Truth About the Coming Climate Catastrophe and Our Last Chance to Save
Humanity.”