CLEARing the Air
By Claudio Guler for ISN
Two weeks ago, as snow blanketed Washington DC for the second time in a week, FOX News, the conservative news broadcaster, placed a copy of Al Gore’s “An Inconvenient Truth” in the snow and external pagechronicled its entombment. "Poor Al Gore," the moderator stuttered as he attempted to make out the former vice president’s increasingly snow-covered name.
The act was sensationalist, maybe even juvenile, but it evidenced a broader truth: On climate policy, as in many other issue areas in Washington, and in the US Congress in particular, the divide runs deep. Two US senators, however, now reckon they have a prescription for unity – at least when it comes to climate change legislation.
All CLEAR
A sufficient number of Americans, historically the biggest emitters of climate-altering greenhouse gases (GHG), fret that efforts to reduce emissions will stymie economic growth at a particularly precarious hour. Conservative measures of US unemployment stand at 10 percent. Moreover, existing cap and trade legislation, known as the Waxman-Markey Bill, languishes at the doorstep of the US Senate and has failed to inspire much enthusiasm.
Enter US Senators Maria Cantwell (Democrat) and Susan Collins (Republican) from Washington state and Maine, respectively. Senators Cantwell and Collins have jointly tabled the Carbon Limits and Energy for America's Renewal or external pageCLEAR Act, and argue that the cap and dividend system it proposes offers up a fresh approach to reducing America’s GHG emissions.
Cap and dividend is the brainchild of external pagesocial entrepreneur Peter Barnes. The concept made its first appearance in the US Congress as the external pageCap and Dividend Act of 2009, introduced into the lower legislative chamber by Representative Chris Van Hollen, a Maryland Democrat.
As the name suggests, cap and dividend sets a cap on GHG emissions nationally and then reduces them incrementally over time, in turn establishing a price for carbon emitted into the atmosphere. However, unlike cap and trade, cap and dividend does away with the trade component and focuses instead on cushioning the economic impact for consumers.
Rather than capping emissions downstream at the end user, focusing typically on large-scale emitters, the CLEAR Act proposes limiting emissions upstream, where fossil fuels first enter the US economy. Auctioning off permits upstream, argue proponents, simplifies monitoring and verification as fewer entities have to be tracked, and behaves much like a carbon tax on energy suppliers, except that it external pageguarantees a limit on total GHG emissions, which a straight tax would not. First sellers then pass the increased costs on to consumers, who in turn experience higher prices at the pump.
In return, to help consumers compensate for higher energy costs, the CLEAR Act suggests returning three-fourths of the revenues from permit auctions to consumers directly, approximately $1,000 per year for a family of four. Because dividends are paid out on a universal basis, those individuals who use carbon-based energies most intensely would eat away at their dividend fastest.
The CLEAR Act proposes depositing the remaining fourth of the revenues into a government trust fund to finance other emissions reduction projects and adaptation measures, and to iron out regional disparities. One critique of cap and dividend is that because it targets emitters upstream, it may disproportionately hurt areas that rely heavily on fossil fuels production, such as the coal-mining region of West Virginia and eastern Pennsylvania.
The overarching appeal, nevertheless, is the scheme’s transparency and egalitarianism. Supporters also like to point out that politically, cap and dividend’s small government dividend structure practically sells itself.
Regarding the CLEAR Act, John Diamond, spokesman for Senator Maria Cantwell, told ISN Security Watch, "We're off on a bipartisan footing with Senator Collins and we're excited about that. We're getting a good buzz in terms of the media, viewing it as a viable alternative idea.
"The fact that Senator Collins is on board is so critically important to the bigger picture, because the voices saying that climate legislation is doomed have been citing as Exhibit A the healthcare debate, which ended up being strictly partisan. We don't necessarily see this as being in the same box at all. We feel like we're off to a good start."
Others are equally sanguine. James Hansen, an eminent climatologist, has testified before the US House Committee on Ways and Means in favor of a carbon tax and 100 percent dividend.
external pageResearch by Dr James K Boyce and Matthew Riddle from the Political Economy Research Institute at the University of Massachusetts, Amherst found that a cap and dividend policy would have a strongly progressive net effect.
A return to the drawing board?
What are the implications for EU mandarins in Brussels who put in place the EU Emissions Trading System (ETS), a cap and trade design?
Laudable for its proactivity, the EU ETS is all the same a massive and at times perplexing instrument. Critics draw attention to its inability so far to set a carbon price that is stable and high enough to spur investment in green technologies. To ensure price stability, the CLEAR Act proposes a price collar.
Unlike the EU ETS, cap and dividend does not discriminate and would treat all carbon emissions equally, covering for example cars and homes too, not just large-scale, concentrated polluters.
Because the EU ETS incorporates a trading mechanism, emitters can sometimes earn credits that equal permits by funding emissions reduction projects abroad where it is cheaper, so-called offsets. The problem is that offsets often leave uncomfortable room for cheating. Removing the trading mechanism also keeps Wall Street at arms length.
Most importantly, however, advocates note that the CLEAR Act does not call for ‘giving away’ the majority of permits to special interests, a practice that plagues both the EU ETS and the Waxman-Markey cap and trade bill, and can lead to windfall profits for firms with excess permits to sell.
Speaking with ISN Security Watch, Boyce explained, “By putting a cap on emissions, you're in effect creating a set of property rights where before there was open access and emitting was free. The reason you create property rights is to respond to the problem of scarcity, in this case the scarce carbon absorptive capacity of the biosphere. Creating property rights requires decisions about who gets those property rights: They have to be distributed to somebody in some way. What cap and dividend in effect does is it says that the rights to the United States' share of the global carbon absorptive capacity are shared in common and equal measure amongst all the people of the country.”
The irony of the profligate Americans potentially moving into position to upstage the green Europeans goes without saying.
Where is Al Gore on all this?