The skinny on cap and trade | Bleader

The skinny on cap and trade

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Last week a U.S. House committee approved legislation that would start the regulation of greenhouse gas emissions by putting a price on them. Cap-and-trade programs place upper limits on pollution and let companies that remain under them trade their extra “allowances” for money.

Needless to say, not everyone’s on board with the proposal, mostly because they fear it will be a jobs killer at a time when we can least afford it. So many compromises had to be made just to get the bill through committee that it’s now under attack from both the left and the right.

Meanwhile, a growing number of state governments and regional environmental groups have decided there’s no sense in waiting for federal action. Western and northeastern states have already mapped out their own cap-and-trade system, and about two weeks ago representatives of six state governments forged an agreement with business and environmental leaders to get one going in the upper midwest.

Among the advisers who helped put the agreement in place was Henry Henderson, the Sun Ra-quoting director of the Midwest Program of the Natural Resources Defense Council. Henderson, who previously served as an assistant Illinois attorney general and as Chicago's environment commissioner, took a few minutes to explain to me why he thinks this is a big deal.

 

MD: So what’s the story here? How did this come about?

HH: In November 2007, the midwest governors committed to a series of policy dialogues on energy efficiency, renewable energy, and putting in place a shared approach to carbon caps. The governors appointed an advisory group, which I sit on, and we’d been working since then on an accord.

We just passed our framework to the governors. It includes coal-based utilities, energy and gas interests, renewable energy groups, and NGOs like mine.

The last meeting of the advisory council, which was earlier this month in Minneapolis, was extraordinarily intense. On the final day, this agreement was worked out [after negotiations] with several coal utilities.

 

I have to ask why you think a cap-and-trade program is the best approach here. Some people have instead pushed for a carbon tax, which would still put a price on polluting and seemingly be simpler.

What is being moved forward in this agreement and in the House bill is a declining cap, which we need so that over time we get to the emissions level we need to protect us. A tax doesn’t create a limit on what you can emit. And it doesn’t generate the economies that a trading system does, which we saw with very successful caps on sulfur dioxide emissions.

Burning coal produces a whole lot of sulfur dioxide that creates acid rain, and it fell into our fresh water and killed a lot of lakes and rivers. Under the Clean Air Act, we set a cap that said you cannot emit more than this of sulfur, and if you do, you have a budget that you can’t go above. And if you do you have to go out and buy a series of permits. Other people who are subject to these controls have an interest in going well below what their budget is so they can generate excess value, and others purchase it. Therefore you have a market means for improving air quality.

With this kind of a system you charge fees for transactions, creating a specific funding stream that can go into mitigating the problem. And finally, among the people who are most vociferous about this are people who hate taxes. So it’s a pragmatic political thing.

 

Congress is already working on legislation that would create a federal cap-and-trade system. Why did you create another one at the regional level?

This agreement says that we in the midwest support firm federal action to set up a cap-and-trade system, and that this is what we think it needs to include—that there is a robust allocation structure that allows for auctions of carbon allowances and modest fees on those transactions that flow into a trust.

It also says that if there’s a failure of national action, a regional cap-and-trade system reflecting this package is what we will move on, and that it aligns us with initiatives in the northeast and the west.

 

So what exactly would this agreement do?

It would create an 18 to 20 percent reduction in greenhouse gas emissions below 2005 levels by 2020. There’s an incredibly lively debate happening in the U.S. Congress with a carbon cap-and-trade bill that creates a 17 percent reduction—so this, from the carbon-heavy manufacturing, car-centered part of the country, has a more rigorous cap. Which I think is an interesting thing, because people have been saying that a national policy will never happen because of resistance from the midwest. But here we’ve got this group that says it’s in our interest to set these goals and invest in a new economy.

[Michigan governor Jennifer] Granholm says whenever you hear the words “global warming” you should think of the opportunity to create jobs for Michigan and the midwest. Under this agreement, part of the return on the price of allowances goes into a technology development fund.

It’s now before the governors. They are reviewing it.

 

You had some resistance from some business and industrial leaders. 

There are definitely some major sources of resistance, as you can see from what you’re hearing in Congress. There are people who think this is the end of civilization. There are groups who think this is not economically sound and a betrayal of economic principles.

But NRDC is part of a group called the U.S. Climate Action Partnership. Who else is part of it? Companies like Duke Energy, ConocoPhillips, General Electric, and the Ford Motor Company. They understand that there’s a need for firm federal action that puts a price on greenhouse gas and creates the opportunity to invest in a new clean energy economy.

 

And that happens because it becomes relatively less expensive to develop low-polluting technology.

Yeah. Because it puts a price on carbon, it creates more opportunities and competition for clean energy and energy efficiency. Right now dirty energy is getting a subsidy.

Let’s look at the two coal-fired power plants in Chicago, Fisk and Crawford. All of the carbon dioxide they create, they dump freely into our air. That’s public property. They also create particulate matter. They’re dumping poison and it’s being subsidized by our lungs. They’re also dumping energy into the canal [during the cooling process]. In other words, they cannot even deliver all the energy they create. We have an antiquated energy system.

 

You said the discussions on the accord were intense. What did you have to compromise on to make it stick?

We wanted 25 percent reductions in greenhouse gas emissions. We wanted all of the allowances for emitting carbon to be auctioned right away; what’s being discussed is that it wouldn’t be a 100 percent auction, but a period of transitions. But this is the way public policy is made.

 

You served under Mayor Daley as the city’s first environment commissioner. The mayor keeps saying he wants to make Chicago the greenest city in America. As a longtime environmental advocate, how do you honestly think we’re faring?

I look at the aspirations of cities, states, and businesses to be the greenest anything to be very helpful. That said, it’s an extraordinarily hard thing to measure, but there are a whole range of things that are very positive about what’s happening in Chicago.

Take the city’s climate action plan, which lays out what can happen if we don’t take action, and identifies a whole range of things that can help us make changes and adapt to them, starting with our energy policies. One of the things we don’t have to deal with in the city of Chicago is the absence of a mayoral government that is ready to move forward and make decisions.

There are a number of integrated developments we need to press on in this region, such as water, water usage, and energy usage. One of the largest uses of energy in this country is the use and treatment of water. But drinking water is treated by utterly different bureaucracies than the people who deal with energy and with waste. Municipalities have the opportunity to move these things closer together, and rather than looking at a list of stand-alone issues—is it green in this way or this way?—they should be asking how they’re being integrated.

The city of Chicago sits on the edge of 20 percent of the world’s fresh water, and I think it’s a real resource for thoughtful leadership on these integrated questions.

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