Tuesday, December 29, 2009

The Story of Cap & Trade: a complicated idea made simple enough

Cap and Trade is one of those "big ideas" that many environmentalists take for granted--like recycling. They say Cap and Trade is great, because it uses market forces to help companies profit while doing the right thing!  What could be wrong with that? As it turns out, plenty.  I've been meaning to write about Cap and Trade for a long time, but I've hesitated because almost everything I've read about the subject has been complex and confusing.

Fortunately, help has arrived in the form of Annie Leonard, the woman who brought us The Story of Stuff.   Though the Story of Cap and Trade is not as interesting as The Story of Stuff, you can hardly blame Leonard for that; it's just such a complicated, boring topic to start with! 

Before I screen the film, let's go over some of the basics of Cap and Trade.  (However, it you find your self drifting at any point, just skip down to the embedded video and let it roll.  The clip is only 10 minutes long, and you'll not regret seeing it.)

The cap in Cap and Trade, means countries agree to cap their green house gas emissions, like some did under the Kyoto Protocol, and like others may decide to do as a result of some future climate negotiations.   After capping their pollution, countries are allowed a certain number of emission credits, which would likely decrease over time (fewer credits means less pollution).

Under a Cap and Trade scheme, governments can sell or grant carbon permits to companies that need to emit carbon. If a country or company does not emit as much carbon as its yearly quota of pollution permits allows, it can sell--or trade--its excess permits for a profit.  If a country or company does something that reduces emissions anywhere in the world, they can apply for "offset" credits for their actions.  There is an internationally recognized body set up to make all this possible.

Sound complex?  It is.  And that complexity is part of the fundamental problem with Cap and Trade.  Fortunately for us, Annie Leonard does a good of throwing light on the problems that stem from this.  For example, she points out that the complexity of the system makes it really, really easy to cheat!  Say a company says, "Hey we were going to expand by 200%, but we figured out how to expand by only 100%!" They can apply for offset credits for their reduced expansion", and it's almost impossible to know if they are telling the truth!  Leonard also points out that Cap and Trade often turns into "Cap and Giveaway", because most countries end up giving huge industrial polluters carbon credits for free. Strange!

One thing that has always bothered me about Cap and Trade is that, through the magic of "offsetting", a company can earn a carbon credits by making a slightly more efficient AC, car or refrigerator.  But truly green technology like water coolers, matkas, ceiling fans, or pedal-powered machines are not rewarded.  In other words, you get rewarded  for making a really bad thing marginally better, but not for continuing to make really good, sustainable things! 

Leonard does a nice job explaining the problems with Cap and Trade, and to her credit, she also explains why the world's richest countries have a responsibility to help the rest of the world develop in a sustainable way. From what I can tell, she underestimates how far the developed world will need to cut their emissions by 2050: she says 80%; 90% is a safer bet, and would leave a little more room for developing countries to... develop.  But that's a fairly small issue to raise about this excellent piece of environmental education.

Before we start the video, and in the interest of fairness, you can read this argument in favor of Cap and Trade by economist Paul Krugman. He says it's worked before and will work again. Later this week, I'll discuss one solution that might stand better chance of working: Cap and Dividend.  (Spoiler: under that scheme, it's people, not companies, that get the proceeds that come from the sale of pollution permits; but more on that later). 

For now, let's read, watch and talk about it! 

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  1. A great explanation of cap n trade. The real problem is one of monitoring of course - and that makes it impossible to work efficiently as companies find loopholes, and create their own studies of how clean their operations are.

    Luckily the EPA in the US has taken a strong stance and declared CO2 a pollutant. But you know what? I'm getting really discouraged. I'm beginning to lose hope that we can make this work. I think the writing's on the wall. Here's why:

    "NASA’s leading climate scientist, Dr. James Hansen, Director of the Goddard Institute for Space Studies, has determined that the highest safe level of CO2 in the atmosphere is 350 parts per million (ppm). We are now at 390ppm and climbing quickly, on pace to hit over 900 by the end of the century. The world has not had CO2 levels stabilize at 400ppm for some 13 million years, long before human beings walked the planet, much less rode on it in carts or cars. This goal has even been endorsed by the chair of the Intergovernmental Panel on Climate Change."

    We're screwed. The planet will survive of course - and life will still thrive. But humans? We're circling the drain. Another failed mutation (as George Carlin puts it). I'm glad I'm not having kids. I hate to give up hope here, but how can I not? If there was even one good piece of news from Copenhagen, maybe, but nothing happened. Time to give up...

  2. @Bhagwad,
    Nice to have you stop by, as always.
    I'm afraid there is a pretty good chance what you say is true, which is why I still find it somehow surprising when political leaders--many of whom know this much better than you or I--refuse to act in meaningful ways. But we still care, don't we? So we do what we can and hope. People are good at hope, I've found, even when it may not be called for. That may be our greatest strength, or it may be what is stopping us from facing the mess we've made head on. Who can say?

    May the new year will be more promising.

  3. I always felt there was something less than honest about the cap and trade scheme, now I know why. Thanks for helping shed some light on this bad idea. Looking forward to your post about cap and dividend, though based upon the spoiler, any program that puts people before corporate profits will be a steep uphill battle.

  4. Thank Thurman, glad this made sense to you!

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