Cap and Trade: Dead or Alive?

by Bill Chameides | December 2nd, 2010
posted by Erica Rowell (Editor)

Permalink | 4 comments

While our reps in Washington have effectively blown a hole in the chance of establishing a cap-and-trade scheme to cut carbon pollution any time soon, elsewhere market-based systems are being used to target lowered emissions. (See political ad below.)

Dead, say the experts.

Cap and Trade’s Brief Carbon Stardom

Once it was a rising star. The Chicago Climate Exchange, launched in 2003 to give companies a place to voluntarily buy and sell carbon emissions, was doing a brisk business (see here and here). In June 2009 the U.S. House of Representatives passed a climate bill that would set up a national cap-and-trade system, and plans were falling into place for the Copenhagen climate confab where the international community was primed to put an international emissions cap into place.

Then a Nose Dive

Alas, it was not to be. In the United States, in a creative but devastating wordplay, climate change “refudiaters” invoked the dreaded “t” word, calling cap and trade “cap and tax,” and it stuck. (See here, here and here.) Things for poor little cap and trade — the brainchild, you might be surprised to learn, of none other than Republican C. Boyden Gray, a lawyer in the Reagan administration and the White House Counsel under President George H. W. Bush — went from bad to worse as many on the left signaled their opposition to a system they saw as a poorly disguised money grab by big business and speculators (see here and here). A weakened and demoralized cap and trade, once thought to be able to leap over political hurdles in a single bound, found itself unable to rise above the 60-vote threshold for passage in the Senate.

Followed by Gunshots

But cap and trade had not yet hit bottom. During last month’s mid-term election campaign, candidate after candidate for U.S. Congress did his or her best to outdo opponents in proving his of her bona fides in opposing cap and trade. Perhaps no one performed better than West Virginia’s Joe Manchin whose TV ad for his Senate run featured himself shooting a bullet right through the heart of a cap-and-trade bill.

As election results tumbled in during the night, it became clear that passage of a cap-and-trade bill would not be in the cards any time soon — a prognosis confirmed by President Obama in a press conference following, in his word, the “shellacking.”

And then the final coup de grace. With carbon trading at only five cents a ton, the Chicago Climate Exchange announced it was shuttering.

And a Death Pronouncement

It was, rather ironically, Environmental Defense Fund President Fred Krupp — a chief architect of the cap-and-trade program for acid rain — who seemed to sound the cap-and-trade death knell with his pronouncement: “Economywide cap and trade died of what amounts to natural causes in Washington.”

Takes a Beating on the World Stage

On the international scene, cap and trade has hit rough water as well. After last year’s fiasco in Copenhagen, this year’s climate summit, just a few days in, does not appear to be going all that well despite the fact that ambitions for Cancun are relatively modest. The latest new flash is Japan’s announcement that it will not participate in an extension of the Kyoto Protocol following 2012.

But Wait … Could There Still Be a Pulse?

It’s worth remembering that not everything that plays out on the world stage, where diplomats have a habit of grandstanding, is indicative of what individual nations think and do. (Anyone read any leaked cables lately?) And not every nation acts exactly as the United States does. Indeed not even every state does.

Fledgling cap-and-trade systems are being developed in California, where an initiative to undo the state’s ambitious climate legislation was soundly defeated. Through the Regional Greenhouse Gas Initiative, the Northeast has its own trading system. And European nations are still moving forward with their plans and trading schemes, looking at tightening caps.

And what’s more, China, of all places, is getting on board. Remember China? The poster child for the bad-climate actor? The rising behemoth in the world economy that is now responsible for more emissions than any other country including the United States? The one whose intransigence about reining emissions is the very reason many Americans oppose climate legislation here?

Yes, in that very same China a cap-and-trade heartbeat, albeit a faint one, is emanating: a cap-and-trade program, whose details are still to be ironed out, is a centerpiece of China’s upcoming five-year energy plan.

Yes, it’s important to keep in mind that China’s cap and trade is geared toward meeting its 2020 carbon intensity target rather than an overall reduction of carbon dioxide emissions, but they are at least in the game.

And while we here in the United States appear to have decided to ignore the faint Chinese heartbeat, Europe has not. And what do they hear in it? Opportunity knocking.

Earlier this month, China and officials from the European Union met to scope out a pilot carbon-trading program. Could there be a new international economic regime in the making — one with billions of dollars in carbon credits and low-carbon technologies flowing between Europe and China and the United States locked out?

Pronouncements of the death of cap and trade may be premature.

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  1. Gernot Wagner
    Dec 7, 2010

    Cap and trade might well be dead in DC for the next two years, but it’s clearly alive and well elsewhere, including in at least twelve US states. CCX folding, by the way, isn’t exactly bad news–even though it has generally been portrayed as such. (See “CCX, RIP—or is it ‘good riddance'”:

  2. MattN
    Dec 3, 2010

    China will never Cap’N’Trade, unless the government makes money on it. They really aren’t all that communistic over there. They like them some money, make no mistake. California is irrelevant. Unless something changes there, California will be the first state to declare bankruptcy. My guess is 10-15 years. Problem is, they have not yet acknowledged they have a problem. Guys, it’s over…

  3. Jim
    Dec 3, 2010

    If the EU and China get together on Cap & Trade, then perhaps that would put a little pressure on other countries to do something similar. But it will all take years until most countries are on board with something to limit CO2 emissions and years more before they start making a difference, so I think we will have to do some adapting to the changing climate in the foreseeable future.

    • Bill Chameides
      Dec 7, 2010

      Jim: No argument there.

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