Safety Valves Won’t Make Us Safer

In a steam system, safety valves are useful, but in a cap & trade system, not so much.

A safety valve is “a possible addition to a cap-and-trade system of emissions regulation whereby the authority offers to sell permits in unlimited amount at a pre-set price. In this way the cost of meeting the cap can be limited.”

Both WRI and MIT have excellent discussions of safety valves, identifying three main problems.

First, if the safety valve price is too low, we won’t get the technologies and policies needed to avoid catastrophic warming. To stabilize below 500 ppm, you need a carbon dioxide price of $40/ton, according to a recent McKinsey study. That would incentivize such key strategies as carbon capture and storage and avoided deforestation. But safety valve proponents such as the National Commission on Energy Policy and Sen. Jeff Bingaman (D-NM) have proposed a starting safety valve that is only $10/ton — far too low.

Second, “it will interfere with the development of systems of international emissions trade,” making it difficult for the United States to participate in a global carbon trading regime (MIT, pp. 11-12).

Finally, “the most problematic aspect of establishing price caps is that they constrain the cost of compliance by voiding the environmental outcome desired” (WRI). They render targets meaningless.

At the Thursday Senate EPW hearing on cap & trade, Sen. Joseph Lieberman (I/D-CT) had an illuminating discussion with some of the witnesses about safety valves starting at 2:35:00 (video here).

Lieberman cites Sen. John Warner (R-VA) as saying the safety valve “ought not be too easy an offramp.” So Lieberman used the term, “emergency offramp.”

NRDC’s David Hawkins offered up permit banking and borrowing (which he called a “lane change”) as an alternative to the offramp — and the possibility of Congress making adjustments in the trading system, as it has done with the Clean Air Act. [Everything you could possibly want to know about permit banking is here.]

Lieberman said banking and borrowing will be in the bill, and, more importantly, said he and Warner will embrace the United States Climate Action Partnership’s goal of a 60% to 80% emissions cut from current levels by 2050 — a goal that is vital to avoiding catastrophic warming. Yet that goal essentially renders the safety valve discussion moot, which leads to my bottom line:

If you want to get a 60% to 80% greenhouse gas cut in 43 years, you just can’t waste time with safety valves (Duke CEO Jim Rogers basically makes the same point at 2:46).

3 Responses to Safety Valves Won’t Make Us Safer

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  2. J says:

    Question: If safety-valves are a round-about way of setting the carbon price through policy, why not just implement a much more expedient carbon tax?

  3. TruePath says:

    Presumably the reason not to implement a carbon tax is the same as it’s always been: political pressure. In cap-and-trade congress can give away permits to established interests while that’s much more difficult under a carbon tax so powerful industries resist.

    As far as borrowing carbon credits I would be greatly worried about political interference. Congress can cause the market to collapse or boom at any time by changing the number of permits it plans to release and under a cap and trade congress needs to do this kind of adjusting.