Future generations cry out to today’s leaders, “You can’t offset this problem, you need to solve it yourselves!” Rip-offsets are the new opiate of the masses — and the politicians.
John Dingell (D-MI), chair of the House Committee on Energy and Commerce and Rick Boucher (D-VA), chair of the Subcommittee on Energy and Air Quality, have released their long-awaited discussion draft climate legislation (bill text, summary, memo, and allocation chart here). Despite the fact that neither of them are particularly known as leaders on this subject, they write:
Politically, scientifically, legally, and morally, the question has been settled: regulation of greenhouse gases and United States is coming
Dingell and Boucher proudly announce that after holding some 27 hearings, “This draft is the culmination of nearly two years of intensive work on climate change by the Committee and marks an important step in our ongoing effort to address this increasingly serious problem.”
The bill “covers approximately 88% of US greenhouse gas emissions, and would reduce covered emissions to 6% below 2005 levels by 2020, 44% below 2005 levels by 2030, and 80% below 2005 levels by 2050″ — in theory.
In practice, of course, actual domestic reductions in the near term and the midterm will not come anywhere near that level because the bill adopts the mother of all cost containment measures, rip-offsets, much as the Boxer bill did (see here and “Boxer bill update: Probably no U.S. CO2 emissions cut until after 2025“) and much as John McCain’s plan does (see “McCain speech, Part 2: Relying on offsets = Rearranging deck chairs on the Titanic“).
I’ll let other people focus on the bill’s various goodies, including the strong push for energy efficiency and clean technology, and its complicated allowance formulas (the draft proposes four options). I’ll focus on the staggering amount of rip-offsets:
“Covered entities would be able to purchase EPA- approved domestic and international offset credits to meet a portion of their compliance obligation…. As the cap gets tighter, covered entities could be a greater percentage of their allowance obligation but offsets (starting at 5% of the compliance obligation for the first five years and growing to 35% by 2024).
That is to say, in place of actual emissions reductions, regulated companies in 2024 and beyond can replace 20% of their emissions cuts from the pool of domestic rip-offsets and 15% of their cuts from the black hole of international rip-offsets.
Just for the record, it is criminal to ramp up the fraction of emissions cuts that can be displaced by rip-offsets over time. As the climate problem gets worse and clean technology gets cheaper, the amount of phony reductions should be ramped down. I guess it bears repeating endlessly that a major 2008 analysis from Stanford found
… “between a third and two thirds” of emission offsets under the Clean Development Mechanism (CDM) — set up under the Kyoto treaty to encourage emissions reductions in developing nations — do not represent actual emission cuts.
And this led to the study’s stark conclusion:
… any offset market of sufficient scale to provide substantial cost-control for a cap-and-trade program will involve substantial issuance of credits that do not represent real emissions reductions.
Hence the name rip-offsets.
Assuming covered entities avail themselves of the maximum amount of rip-offsets — and who wouldn’t? — then, if I’m reading the table of allowances correctly, actual reductions in U.S. carbon dioxide emissions by those entities would not have to drop below 2005 levels until 2029.
Well, it was a nice planet while it lasted.
I am not factoring in “borrowing” here, but the D-B draft does allow entities to borrow up to 15% of their compliance obligations from 1 to 5 years into the future. I don’t think entities are going to do huge amounts of such borrowing since there is an 8% per year interest rate. If you borrow tons from five years in the future, then in five years, you have to pay back 1.4 tons for every 1 you borrowed.
I will also say that the cost-containment auction in the Dingell-Boucher bill is infinitely better than the one in the Boxer-Lieberman-Warner bill. Yes D-B set up a large strategic reserve of tons that are auctioned periodically if allowance prices rise too quickly. But the nice feature of D-B is that by 2015 (i.e. after the first three years),
the minimum strategic reserve auction price shall be 30 – 100 percent above a rolling 36-month average of the daily closing spot price for that year’s allowance.
In short, If I’m reading this right, this is not a classic safety valve or price cap. It is more a protection against short-term price spikes. The minimum auction price can keep rising every year at a pretty fast rate, though obviously it would be better if B-D simply picked a figure, say, 50%, than giving such a large range.
But the bottom line is that over reliance on rip-offsets eviscerates the emissions targets in the near term and medium-term, turning this draft bill into another non-solution of the problem.
[I will post links to other analyses of this draft as they become available.]