"Sen. Byron Dorgan: The ‘Trade’ In Cap-And-Trade ‘Makes No Sense To Me’"
In a speech on the Senate floor last Thursday, Sen. Byron Dorgan expressed his strong opposition to the establishment of a carbon market, sharply criticizing the Waxman-Markey Clean Energy and Security Act, saying the bill would “find very little favor from me” if it were brought to a Senate vote:
Those in the Senate who are working very hard and talking about the issue of climate change and how we might want to cap carbon and what kind of a low-carbon future we might be able to do should understand at least there are some of us — and I certainly speak only for myself — who believe that cap-and-trade — quote, unquote around the “trade” — makes no sense to me. I don’t think we ought to embrace cap-and-trade, I think we ought to embrace a cap with different approaches.
And so, Mr. President, I will have more to say on this, but I wanted to explain at least as those who are writing this bill and attempting to take that which was produced in the House with 400-and-some pages on cap-and-trade, I want them to understand that some of us will resist very aggressively the “trade” side of “cap-and-trade.”
Dorgan’s concerns about “consigning our interest with respect to a carbon restrained future to a trading system of carbon securities that the biggest trading companies in the world have an interest in” have been widely noted, after he ran an op-ed that summarized his floor speech. Joe Romm wonders “if he is proposing to reduce emissions without using the free market,” and discusses how the carbon market established by Waxman-Markey would limit speculation and manipulation. Paul Krugman eviscerates Dorgan’s broadside attack on any kind of carbon market:
This is really bad — it’s not a case of the perfect being the enemy of the good, it’s a case of the perfect being an enemy of the planet.
“By all means keep a watchful eye on speculators and regulate derivatives — and make market manipulation illegal, as Waxman-Markey does,” Krugman writes. “But don’t apply standards to emissions trading that you don’t apply to any other market.” Thanks to Rep. Bart Stupak (D-MI), Waxman-Markey also closes loopholes in existing energy markets. Brad Plumer notes that Sen. Olympia Snowe (R-ME) and Sen. Dianne Feinstein (D-CA) have introduced legislation to establish even stronger carbon market regulation.
In his 18-minute speech, Dorgan reiterated his commitment to a “low-carbon future,” but said the Congress should not “create targets and timelines for CO2 emissions that are simply unachievable.” He argued that the energy legislation he helped craft in the Senate Energy and Natural Resources Committee should be passed “first,” as he believes it “is a significant step toward the climate change challenge.”
In fact, the “targets and timelines” in Waxman-Markey — including a 14 percent reduction in current emissions levels and a renewable electricity standard of 15 percent by 2020 — are of course eminently achievable. Unfortunately, it is an open question whether such targets are sufficient to avoid climate catastrophe. Further, numerous studies have found that stronger targets lead to more innovation and job creation — just what the American economy needs now.
As Center for American Progress CEO John Podesta has pointed out, the Senate energy bill is “weak, toothless, and unacceptable.” In line with Bush-era energy bills, the bill fails to limit carbon pollution while promoting an expansion of fossil fuel production. Dorgan’s renewable standards are considerably weaker than the Waxman-Markey target, which itself is projected to have little effect on business-as-usual growth of clean energy. The Senate energy bill has helpful provisions for a clean, smart energy grid, but it is not comparable to the American Clean Energy and Security Act. A bill without mandated global warming pollution reductions simply does not address the “climate change challenge.”
Mr. DORGAN: Mr. President, in recent days and weeks, the House of Representatives has passed legislation called the Waxman Markey bill that deals with the issue of climate change, and particularly deals with the issue of trying to decarbonize the energy use in this country in order to protect the planet. I support the goals of a low-carbon future and trying to decarbonize the use of certain energy that we have that puts greenhouse gases into the atmosphere, which causes a scientific conclusion that I think is a consensus of scientists that we are endangering our planet with respect to the potential of future warming of the planet. So, I support the goal of trying to deal with this issue of climate change.
The question is: How do we address it? How do we move forward?
The House of Representatives has established one approach. I want to mention a couple of approaches that I think we ought to try that represents a different approach than that which will come to us in the Waxman-Markey legislation. And as I do, let me just say this is a very big issue with consequences for virtually all Americans, for families, for businesses, and for our climate certainly.
The question for us is: How do we move forward in a way that uses energy and creates energy in a different way, in a better way to protect the environment?
Now we wake up in the morning, all of us do, and begin our day taking energy for granted. One of the first things we do is we flick a switch and a light comes on. Perhaps we use a hair dryer or we put something in the oven. In so many different ways, virtually everything that we’re doing is a use of energy. We get in our cars and drive to work, or we get in a subway. We’re using energy, and we’re using a lot of energy. The current Secretary of Energy, Dr. Chu, is a Nobel-prize winning scientist. He’s had a way of describing at one point that I heard he he talked about going back a couple of thousand years, when a couple of thousand years ago someone wanted to go to find out something to eat, they got on one horse, because of course we had horse power then. Someone would get on a horse and find something to eat, presumably through hunting or gathering.
These days times have changed, we still use horses, but in a different way. We measure it as horsepower in a vehicle. Someone wants a loaf of bread, they’ll crank up 270 horses and go to the grocery store and get a loaf of bread. You never think much about the advantage of having energy at our command at almost any moment and we haven’t thought very much about what the use of that energy does to the climate.
So here we find ourselves in the year 2009 with what the consensus of most scientists is a very serious problem for the future of this planet. And that is greenhouse gasses, which would warm the planet and cause very substantial consequence, and, therefore, we need to try to find the way toward a low-carbon future. Lower emissions of CO2 into the atmosphere.
So how do we do that?
Well, as I indicated the House of Representatives has written a bill, the Waxman-Markey. It’s a 1,400-page bill. 1,400-plus pages of legislation. Very, very complicated, I might add.
Let me describe another approach. We have written in the energy committee here in the United States Senate a new energy bill. It was completed some weeks ago. Passed with bipartisan support in that committee.
Let me describe just a bit of what we have done in that energy bill.
We reduce our dependence on foreign oil. We increase domestic production of domestic electricity. Electrify and diversify our vehicle fleet to move toward a different kind of future with respect to our vehicle fleet. We create a transmission superhighway so you can produce renewable energy where you can best produce it, wind or solar, and put it on the transmission grid that moves it to the load centers where it is needed. And we train an energy workforce of tomorrow.
These are a few things we have done.
We established a renewable electricity standard of 15%. And it needs to be higher. But the fact is it is the first time that we will have established a standard saying we want to maximize the production of renewable energy. That is green energy in most cases. When you’re taking energy from the wind, gathering energy from the sun and producing electricity and putting it on transmission grid and moving it to where it is needed, you are producing green energy. That is a significant, giant step toward climate change. Or, rather, I should say, toward addressing the things that we need to do to deal with the climate change threat. Producing green energy, maximizing the production of green energy.
And we’ve done so many things in that legislation.
Even as we do that, we have twin issues we need to address protecting our planet, yes, but at least with the respect to the vulnerability of our country, it is also a case of 70% of our oil coming from off our shores, so we want to make us less dependent on foreign oil. So the legislation also expands the production of energy here in this country. It opens up some areas that have not been open in the eastern Gulf of Mexico to oil and gas.
As you know, natural gas is a clean-burning fuel. It has some great properties. And we need to increase production in those areas.
So we’re doing a lot of things in this area to address or move toward the solution to the threat to our planet. Electrifying our vehicles, moving towards an electric drive transportation system. Clearly we’re going to move in that direction and our legislation moves aggressively in that direction.
So I believe that what we ought to do, addressing a number of these issues, is we ought to address the piece of legislation that we passed in the energy committee, bring it to the floor of the senate. I mean I, of course, talked about this at some length in recent weeks.
But I really think the energy bill we have produced is a significant step toward the climate change challenge. It seems to me it would make sense to do the energy piece first and bank that progress in addressing climate change. Get that to the president. Get it signed and legitimately being able to boast about what we have done in a significant way to maximize the production of green energy, maximize the use of energy from the wind and the sun and biomass and so on and move it to where it’s needed.
That is not an insignificant achievement at all. I think we ought to do that.
Second, on the question of cap-and-trade or Waxman-Markey or a carbon restrained piece of legislation of some type, let me talk about that just for a moment. Clearly the senate is going to deal with that. My preference would be that we not take up the Waxman-Markey bill as such. I know a lot of work has gone into that legislation. But my preference would be that we start in a different direction.
It’s not that I have disagreement at all with capping carbon. I believe we will have a low-carbon future. I believe we will cap emissions of carbon. The question is especially establishing targets and timelines that allow us to do that and at the same time that we provide a low-carbon future, we don’t cause the substantial disruption that we could cause if we create targets and timelines for CO2 emissions that are simply unachievable.
We have a lot of people all across this country that are doing inventive work, really interesting, world-class cutting-edge research that will unlock the opportunity to find out how do we sequester, how do we capture, how do we provide beneficial use of CO2 so that we protect our environment. I’m absolutely convinced that we will achieve that goal. The opportunity through research and technology to unlock the mystery of how we separate or perhaps just capture carbon or sequester it to provide beneficial use and protect our environment for the substantial emissions of CO2. I’m convinced that we’ll do that. I don’t think there’s much question about that.
But what I have difficulty with is not with respect to goals. I’m for a low-carbon future. I believe we’re going to move in that direction. And I will support that goal.
I do not support, however, a cap-and-trade system in which some 400 pages of the house bill is about “cap-and-trade,” and especially “trade” — establishing a new trading system of a carbon securities market.
Let me describe why in my judgment there are better ways to deal with these issues than establish very substantial carbon securities trading system in which the biggest investment banks in the country and the biggest hedge funds in the country sink their teeth into the marketplaces and make massive amounts of money. And my profound feeling about that is that we have seen a decade in which many of these markets have been manipulated. Many of these markets have failed to work at all with respect to the market signals of supply and demand.
And I have very little interest in consigning our interest with respect to a carbon restrained future to a trading system of carbon securities that the biggest trading companies in the world will be involved in and it won’t be very long before we will have derivatives, we’ll have swaps, we’ll have synthetic swaps, you name it, we’ll have all of them and it will be a field day for speculation, which I think is not in the interest of this country.
Now, let me just describe something that I think might be a harbinger of things to come, I might say.
These are actual oil prices. You all remember what happened to oil prices. They went down from $60 a barrel to $147 a barrel in day trading last July.
Even as the price of oil was going like this, the best experts looking at supply and demand were implying with this green line, “This is where the price of oil is going to go.” Here is where we think the price of oil is going to be straight on across. Here is what they suggest in May of 2007, here’s the price. The price went like that. Here’s what they suggested in January of 2008. The price went like that.
Why is it that you have an oil futures market where supply and demand doesn’t determine where the line goes?
The price goes right off of the chart. Yet supply was up and demand was down.
If you like what you see in the oil futures market with speculators engaged in two-thirds or three-fourths of all the trades, in which they’re trading 20 to 25 times the amount of oil produced every day, and creating a speculation orgy. And it went down like a roller coaster. And the same people making money going up made money going down. If you like that sort of thing, you’re going to love the trade piece in cap-and-trade. Because we’re going to create a big perhaps trillion dollar market for carbon securities and it won’t be long before the same investment banks, the same hedge funds, and they’ll all be engaged in trading derivatives and swaps and you name it.
I happen to think that makes no sense at all.
The New York Times said: “Managing emissions has become one of the fastest growing specialties in financial service. . . Investment banks like Goldman Sachs and Morgan Stanley have rapidly expanded their carbon businesses.”
Big investment banks very interested. I’m told, by the way, most of the large investment banks right now have created their carbon trading units.
The Charlotte Observer: “Firms such as Goldman Sachs and Morgan Stanley already have carbon desks and teams. Peopling those carbon desks are the former commodities traders or former securitization or structured finance professionals – like the many who’ve lost jobs at Wachovia (now Wells Fargo) and Bank of America.”
“As Congress gears up for a debate on a national ‘cap-and-trade,’” The New York Times says, “program to limit greenhouse gas emissions, resumes from Wall Street — or from ex-Wall Streeters — are flooding into the nation’s few carbon-trading shops.”
Chris Reeds, the head of emissions trading in Merrill Lynch, said that carbon could become “one of the fasting-growing markets ever, with volumes comparable to credit derivatives inside of a decade.”
Louis Redshaw, head of environmental markets at Barclays Capital says, “Carbon will be the world’s biggest commodity market, and it could become the world’s biggest market overall.”
So, do we really want to sign up to a future in which we consign the question of constraining carbon and doing what we should do to protect this planet — Do we really want to do that by creating a carbon market, a carbon securities market that in my judgment would likely subject to us to the same vision of the last decade with unbelievable speculation, movements in markets that seem disconnected from supply and demand.
That’s not future that I want. There are other ways of capping carbon and addressing these issues.
I’m for capping carbon. I’m for a low-carbon future.
But in my judgment those who would bring to the floor of the United States Senate a replication of what has been done in the house with over 400 pages describing the — quote — “cap-and-trade” – unquote — piece of capping carbon will find very little favor from me and I would suspect from some others as well.
There are better and other more direct ways to do this to protect our planet.
But I’ve been to the floor many, many, many times talking about what has happened with credit default swaps, what’s happened with CDO’s, what happened with the oil futures market. On and on and on. If what has happened gives anybody confidence, then they are in a deep sleep and just don’t understand it.
And, again, I come back to the chart I showed a moment ago, the head of emissions trading at Merrill Lynch saying, “Carbon could become one of the fastest growing markets ever, with volumes comparable to credit derivatives.”
I mean, think of this, the unbelievable volumes of credit derivative swaps that most people couldn’t pronounce and didn’t know existed and it turns out that had notional values of tens of trillions of dollars and then worldwide hundreds of trillions of dollars. Frankly, I think that is not in the country’s interest to establish a new financial market to have the same players engaged in the same games that gamble on this country’s future.
So, Mr. President, I think two things.
Number one, there’s a piece of legislation that is ready to come to the floor passed by the energy committee that moves in the direction of climate change. We ought to, it seems to me, get the benefit of that legislation and pass that bill along to the President of the United States for signature. Maximizes renewable energy – does a lot of things that will dramatically impact our carbon footprint. That’s number one.
Number two, those in the senate who are working very hard and talking about the issue of climate change and how we might want to cap carbon and what kind of a low-carbon future we might be able to do should understand at least there are some of us — and I certainly speak only for myself — who believe that cap-and-trade — quote, unquote around the “trade” — makes no sense to me. I don’t think we ought to embrace cap-and-trade, I think we ought to embrace a cap with different approaches.
And so, Mr. President, I will have more to say on this, but I wanted to explain at least as those who are writing this bill and attempting to take that which was produced in the house with 400-and-some pages on cap-and-trade, I want them to understand that some of us will resist very aggressively the “trade” side of “cap-and-trade.”
Mr. President, I yield the floor and I make a point of order that a quorum is not present.
Rep. Peter DeFazio (D-OR), who strongly opposes carbon markets and offered an amendment with Reps. Pete Stark (D-CA), Pete Visclosky (D-IN), Daniel Lipinski (D-IL), and Mike Michaud (D-ME) to limit the market to covered entities, makes the case for going forward with EPA regulations:
The Environmental Protection Agency (EPA) already regulates 560,000 entities under the Clean Water Act and more than 250 million under the Clean Air Act. But the EPA can’t handle the 7,400 carbon-spewing entities that would be covered in the Waxman-Markey bill? I don’t buy it.
Moreover, in order to create a cap-and-trade, the EPA would first have to inventory all greenhouse gas emission sources, provide individual targets to polluting entities, and create a monitoring mechanism. In other words, the first step of a cap-and-trade is to create the system and data necessary to regulate.