Misguided “cap and divide” bill by Cantwell and Collins is neither politically nor environmentally viable

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"Misguided “cap and divide” bill by Cantwell and Collins is neither politically nor environmentally viable"

Net Emission Reductions Under Cap-and-Trade Proposals in the 111th Congress, 2005-2050

Climate politics can be very strange indeed.  Because cap-and-trade bills like Waxman-Markey are seen as having no chance of passing the Senate, some enviros appear to be shifting their support to bills that are politically even less attractive and environmentally even less adequate.

The latest misguided missile is the Carbon Limits and Energy for America’s Renewal (CLEAR) Act put forward by Maria Cantwell (D-WA) and Susan Collins (R-ME) “” full text and info here.  Supporters call it “Cap-and-Dividend,” but right now I think the best term for it is, “Cap-and-Divide,” since it has no chance whatsoever of becoming law but is serving to undercut the tripartisan effort by Graham, Kerry, and Lieberman to develop a bill that might get 60 votes.

I’m all for pursuing innovative solutions to get a comprehensive climate and energy bill, which conventional wisdom keeps saying is highly improbable this year.  But to be a “solution,” such a bill would need to achieve the emissions reductions in 2020 required for a global deal — in the range of 17% –  and, of course, it has to be politically viable.

Cap-and-Divide, however, doesn’t even pass the environmental viability test, as the first-rate researchers at World Resources Institute have shown (click to enlarge figure, full analysis here).  And while W-M is far from perfect environmentally, as I’ve said many times,   it would enable a global deal.  W-M’s biggest problem is that it can’t get 60 votes in the Senate or even close.   But “cap-and-divide” is certainly less politically viable than Waxman-Markey or Kerry-Boxer.

On the plus side “” from a climate perspective “” CLEAR doesn’t allow any offsets and it auctions all of the allowances.  Politically that would be fatal, of course, since it means little or no support for Cap-and-Divide from the utility industry, from the states with significant coal use, and from the agricultural states.

If I were king, I’d sharply constrain if not eliminate offsets, too.  But we live in a (slightly) more democratic world of 60 kings and queens.  In our world, a politically viable bill is going to have offsets.  In fact, no matter what we do, the rest of the world is certainly going to use offsets.  So we need to focus on making sure there is as much credible oversight as possible for those offsets.  I’d also sunset the offsets, as I’ve said, at least the international ones post-2020.

Also, while I would prefer not allocating as many permits in the early years as required in the deal the utilities struck to get their crucial support for Waxman-Markey, that deal has one huge equity advantage over Cap-and-Divide bills.  By giving permits to the regulated utilities proportional (in part) to their emissions, the House bill “targets the consumer benefits to those regions that experience the highest cost increases, such as the South East and Midwest, which is not only politically necessary but also equitable in our view” “” as two leading progressive utility experts explained on CP last this year (see “Preventing windfalls for polluters but preserving prices “” Waxman-Markey gets it right“).  Full auctioning is certainly preferable, but politically, you must address the regional equity issue.  The CLEAR Act’s FAQ says of the money distributed back to the public:

The amount per person is determined on a per capita basis. There are no differences based on region or income or family make-up.

The CLEAR Act does offer some token efforts to achieve regional equity, as the FAQ explains, but given the political uproar over even a small amount of (mis) perceived inequity in the Waxman-Markey allocation formula “” see “EPA analysis for Feingold appears doubly flawed: Climate bill allocations are not unfair to the Midwest” “” this is one more reason the CLEAR Act approach is a political nonstarter.  And again, the allowance formulation in the House bill is far more reasonable than is widely understood (see also Robert Stavins: “The appropriate characterization of the Waxman-Markey allocation is that more than 80% of the value of allowances go to consumers and public purposes, and less than 20% to private industry”).

The Union of Concerned Scientists also released this statement in December about the other problematic part of the bill “” its mandatory 2020 target “” arguing “the bill is too weak to meet its purported goals”:

The CLEAR Act includes the aspirational goal of cutting heat-trapping emissions 20 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050. The long-term target is in line with the minimum reductions scientists say are necessary to have a reasonable chance of avoiding the worst effects of climate change. However, the bill provisions would not achieve those goals. In reality, the CLEAR Act would only cap carbon dioxide emissions at 6 percent below 2005 levels by 2020.

Additionally, the bill says that it would provide funds to achieve more emissions reductions, but doesn’t say how funds would be spent or how they would achieve emissions reductions. Further, all funds would go through a typical appropriations process and important emissions-reduction programs might not get funded at all.

The UCS also argues the bill does not appear consistent with what is needed for a global deal:

The bill also lacks provisions that would help secure an international climate agreement, such as deep near-term and long-term emissions reductions as well as financial assistance to help protect tropical forests, support clean technology deployment in developing nations, and help vulnerable populations cope with the unavoidable effects of climate change.

Finally, Cap-and-Divide has a price collar, which could be a good idea “” see How the Senate can fix cost containment in the climate bill with ‘price collar plus’ “” BUT

  1. There’s a hard ceiling aka a safety valve aka unlimited printing of allowances if auction prices hit the ceiling, which is not an environmentally preferable approach (see “Safety Valves Won’t Make Us Safer” and “The history of the ‘safety valve’ debate“).
  2. The safety valve is especially undesirable in the CLEAR Act because the ceiling price starts at $21 in 2012 and rises only 5.5% per year plus inflation.  That’s much lower than the Kerry-Boxer bill and inadequate from an environmental perspective.

Yes, one of the main points of this bill is to not allow a secondary market for allowances, thus supposedly stopping speculation and the much-decried “derivatives” market.  In fact, such fears are wildly overblown “” see Nobelist Krugman: Fear of carbon markets and speculation is “99% wrong and bad for the planet.” Senators typically spend little time trying to understand what the House does, so they aren’t even aware of the multiple measures in it that reduce if not eliminate the chance of serious market gaming (see “When Sen. Dorgan finds out what’s in the climate bill “” hint, hint, White House “” he might just support it“).

Still, it is clear that with the Wall Street meltdown and populist mood in the country, trading and derivatives and speculation are even more politically problematic than they were a few months ago.  So Graham, Kerry, and Lieberman need to come up with a bill that minimizes or avoid them entirely.   I suggest those three figure out how to take the good things in the CLEAR Act and incorporate them in into a final bipartisan climate and clean energy bill.

UCS noted last year:

A climate bill introduced yesterday by Sen. Maria Cantwell (D-Wash.) is proof that there is bipartisan support in Congress for deep emissions reduction goals.

I’m hopeful that ultimately the cosponsors of this bill will join in the larger bipartisan effort since that is the only hope to get 60 votes, save a livable climate, clean up our air, move closer to energy independence, and challenge the Chinese for the 20 million clean energy jobs will be created in the next two decades.

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25 Responses to Misguided “cap and divide” bill by Cantwell and Collins is neither politically nor environmentally viable

  1. I think the real and quite novel power of the Cantwell-Collins approach is obscured by this post a little–Americans would get a check every month for their share of the sky. This actually seems saleable politically, if someone (initials Barack Obama) decided to really campaign for it. We like programs that send us checks, by and large; maybe we’d like it enough that the utilities would feel the need to back down. Maybe not. We’d only know if it really got tried.

    In any event, since you end by urging everyone to work together to do something good, maybe it would be best to think of a name other than ‘Cap and Divide.’ The implication, though I’m guessing you don’t mean it this way, is that Cantwell and Collins, and all the advocates they work with, set out to divide the movement (that’s what we usually mean when we accuse people of using a ‘divide-and-conquer’ strategy). It might be more powerful to make it clear you think that they’re thinking in innovative terms, perhaps too innovative for Capitol Hill right now.

    [JR: I'm told the bill is mostly a source of division right now. I think I've made my views clear -- it's not a bill that works clear either environmentally or politically.

    I don't think that is what's novel in the bill. I just don't think it is novel to give people back their money. I also left out the enormous difficulties this bill would cause for small businesses, whose electric bills would go up but wouldn't get the money back as they would under a better designed bill.]

  2. Joe, as a longtime reader of your blog I find your hostility towards an innovative approach perplexing and your blanket endorsement of WRI’s analysis out of character. We count on you to screen this stuff for us and WRI’s analysis is now in question as it appears it counts emissions reductions under the ACES bill in a perfect scenario and not so for the CLEAR Act. (I look forward to learning more about this.) Further, I don’t think a legislative alternative to what appears to be a dead approach (cap and trade with its giant givebacks to the coal industry and its proposed creation of a new, unregulated trading bubble) is in any way divisive. Cap and dividend (the CLEAR Act) is a smart policy alternative, a real Plan B, filling in the current vacuum.

    [JR: I don't find the approach "innovative" except in a sense they have found a way of siphoning off support from an effort that might actually lead to a bill that might preserve a global deal. Cap and Divide is a political dead end which is also environmentally inadequate. What more can one say? In that regard, it is much "worse" than Waxman-Markey, which, after all, passed the House. The only reason you and McKibben don't know Cap-and-Divide is a political dead end is because it never even had enough political support to have been alive in the first place. Seriously.

    No Senator from a carbon-intensive region or that represents energy-intensive industries would ever support this bill.

    There is little point in me spending time on the flaws of a bill (W-M) that isn't in front of the Senate, and isn't going to be. Even if W-M were a fatally flawed bill environmentally (which it wasn't), folks need to move past that. I have. WRI's analysis of CLEAR is correct.

    But it is not clear to me what "giant givebacks to the coal industry" you mean. No bill is going to pass the United States Senate that doesn't spend significant money on coal with carbon capture and storage. If you demagogue those, you might as well give up on ever having a climate bill. Same for the allowances to the LDCs, which certainly ain't "givebacks to the coal industry." Electric utilities are not the coal industry.

    I'm sorry you are pushing the "trading bubble" myth. It has been debunked by me and Krugman and many others. In any case, it isn't difficult to design a bill that prevents a trading bubble but is environmentally viable and isn't CLEAR.

    I've said I think it is terrific if people pursue innovative solutions that are environmentally and politically viable. Obviously we need something other than W-M. But cap and divide ain't it. The main thing that its ardent supporters in the environmental movement are doing is shrinking the political space available for an actual climate bill that Graham, Lieberman, Kerry and the White House are trying to put together.]

  3. ChicagoMike says:

    I’m still a little confused about the emissions targets in Cantwell-Collins. The bill would set an emissions cap for 2020 at 6% below 2005 levels and then rely on funding unspecified emissions reduction projects to achieve an additional 14% cut; is that right? If so, that seems like Bush-esque wishful thinking that we could achieve significant reductions through investments without a hard cap.

    Another observation: looking at the graph provided, it seems that all three bills envision emissions falling linearly by about 75 million tons of CO2 per year. Wouldn’t it make more sense to reduce our emissions by a certain percent every year instead? It seems to me that going from 2100 to 2000 million tons will be much harder than going from 7000 to 6900, yes? Of course that would mean a much steeper target for 2020.

  4. BR says:

    I’m in strong disagreement with this post (and that generally doesn’t happen – I like most of your posts).

    The only way that increasingly stringent caps in the future are politically viable – not to mention legislatively straightforward – is for there to be a near-100% dividend mechanism in the climate bill. Bill is right – folks do like getting a check every month, and if you explain to them (or they figure out on their own) that if they take that check and put it towards renewable-energy based transportation/energy/etc. they’ll make money every month, it’ll cause much faster tide away from carbon-based energy sources, which will make strengthening the emissions targets easier politically. I think you underestimate in this post how much folks like getting checks in the mail every month.

    [JR: Thanks, but I think you underestimate the fact that public support is NOT the impediment to the bill!

    Also, the bill lacks regional equity and that is simply a loser across the board.]

  5. Mark Shapiro says:

    OT, while we continue these critical debates, sea ice continues its decline toward new record lows. You can watch arctic sea ice extent flirt with the record low here:

    http://nsidc.org/data/seaice_index/images/daily_images/N_timeseries.png

    and get a front row seat to the cryosphere here:

    http://arctic.atmos.uiuc.edu/cryosphere/
    especially here:
    http://arctic.atmos.uiuc.edu/cryosphere/IMAGES/seaice.anomaly.arctic.png

    [JR: That's not the record low for this time of year -- yet.]

  6. James Newberry says:

    Here is what is too innovative for Capitol Hill: The realization that by spending trillions of dollars historically for direct and indirect subsidies to make “fuels” (i.e. mined materials set on fire or fissioned) cheap, we have, over the equivalent of one or two person’s lifetimes (a century or so), reentered into the thin gas mixture on the planet, so much of the carbon sequestered by several billion years of evolution of life, that polar ice caps are melting.

    According to current science (not the years old IPCC reports), climate sensitivity has been incorrectly estimated by 100%. This means a doubling of CO2 creates, not a 3C rise, but a 6C rise. It means the 430 ppm equivalent currently existing in air will send most, or all, seven million cubic miles of land ice our way as 200 foot sea level rise. It means we have a systemic error of scientific confusion and economic failure that says: matter is not “energy”, as in “oil is not an energy resource, it is a material resource.” Hydrocarbons hold the carbon that provided, by it’s absence, evolution of life. There is no energy “in oil,” energy “is” the oil, and it has sequestered geologic amounts of carbon.

    Now we have already set the conditions for the planet to respond by melting ice and submerging human and natural heritage for centuries to come.

    How much is that “pollution permit” in the bank window (for the year 2050)? See the deck chairs on the Titanic? Let’s go offshore oil, hydralic fracturing methane, and clean coal. Not.

    Where is my nuclear bailout bucket?

  7. Rob Bradley says:

    [snip]

    How about adaptation instead of mitigation?

    [JR: This is one of the leading anti-science disinformers in the country, who makes a living by trying to stop any climate action whatsoever and thereby bring about the misery (aka forced extreme adaptation) of billions.]

  8. kenshin says:

    thank u for writing this post. i’m sorry if there’s folks who don’t like the tone, but we are family here, working on fighting climate change, so we’ve got to talk about this stuff. our movement must not fracture off on a disagreement about best mechanisms, without a real heart-to-heart talk.

    i for one think the advice is good, and the writers of this bill should just figure out how to incorporate some of the best parts of it into the bill with the most momentum. it really is normal to do with bills, that’s politics. additionally, if in fact the most “innovative” parts of this bill aren’t politically ripe enough to make it into the final, the concerns that underly the reasons for such innovative mechanism can be brought up for discussion, and after the bill is passed, they can be brought up again at some later point too.

    and i think we should watch carefully to make sure that the oil industry isn’t trying to “compromise” this bill the way the coal industry successfully weakened the waxman-markey bill. it would suck if we did manage to get some of the more “innovative” aspects of this bill incorporated…after those provisions were screwed up by oil lobbyists!!!

    i’ve just never understood what the underlying reasons were for an alternative to cap and trade, apart from just high suspicions from progressives about the market. i too totally understand that, esp after the bank fallout…but where someone tries to cheat on our markets, it’s cutting into someone else’s profit, so cheaters get ratted on pretty quick. perhaps it’d be best for W-M to explain what provisions are in their bill to protect its purpose from market manipulation, a bit better, to the progressive community?

    u know sarah palin didn’t just write that facebook blurb for just any reason. it’s part of the start of the pr blitz for oil to do its dirty deeds…keep both eyes peeled.

  9. Bill W says:

    Joe, when you relabel Cantwell-Collins as “cap-and-divide”, you lower yourself to the level of the Republicans who refer to cap-and-trade as “cap-and-tax”.

    [JR: No. Because I want a bill that would umpstart the transition to a clean energy economy and enable a global deal that offers us a chance of preserving a livable climate and those Republicans you mention dont'.

    My degree of annoyance at what is happening here is quite small compared to many folks on know on and off the Hill. Now I could understand a critique of both Waxman-Markey AND Cantwell Collins from the left, but it just makes no sense to me whatsoever to pretend that C-C is somehow an environmentally pure and superior bill compared to W-M. It ain't.

    To repeat, one can certainly attack W-M for political pragmatism -- though attacking two of the greatest congressional champions who have delivered actual environmental legislation again and again, Waxman and Markey, as somehow selling out the movement but then embracing C-C as somehow infinitely superior from an environmental perspective is nonsense. Now if C-C were significantly more politically feasible, advocates might have a case, but only arguing from pragmatism. But it is significantly less politically feasible.]

  10. Peter Wood says:

    When comparing Waxman-Markey and Kerry-Boxer with Cantwell-Collins, the price-based measures (both floors and ceilings) are just as important as the emissions cap, because the price measures are just as likely to impact the actual level of emissions. The price floor in Camtwell-Collins is $7, significantly lower that the floor in the W-M and K-B bills. This is another reason why W-M and K-B have more environmental effectiveness.

    On the subject of price ceilings, there is no reason why you can’t combine a ‘loose’ price ceiling (such as the Strategic Reserve in Waxman-Markey or the Market Stability Reserve in Kerry-Boxer), with a strict price ceiling (as is the case with Cantwell-Collins). For example, you could have a limited amount of reserve permits that are auctioned at a reserve price of $28 (say), and an unlimited amount ‘safety-valve’ permits at $50 (say). There would no longer be a strict cap on emissions, but there would be extra certainty for those who are worried about the carbon price getting too high, and this could lead to more political support.

  11. Yoram Bauman says:

    Joe, you criticize the safety valve because it “starts at $21 in 2012 and rises only 5.5% per year plus inflation. That’s much lower than the Kerry-Boxer bill and inadequate from an environmental perspective.”

    Fine, but according to EPA estimates (see p12), Waxman-Markey will lead to allowance prices of only about $27 (in 2005 dollars)… and that’s in 2030.

    By comparison, the CLEAR “safety value” you criticize will be over $50 in 2030.

    [JR: First, I expect the carbon price to be on the lowish side through the early 2020s, as I've said many times. But I don't expect the price to be $27 in 2030. I expect it to be much higher.

    Second, if one has a hard ceiling (a "safety valve") then you want the highest possible ceiling price, since you are trying to motivate action.

    Third, I am quite open to compromise on certain issues, but C-C fails on the crucial 2020 target and thus it gave up before we even started.]

  12. Peter Barnes says:

    I’m not a Beltway insider, so I don’t presume to know whether bills “have no chance whatsoever” of passing the U.S. Senate. I do read the press, however, and have noticed an increasing number of stories suggesting that cap-and-trade legislation is dead for this year, and possibly forever.

    There are at least three good reasons why this is so:

    • Like the health reform bill, the cap-and-trade bill is so long and complicated that no one can understand it;

    [JR: Conservative talking point. You could have said the same thing about the Clean Air Act, if you were so inclined.]

    • Like the health reform bill, the cap-and-trade bill has been so greatly jiggered by lobbyists that no one trusts the claims made for it;

    [JR: An amalgamation of critiques. But fundamentally a conservative critique, since they oppose all major government action, and major govt action requires compromise. Again, if you think Waxman and Markey and the House leadership didn't get the best bill they could, you have narrowed the field of potential votes for your bill to maybe a half dozen in the House.]

    • Voters are worried about their pocketbooks.

    [JR: A major conservative talking point that has no basis in fact for W-M.]

    Nothing I’ve heard from die-hard supporters of cap-and-trade addresses these very real concerns.

    [JR: I am not a die-hard supporter of cap-and-trade, but you apparently haven't been listening to them (or me). Fine, but don't pretend that C-C is anything like the "public option" in health care. W-M passed the House, not C-C.]

    The Cantwell-Collins CLEAR Act, by contrast, addresses all of them. It’s not an attempt to kill climate legislation, but rather an attempt to provide an alternative design that is simple, effective and popular, and that can gain bipartisan support.

    [snip -- you can repeat all the conservative talking points you want, but some things are just beyond the pale here.]

    [JR: No, C-C doesn't address any of them because it isn't a bill with substantial political support. Anyone can propose a politically infeasible that is short. The hard part is passing a bill. The Clean Air Act was many hundreds of pages long.]

    I would argue that, over the 40 years it will take to wring carbon emissions out of our economy, the Cantwell-Collins bill will do a better job than cap-and-trade because its upstream cap and lack of offsets makes it extremely hard to ‘game,’ and because its dividends will sustain popular support no matter how high carbon prices rise.

    You also assert that offsets are politically essential to passage of a carbon cap because they win support from agricultural states. I agree it’s necessary to win support from agricultural states, but offsets aren’t the only way to do that. Under Cantwell-Collins, billions of dollars would be paid each year to farmers for practices that remove GHGs from the atmosphere. The difference is that these payments would not allow large polluters to continue polluting, as offsets do. Rather, they would come from the 25% of auction revenue that is not returned to households as dividends, and they would supplement emission reductions under the cap rather than substitute for them.

    [JR: Not what I argue. Offsets win support key players across the board, ag being one of them.]

    In the same way, it is wrong to say that free allocation to utilities is the only way to address the concerns of coal-dependent states. These concerns can be addressed through grants to states for transition assistance, with funding from the unrebated portion of auction revenue. As for the myth that cap-and-dividend will result in a massive transfer of wealth from the Midwest to the coasts, I would point to studies by Dallas Burtraw (http://www.rff.org/RFF/Documents/RFF-DP-09-17-REV.pdf) and James Boyce (http://cantwell.senate.gov/issues/State%20by%20State%20–%20Boyce%20and%20Riddle.pdf) which show that a majority of families in all regions come out ahead under cap-and-dividend (that is, their dividends will exceed the higher carbon prices they’ll pay), and that the differences between regions are not very great.

    The chief obstacles to passing a carbon cap this year lie not in the Cantwell-Collins bill but in the cap-and-trade bill itself. If cap-and-trade advocates were less rigid in their adherence to an unpopular model, we might actually get somewhere. Let’s hope Kerry, Graham and above all, Obama, see the virtues of Cantwell-Collins and incorporate its basic principles in a bipartisan bill.

    [JR: If any other industrialized country in the world proposed what C-C does as a means of meeting its 2020 target, the enviros who support C-C- would have a field day dismissing it. Again, the House cap-and-trade bill as it is currently constructed is blocked by precisely those people who will hate C-C all the more and I just think it is disingenuous to say otherwise.

    Please don't pretend that t W-M can't get 60 votes because it isn't progressive enough. C-C has some useful ideas from a political perspective, but the "dividend" isn't one of them.]

  13. Ken Johnson says:

    As I understand it, the dividend is required to compensate consumers for higher energy prices. How much higher?

    China is driving a massive expansion of renewable energy, financed by fees on electricity use. The fee increase for residential users is reportedly only 0.25 to 0.4 percent; for industrial users it is 0.8 percent. By the time renewables gain sufficient market share to significantly affect energy prices, they will have probably attained or surpassed grid parity.

    China’s approach seems to me much more sensible than trying to raise energy prices to finance dividends, which are required to offset the high energy prices that pay for those dividends. Why does this need to be so difficult?

    [JR: China isn't trying to shut down existing coal plants, that's why! Yes, new renewables are very competitive with new coal absent a CO2 price (and crush new nukes). But they ain't very competitive with existing coal.]

  14. Yoram Bauman says:

    Thanks for the response to my earlier comment (#11), Joe.

    1) I confess that I don’t entirely understand why the EPA estimates for 2030 permit prices are so low, but given the choice between their modeling estimates and your unsubstantiated claim (“I don’t expect the price to be $27 in 2030. I expect it to be much higher”) I’m going to have to side with the EPA unless you can provide evidence. (And even then… you’re fighting the law :)

    [JR: No. Sorry I didn't spell this out, but I've written about this so often. You've forgotten CBO's and EIA's modeling, which is far more realistic and credible than EPA's. I think the price will be somewhere between CBO's and EIA's.]

    2) There’s a revealing contrast between your statement about permit prices in the 2020s (“I expect the carbon price to be on the lowish side through the early 2020″) and your statement about the “crucial 2020 target”. How exactly is W-M going to hit the target with low permit prices? (Offsets, maybe?) Regardless, as an economist I judge these types of policies primarily by their effect on carbon prices, and by that measure W-M looks weaker than Cantwell-Collins.

    [JR: This statement makes no sense whatsoever, I'm afraid. I've written thousands of words explaining this and won't repeat them here. Had you read my posts on this subject, you'd know the exact opposite is true. Domestic emissions reductions beyond the mandates in the bill are so cheap -- efficiency, conservation, renewables, wind, biomass, natural gas fuel switching -- and offsets are not, so the vast majority of 2020 reductions will be achieved with them.

    EPA's modeling of offsets is so absurd that nobody else in the modeling community takes them seriously. No serious comparison between bills could possibly be made using EPA's modeling. Your final sentence is like comparing angels dancing on one pin with those dancing on another.]

  15. Mark Shapiro says:

    Joe – -

    You’re having a dialogue with the Stand Up Economist!

    See here, f’rinstance:

    http://www.standupeconomist.com/blog/climate/cmon-bill-g-youre-smarter-than-this/

  16. Ken Johnson says:

    Joe, re #13 you make a good point. Prematurely closing down coal plants could be much more expensive than allowing them to be replaced through attrition. But cap-and-dividend would also impose additional costs on industry, beyond the cost of decarbonizing electricity.

    I would be curious to know what the impact on U.S. electricity prices would be if carbon pricing revenue were applied exclusively to the technology costs associated with an orderly phase-out of fossil-fuel energy, rather than extracting revenue for dividends or other purposes.

  17. JeandeBegles says:

    Interesting arguments between the merits of Cap and trade versus cap and dividend. I agree with many comments highlifgting that the dividend system enables a very high rise of the carbon price, that may be needed for the hard cut to be done.
    I am not specialist enough to argue on these topics, but I can propose a larger view to remind the big picture of CO2 emissions.
    These CO2 emissions can be (not to say must be) counted on the consummer side, according to his electricity use, to his gasoline use in his car tank, his kerozene use when flying and so on.
    We agree that CO2 is a pollution causing global warming.
    The basic solution to limit this pollution is to put a price on it, with the polluter payer basic principle.
    The incomes of this system is a kind of financial offset to the climate. That could be a Climate fund where every citizen on earth owns the same equal share (universal commons).
    Using the 2007 figures provided by the International Energy Agency, and with the assumption of a CO2 fee of 32$ per CO2 ton (equivalent to 0,08$ per litre of petrol), we obtain the following rough figures:
    Equal share per citizen of the earth: 140$
    Average CO2 expenditure, according to the IEA average numbers of the fpllowing average habitants:
    north american: 650$
    western european: 300$
    chinese: 100$
    indian:35$
    poor african country:15$
    I agree that it will be a politically hard sell to favor such a bill involving several hundred of $ per habitants flowing out of the wealthy country.
    But on the other hand, who can dismiss the polluter payer basic principle and that we are all equal on earth?
    The difficulty of the climate solution is in our wealthy country.
    Do we accept to pay for the current pollution we emit?
    Do we accept to pay for protecting our climate?

  18. John McCormick says:

    Joe, you responded in #3:

    [The main thing that its ardent supporters in the environmental movement are doing is shrinking the political space available for an actual climate bill that Graham, Lieberman, Kerry and the White House are trying to put together.]

    …end of story.

    John McCormick

    [JR: Same thing happened on health care -- not that there isn't plenty of blame to go around on that. Indeed, I want to make clear for the umpteenth time that if there is no climate bill, 90% of the fault lies with the anti-science ideologues in and out of Congress who have spread disinformation for decades, demagogued the issue to death, and steadfastly refused to see the inevitable result of their self-destructive policies.]

  19. Alex A. says:

    Thank you Joe for exposing this nonsense for what it is.

    Why any Republican would prefer this entitlement nonsense over Cap and Trade is beyond me.

    I think you said it best here:

    “Please don’t pretend that W-M can’t get 60 votes because it isn’t progressive enough. C-C has some useful ideas from a political perspective, but the “dividend” isn’t one of them.”

  20. GS says:

    Joe,

    Great post. You made a good point in the comments about small business that is worth expanding on. If I manufacture something in a coal-intensive part of the country, under CC my energy costs will increase. If you manufacture the same product in a low-carbon intensive part of the country, your energy costs do not increase as much. I would likely find it irresistable to move my manufacturing capacity to a low-carbon intensity part of the country. Otherwise, you’d have a financial advantage that would put me out of business. Its great that both sets of our employees would get dividends, but my employees also want to keep their jobs! Does CC have an answer to this? Why would any Senator from a carbon intensive part of the country vote to disadvantage their businesses in this way?

    [JR: I don't think they do have a good answer.]

  21. Chris Dudley says:

    Well, the average score from the League of Conservation Voters for the sponsors of KLG is about 70% but for CC it is 100% so one might suppose that there is more of a clue in the cap-and-dividend bill than in the cap-and-trade bill. What we most need right now is legislation with an 80% cut in emissions by 2050 as Bill McKibben has pointed out but Joe is making some good points that congruence with efforts in other countries could be needed. This is especially so because we dropped the ball for the last decade. I would say that any legislation is going to be revisited before 2050 but near term goals need a clear path to be achieved. So, again, Joe has some pretty relevant criticism. But, that congruence only needs to be maintained through emulation until we regain leadership, at which point, we say what international mechanisms will be used. Our present weakness will not last.

    In my view, if there is to be cap-and-trade, we must view it as a managed bubble. If we still have a highly valued emissions market in 2050, we will have failed. The market needs to be headed for collapse even before then, having succeeded in transforming our energy system. So, there is no real reason not to force that collapse in say 2025 and switch to a rationing system such as cap-and-dividend to handle the mop-up. It would be foolish not to anticipate the collapse of the emissions market in any legislation passed now in some manner. Having cap-and-dividend as the fall back endgame triggered by some threshold or calender would only be prudent. We can always change it later.

    Let us be absolutely sure that any dividends are not considered a replacement for social security as some carbon tax advocates propose. Anything of this sort has to behave like a bubble and should not be part of long term revenue planning.

  22. Barry says:

    Wow, I love just about everything in this CC bill…but sadly I’m pretty sure Joe is right that it is dead politically. As great as many of the ideas in it are, as currently proposed it is it is a distraction or worse.

    I love:

    – speed and simplicity of production-based permits
    – voter appeal of getting checks
    – excellent work of Cantwell and Collins on environment
    – source of funding for climate mitigation
    – climate justice for poorer folks

    But I just don’t see any possible way to get 60 senators to back a bill that will transfer big dollars from some states to others.

    The difference in CO2-intensity per dollar of state economies can be huge. The ugly sausage-making of current cap-and-trade bill is in large part to try to find a way to even out the pain across the nation. You can’t get or keep support of carbon pricing with a big money transfer between states.

    I’m not sure I agree with Joe, however, that projected emissions cuts from CC is enough of a reason alone to give up on the bill. As Joe has rightly pointed out many times, whatever carbon law we get will have to be strengthened as the years go by. At least half the battle is getting a solid, supported, flexible mechanism in place to limit carbon. We can then quickly increase the parameters as public sentiment kicks in from climate pearl harbors or better messaging.

    Up in Canada, the huge range of carbon-intensity-per-dollar is a major stumbling block between provinces. Saskatchewan for example has 5 pounds of CO2 per dollar! That is one heavy, filthy loonie. The five hundred bucks you get from an ATM weighs as much as a car. That is also ten times more than the least co2 intensive province. The dirty-economy provinces always insist that they will never agree to any system that would drain money out of their province. Alberta want all Albertan-paid carbon tax to stay in Alberta to help there.

    It might be “fair” on some level to reward already cleaner states…but I can’t see it passing the Senate.

    I think C & C should either modify their bill to deal with existing carbon-intensity inequalities in the states … or withdraw it.

  23. James Newberry says:

    The idea that the scheme of using contaminating fuel systems based on turning buried materials into planetary poisons (like carbonic acid gas, CO2) is more costly (overall) than clean energy development today is economic fraud. This fraud is constructed by federal economic policy based on the sickness of a “war economy,” which is manifest throughout the US “economy.” If you want a price on carbon, first stop the $quarter trillion world “fuel” subsidies and massive weapons systems defending it.

  24. JR,

    Is it fair to dismiss public revulsion at proposals to let Wall St set and collect carbon fees as some kind of ignorant populism? Or is the public noticing that a CO2 market is an artifice — mainly to hide the price?

    You suggest combining “the good things in the CLEAR Act” into a final bipartisan climate and energy bill.

    Bill McK. points to CLEAR’s strength: its proposal to “recycle” revenue to individuals via a “dividend.” To have a shot at 350 ppm, CO2 prices will need to keep rising for a long time — which will require broad, continued public support.

    Yes, JR, we know fossil fuel interests are powerful in the Senate. After three tries, we also know they’re not going to pass a law that’s a “blank check” on carbon prices. Moreover, there’s no sense passing a climate law that gets repealed as soon as voters feel CO2 prices. A clear price with revenue-return is the formula that allowed Gordon Campbell to enact British Columbia’s carbon tax. And he got himself re-elected easily.

    The “dividend” is CLEAR’s strong new element; it deserves serious discussion.

    [JR: 1) When did I "dismiss public revulsion at proposals to let Wall St set and collect carbon fees as some kind of ignorant populism"? I acknowledged a populist mood in the country, but didn't -- and don't -- label it. 2) The dividend is completely separate from the Wall Street issue, which isn't actually hard to solve. The dividend deserves serious discussion. That's what I've done. It is not a strong new element -- it is what makes the bill unworkable, for reasons that I have explained in my serious discussion.]

  25. JR,

    So “workable” in the Senate means handouts (free allowances) to those with well-connected lobbyists? What about “workable” in voter’s pocketbooks? Or “workable” as effective CO2 pricing policy?

    Yes, senators from states with the cheapest electricity have made a fuss over regional differences. But CLEAR offers more for all consumers: it would recycle 75% of revenue directly to households, instead of the trickle left after commercial electricity users got their cut of the 35% that Wax-M would hand Local Distribution Companies “for the benefit” of consumers.

    On the (yes, separate) Wall St. issue, CLEAR attempts to preclude a secondary market — but wouldn’t that merely drive derivatives markets abroad? Perhaps more effective: CLEAR’s limited trading range of $7 – 21 should send most sharks looking for bigger fish.

    Isn’t CLEAR’s main flaw that its price (or cap) wouldn’t ramp up (tighten up) enough to drive serious emissions reductions? CLEAR would devote 25% of auction revenue to a “CERT” fund (allocation unspecified) to accomplish 2/3 of the bill’s purported emissions reductions. In that sense, CLEAR looks like a subsidy bill more than a CO2 pricing system. That’s “unworkable” for those who accept that we need a substantial (and predictable) CO2 price to drive efficiency and renewables.