"Obama tells Business Roundtable: “If you’re giving away carbon permits for free … it doesn’t work” and “the science is overwhelming”"
Obama spoke to the CEO’s from the world’s biggest companies yesterday and, “offered his most extensive remarks on global warming policy since taking office yesterday,” as E&E Daily (subs req’d) reports.
At the Business Roundtable meeting, Obama reaffirmed that, “I said during the campaign we were looking at a hundred percent auction,” and warned inaction was not an option because we face a return to $150 a barrel oil and serious climate impacts:
The science is overwhelming. This is a real problem. It will have severe economic consequences, as well as political and national security and environmental consequences.
I was especially please to see that he focused on the threat of ever-worsening droughts across this country and the world (see full remarks below).
Weyerhaeuser President Daniel Fulton, said companies are worried about the costs of a cap & trade bill during tough economic times. But Obama had already made the key point:
I understand that this will be a difficult transition for many businesses to make, and that’s why this budget does not account for such a cap until 2012 — a time when this economy should be on the road to recovery.
Realistically, a climate bill is not going to be law before 2010, and I doubt the cap is going to be put in place before 2013 — and it won’t bite for a few years after that. I’d be amazed if the price for CO2 was much higher than, say, $15 a ton in 2015, which means a total “cost” of maybe $90 billion (assuming consumers and businesses do no energy efficiency whatsoever) — not a bloody big impact on a $15 trillion U.S. economy.
Obama understands that repetition is the key to good messaging and that his Administration and progressives needs to repeat this key message over and over again:
Under the cap proposal that we have it wouldn’t even start until 2012, where we’re going to be out of this recession — or you’ll have somebody else speaking to you in 2013.
But if we don’t start now, if we wait until — to have the debate in 2012, and then suddenly it turns out that oil is at $150 a barrel again, and we say, oh, why is it that we didn’t start
thinking about this and making some steps now to figure this out. Well, that’s what Washington does. You guys could not run your business that way. And so the notion that we are doing some long-term planning now and trying to get this town to think long term, that somehow that’s a distraction just defies every sound management practice that I’ve ever heard of.
Fulton challenged Obama about his campaign pledge on cap-and-trade to require companies that emit CO2 to get 100 percent of their emission allowances through an auction:
I just wanted to comment that a number of us in the business community are concerned that a hundred percent auction will effectively be a tax that would impose significant costs on energy-intensive industries such as some that we operate, and may impact existing industries’ ability to fund needed investments in new low-carbon technologies.
I just wondered if you could explain how the hundred percent auction approach would work in our highly challenged economy — because we’re all feeling a lot of pressure today on costs — and yet still preserve jobs for existing industries, and strengthen our existing manufacturing sector.
Obama’s entire answer is worth reading if for no other reason to revel in the delight of having a president who truly understands every aspect of the issue of the century:
Well, let me start by saying this. I said during the campaign we
were looking at a hundred percent auction. We are not going to be able to move this in an effective way without partnership with the business community. But we just — we can’t get it done. And for businesses like yours that are committed to the concept and the idea, we’re going to work to make sure that it works for you.
Now, the experience of a cap and trade system thus far is that if you’re giving away carbon permits for free, then basically you’re not really pricing the thing and it doesn’t work, or people can game the system in so many ways that it’s not creating the incentive structures that we’re looking for. The flip side is, you’re right, if it’s so onerous that people can’t meet it, then it defeats the purpose — and politically we can’t get it done anyway.
So we’re going to have to find a structure that arrives at that right balance. We want to create a price structure. Keep in mind that the reason that I’m interested in a cap and trade approach is precisely because I think the market makes decisions about these technologies better than we do. You know, for those who are concerned about some heavy-handed command and control regulations coming down the pike, cap and trade is designed to say, you know what, here’s a target, here’s a price, you guys go figure it out and if you can make money on it, all the better.
So that’s the — that’s our goal. That’s what we want. And how that pricing mechanism works most effectively to actually influence incentives, but also be sufficiently realistic that industries are thriving as opposed to groaning under the weight of it, I think is going to be the trick. I’m confident that we can do it. We’ve done it before.
I mean, keep in mind that when — I’m trying to remember, this was back in the ’70s or early ’80s — I’m getting old enough now where I can’t remember — but, you know, the issue of acid rain was around. Everybody thought all your trees were going to be dying; you couldn’t make any paper. And we put in an auction system and a trading mechanism and, lo and behold, American ingenuity and American entrepreneurship and inventiveness created options that ended up being much cheaper than anybody had imagined — much cheaper than anybody had imagined.
Please pause for a moment of appreciation for this fully articulated argument….
Now, in the meantime, I just — I was talking to some members of Congress just yesterday, you know, who were concerned about this, because I’m sure they’re hearing from industries and, you know, what does this mean economically, et cetera. I just want to point out, you know, anybody who has been to Las Vegas recently and looked at Lake Mead; or who is familiar with what’s happening in agriculture in California right now; or go down to Atlanta, which may not have any water soon, because of what’s happening in terms of changing weather patterns; or talk to Kevin Rudd in Australia — that’s going to cost us money too. It’s just not — it’s not priced.
Are you listening U.S. media? Doing nothing has a huge cost (see Must-read study: How the press bungles its coverage of climate economics — “The media’s decision to play the stenographer role helped opponents of climate action stifle progress”).
And how about that focus on droughts? Does this guy listen to his energy Secretary or what? (Steven Chu’s full global warming interview: “This is a real economic disaster in the making for our children, for your children.” and Steven Chu on climate change: “Wake up,” America, “we’re looking at a scenario where there’s no more agriculture in California”).
And I’m not somebody who — I’ve never bought into these Malthusian — woe — Chicken Little, the earth is falling — I tend to be pretty optimistic. I wouldn’t be here if I weren’t pretty optimistic. But I think this is — the science is overwhelming. This is a real problem. It will have severe economic consequences, as well as political and national security and environmental consequences.
And I’m confident that if we do it smart, if we’re talking to you guys, if we’re talking to industries, if our projections don’t end up being wildly unrealistic, then I think we can handle this problem.
Yes, we can.