This afternoon Senator Lieberman hosted a hearing within the EPW’s Subcommittee on Private Sector and Consumer Solutions to Global Warming and Wildlife Protection. The hearing was entitled “Economic and International Issues in Global Warming Policy” and for as broad as that could be, there were actually two pointed questions at hand:
- What do we do if a cap and trade system causes an economic emergency and how do we create what the Senators call “emergency off- or exit-ramps”?
- Given that reductions in U.S. emissions must be accompanied by global reductions in order to be effective, how can we encourage other countries (namely the developing ones, China and India) to also take meaningful strides?
Witnesses spoke within the context of existing proposals and tended to side with either Lieberman-Warner or Bingaman-Domenici. More specifically, witnesses discussed cost containment, aka price controls or a safety valve, and occasionally, how to treat international carbon markets.
I thought the most articulate and resonant witness was Blythe Masters, Managing Director of JP Morgan Securities. Masters explained that a cap and trade system would “unleash the forces of supply and demand.” Like other testimonies, Masters contended that the primary way to lower the cost of compliance with regulations is to expand options for offsetting emissions (in essence, increasing the supply).
For example, the Kyoto Protocol does not allow the preservation of forests to be considered an offset when really, deforestation is a major source of emissions.
In three words, Masters advocated a cap and trade system that is flexible, broad, and long-term. And in order to be effective, it should have no price control.
A price control or safety valve mechanism would “directly decrease capital investment in low carbon technologies,” Masters argued, in addition to disabling the cost competitiveness of carbon capture and sequestration. A few of my other favorite points of hers were:
- Neither the acid rain nor EU cap and trade programs have safety valves; and
- While baselines may be necessary to control prices, upper bounds are not.
Which leads me to point out Masters’ warning, which she emphasized by pausing, looking up, and shooting the glance of an all-knowing mother to her child — a safety valve is simply “inappropriate.”
Garth Edward, from Shell, echoed some her concerns. His play on words was that we cannot have both an emissions cap and a price cap; one of the two has to give. Unfortunately, I think there’s a longer history of money championing environmental interests than the other way around.