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Is 'cap and trade' ACES fatal flaw?
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Smokestacks /EPA Photo
We've heard the term "cap-and-trade" a lot lately. The recently House passed Waxman-Markey energy bill (known as the American Clean Energy and Security Act (ACES), now being debated in the US Senate, has a cap and trade provision as one of its prime features. What is cap and trade? According the the Environmental Protection Agency (EPA):
Cap and trade is an environmental policy tool that delivers results with a mandatory cap on emissions while providing sources flexibility in how they comply. Successful cap and trade programs reward innovation, efficiency, and early action and provide strict environmental accountability without inhibiting economic growth.
So, is cap and trade an effective "environmental policy tool" as well as a smart political tool?
According to Matt Taibbi's excellent article in July 9-23 Rolling Stone, here's how cap and trade will really work:
"...if the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his to economic aides speculates that the real number might be twice or even three times that amount".
President Obama would like to see a plan that calls for a 100% open auction of carbon emissions allowances or "credits". The Administration feels that its plan would correct the deficiencies currently inherent in the "cap and trade" emissions trading system set up by the European Union. The EU system allowed so many free emission allowances that it led to wild fluctuations in price and resulted in some of Europe's worst polluters realizing windfall profits. More importantly, that system had virtually no effect on climate so it was bad science policy to boot.
But, if we get a plan that allows for the trading of carbon emission allowances, whether by public auction or otherwise, guess who gets to participate in this new carbon credit market? That's right, investment banks like Goldman Sachs which made bundles in oil futures and mortgage backed securities, will realize mind boggling commissions with an extra added incentive to create new exotic carbon emission allowance products to sell to eager investors.
Personally I found it a bit odd that during last year's presidential campaign both President Obama and John McCain supported some form of cap and trade legislation. Why? What was I missing? Those two guys never agreed on anything. Well, here's my theory:
Outfits like Goldam Sachs want a cap and trade bill to pass so that they can get a big piece of the pie and, in order to get what they want, they have directed millions to both political parties to make sure that cap and trade becomes law.
Since cap and trade is just dandy for investment bankers; giving them another bubble to burst, I'm betting that it won't be so good for folks like you and me.
Personally I believe that the best and most effective way to control carbon emissions is a direct tax on the polluters. This would create an incentive for the polluters to clean up their act while adding much needed revenue to the treasury. But instead of a simple pollution tax, we may end up with a cap and trade scheme that, in the words of Matt Tiabbi, ".....is really just a carbon tax structured so that private interests collect the revenue. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected."
I highly recommend that you take time to read Matt Tiabbi's Rolling Stone article. There's a lot more in it than just "cap-and- trade".
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