Cap and Fail?

With negotiators now working on a draft text at the Copenhagen climate summit, the prospects of an agreement that should lead ultimately to an international treaty seem reasonably strong. The devil, of course, is in the details, and observers are eschewing the opportunity to pop champagne corks until it becomes clear whether those details - including the levels of CO2 emission limits and the timelines by which those levels need to be met - are worth celebrating.

But there are those who question the very validity of any agreement that may be reached in Copenhagen, or one year down the line in Mexico, as long as the primary mechanism for meeting those limits is what is known as cap-and-trade. The theory behind cap-and-trade is simple: A central authority, usually a government, sets a limit, or cap, on the amount of carbon pollution that can be emitted into the atmosphere. Companies are then granted a license to emit a certain fraction of that pollution, in the form of what may variously be called units, credits, or allowances. Over time, the cap will become progressively lower,  in theory encouraging energy efficiency and conservation and a transition to alternative energy sources.

But it isn't the cap aspect that bothers the system's critics, at least from the environmentalist side - provided it is set sufficiently low. The trade element allows emitters that can't (or won't) lower their pollution to buy credits from those that have - and aye, critics argue, there's the rub.

Writing in the New York Times, Dr. James Hansen, director of NASA's Goddard Institute of Space Studies and arguably the most prescient and prominent scientific advocate of the need to reduce carbon emissions to reduce global warming, argues that cap-and-trade "allows polluters and Wall Street traders to fleece the public out of billions of dollars," and "perpetuates the pollution it is supposed to eliminate." Worse still, he says, is the accompanying feature of "carbon offsets", which feature heavily in the climate legislation presently being considered by Congress.

Such offsets, he explains, "are alternatives to emission reductions, like planting trees on degraded land or avoiding deforestation in Brazil. Caps would be raised by the offset amount, even if such offsets are imaginary or unverifiable. Stopping deforestation in one area does not reduce demand for lumber or food-growing land, so deforestation simply moves elsewhere."

Hansen is not alone is his criticisms. John Passacantando, former executive director of Greenpeace USA, recently blogged that the system is like "the Popeye character Wimpy who says, 'I would gladly pay you Tuesday for a hamburger today.' The evidence so far is overwhelmingly bad, emissions up, financiers enriched, polluters gaming the system, even some early architects of pollution trading saying that it can’t work for a carbon market."

Writing in the Huffington Post, Daphne Wysham, founder and co-director of the Sustainable Energy and Economy Network, recently argued that "cap and trade proposals now on the table will open up a whole new derivatives market in carbon, a market open to gaming, corruption, and the creation of a new "carbon bubble" that, when it bursts, could take down far more than just our economy."

Wysham was a content adviser for the recently-released animated short, The Story of Cap-and-Trade, which, in concert with Hansen's writings, has touched off a stormy debate.

New York Times economist Paul Krugman, while acknowledging that Hansen is "a great climate scientist," argues that his economic analysis of cap-and-trade is simply wrong, and that tradable emissions permits are as effective as the system of direct carbon taxation that Hansen and others advocate as an alternative.

Former United States Vice President Al Gore, who also prefers a carbon tax, said in an interview with Discovery News that "the degree of difficulty [of passing a carbon tax] far exceeds the difficulty of passing cap-and-trade. We need both. And we’ll wind up using both." Even if a carbon tax could be adopted tomorrow, he says, "I would still favor using both a CO2 tax and a cap-and-trade mechanism."

Eric De Place has catalogued what he characterizes as an abundance of errors in the animated movie, which he dubs "shockingly ill-informed - or maybe outright deceptive." He acknowledges that "I’m not a fan of offsets. They may turn out to be a good thing, but they do worry me a lot," but argues that they are a potential problem with any carbon policy, including direct taxation. The key to cap-and-trade, he asserts, is not the trade but the cap; the examples of problems featured in the movie are not problems with cap-and-trade, he says, but problems with cap-and-trade done poorly.

Writing, like De Place, in Grist, David Roberts makes a similar argument. The video, he says, "misses the point ... It’s clear that politics as currently constituted, particularly in the U.S., will not tolerate a high price on carbon. So we’re going to end up with a fairly low price, hopefully with mechanisms to automatically raise it over time."

Wysham, however, is standing her ground.

"Climate change," she writes, is "the largest market failure we have ever known. And yet, in spite of this, we’re looking to cap-and-trade, a “market solution” that has failed to deliver results, in a time of grave economic crisis, to save the planet from an environmental meltdown ...

"Now is not the time to go along, hat in hand, with what some say is “the best we can get.” We’ve got to ask for what we and the rest of the planet need."