Why Annie Leonard is Right About Cap-and-Trade

The Story of Cap and Trade, film still

Watch Annie Leonards video: The Story of Cap-and-Trade.

By now you’ve probably seen Annie Leonard’s much-watched—and much criticized—10-minute video, The Story of Cap-and-Trade. If you haven’t, you should.

The question Leonard asks is, “Is cap-and-trade good for the planet, or is it bad?” This is an extremely timely and important question, given that the Senate is currently considering a House-passed cap-and-trade bill, and that the stakes include trillions of dollars, not to mention the fate of the planet.

Leonard gives a sophisticated—and in my view, correct—answer to this question. Whether cap-and-trade is good or bad depends on how it’s structured.

She starts by separating the two parts of the policy, the ‘cap’ and the ‘trade.’ The cap sets descending limits on actual emissions; the trading (if done wrong) allows those limits to be exceeded. The cap, Leonard says, “is great.” It’s the trading that worries her.

And with good reason. There are two sorts of securities that could be traded under the pending legislation: emission permits (sometimes called allowances) and carbon offsets. The two are often confused but are very different in their implications.

Smoke from a factory, Uwe Hermann photoEmission permits—rights to pollute within the U.S.—would be issued by the government. Absent carbon offsets, every emitter would need to own a permit in order to emit a ton of carbon. The quantity of permits would decline from year to year, thereby reducing total pollution. Polluters could trade the declining number of permits among themselves without increasing total pollution. So far so good.

But here’s where carbon offsets come in. Carbon offsets are privately issued securities whose quantity is intended to increase from year to year. Their purpose is to let large polluters continue polluting by buying cheaper pollution abatement somewhere else. For example, a utility in the U.S. could pay a landowner in Indonesia not to cut down carbon-absorbing trees; the utility could then burn coal without an emission permit. So much for the domestic emissions cap.

Whether the distant abaters permanently change their behaviors in ways they wouldn’t have without offsets is almost always hard to know and often dubious. Even when offset payees do change their behavior (for example, by not cutting trees), there’s no guarantee that actual emission reductions occur (other trees might be harvested instead).

Leonard demonstrates all this (and more) using simple and effective graphics. She concludes that cap-and-trade with offsets would not only fail to halt climate change, it would distract us from other approaches that could.

Leonard’s cap-and-trade-friendly critics (see, for example, David Roberts and Eric de Place) fault her for rhetorical overshoots and oversimplification (hey, this stuff is complicated, and Leonard is trying to simplify). But their core argument is that Leonard is politically naïve. “Cap-and-trade isn’t the problem; the power of the fossil fuel lobby is,” Roberts writes. In other words, cap-and-trade is the best we’re going to get, so shut up and genuflect. Get over the notion that “if cap-and-trade is destroyed, a herd of ponies will thunder in to replace it. There are no ponies.”

Here’s my two cents. I think Leonard’s critics are wrong, both morally and politically. Morally, I don’t believe activists should prematurely yield to power. Yes, defenders of the status quo, almost by definition, have more power than those who seek change. The job of those who seek change is to speak truth to those who wield power. In the end, the politicians will cut deals, but that’s their job, not ours.

The truth that must be spoken here is that the United States is way behind the curve in responding to climate change. We need to catch up, not fall further behind. The House-passed cap-and-trade bill—though its backers purport otherwise—would lock in a loophole-ridden system that won’t do nearly enough to spur a clean energy transition. And if the world’s largest economy doesn’t act in a manner commensurate with the actual climate threat, why should anyone else?

That said, we do need to pass climate legislation in 2010, so politics can’t be ignored. Yet here, too, Leonard’s critics are mistaken. The way to get the strongest possible climate bill through Congress isn’t to accept a defective House bill and add more defects in the Senate, as the cap-and-trade crowd claims. Rather, it’s to support a simple and effective alternative that has broad political appeal.

Fortunately, though there aren’t a herd of such alternatives, there is at least one: the CLEAR Act recently introduced by Senators Maria Cantwell (D-Wash.) and Susan Collins (R-Maine). The Cantwell-Collins bill is essentially a carbon cap without offsets or giveaways. Its political appeal lies in the fact that it would auction (rather than give to companies for free) all emission permits, and then return 75% of the auction revenue to all Americans via equal monthly dividends, thereby shielding middle class families from rising carbon prices. On top of that, it would use the remaining 25% of auction revenue for transition assistance and public investments aimed at speeding America’s conversion to clean energy. It would also use some of the revenue to purchase emission abatements abroad—abatements that would add to, not subtract from, emission reductions here at home.

Cantwell-Collins isn’t flawless, but it has far fewer flaws than cap-and-trade with offsets, giveaways, and tons of favors for fossil fuels. What’s more, if strongly supported, it could pass. The real question isn’t why Annie Leonard questions cap-and-trade; it’s why all environmentalists don’t support Cantwell-Collins.

Interested? : There's a right way and a wrong way to do "cap and trade." You'll feel the difference in the air—and in your wallet.


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