Cap and dividend would put consumers in charge. Can we handle it?

By Dave Rochlin - originally posted on care2.com

While the climate talks in Copenhagen ended with the world wondering if the US will commit to emissions targets, I have been wondering how we will deliver on the reduction promises made in Copenhagen. Apparently Senator Maria Cantwell has been thinking about this as well.

Cap and Trade? As I wrote earlier this year, a poorly designed cap and trade scheme could lead to market manipulation and speculation in carbon credits and pollution permits that transfers much of the money to Wall Street type firms. And giving away virtually all of the the permits (as has been proposed) won't increase the cost of energy, and so won't motivate changes in underlying demand.

A carbon tax? Well it certainly factors the cost of climate change into all the stuff we consume, which will change behavior, but trusting the government to spend the money wisely on investing in new energy policies (rather than pork) and keeping the economy on track requires a large leap of faith, whether you believe in big government or not.

So I was intrigued to see that Senator Cantwell just unveiled an alternate climate bill for the US called the CLEAR (Carbon Limits and Energy for America's Renewal) act, which would create emissions caps but give the proceeds of tradeable emissions rights to consumers, in the form of a rebate. One hand taketh away, but the other hand giveth right back. Now why didn't anyone think of that sooner?

As the Wall Street journal reported:

"2,000-3,000 of the nation's largest emitters would be able to buy and sell emission credits auctioned by the government, with credit values rising as mandated greenhouse gas levels fall. Seventy-five percent of auction revenues would be recycled into monthly tax-free checks to the public to help pay for rising energy costs. (Cantwell) estimates between 2012 and 2030, for the average family, those checks could average $1,100 a year for a total of around $21,000 for the period."

The AARP said that "The CLEAR Act offers a simple, straightforward approach for reducing carbon emissions in a manner that will mitigate energy cost increases and minimize administrative costs for consumers."

Grist called it "a heartbreaking work of staggering genius" (although while they gave it an A for intention, they gave it only a C for execution.)

Without question, the current version of the proposed CLEAR act is far too brief...and of course the devil is in the details. But this direction seems to tackle the problem while overcoming concerns that trouble legislators on both sides of the aisle.

I personally love the idea that the average consumer can decide which steps to take with their rebate checks, whether it is to caulk, buy a new car, add solar panels, or support fair trade offset projects that help small farmers in Mexico or Uganda.

But I suppose one of my biggest fears is that consumers will take this check and buy more gas (or just subsidize their fuel purchases), acquire more stuff, or take trips to Disneyland....and then complain that "Everything is more expensive." Future versions of the bill may have to address this potential fatal flaw. Giving money to taxpayers has usually been characterized as a stimulus designed to get us to buy and consume more. Will this be different? "Cap and dividend" puts the people back in charge. But can they handle it? Let us now what you think in the poll question below.

In any case, I am sure we'll be hearing more about CLEAR in the upcoming weeks. You can read up on it on Senator Cantwell's website.

Photo copyright: http://www.flickr.com/photos/portofsandiego/ / CC BY 2.0

Barbarians at The Turbine

By Dave Rochlin - Originally posted on care2.com

In a recent column in Rolling Stone, Matt Taibbi described cap and trade as "a groundbreaking new commodities bubble, disguised as an environmental plan" and further asserts that it will "allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax collection scheme." A pretty scary critique.

Now I should start with the caveat that Taibbi is a somewhat opinionated and controversial figure, prone to hyperbole. He once described Thomas Friedman (NY Times writer and author of "The World is Hot, Flat and Crowded") as someone who "flies around the world, eats pricey lunches with other rich people and draws conclusions about the future of humanity by looking out his hotel window and counting the Applebee's signs." He called Goldman Sachs "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money" and he also penned an infamous piece called "The 52 Funniest Things About The Upcoming Death of The Pope."

But for me, the Enron-induced market manipulation of the energy markets that nearly bankrupted California still stings, as does the more recent mortgage backed securities fiasco that may end up bankrupting our country (thanks to the TARP, housing bubble, and stimulus packages that it has spawned). While carbon prices should drive us to demand greater energy efficiency and use less energy, the real underlying purposes of carbon credits are to fund ecosystem services (such as vibrant forests) and to finance the cost of permanent changes to the world's energy production and consumption infrastructure. A poorly designed cap and trade scheme could lead to market manipulation and speculation that transfers most of the money to sophisticated financial firms and market intermediaries, rather than groups that actually do the projects. A carbon price "spike" could easily lead to $10 of paper profits for every $1 that actually funds firms making a difference.

We set up ClimatePath so that money goes to a nonprofit that permanently retires the credits...no resale or speculation. Many of our mission based project partners also insist that credit transaction lead to retirement, not resale. We avoid treating carbon as a commodity, by linking money spent to the underlying project work. These aren't the only answers, and I do believe that market making firms are needed to make cap and trade work. But it is important that the final cap and trade bill contains strong provisions and penalties to prevent a speculative bubble. The language is there now, but as Mother Jones reports "regulation of carbon markets will probably be swept up in broader financial reforms that are the subject of intense lobbying and political pressure. It's too soon to take for granted that cap and trade will contain rules that go far enough to prevent speculation and fraud."

If you write rules for Wall Street, they follow them. If you leave loopholes, they exploit them. In the end, if your utility ends up paying $50 a ton while they transition away from coal, while the renewables supplier, forest preservation project, or conservation project receives only $10, then we have legislated the massive wealth transfer that Taibbi fears.

Photo copyright artemuestra at flickr.com (CC License)