[The Vector] Changing Hearts and Minds on Cap and Tax

A couple of weeks ago, David Shukman the Environment Correspondent at the BBC went to marvel at the 1,400 wind turbines that spread in line after line across Nolan County, Texas. Each turbine doubles the revenue from the cotton field it is planted in.

Shukman dropped in on the mayor of a town in the midst of this manmade forest – Greg Wortham of Sweetwater – to talk about the money the turbines bring to the community and their beneficial effect on climate change.

But Mr Wortham had a warning for his British guest:

“Whatever you do, don’t mention the climate. It’s too polarising. Carbon footprint, green, climate change – those issues are so charged in the US… there are just certain labels that cause people to form into groups.”

The reason the United States needs renewable energy has become such an emotional touchpoint that those who are benefitting most from renewable energy cannot bear to discuss the issue.

As US negotiators take their seats at the Cancun Climate conference, they know – and the world knows – the US government may not be able to generate enough national and Congressional support for any deal it hammers out.

The emotional reaction among a considerable proportion of the American population against the whole climate change agenda can take foreigners like me by surprise (I’m Irish, living in the UK). Perhaps it sometimes takes Americans by surprise. Not that long ago, many American commentators were writing that a Cap and Trade scheme for the US was inevitable. After all, Obama, Clinton and McCain all supported the concept. But as everyone knows, the common sense view is that US cap and trade is now a dead duck.

‘Cap and tax’ opponents such as Sarah Palin were very articulate and their campaign has clearly been persuasive.

“In addition to immediately increasing unemployment in the energy sector, even more American jobs will be threatened by the rising cost of doing business under the cap-and-tax plan,” Ms Palin wrote in the Washington Post in 2009. “The Americans hit hardest will be those already struggling to make ends meet.”

Palin hits deep-set buttons in the psyche of many Americans: the value they place on individualism and independence, the fear of faceless and centralizing government, suspicion of the foreigner, and a feeling that enjoyment of the abundance of the North American continent is a natural right.

“We are ripe for economic growth and energy independence if we responsibly tap the resources that God created right underfoot on American soil,” Palin said reassuringly. “Just as important, we have more desire and ability to protect the environment than any foreign nation from which we purchase energy today.”

In fact, the United States imports more foreign oil every day than is consumed by the 1.3 billion people in China. And burning that imported oil (plus the oil produced within the US itself) doesn’t make it disappear. Each year, the US takes 7,000 million tons of CO2 from ground sources and releases it into the atmosphere. Worldwide, mankind releases about 30,000 million tons of CO2 annually.

A UN scientific report released in late November shows that CO2 levels in the atmosphere continue their heady climb (now at 386.8 parts per million), while methane levels, after stalling for a number of years, are also on the rise. The report’s authors speculate that methane trapped in Arctic tundra may be being released as the ground there thaws– providing an extra catalyst for further global warming.

The irony in American suspicion of cap and trade systems is that the whole thing was invented and proven by Americans. Sulphur dioxide from power stations and other major emitters was creating acid rain. US regulators established a single figure limit on SO2 emissions from all major emitters, issued emission permits up to that limit, and allowed the emitters themselves to find the cheapest ways to bring total levels down. The emissions market system reduced surphur dioxide levels much more quickly and much more cheaply than anyone had expected.

US cap and trade experiment ends

There is evidence that the demise of cap and trade legislation in the US cost jobs – a handful of jobs at least. The Chicago Carbon Exchange (CCX) is to close at the end of this year. Established at the turn of the millennium by the buccaneering economist Richard Sandor, CCX was unique. Member companies volunteered to cap and cut their CO2 emissions and they made their promises legally binding. Permits were issued for the combined total of CCX members ‘allowable’ emissions. If an exchange member had difficulty sticking to its emission limits, it could purchase emission permits from another member of the exchange who was finding it easier to bring emissions down.

Sandor managed to attract some major players onto his exchange, including American Electric Power, Du Pont, IBM and the Ford motor company. Together CCX companies accounted for over 10% of US CO2 emissions. For those companies that got involved there was an opportunity to rehearse a cap and trade approach many believed was on the way. It helped them establish systems to monitor, measure and verify their CO2 output, and it was good green PR. Sandor liked to talk of CCX as the engine of an environmental revolution. The engine packed up.

The closure of the exchange was met with glee by climate skeptics. But it was not deeply lamented by many renewable energy enthusiasts. The enthusiasts’ complained that the emission reduction goals of CCX were so unambitious and the measures of emission reduction were so relaxed that there was little pressure on CCX members to push up the price of emission permits. If emission permits were cheap, they provided little incentive to invest in renewable energy innovations.

It would be wrong to say that CCX was the sole promoter of cap and trade solutions in the US. A series of regional cap and trade systems, where the rules have been calculated in a more inclusive way than the CCX rules, continue to trundle forward. But there is no doubt that the closure of CCX, the Congressional barriers to a federal cap and trade agreement, and the emotionally-charged public relations campaigns against the concept of cap and trade have together seriously damaged the credibility of the system.

The fact the legally binding cap and trade system in Europe (ETS – the European Emission Trading System) has a pretty patchy history does not help. The ETS permitting system was established in 2005 and is in its second permitting phase at the moment. A recent report by the campaign group Sandbag found that ETS has provided virtually no incentive to cut emissions to date. In the first permitting round, far too many emissions permits were handed out free of charge by governments, so companies did not need to invest in energy efficiency or renewable energy to meet their limits. After permits for the second round were handed out, energy demand and emissions levels tumbled due to the economic downturn. Once again, the system provided no incentive to invest in alternative energy or energy efficiency measures.

We need global cap and trade

As the world’s nations head for Cancun, there is general recognition that cap and trade is the best and cheapest tool in the battle against CO2 rises. Cap and trade – if the caps are meaningful and the trading effective – will deliver large-scale funding for energy efficiency  and renewable energy, but it will deliver the benefits at a cheaper price than any other regulatory system.

Even the Chinese are making noises about developing their own cap and trade system. How serious they are about allowing emissions targets to interfere with economic growth is difficult to tell. After all, China still has millions of people on incomes near to $1 per day. Many of the developing nations, including African nations that stand to suffer severely from climate warming, have made it clear that they put poverty alleviation ahead of any limits on their emissions – particularly when their emissions per individual are still a fraction of the emissions in the Western world.

The developed world is giving mixed messages on its commitment to emissions reduction. While the Europeans have declared their intention to shape up their mis-firing ETS, there are others who are not prepared to take a piecemeal or regional approach to bringing down emissions. The Japanese are going into Cancun with a tough line. Hideki Minamikawa, vice minister for global environmental affairs at the Environment Ministry, says Tokyo won’t sign up to any legally binding emissions targets unless all major emitters – including China and the US – are willing to sign up as well.

If Cancun or the negotiations that follow it are to succeed, the United States is needed. But can President Obama’s team put forward a convincing roadmap to emissions reduction for his country?  A roadmap other country’s delegates believe will be delivered?

Perhaps its time that President Obama and his cabinet made a trip down to Sweetwater, Nolan County, and took some advice from Mayor Wortham. If we are to get global emissions reductions we need cap and trade. For that we need to escape the emotional touchpoints and focus on what matters.

We won’t get cap and trade until fearful ordinary Americans understand that this isn’t just about the climate, its not about tax or big government. Cap and trade is about funding the energy efficiency and renewable energy  projects that will deliver the US the independence, security, economic growth and jobs that its citizens crave.