Thursday, May 14, 2009

Why Environmentalists Should Oppose the Waxman-Markey Bill

Media coverage has been predictably confused about the compromises loaded onto the Waxman-Markey climate change bill. The headlines obsess on targets for 2020 (relaxed) and 2050 (maintained), as if decisions made today somehow preempt our choices over the next 10 or 40 years. They don't, of course, and reasonable people should pay no attention to them. Targets for the first year or two matter; beyond that it’s all rhetoric.

So forget the targets. What really matters is the architecture. If we put the wrong system into place, our job will only get harder, since it is much more difficult to dismantle and rebuild a regulatory structure than to set one up from scratch — sort of like the difference between brownfield and greenfield. To see this truth in action, just look at the struggle of the EU to get out from under their disastrous European Trading System.

So how does Waxman-Markey rate on architecture? It’s a loser. The single biggest flaw, one which is fundamentally not fixable, is the decision to issue permits on an industry-by-industry basis — to cap the uses of carbon fuels rather than their sources. This is an invitation to never-ending bickering over who is allowed to emit how much. Every little tweak of the system — whether to include freight transportation or agriculture (which crops!) — has to be hammered out separately. Reductions are calculated from a baseline, but there are acres of wriggle room about how to measure who emitted how much in the base year and therefore how much should be reduced tomorrow. Enforcement is complex, expensive and full of loopholes. Only lawyers (and politicians with extortionary campaign finance strategies) could love this.

There needs to be a single comprehensive cap on the sources, not the uses, of carbon fuels. Require permits for the extraction of these fuels from the ground or importing them from abroad. Limit the number of permits to achieve an emissions target, then leave it to the normal workings of the market to determine which industries will get which share of the stuff.

Auctioning the permits is also extremely important, but this is fixable in future iterations if the architecture is right. It is not fixable under Waxman-Markey, because the percentage has to be set for each industry separately, and cranking each one up to 100 is an impossible political task.

Mainstream environmental groups are not blind to these problems, but they see them as second-order. Above all, they are soooooo happy that climate deniers are not in command of politics any more. They are fighting yesterday’s battle, to get general agreement on the principle that climate change is caused by people, and people need to do something about it. They like the nice feeling that comes from all of us raising our hands and pledging, scout’s honor, to achieve sustainability by 2050. But they are losing today’s battle to put into place a viable means to get from here to there, and judging from their public statements they don’t even know it.

8 comments: said...

Hi Peter. I'm a reporter with Energy Intelligence Group whose covering the Hill action and would like to talk to you more on the subject. Nobody's talking about the problems with the structure of the cap and trade. Your comment that they're still basking in the glory of their electoral victory and losing focus on the issue seems both insightful and accurate to me. said...


I agree that the permits should be auctioned off, although we are going to hear especially loud screaming out of the aluminum industry if that happens. However, I admit to being mystified by your argument over capping fuel sources rather than outputs. Why? Are not the outputs what matter? If industries can figure out more efficient ways to burn coal more cleanly, why not let them?

hapa said...

lawsuits and bickering. sunk costs, debt, bad habits and dishonest accounting. bitterness, regret, nostalgia, fear, distrust, greed, discomfort, confusion, and everybody's favorite, betrayal. can't control those things, can only negotiate them down to a simmer.

Peter Dorman said...


Here are the problems with regulating carbon emissions sector-by-sector based on emissions via combustion:

1. You have to measure all this combustion. Enforcement is complex and expensive, and lots of small emitters will slip through the cracks.

2. The issue of coverage, which sectors need permits and which don't, is always on the table. And it's not just either/or; there are lots of fine-print details to be haggled over. Check out any of the existing systems that use this approach, like the ETS or the Western Climate Initiative.

3. All of the above is an open invitation to perpetual rent-seeking.

4. In the end, all the carbon in fossil fuels either goes into the atmosphere or some other component of the "fast" carbon cycle, or it is returned to the lithosphere. No long-term sequestering currently happens, so at the moment you can regulate emissions by regulating extraction and importation of these fuels. In the future, if technologies emerge that can sequester carbon on a geological time scale, you can give people extra extraction/importation permits in the amount of their sequestration.

Gar Lipow said...

Hi Peter. One more point on auctioning. Though I think you are right on everything else, I think you are wrong that lack of auctioning would be fixable if the rest of the architecture was good. Giving away a large percent of permits means you are removing steady customers from the carbon market. That increases volatility and decreases SHORT TERM effectiveness.
See my recent Grist post:

Peter Dorman said...

Gar, I did look at your Grist piece, but I confess I still don't understand it. We both agree that giving away permits is a bad idea. But if emissions permits cap emissions, they cap emissions, no? It is the number of permits and not how they are made available that should determine the carbon outcome. What am I missing?

Anonymous said...

Your argument is fundamentally wrong because you assume incorrectly that the Waxman-Markey bill caps all emissions at the downstream point of combustion. The bill, which passed the Energy and Commerce Commmittee tonight (I was happy to be in the room for the 33-25 vote), sets a cap on sales of oil (at refiners) and gas sales (at local distribution companies, except for certain large direct purchases). The only downstream point of regulation is for coal, of which 90% is burned by power plants. The US already has continuous emissions monitoring of CO2 from all US power plants (for all fuel types) so there's little added complexity from downstream regulation of CO2 from coal. Downstream monitoring is not the problem you make it out to be. Moreover, given the large number of oil and gas production wells and gathering fields, going upstream would be very burdensome and a midstream point, like refining, is more logical. I disagree with many of your other arguments and urge others to get the facts, read the details of the bills, and get up to speed on the existing monitoring systems before you make these types of assumptions.

Peter Dorman said...

I just saw Anonymous. He/she must have been following a different bill than I have. The one in front of me includes industrial stationary sources as "covered entities" and excludes any entity that emits less than 25,000 tons/yr. Read Sections 721 and 722. Section 713 ("Greenhouse Gas Registry") also mentions vehicle fleets as "reporting entities". I am not clear on the distinction between "reporting" and "covered" in this context; to require permits from these fleets as well as from the refineries that supply them would appear to be double-counting.

If Anonymous (or non-anonymous readers) think I have botched other aspects of W-M, I'd like to hear from them.