The big development in non-election news from Washington this week has been the collapse of bipartisan negotiations for cap-and-trade legislation, caused by Sen. Lindsey Graham’s defection. Said defection has been a long time in the making; earlier Graham broke off longstanding negotiations with Sens. Kerry and Lieberman on climate change, allegedly because he was angry with Harry Reid for hinting that immigration reform might come first in the Senate. Now that Reid’s backed off that idea, Graham’s been forced to more or less flip-flop entirely on climate change, and is now backing a far less ambitious bill introduced by Richard Lugar that would have no cap on carbon emissions.
The CW has suggested that Graham’s happy feet on climate change is the product of pressure from his Republican colleagues in Congress who don’t want any “cap-and-tax” bill and basically don’t want any cooperation with the Obama administration and congressional Democrats. But I think the problem may be a little closer to home for Graham.
Earlier this year, a couple of Republican county committees down in South Carolina raised eyebrows with censure resolutions aimed at Graham for his support for cap-and-trade, comprehensive immigration reform, and TARP. One of those committees was from Lexington County, which happens to be the residence of Nikki Haley, who then became the only gubernatorial candidate to embrace Graham’s censure for ideological heresy.
Now maybe it’s a coincidence that Graham threw in the towel on cap-and-trade the day after Haley became a national political rock star in the wake of her strong (49%) performance in the SC Republican gubernatorial primary, but maybe it’s not. Graham won’t be up for re-election until 2014, but as Bob Dylan once said (though not in the context of climate change): “You don’t need a weatherman to know which way the wind blows.”
I bring this up in part as a reminder to progressives who are naturally sympathetic to Haley as a woman and as a minority member who has been accused without much evidence of being a cheat and a liar, and called a “raghead” to boot. That’s all well and good, but don’t forget she is also a serious hard-core conservative who eagerly identifies herself with the Jim DeMint, take-no-prisoners wing of her party, and who may have just played a role in blowing up what was once a promising effort to deal with one of the most important challenges facing the country and the world. To be sure, she should be judged on her ideas and record and not subjected to gender-based double standards or sexual innuendo. But make no mistake, her “ideas” are really bad from any progressive point of view. She’s only a breath of fresh air in SC politics if you think, like she does, that the good ol’ boys who’ve been running things are dangerously liberal.
As diligently as cloistered monks, the commentariat is working hard to calibrate the exact amount of political damage the Deepwater Horizon oil spill is doing to the Obama presidency. Woeful analogies come fast and furious: the spill is Obama’s Katrina, or Obama’s hostage crisis, his Jimmy Carter moment.
All this would be comical if not for the media’s undoubted power to warp public perceptions by converting complex realities into political melodramas. What’s false about this one is its premise: President Obama could find a way to stop the leak if only he would “take charge” of the crisis.
Meanwhile, in the real world, the public doesn’t share the media’s apparently bottomless faith in the federal government’s problem-solving capacities. According to a recent Wall Street Journal/NBC News survey, only 25 percent of Americans trust the government to do the right thing most of the time. Nearly a third say they “almost never” trust the government to do the right thing.
But what’s really odd, as Jonathan Chait notes today, is the “assumption of presidential omnipotence” that informs the media’s assessment of Obama’s handling of the spill.
Today presidents are expected to take ultimate responsibility for every problem, natural or man-made, and to voice the nation’s emotional solidarity with victims of every disaster. In this vein, James Carville recently blasted Obama for failing to show up and emote in Louisiana as the oil spill threatens its shores.
Obama, always the calmest head in the room, has pointed out that since government doesn’t drill oil wells, it’s not likely to have superior experience and technical expertise when it comes to plugging oil leaks. What the administration can do is what it is doing: keeping pressure on BP to improvise a solution. Facing mounting clean-up costs and plummeting stock prices, the company has every incentive to do so.
The president’s proper role is not to play superhero or therapist-in-chief, but to draw from the crisis the right lessons for national policy. He did so yesterday, underscoring the need to pass energy/climate legislation that’s bogged down in the Senate. The bill, he said, would “accelerate the transition” to a clean energy economy. Crucially, it would for the first time put a price on carbon emissions, which would provide markets with a powerful signal to invest in alternative fuels.
If the spill galvanizes Obama into going all-in for a clean energy bill, as he did for health care, it could yet be turned to the nation’s advantage. But if the disaster leads progressives to vote against the bill, because it also contains incentives for more U.S. oil and gas exploration, the result will be a cruel irony: Congress’ failure to act on clean energy would leave America as addicted to oil as ever.
Since copies of the Obama administration’s new National Security Strategy began to circulate, there’s been a lot of cheering about how different from Bush’s it is. And true, it is. That’s made clear in the letter from the president on the document’s first page. And my hunch is that people stop there — you get your headline, and you run with it, not bothering to read the rest of the document.
Well, guess what? I just cozied up with a chicken sandwich, a Diet Coke and a bag of chips and read the whole enchilada.
It’s long and at times unwieldy. I understand, for example, that “spending taxpayer’s dollars wisely” is important, but not sure the White House should be compelled to include it in the strategy text. But that’s indicative of Obama’s style — when you seek input from everyone, you’ll tend to end up with a longer list.
But after digging through the document, it’s worth pointing out the specifics of how the strategy has a distinctly pragmatic progressive outlook. With that, here are the top 10 examples:
1. It reaffirms that America’s values are the source of its power, and that American exceptionalism endures:
[T]he work to build a stronger foundation for our leadership within our borders recognizes that the most effective way for the United States of America to promote our values is to live them. America’s commitment to democracy, human rights, and the rule of law are essential sources of our strength and influence in the world. America has always been a beacon to the peoples of the world when we ensure that the light of America’s example burns bright.
2. It prioritizes terrorism, Iraq, and Afghanistan while weighing them in the context of the 21st century’s other threats:
[T]hese wars—and our global efforts to successfully counter violent extremism—are only one element of our strategic environment and cannot define America’s engagement with the world. Terrorism is one of many threats that are more consequential in a global age. The gravest danger to the American people and global security continues to come from weapons of mass destruction, particularly nuclear weapons. The space and cyberspace capabilities that power our daily lives and military operations are vulnerable to disruption and attack. Dependence upon fossil fuels constrains our options and pollutes our environment. Climate change and pandemic disease threaten the security of regions and the health and safety of the American people.
3. America will only be secure if all government agencies coordinate effectively:
To succeed, we must update, balance, and integrate all of the tools of American power and work with our allies and partners to do the same. … We are improving the integration of skills and capabilities within our military and civilian institutions, so they complement each other and operate seamlessly. We are also improving coordinated planning and policymaking and must build our capacity in key areas where we fall short.
4. It is comfortable with, but prudent about, the use of force:
While the use of force is sometimes necessary, we will exhaust other options before war whenever we can, and carefully weigh the costs and risks of action against the costs and risks of inaction. When force is necessary, we will continue to do so in a way that reflects our values and strengthens our legitimacy, and we will seek broad international support, working with such institutions as NATO and the U.N. Security Council.
5. It’s tough as nails on al Qaeda:
[W]e reject the notion that al-Qa’ida represents any religious authority. They are not religious leaders, they are killers; and neither Islam nor any other religion condones the slaughter of innocents.
6. It advocates the responsible, measured pursuit of a world without nuclear weapons:
As long as any nuclear weapons exist, the United States will sustain a safe, secure, and effective nuclear arsenal, both to deter potential adversaries and to assure U.S. allies and other security partners that they can count on America’s security commitments.
7. The Obama administration trusts the UN:
We are enhancing our coordination with the U.N. and its agencies. We need a U.N. capable of fulfilling its founding purpose — maintaining international peace and security, promoting global cooperation, and advancing human rights. To this end, we are paying our bills. We are intensifying efforts with partners on and outside the U.N. Security Council to ensure timely, robust, and credible Council action to address threats to peace and security.
8. “Democracy promotion” — a term that became identified with the Bush administration — isn’t a dirty phrase:
The United States supports the expansion of democracy and human rights abroad because governments that respect these values are more just, peaceful, and legitimate. We also do so because their success abroad fosters an environment that supports America’s national interests.
9. The United States’ security is closely linked to clean energy:
As long as we are dependent on fossil fuels, we need to ensure the security and free flow of global energy resources. But without significant and timely adjustments, our energy dependence will continue to undermine our security and prosperity. This will leave us vulnerable to energy supply disruptions and manipulation and to changes in the environment on an unprecedented scale. The United States has a window of opportunity to lead in the development of clean energy technology.
10. It calls on politicians to stop being ridiculous and put country above politics:
Throughout the Cold War, even as there were intense disagreements about certain courses of action, there remained a belief that America’s political leaders shared common goals, even if they differed about how to reach them. In today’s political environment, due to the actions of both parties that sense of common purpose is at times lacking in our national security dialogue. This division places the United States at a strategic disadvantage.
Over the past few weeks, we’ve written a series of posts here detailing the issues that make up climate policy. The result is a climate policy cheat sheet of sorts: a list of these issues, divided into categories based on our view of their importance. Now that the Kerry-Lieberman draft bill has been released, we can use the list of issues to analyze it. Other summaries of the bill are out there, but we hope this one is simple and accessible enough to be useful to non-experts (this is the same goal we had for the cheat sheet itself). While we clearly have a policy preference—the greatest emissions reduction at the lowest cost—we don’t want to analyze or criticize the bill here; we just want to describe it. Other than the preferences and opinions implicit in our issue categories, we’re just giving you the facts here. We hope that sparks debate (even if it’s unlikely to convince you to tackle reading the 1000-page bill itself).
1. Does it create a price on carbon?
In short, yes. Kerry-Lieberman creates a cap-and-trade system that effectively sets a price on carbon emissions — but not all emissions are subject to the price, and those that are may not be included immediately.
2. How much of US emissions are covered by that price?
Initially, in 2013, the bill includes only the electricity and refining sectors within the cap-and-trade system. Transportation is included under the cap as well, but allowances must be bought by producers and importers — they aren’t auctioned. Large industrial facilities are included after 2016. Agricultural emissions aren’t included, but some reductions there can qualify as offsets.
In total, around 80 percent of U.S. greenhouse gas emissions are capped, but different sectors are treated differently. Not all sectors are part of the same market.
3. What is the path of emissions reduction set by the cap?
The emissions cap in the bill would decline over time, and would result in emissions reductions of 4.75 percent by 2013, 17 percent by 2020, 42 percent by 2030, and 83 percent by 2050.
Allowances are allocated by a mixture of gratis allocation and auctions. In the first years of the program, the majority of allocations are given away to industries and various research efforts, while some allowances are auctioned and the revenue generated is used to compensate consumers. By 2030, auctions are used to distribute 75 percent of allowances. A full breakdown of the allowance allocations is available here.
2. How are the public revenues from climate policy spent?
Revenues from auctions will be spent to benefit the public in a number of ways. Kerry-Lieberman directs the majority of auction revenues towards assisting low-income consumers, supporting the Highway Trust Fund, and rebating all consumers, though those provisions do not kick in until later years of the program. In the short term, allowances are given away to local electric and gas utilities with the requirement that the revenues generated be used to reduce the impact of the carbon price on consumers.
3. Are banking and borrowing allowed?
The bill allows for both banking and borrowing. Firms can bank an unlimited amount of allowances. There is also no limit when borrowing allowances from the next calendar year’s allocations. If firms want to borrow from future years, they may do so up to five years ahead, but they can only borrow up to 15 percent of their total allocation for the year in which they are borrowing. Additionally, any borrowed allowances accrue 8 percent interest.
Yes. The price floor is set at $12 and increases annually at 3 percent above inflation as measured by the Consumer Price Index. The price ceiling is initially set at $25 and increases annually at 5 percent above inflation.
2. Are offsets allowed?
Offset are allowed. Similar to Waxman-Markey, regulated parties may use up to 2 billion offset credits to be in compliance. At the outset of the program, 75 percent of offset credits must come from domestic sources and up to 25 percent can come from international sources. If regulators determine the supply of domestic offsets is not enough to meet initial proportions, then international offsets may increase up to 50 percent of the total supply. After 2018, 1.25 actual international offset credits are equal to 1 emission allowance. The US Department of Agriculture has primary oversight of domestic offsets.
3. What are the effects on international negotiations and trade-vulnerable industries?
The bill maintains the United States’ previously stated commitment to reduce its emissions by 17 percent of 2005 levels by 2020 and 83 percent by 2050. It includes some funding provisions in the form of allowance allocations for international adaptation efforts. Trade-vulnerable industries’ entry under the cap is delayed until 2016 and they are given rebates in the form of 15 percent of all allowances from 2016 to 2025. The bill also expands current clean energy manufacturing tax credit programs by $5 billion and it establishes a WTO-compatible border adjustment to be instituted sometime after 2020, dependent on presidential and congressional findings.
No. There is no federal standard, though states are permitted to keep or implement them.
2. Is existing EPA authority to regulate GHGs preempted?
Generally, yes. The Clean Air Act authority that the EPA currently has to regulate stationary sources is preempted. The EPA would keep its authority to regulate vehicles, the only part of its authority it has used to date for greenhouse gases. The EPA could still set performance standards for industrial sources not included under the cap, but to date the EPA has shown no interest in regulating these smaller sources.
3. Are state GHG regulations preempted?
State cap-and-trade programs would be preempted by the bill, though states with such programs and emitters subject to them would receive credit. Other state-level regulations are not preempted. In principle, states could implement renewable portfolio standards, performance standards, or even a carbon tax.
4. Are allowance markets closed to Wall Street?
The allowance trading market would be regulated by the Commodity Futures Trading Commission, and the regulatory restrictions in the bill are extensive. Markets are, however, open in principle to parties other than emitters themselves if they are “necessary for a liquid and well-functioning market”. Carbon derivatives are allowed but tightly regulated. Short-selling of allowances is prohibited.
5. Does the bill promote energy security?
The bill would increase investment in new nuclear power plants with loan guarantees and an expedited regulatory review process.
The bill would also create incentives to expand offshore oil and gas drilling, with 37.5 percent of royalty revenues directed to states that permit drilling. States would, however, retain veto rights over drilling within 75 miles of their coast and in other circumstances where they can show they would be significantly affected.
This month 189 countries are gathered at the United Nations in New York for a review of the Treaty on the Non-Proliferation of Nuclear Weapons. This review, which has occurred every five years since the treaty was indefinitely extended in 1995, is designed to give the member states the opportunity to discuss how the goals of the treaty are being met — or not. In broad terms, the treaty obliges those members with nuclear weapons to get rid of them and those members without nuclear weapons to never seek them, while promoting peaceful use of the atom by all.
The NPT, as the treaty is informally known, has been highly successful to date: a slow but steady global spread of nuclear power has occurred, while at the same time, many countries have elected to halt nuclear weapons programs and join the treaty regime; three countries — Israel, India and Pakistan — have never ratified the treaty and are either known or believed to have nuclear weapons; only one country — North Korea — has abandoned the regime and developed weapons; and only one country — Iran — is currently believed to be developing a nuclear weapons program while still notionally adhering to the treaty. One of the reasons the NPT has been so successful in promoting nuclear power while damping the spread of nuclear weapons are the guidelines created by the Nuclear Suppliers Group, NSG, a consortium of the countries that build and supply the vast majority of the materials required to build and maintain a nuclear power or nuclear medicine program. These guidelines exist “to ensure that nuclear trade for peaceful purposes does not contribute to the proliferation of nuclear weapons or other nuclear explosive devices which would not hinder international trade and cooperation in the nuclear field.”
It is time, however, to consider a different NPT, namely, a Non-Proliferation Tax. This NPT is the indirect price everyone pays for keeping dangerous nuclear materials and nuclear technologies out of the hands of those who might use it for nefarious purposes. But don’t worry — this isn’t a new tax up for debate. Rather, it’s part of the current taxes individuals and businesses already pay.
Some of what we get out of this tax is obvious: funding U.S. diplomats and technical experts to work on these issues at the United Nations and other international bodies such as the International Atomic Energy Agency, and to coordinate U.S. work with the NSG. Other efforts are well known, such as those led by the U.S. Departments of State and Energy collectively known as the Cooperative Threat Reduction Program — or Nunn-Lugar Program, for the Senators most responsible for writing the 1992 legislation that created the program. These programs have helped to secure Russian nuclear weapons and fissile materials and to provide Russian and other former Soviet weapons scientists with the training to find work in non-weapons fields; they are being expanded to cover other topics, such as the life sciences, and other parts of the world, such as South and Southeast Asia.
Other efforts that are funded by this non-proliferation tax include the Proliferation Security Initiative, PSI, and the Second Line of Defense, SLD, program. The PSI is a program, started under the G.W. Bush administration and is a collaboration among some 95 countries to intercept illicit shipments of nuclear equipment and materials. The SLD program, also started under the G.W. Bush administration, is installing radiation portal monitors at border crossings and major seaports all over the world in an effort to detect smuggled fissile materials and improvised and stolen nuclear weapons.
Some of these programs are expensive — the SLD program will cost billions of dollars, and the U.S. has spent many more billions over the past 15 years — but the importance of the programs is also irrefutable. Some have calculated that this cost is $50 per month for every household in the U.S.
The problem, though, is that the cost of nuclear proliferation isn’t always obvious to the people, companies, and industries that directly benefit from the nuclear power sources that this money safeguards. After all, the programs are run by the U.S. government and funded by U.S. taxpayers, not by ratepayers or by the nuclear industry. The goal, then, should be to ensure that nuclear power spreads in a way that doesn’t require a significant growth in the non-proliferation tax. This requires careful examination of new enrichment and reprocessing technologies, to make sure that development and commercialization of these new technologies will not make it harder to safeguard the facilities that use them or to detect covert programs. It also requires the broad industry-wide information sharing program suggested in my last column.
This is not an insurmountable problem, but requires that a holistic view of the costs of the proliferation of nuclear technologies be taken as we see an expansion of nuclear power.
A fascinating experiment is unfolding in the nation’s Northwest, where a candidate for governor of Oregon is campaigning against politics itself. In a recent visit to Washington, D.C., John Kitzhaber, a medical doctor by training who served two terms as governor of Oregon from 1995 to 2003, discussed his approach to his third campaign. Wearing a blazer, his trademark sunrise tie and boots, Kitzhaber described his desire to run a wonky campaign that would be mostly about policy — especially clean energy, the subject of PPI’s E3 Initiative.
“I’m in a position in my life where I don’t need to do this,” the 63-year old Kitzhaber said. “I’m not running a typical slash-and-burn campaign.” Kitzhaber has followed through so far, in a few short months churning out some thoughtful policy papers on job creation, energy and health care.
Of particular interest is his focus on energy. In Oregon — a state that already places a great emphasis on clean energy — Kitzhaber said he sees an opportunity to “recreate the political center.” Oregon has been leading on mining “negawatts” for over three decades. As Kitzhaber’s energy plan notes, “The economic and environmental returns on these investments have been even greater: ‘new’ energy supplies from efficiency savings cost one-half to one-third that of new power plants, emit no carbon or other pollution, and don’t jeopardize fish runs. Energy efficiency has been the single largest new resource for the region since 1980.”
Oregon’s existing targets are already ambitious: 25 percent renewables by 2025, and reducing greenhouse gases to 10 percent below 1990 levels by 2020 and 75 percent below 1990 levels by 2050. However, Oregon currently lacks a comprehensive strategic plan for all these goals.
At the D.C. meeting, Kitzhaber observed that Oregon spends $12 billion a year on energy, but 85 percent leaves the state. As governor, he promised to begin with large-scale energy retrofits, including public buildings, where he thought 25 percent of energy could be quickly reduced, freeing up capital and creating good jobs in the process. “We need to view a KWh saved just the same we view one created,” he said.
This approach would put Kitzhaber squarely in line with the Obama administration, which in a series of largely unheralded victories, has used stimulus funds to turn the ocean liner of America’s domestic energy practices toward a sunnier horizon.
Whether or not Kitzhaber wins, it seems clear that there’s a trend here among certain states to push the green envelope. In Massachusetts, Governor Deval Patrick and Secretary of Energy and Environment Ian Bowles have paved the way in pushing an integrated, regional approach to clean energy and demonstrating clear results, as PPI recently highlighted with an event in Boston with local economic leaders.
In these partisan times, and with the recently released Kerry-Lieberman bill, these are all promising signs that clean energy really can be about policy, not politics.
This PPI series will guide you through the main issues that are likely to arise in the coming weeks as the Senate takes on climate change. Some of the issues that come up will be essential to a good climate bill. Others might get a lot of play but are in fact trivial for climate policy. The “cheat sheets” below will help you make sense of the climate bill that eventually emerges from Congress:
How to tell a good climate bill from a bad one? This series will guide you through the main issues that are likely to arise in the coming weeks as the Senate takes on climate change. In previous posts, we looked at the crucial, the merely important and the negotiable elements in a climate bill. In this post, the last in the series, we highlight issues that might be popular or politicallyimportant, but which actually don’t matter that much for climate results. (To see all the posts in the series, click here.)
As with any big issue in Washington, climate policy has its share of sideshows and special-interest pet projects. If somebody’s favorite policy can be plausibly (or even implausibly) tied to climate, it’s a good bet they’ll attempt to do so. Conversely, if someone wants to hijack the climate debate, they may try to attach an unpopular issue to it. There are also a good number of perfectly well-intentioned ideas that, in reality, won’t make much difference in terms of climate policy.
Our goal in this post is to identify these issues: those that we feel are just political distractions, and those that won’t make much difference. If you’ve followed climate policy, you might find some surprises here — we include some issues that are often trumpeted as important. Not all of the policy proposals we mention are necessarily bad. Some are, but others are just not that important and will not have much effect on emissions reductions or the cost to the economy.
Category IV Issues: The Bad, the Irrelevant and the Trivial
#1: Renewable portfolio standards
A renewable portfolio standard (RPS) is a requirement that a certain percentage of electricity supplied by power companies come from renewable sources: wind, solar, geothermal and sometimes hydro or nuclear. A majority of states have an RPS in place, but there is no current federal standard. Many climate proposals, including Waxman-Markey, include an RPS.
Superficially, the idea is appealing: by forcing power suppliers to use renewables, an RPS expands the market for them. This will obviously increase their use, reduce emissions and encourage innovation in renewable techs.
The problem is that once you have a carbon price, moves to renewable energy sources should happen anyway, making an RPS redundant. Since burning fossil fuels becomes more expensive, power suppliers will shift to cleaner technologies. Some of this switching will be to renewables, while others will be to cleaner fossil fuels like natural gas – a fuel that is excluded in most renewable portfolio standards.
If the standard is set at a level lower than the amount of renewables that power companies would shift to anyway under a carbon price, then an RPS is totally irrelevant: companies would meet the standard just by acting in response to the price. But if the standard is set at a level higher than the amount of renewables utilities would use, an RPS imposes additional costs. Power companies that would like to switch to cheaper and clean(er) technology — like natural gas or nuclear (if it’s not included in the RPS) — would be limited in their ability to do so by an RPS. Instead, an RPS would force them to use more expensive renewables in their efforts to make their emissions targets. Those costs get passed on to consumers, making climate policy more expensive.
And here’s the thing: it would be costlier without providing any additional emissions benefits than what we would get under a cap. An RPS is often favored by environmental groups (and, of course, firms with investments in renewables) presumably because they think a carbon price will be too low to achieve the level of clean energy use they prefer. But this doesn’t make much sense. The cap set by a climate policy determines the environmental outcome; all an RPS would do is restrict the ability of power companies to decide how to meet that cap. In other words, an RPS doesn’t result in lower emissions. If you want that, you need to go back to Category I — set a tighter cap (or a higher carbon tax).
Note that the fact that an RPS is a bad idea doesn’t necessarily mean that government investment in R&D for renewables is unwise — such investments are responses to identifiable market failures. But an RPS would be a poor remedy for those failures.
If Congress does pass a new law, how should that law deal with the existing EPA authority? The majority (though not consensus) view on the Hill appears to be that new legislation should preempt this authority. Waxman-Markey would explicitly remove the EPA’s authority under the Clean Air Act to regulate greenhouse gases from stationary sources (but would leave regulation of vehicles intact). Preliminary indications are that the Senate bill would do the same.
Many environmental groups oppose this preemption, claiming that EPA authority is needed in case the climate law does not go far enough. Again, this doesn’t make sense. First, EPA authority isn’t a kind of reserve power, to be used only when a new law appears inadequate. If Congress passes a new climate law but leaves existing EPA authority intact, the EPA will still be legally required to regulate greenhouse gases. Waiting to see if the new climate bill is “good enough” before taking action won’t work: the Bush EPA advanced similar arguments in Massachusetts v. EPA and lost. In other words, preempting the EPA isn’t like discarding a useful tool — it’s like turning off a machine. New climate legislation is a better machine.
Second, where the EPA does have discretion, it needs the political will to act. The moves that the EPA is currently making to regulate greenhouse gases are highly controversial. It has taken years (arguably decades) of congressional inaction on climate for the EPA to use its exisiting authority to regulate greenhouse gases. If there is a new climate law, it will likely sap the agency’s will to act further on climate even if authority is not preempted. In that environment, it is hard to see the administration devoting resources and political capital to additional regulations (beyond the minimum that is legally required) for the foreseeable future.
In short, there are some things the EPA must do, and a new climate bill cannot change that without preempting agency authority. There are other things the EPA has control over, but action on those areas will be unlikely for political reasons once a climate law has been passed. If environmental groups feel that the climate proposals under consideration don’t go far enough, they should make an effort to convince legislators — and their constituents — of that. The move to preserve the EPA as an alternative venue for their arguments is understandable, but a little cynical. The time for the climate policy debate is now (we hope), and the venue is Capitol Hill.
#3 Preempting the states
Like the EPA, states have made moves to regulate greenhouse gases in the absence of action from Congress. California’s AB32 law (which commits California to reducing emissions to 1990 levels by 2020) and the creation of a Regional Greenhouse Gas Initiative, a regional carbon market by some states in the Northeast, are the most notable examples.
How should a federal climate law treat these regional and state efforts? Should they be allowed to continue, or should federal law preempt them?
The basic answer is similar to that for renewable portfolio standards: state-level regulation makes sense now, but is mostly useless or even counterproductive if there is a national carbon price. As Robert Stavins recently explained, state-level greenhouse gas regulation that is stricter than the national cap doesn’t reduce overall U.S. emissions — it just forces emissions out of the regulating state into one without climate regulation. This drives up prices in the regulating state without any climate benefit.
Preemption of state greenhouse gas regulations therefore probably won’t have any negative impacts for emissions and climate. Stavins points out that there still may be benefits for smaller state-level regulations in situations where a low federal carbon price fails to push beneficial changes. That’s true, but so long as the new federal law has a serious emissions cap, preempting major regulations like AB32 and regional carbon markets is fine. Industry wants this preemption since they’d rather have a single set of rules to comply with. It’s a concession that policy-makers can make at little or no environmental cost.
#4 Wall Street
Wall Street does not have a very good reputation right now. Creating a new market for carbon allowances means new opportunities for brokering trades between emitters — and with that market, possibilities for speculation, new financial instruments such as derivatives and possible opportunities for abuse. Some on Wall Street certainly see carbon as just another commodity and carbon markets as a big opportunity.
But while derivatives have been called financial weapons of mass destruction, they can play an important role in future carbon markets. Firms will need some kind of mechanism to protect against the risk of unforeseen events that cause them to be out of compliance with the cap, such as emergency fuel-switching or inaccurate emissions accounting. Since regulated firms are exposed to such risks, they will look to reduce that exposure through insurance in the form of carbon derivatives. The market must be properly regulated (the rules can be written directly into climate legislation), but assuming it is, the benefits of reduced transaction costs and improvements in liquidity that financial expertise can bring seem likely to exceed the costs of possible fraud or abuse.
Some of the criticism may arise not from a fear that the government will be unable to prevent criminal or undesired activity, but from opposition to creating a new market (and new profit opportunity) for Wall Street. As Michael Levi points out, however, somebody has to run a carbon market, and they had better have expertise. For all its recent failings, Wall Street firms have world-class market-making expertise. Oversight is necessary, but keeping the best financial minds away from carbon simply because they’re unpopular right now is likely to be costly.
#5 Drilling and energy security
One touted benefit of a climate policy that reduces reliance on fossil fuels is that it improves American energy security. This is easy to understand: oil comes from somewhere else, and if we use less oil, we won’t import as much. This improves our trade deficit and reduces reliance on unstable parts of the world for energy.
All of that is a good thing, but it’s a side benefit — it has nothing to do with climate. Indeed, policies that improve energy security might or might not have climate benefits. Putting a price on carbon certainly will, but increasing domestic oil supplies by expanding drilling won’t — it will either replace imports and have no overall effect on emissions or it may drive down (ever so slightly) the price of oil, which will increase consumption and emissions. If domestic drilling does not result in increased emissions, it is not necessarily a bad idea, but it can’t be justified on climate policy grounds.
Drilling is an energy issue, not a climate one. But climate legislation itself has been framed as being about energy (and, specifically, energy security) as much as it is about climate change. That’s not unexpected, and it will similarly be no surprise if climate legislation includes provisions to expand drilling, though how the political dynamics of the Gulf Coast oil spill play out over the next few weeks will determine what, if anything, is included. The point is that these provisions are political — they are in there to attract support for the bill or placate opponents, not for any climate benefits.
The Bottom Line
As the Senate tackles climate legislation, numerous provisions and elements are likely to be raised. Be wary if the conversation begins to get bogged down around the following questions:
Does the bill have renewable portfolio standards?
Does it preempt EPA authority?
Does it preempt state regulations?
How does Wall Street come out?
Does the bill tackle our energy security problems?
These questions are largely distractions to the ultimate objective of a climate bill: reducing greenhouse gas emissions as much as possible at the lowest possible cost. If you care about climate change, keeping your eyes on that end goal will be crucial if there is to be any hope of untangling the legislative thicket and passing a meaningful climate bill this year.
How to tell a good climate bill from a bad one? This series will guide you through the main issues that are likely to arise in the coming weeks as the Senate takes on climate change. In previous posts, we looked at the crucial and the merely important issues that factor in the climate debate. In this post we highlight issues that matter for climate policy, but will not necessarily make or break it. (To read the other posts in the series, click here.)
So far, we’ve established the absolutely critical aspects needed to make credible climate policy and identified the important features that would make that policy effective. Now we will focus on issues that aren’t quite on the same level, negotiable elements that could still have a meaningful role in determining the long-term viability and effectiveness of a domestic emissions mitigation program. These issues — specifically, price controls and the international implications of U.S. legislation — could become a big part of the political discussion.
Category III Issues: Negotiable Elements of Climate Policy
#1: Price controls: offsets and collars
An uncontrollably rising carbon price is a nightmare scenario for regulated firms and consumers, so industry groups have made a priority of getting robust price controls into climate legislation. Price controls generally take three different forms: banking and borrowing, offsets and price collars. Because banking and borrowing has such a strong effect on the emissions reduction path, we included them in our last post. Here we’ll focus on the two other strong cost containment mechanisms.
a) Offsets
If you’ve been paying attention to the debate over the past two years, you’ve likely heard something about offsets. They are one of the most controversial aspects of climate legislation. Environmentalists are suspicious of them and industry can’t live without them.
What exactly are offsets? As we mentioned in a previous post, carbon is a stock pollutant, meaning that we only care about its total accumulation in the atmosphere. If you keep adding carbon to the system, but remove an equal amount at the same time, it is just as good as no longer adding carbon at all. This is the underlying principle of offsets — firms that pay to remove greenhouse gases from the atmosphere (or keep them from entering in the first place) can receive the same credit they would get if they reduced their own emissions.
For example, with offsets in a cap-and-trade system, a utility that needs to reduce its carbon emissions by 20 million tons need not do so only through emissions cuts from its operations. It could reduce its own emissions by 15 million tons, then receive offset credits through financing a reforestation project and an agricultural methane reduction project that combined would lead to emissions reductions of five million tons, allowing the company to meet its target.
Here is a quick list of different kinds of offsets that might count under climate legislation:
Forestry: Forests absorb CO2 through natural respiration processes and store it in plant tissue and soil. When deforestation occurs, that stored carbon is released into the atmosphere, contributing to emissions. Deforestation and forest degradation count for around 15 percent of global CO2 emissions. Projects that reforest — increasing carbon sequestration — or reduce deforestation and forest degradation are growing increasingly popular in voluntary carbon markets and may facilitate significant savings. Some models have speculated that international forest offsets can account for 25 percent of emissions mitigation by 2020.
Agriculture: The agricultural sector accounts for six percent of U.S. emissions, but agricultural emissions will probably not be covered by a carbon price due to the complexity of measuring emissions from agricultural practices and the power of the farm lobby in Washington. The important gases from agriculture are methane emissions from large-scale cattle operations and manure management, and nitrous oxide emissions from fertilizer applications and soil management. Offset projects that capture renegade methane emissions or reduce nitrous oxide releases through better soil management will likely be the most widespread offsets available from the agriculture sector.
Renewable energy/energy efficiency: Projects that supplant dirty energy sources with cleaner sources or improve efficiency in energy production or end-use can also be eligible for offset credit. For example, a firm looking for cheap reductions could finance the development of a renewable energy project and receive credit for the emissions reduced when the renewable energy displaces conventional dirty energy. Additionally, projects that increase the efficiency of energy usage in buildings or facilities can count as offsets. These projects are a major component of the Clean Development Mechanism (CDM), which was established by the Kyoto Protocol. Using the CDM, developed countries can sponsor projects in developing countries and receive emissions reduction credit.
Waste management: The decay of garbage in the nation’s thousands of landfills represents the second largest source of U.S. methane emissions behind cattle operations. Methane flaring, a process that captures and burns these emissions, converting methane into CO2, is considered an offset, as CO2 has a lower global warming potential than methane. Combusting methane for energy generation may also generate offset credits.
Fugitive mine emissions: As with landfills, capturing fugitive methane emissions from coal mines presents an opportunity for offsets and may also have benefits in terms of miner safety.
While all of these offsets options are currently available in voluntary offset markets and allowed by regional cap-and-trade schemes like RGGI, they may not all be eligible for credit under federal regulation. Waxman-Markey does not count renewable energy, energy efficiency, waste management and coal emissions as offsets. Cantwell-Collins does not allow offsets in its trading system, but it does permit such projects to be paid for from its Clean Energy Reinvestment Trust.
Many offsets will be cheaper than actual emissions reductions, making them an important means of price control. This is especially true for international forest offsets — the EPA analysis of Waxman-Markey contended that allowance prices would be 96 percent higher without them. That said, Greenpeace and other environmental groups have firmly planted their flag in the anti-offset camp, and there are a number of issues that would need some serious policy attention in order to make forest offsets credible in the U.S. market.
There are four major requirements to making offsets a robust tool. First, they must be additional — that is, projects should only be considered offsets if the specific practice would not have happened anyway. Second, offsets should have permanence — projects are only useful if they are not quickly undone (an offset for planting a tree is of little value if it is rapidly cut down). Third, offsets should be verifiable — there must be some way to confirm that projects are doing what they claim (for forests, this can be very difficult). Finally, offset programs should address leakage — they should not simply shift emission-generating activities somewhere else. These are all valid concerns, and all four will have to be addressed for offsets to be a credible part of climate policy.
Potential hang-ups for offsets will likely involve politicians’ hesitations to send large sums of money overseas, the reliability and veracity of offset credits, the number of offsets allowed for use by regulated firms and the type of offsets available from domestic sources. Despite the misgivings of some policymakers and commentators, offsets will figure prominently in domestic legislation. Waxman-Markey included two billion tons worth of offsets annually, a significant proportion of overall U.S. emissions, the same amount as in the Kerry-Boxer bill introduced in the Senate last fall. Instead of spending time and energy railing against them, policy discussions should instead focus on setting up institutions to fix the problems listed above.
b) Price collars
More than anything else, firms want some certainty when it comes to climate regulations. Planning capital investments over the long-term will be significantly affected by carbon prices, and the more predictable the changes over time, the better firms can plan ahead. Moreover, sudden system shocks in the form of extreme drops or increases in prices can be very expensive and detract from the efficacy of cap-and-trade markets.
To protect the system and reduce price uncertainty, policy-makers are looking to use a price collar in the allowance market. A price collar is a way to define a general price path by restricting how much the price can rise or fall. Price collars work by establishing a price floor — under which the allowance price can never drop — and a price ceiling — above which the price will not rise. It is a simple mechanism in concept, and can provide a lot of certainty for regulated parties and market participants. The price floor and ceiling should be spaced far enough apart to accommodate market dynamics and rise at some rate to match the general rise in allowance prices.
When allowance prices hit the floor, they simply remain at that price until trading forces the price to rise again. Things get more complicated when they hit the ceiling, however. There are two options to bring down the price, depending on if you employ a hard collar or a soft collar. A hard collar releases additional allowances into the system until the price drops, regardless of how many it takes to do so. By contrast, a soft collar uses a strategic reserve of set-aside allowances to reduce the price below the ceiling. The difference between the two is a matter of emissions certainty. A soft collar maintains the overall emissions cap by taking some out of the system at the beginning, much like a rainy day fund, whereas a hard collar just dumps allowances into the market until the price changes. Firms may favor a hard collar because it provides more price certainty, but people concerned about overall emissions will prefer a soft collar.
#2: International aspects
If and when Congress does pass climate legislation, its impact will reach far beyond our borders. The international implications of domestic climate policy are extensive, and while they do not play a huge role in the political discourse, they have sway over some notable policy choices.
a) International negotiations
The Conference of Parties (COP) 15 in Copenhagen in December 2009 was advertised as a chance for the U.S. to reclaim its place at the world leader and innovator on environmental issues. The U.S. was able to do that only partially, and that was due largely to the extraordinary personal diplomacy of President Obama. U.S. negotiators had little to work with, bringing with them no official legislation to show other nations while trying to broker a deal that could pass Senate muster. Without a signed bill, the 2010 COP in Cancun this coming November will probably turn out similarly; nations will bicker and haggle and eventually end up not making any kind of serious commitment sans U.S. leadership. The EU does not have the sway to move a global climate deal forward, while other major emitters like China and India don’t have the incentive to act.
That’s not to say international negotiations will not have some influence on the shape of U.S. legislation. At Copenhagen, the U.S. committed to provide $30 billion from 2010 to 2012 to developing countries for mitigation, adaptation, technology transfer and other assistance. Additionally, the conference agreed to establish an annual $100 billion fund — of which the U.S. is expected to give roughly $20 billion — for developing countries for the same uses. Some of this funding will likely be partitioned from current programs, but it will certainly not be enough. Revenues from carbon markets established by climate legislation — as well as allowance allocations — will likely provide the most reliable source of international funds. The tradeoff is that every dollar spent on helping other nations adjust to climate change is one that can’t be used domestically. Though it won’t dominate the debate over any climate bill, the use of carbon revenues for international financing could end up having a real impact.
b) Competitiveness and leakage
Certain industries with intrinsically large carbon footprints, such as cement, steel and paper pulp, are particularly sensitive to carbon prices. These industries are concerned that paying for their sizable emissions will reduce their overall output, leading to job cuts and smaller profit margins. Moreover, they worry that a U.S. carbon price will lead to a shift in production to other countries that do not have similar regulatory burdens. When firms leave for other countries that don’t have a climate policy, it could lead to higher overall global emissions, a phenomenon known as leakage.
There are a couple of solutions to these problems. First, to help protect industries at home, climate policy can include rebates to industries — either in the form of cash or extra tradeable allowances — based on their output to help them adjust to the new reality of a price on carbon. Second (and more controversial), the federal government can establish border adjustments, slapping taxes on imports competing with vulnerable domestic industries. Essentially tariffs, such levies would put goods from countries without a climate policy on the same level as those from the U.S. Border adjustments can make for tricky politics, though. When the Waxman-Markey bill passed the House in 2009, President Obama openly criticized the inclusion of such measures. When the debate picked up in the Senate, however, 10 Midwestern senators stated they would not back any climate legislation that did not support manufacturing interests with some kind of border provision. Even if some compromise allows border adjustment to find its way into climate legislation, there’s a chance it would not be allowed under WTO agreements.
The Bottom Line
Last post, we reviewed important aspects of climate policy. In this post, we surveyed two areas that have value in generating good policy, but are negotiable in terms of their importance:
Is there a price collar? Are offsets allowed?
What is the effect of the proposal on international climate issues? How will it affect negotiations and commitments? How does it attempt to protect trade-vulnerable industries?
In our next and final post, we will focus on the issues that make little contribution to good climate policy — or might even be counterproductive.
For the last three days, I’ve been running around Stockholm giving what seems to be 27 lectures on energy security and/or President Obama’s foreign policy. I’ve spoken at think tanks, the American Embassy (twice!), with MPs, corporate executives, and the guy who wrote the definitive Swedish book about the Obama campaign (“Are you going to have it translated into English?” I asked naively. “Well, I looked on Amazon,” he responded, “and there are already 637 English language books on Obama’s campaign. So I think I’ll start with Danish instead.”) It has been a whirlwind tour thus far but should slow down a bit toward the weekend, which would allow me to enjoy a few days with some good friends in Stockholm.
My energy talks are designed to shed some light on the political framing of energy issues since Obama took office. Since only six out of 10 Americans believe there is solid scientific evidence that the earth is warming, I talk a lot about the $400 tank of gas in Afghanistan and energy independence from power thugs like Vladimir Putin and Hugo Chavez. As a matter of fact, if you’d like the basic gist of a good chunk of my talk, just read this post.
But beyond gasoline and warzones, I’m also banging the drum about nuclear power, a power source that PPI has long supported even as the left keeps it at arms-length, and that is a critical component of America’s drive towards energy independence. I’ve been telling the story of Barack Obama’s embrace of nuclear power in the State of the Union, which was closely followed by a trip down to Georgia to announce the first construction of a nuclear plant in the U.S. in about 25 years.
Why does all this matter to Sweden? Sweden is facing a general election this September. The Red-Green Coalition of Social Democrats and the Green Party is currently in opposition but stands a good chance of beating the incumbent center-right coalition. And that, in a sense, would be a return to normalcy in this social-democratic mecca. I don’t have the numbers of the top of my head, but only about 15 of the last 90 years haven’t seen a Social Democrat in the PM’s office.
And while SD party leader Mona Salin may get there, it will be with significant help from the Greens. The Greens stand to rocket up from 5 percent last election to near 10-15 percent this year. And guess what? They hate nuclear power, falsely believing that it is unsafe and dangerous. Just yesterday, the coalition presented a plan that would tax “excessive profits” of energy companies, including nuclear.
Political insiders here think energy could be one of the more contentious issues within the Red-Green coalition. In the article I cite above, note how the Green Party spokeswoman says that her faction had to compromise, which implies that the Social Dems were resistant to higher energy taxes. But giving the Greens’ increasing appeal, their policy carried the day.
Penalizing nuclear power isn’t natural for the Social Dems — in the ‘60s and ‘70s, they led the charge to build Sweden’s 10 reactors that today produce nearly 50 percent of its power. Indeed, Sweden draws 90 percent of its power from hydro and nuclear, meaning that nearly all of its power is from non-carbon sources. It is an unfortunate about-face to propose taxing an energy source that is established, clean, and safe.
And that’s where I come in — an American progressive who can talk about creative ways to frame energy issues, and use Barack Obama’s nuclear story to give Swedish Social Dems a few reasons not to turn their backs on power sources that they once endorsed and that continue to make sense.
In recent months, we at PPI have been doing our level best to call the nation’s attention to a bright green section of the map in the northeast, where Massachusetts is leading the way on virtually every front of environmental regulation and the building of a clean economy. Yesterday, Massachusetts found itself leading the way yet again, as the Obama administration announced the approval of the Cape Wind project, an offshore wind farm off the coast of Cape Cod.
We at PPI weren’t surprised. We had heard the inside word on the progress of the Cape Wind project in a meeting we held several weeks ago with several dozen New England business leaders, energy entrepreneurs and activists, featuring Ian Bowles, Massachuetts’ pathbreaking secretary of energy and environment. As Bowles told the crowd in early March, Cape Wind had passed most of its regulatory and litigation hurdles, and the administration was likely to support it.
Bowles was an unqualified supporter of the project, which promises — over a quixotic range of objections from various local NIMBY opponents — to provide a highly promising clean source of energy for Massachusetts. Cape Wind is rated to produce up to 468 megawatts of wind power, with average production of be 170 megawatts — almost 75 percent of the 230 megawatt average demand for Cape Cod and the Islands of Martha’s Vineyard and Nantucket.
Now that it’s a go, Cape Wind will become a pilot project for the nation and for President Obama’s push for a clean energy economy, a broad, innovative agenda that encompasses (among others) wind power, nuclear energy and myriad efficiency projects that will gain us millions of “negawatts.” Interior Secretary Ken Salazar’s announcement of the administration’s support for Cape Wind is another chapter in this still-being-written book about the nation’s future — whose pages open, fittingly, where our history begins, in Massachusetts.
The following is a guest column from Pirooz Hamvatan, a pseudonym for a Washington, D.C.-based analyst focusing on Iranian domestic and security issues, and Ali K., currently a business student in the U.S. and a supporter of Iran’s Green Movement who was severely beaten by the Basij militia during a peaceful demonstration in Tehran last year.
Congress is on the verge of sending a petroleum sanctions bill to President Obama that has wide bipartisan support in Congress. But far from posing a serious challenge to the regime, the bill could in fact inadvertently undermine long-term U.S. interests by weakening the Iranian civil rights movement and strengthening President Ahmadinejad and his cronies.
The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2009, currently in conference committee, will direct the president to impose sanctions on any entity providing Iran with “refined petroleum products” worth $200,000 or more per transaction, or $1 million per year. The bill defines refined petroleum products to include diesel, gasoline, jet fuel and aviation gasoline.
The new bill aims to cripple Iran’s economy in response to Iran’s refusal to halt its nuclear program. But the sanctions being proposed are not the right answer. Such a sweeping measure would end up only hurting ordinary Iranians, especially the middle class that the U.S. must shore up to improve Iran’s chances for reform.
Instead, our top priority should be helping to increase the space for the Iranian civil rights movement. That means moving beyond the limited focus on “solving” the nuclear issue. An Iranian government that is more accountable to — and representative of — its moderate majority would not pose a security threat to the U.S. and its allies. Rather than heavy-handed sanctions, the Obama administration should consider restrictions that are more targeted, which would hit the ruling regime where it hurts, and increase the possibility of change from within.
The Wrong Path
Introduced in the House by Rep. Howard Berman (D-CA) and in the Senate by Sen. Chris Dodd (D-CT), the sanctions bill currently in conference aims to limit Iran’s access to gasoline in the hopes that the suffering population will pressure the regime to give in to Western demands. But if the end goal is to induce Iran to be a more responsible regional actor that doesn’t threaten U.S. security interests, then petroleum sanctions are likely to achieve the opposite effect.
Just look at the experience of the last couple of decades. In 1995, in response to Iranian pursuit of nuclear technology and support of terrorism, President Clinton issued two executive orders prohibiting American investment in Iran’s energy sector and banning U.S. imports of most Iranian goods. The following year, Congress passed the Iran-Libya Sanctions Act (PDF), calling for sanctions on foreign firms investing more than $20 million per year in Iran’s energy sector. Although such measures have impeded the development of Iran’s economy, they have not caused the Islamic Republic to change course on its nuclear program or its funding of groups like Hamas and Hezbollah. In fact, in order to achieve their foreign policy and domestic goals, Iran’s leaders have repeatedly demonstrated their willingness to let the Iranian people suffer.
Just as important, history has shown that crippling sanctions undermine the middle class — the very people who are the backbone of civil society and the voices of moderation. International sanctions on Iraq weakened its population, making them more reliant on, and more vulnerable to, Saddam Hussein’s regime. Gasoline sanctions on Iran could have a similar effect, exacerbating inflation, lowering the quality of life for the middle class and pushing more people below the poverty line.
Gasoline sanctions would also distract Iranians from President Mahmoud Ahmadinejad’s own mismanagement of the economy — an important issue mobilizing people around the Green Movement — and divert blame to the U.S. Iran is already facing a 20-percent inflation rate, a crippled domestic industry, unemployment of over 11 percent (with 24 percent of 15-to-24 year-olds unemployed), and one of the worst rates of brain drain in the world. Many Iranians are still seething over the fact that, since becoming president in 2005, Ahmadinejad squandered unprecedented oil revenues that the Islamic Republic accrued as a result of high world oil prices. Amid all of this, Ahmadinejad has backed a controversial measure that would phase out government subsidies on gasoline and is likely to increase inflation. The Iranian people are already facing enough hardship without the U.S. adding to their woes and diminishing the pro-American sentiments of a wide array of Iranians.
Nor will the sanctions loosen the regime’s grip on power. Ahmadinejad’s faction would, in fact, fare better than the majority of the populace. Masters of smuggling, Iranian Revolutionary Guards Corps members would still be able to bring in gasoline through Iran’s porous borders, perversely enriching themselves even more.
The Right Path
But if broad sanctions are a heavy-handed tool that could only risk the development of Iran’s civil rights movement, what options do U.S. policy makers have to challenge the regime?
A preferred approach would be something more targeted against those responsible for Iran’s actions: the members of the ruling regime. Congress should consider the following:
Pass a bill calling on the U.S. State Department to identify Iranian human rights abusers (primarily from within the Revolutionary Guards; the Basij, the regime’s volunteer militia; and the judiciary) and impose travel bans on them. The bill should also seek the cooperation of our allies in enforcing the ban as widely as possible and place pressure on key countries like Dubai to block entry to these individuals. The list of targeted offenders should be made public in order to show the Iranian people that the U.S. is on their side.
Pass a measure calling for human rights abusers’ assets to be frozen. Because Iranian officials have gone to great lengths to distance themselves from the U.S. financial system, the U.S. Treasury may not have much of a role to play here. Rather, such a measure would simply be a first step in convincing banks in Europe and the United Arab Emirates — where many regime insiders’ assets are squirreled away — to enforce restrictions.
What specific effect will travel bans have on hardline officials and their mid-ranking employees? Besides being a major inconvenience, it would hurt their pocketbooks. This is because a large number of these individuals have side-businesses in which they smuggle goods from places like Dubai, Thailand, Indonesia and Syria — buying, for example, electronic goods and bringing them back to Iran through Revolutionary Guard-controlled customs stations without having to pay import duties. They then sell these goods at highly marked-up prices in the isolated Iranian market. A strictly enforced travel ban — including on individuals working for these human rights abusers’ front companies — would close off a lucrative source of income.
To be clear, the overall intent of this plan is not necessarily to deal a significant economic blow to the entire hardline establishment — that would be next to impossible. Neither will it convince, in the short term, current Iranian leaders to change course on the nuclear program — no outside pressure will. Rather the strategy is to increase the disincentives for individuals to participate in or condone oppressive behavior, with the goal of helping the Green Movement flourish.
At the same time, it is important not to target certain high level officials who may have the capacity to play a role in moving Iran toward reform. For instance, while it may be justified to sanction Judiciary Chief Sadegh Larijani for allowing hardliners to abuse Iran’s legal system to persecute reformers, his brother Ali Larijani — the pragmatic conservative Speaker of Parliament and bitter Ahmadinejad rival — has not been complicit in human rights abuses, and thus should not be snared by the sanctions net. This nuanced targeting will send a signal to the regime’s officials that they will be left alone if they refrain from abusing their fellow citizens.
Moreover, certain Iranian leaders are sensitive to international accusations of human rights abuses. This is not for altruistic reasons, but because they want the Islamic Republic to be seen as a role model to the Islamic world, and not simply another run-of-the-mill Middle Eastern dictatorship.
To be sure, human rights sanctions alone may not alleviate the pressure currently being placed on Iran’s Green Movement. Regime hardliners could blame the U.S. for fomenting post-election unrest and paint Iran’s dissidents as Western spies. Republican Guard members and Basijis could continue their human rights abuses regardless of travel bans and asset freezes. But that is the status quo in Iran. There is little cost to the U.S. if human rights sanctions don’t work — and much to gain if they do.
A Broader, Pro-Reform Agenda
Human rights sanctions are not a silver bullet. They will not bring the regime to its knees. But neither will gasoline sanctions. Fortunately, it appears that the Obama administration is asking Congress to slow down its push for unilateral gasoline sanctions as the U.N. Security Council deliberates over its own sanctions during the next few months. Meanwhile, targeted sanctions against human rights abusers is being pushed by Sen. John McCain, though not as stand-alone legislation but as an amendment to the flawed gas sanctions bill.
A human rights sanctions package can be an effective part of a broader effort to help Iran’s Green Movement chart its own course toward a better future for Iranians. Other essential pieces to this strategy would include:
Rep. Jim Moran’s (D-VA) Iranian Digital Empowerment Act, which seeks to help get information-sharing software and filter-breaking technology into the hands of Iranian reformers.
Rep. Keith Ellison’s (D-MN) Stand With the Iranian People Act, which (in addition to calling for human rights abusers to be sanctioned) calls for suspension of U.S. government funding to entities that sell censorship and surveillance equipment to the regime, and seeks to ease restrictions on American charities that want to work in Iran.
The bipartisan Victims of Iranian Censorship Act (passed as part of the 2010 National Defense Authorization Act), which authorizes $55 million to increase Persian-language news broadcasts into Iran, document and highlight human rights abuses, and provide online education on the development of websites and circumventing government censorship.
Bills focusing on the Islamic Republic’s human rights abuses have an excellent chance of passing in Congress because they are politically appealing — they help legislators look tough on national security while promoting American values of freedom and democracy. Moreover, they avoid the danger that is inherent with sweeping economic sanctions: that of harming the people they were intended to help.
Moreover, U.S. passage of human rights sanctions could lead allies in Europe to follow suit. Although the U.N. Security Council is unlikely to do so — China and Russia are adamantly opposed to interfering in others’ domestic affairs — if the U.S. and European allies banded together to pressure countries like Dubai to enforce travel bans, sanctions would have a greater chance of success.
In the end, it is important to remember that the members of the Green Movement are fighting for reform within the Islamic Republic system. Their demands include an independent electoral commission, the release of all political prisoners and freedom of speech. Acknowledging that it is up to the Iranian people to chart their own course, the U.S. can best protect its own security interests by helping to level the playing field in Iran, allowing the moderate, peace-loving majority of Iranians to continue their journey toward a better future for their country and the broader Middle East.
The views expressed here do not necessarily reflect those of the Progressive Policy Institute.
This morning’s biggest story is about what’s not happening. This weekend, Sen. Lindsey Graham (R-S.C.) announced that he could not support the tripartisan climate bill in the Senate that he is co-sponsoring in the wake of reports that Democrats will be prioritizing immigration reform. Graham’s surprise move led to the scuttling of the bill’s long-anticipated rollout today — and grim predictions that the legislation may have breathed its last.
What ticked Graham off? Graham called the decision to move immigration to the top of the legislative agenda “nothing more than a cynical political ploy.” He expressed his belief that with immigration taking up badly needed bandwidth in the Senate, the chances for climate policy’s passage would be slim. “I’ve got some political courage, but I’m not stupid,” he said.
For their part, Democrats are continuing to push forward with both priorities. Senate Majority Leader Harry Reid underscored his commitment to passing climate legislation this session, saying that “energy could be next if it’s ready.”
Iffy though its chances of passage may be, it would be a real shame if the climate bill were to not get a chance at all. For weeks, Graham, Sen. John Kerry (D-MA) and Sen. Joe Lieberman (I-CT) have been working to put together a workable compromise that could get 60 votes. The bill they were to present today seemed promising, their efforts winning the support not just of progressives but of energy companies like Exelon, ConocoPhillips and Duke Energy. It’s a wobbly coalition that may not be easily put back together, especially if the Republicans reduce the Democrats’ margins in Congress (or take it back altogether) this November. If climate change legislation doesn’t move this year, it will be a while — a long while if Obama loses in 2012 — before it gets revisited.
As others have pointed out, Graham’s hissy fit over immigration seems mighty hypocritical given that he wrote about the urgency of passing immigration reform just over a month ago in the Washington Post. But that doesn’t make his criticism incorrect. He’s right that the decision to devote Senate attention to another, no less divisive priority is going to dim the prospects for the climate bill.
While the political calculus of fast-tracking immigration makes sense — it’s clearly intended to fire up the Hispanic base, which has felt neglected under Obama — it’s also a shortsighted decision. Both issues are important, of course, but momentum was already behind climate legislation. The House had already passed it, Kerry, Graham and Lieberman had lined up crucial industry support, and an environmental community that was growing disillusioned with the administration could at least rally behind a bill that would put a cap on carbon. If the administration fails to throw its full weight behind getting climate over this one last hump, then the disappointment of the environmental community will have been earned.
A Larger Failing
But the death of climate policy — and, yes, we shouldn’t shovel dirt on it quite yet — speaks to a larger failing. Sen. Sherrod Brown (D-OH), who considers the issue one of his top five priorities, told the Washington Post that when he’s back home talking to constituents, “nobody talks about this. I never hear about it.” His experience is borne out by polls, which show increasingpublicapathy about solving our energy and climate problems.
It’s understandable that an abstract threat like climate change would give way to more narrow concerns in a time of economic crisis. And to be sure, the media and our leadership — particularly on the right — bear some of the blame for the public disinterest. For their part, progressives perhaps haven’t done the best job of framing the issue and selling it to a skeptical public.
But the pattern of the past year has been worrisome. Despite the scale of our public problems, we shown little appetite for bold, collective action. We’ve seen it in our quivering in the face of health reform’s passage, in our refusal to accept the connection between taxation and benefits, in our willingness to be gulled by cynical entertainers.
When he came into office, President Obama promised to bring an end to the “smallness of our politics.” Despite some signal accomplishments, he hasn’t succeeded in reforming the mindset of our political class. But Washington isn’t the only problem. To overcome the smallness of our politics, it’s not just our politicians who need to think big — the American people do, too.
How to tell a good climate bill from a bad one? This series will guide you through the main issues that are likely to arise in the coming weeks as the Senate takes on climate change. In this post we highlight issues that are very important — but not quite essential — in climate policy. These ideas will likely play a key role in the eventual passage of legislation from the Senate. (To read the other posts in the series, click here.)
In our last post we identified the two absolutely critical issues for any climate policy: putting a price on carbon and targeting meaningful emissions reductions. Pricing carbon imposes costs on emitters, thereby changing behavior and encouraging innovation, but it will also generate revenues. Once they are generated, who receives them and how they are spent are important elements of climate policy.
Category II Issues: Key Elements of Climate Policy
#1: Public revenue or private giveaways?
If carbon is priced with a tax, it will generate new government revenues. If, as seems likely, carbon is priced with some form of cap-and-trade, things get a little more complicated. For cap-and-trade to work, emissions allowances must be allocated in some way. The two simplest ways to allocate allowances are to give them away for free, or to auction them to the highest bidder. Only the latter would generate any new public revenues. Allowances are assets with real value, so giving them away is no different from a government subsidy to the recipient.
Auctioning allowances is generally more efficient than giving them away — society as a whole is better off the more allowances are auctioned. Nevertheless, many groups of emitters or industries have made arguments (and will continue to do so) that they should be given free allowances. They argue the impact of climate policy on their industries will be too onerous or that they represent the interests of their consumers. Generally speaking, these claims are old-fashioned Washington handout-seeking behavior.
Fights over allowance allocation were predictably rampant when the House considered its bill, Waxman-Markey, last year. Comparatively few allowances would be auctioned under Waxman-Markey, especially before 2020, and substantial allowance handouts (35 percent of allowances) would be given to local gas and electricity distribution companies, ostensibly to protect consumers from increases in electricity prices. It is very likely that allocation will again be a central (possibly the central) political issue in the Senate debate.
A carbon price won’t affect every person, firm, or industry equally. In particular, low-income households will feel the effects of a carbon price far more than wealthy households, and an equitable climate policy should compensate the losers to offset that disparity. The best way to do so would be to compensate them with cash (through direct rebates or tax cuts) raised from auctions – yet another factor in their favor. Under a giveaway scenario, the government could hand out free allowances to utilities, hoping that they pass along savings in the form of lower energy prices. That may help consumers, but they would still be better off if they receive the savings directly out of auction or tax revenues and can make their own choices about how to spend that compensation—more on how these revenues could be spent in the next section. Besides, lower consumer energy prices can blunt the price signal a cap sends, leading to increased energy usage.
However attractive auctioning all allowances is, it’s probably not politically realistic. Handouts will probably have to be made to some industries to get votes for the bill (though there’s still hope, on both the right and left, that the general welfare can prevail over handouts to special interests ) In any case, auctions are the most desirable distribution mechanism, and should be a major component of any climate legislation.
#2: What do we do with the money?
Assuming you’ve auctioned at least some allowances (or have revenues from a carbon tax), what should the government do with the money? There is no easy answer here, but in general we have three options:
a) Reduce existing taxes
If the government receives revenues from a carbon price, one response is to cut the taxes already on the books. Reducing other taxes shifts the U.S. tax burden from those who currently bear it (primarily income earners) to carbon emitters and, indirectly, to consumers of carbon-intensive goods and services. In general, this is a good thing, for the simple reason that you are lowering taxes on something you generally want people to do (work) and raising them on something you don’t want them to do (emit carbon). In economic terms, you move from taxing something we generally think has positive externalities to something we know has negative externalities. And politically, who doesn’t like lower taxes? One drawback is on that you may end up reducing progressive income taxes in favor of carbon pricing, whose costs might be harder to bear for those who can least afford it.
b) Dividends to consumers
If you’re troubled by the possibly regressive character of tax cuts, but think returning carbon price revenues to the people ultimately affected by increased prices is a good idea, then a good alternative is direct payments to consumers. This is the “cap-and-dividend” approach taken by the Cantwell-Collins bill in the Senate that Danny wrote about recently. Under cap-and-dividend, revenues generated by an allowance auction (or a carbon tax) are used to make payments directly to consumers. In other words, every household would get a check. Because all households would get equal payments, the plan turns a somewhat regressive carbon price scheme on its head by transferring money from those with a large carbon footprint (often the wealthy) to those with a smaller one (often the poor). Politically, it’s broadly appealing—even conservatives that tend to oppose redistribution of wealth find a lot to like, in large part because dividends “cut government out of the picture.”
Instead of sending everyone the same amount, it’s also possible to try to identify specific losers from climate policy and compensate them directly. One example of such relative losers might be trade-exposed industries, who would stand to lose competitive ground against foreign firms not subject to a carbon price (more on this issue later in the series). Making payments to industries instead of households isn’t usually characterized as cap-and-dividend, but the difference is only distributional—who gets the money. One disadvantage is that direct dividends pose a bureaucratic challenge — there is no clear mechanism for distributing them.
c) Public goods
Alternatively, the government could spend the revenues from an auction. In some cases, the government can create greater benefits by spending revenues than by giving them back. Restricting ourselves to climate-related spending, good examples might be energy R&D, investments in adaptation to climate change, or efforts to reduce emissions internationally or verify international emissions offsets. Indeed, the federal government will need to spend money in some of these areas regardless because the private sector may underinvest in energy R&D, and will almost certainly underinvest in climate change adaptation and international mitigation efforts. The Waxman-Markey bill devotes auction revenues to many of these areas, and a Senate bill probably will (and, in large part, should) do the same.
Of course, carbon price revenues could also be used for any other government expenditure, from education to infrastructure or defense. Revenues could also be used to pay down the debt. Any of these might be worthwhile expenditures, but it’s important to remember that any revenues that are not returned through dividends or lowering other taxes represent a tax increase on anyone who uses carbon—that is, everyone. Opponents of action on climate often characterize it as a major tax increase. To the extent that revenues from a carbon price are dedicated to unrelated government expenditures, this criticism isn’t dirty politics, it’s a fact. Taxing and spending on a given project may or may not be a good idea, but bringing carbon into the picture doesn’t change the fact that it’s taxing and spending.
#3: Market design: banking and borrowing
A major policy and political priority for climate legislation is to reduce emissions as effectively and cheaply as possible. Whether this goal proves to be attainable or not depends greatly on how cap-and-trade markets are designed. While these issues tend to fly under the radar of the political debate — partially because they are complex and partially because they are not very sexy — they have major implications not only for how firms will behave under a cap-and-trade system, but the timing of actual emissions reductions.
There are multiple options for controlling the costs of climate legislation compliance (most of which will covered in our next post), but the key aspects are the closely related concepts of banking and borrowing of allowances. The general concept of banking isn’t terribly complicated: firms ‘bank’ allowances by overcomplying with the cap (they reduce their emissions more than is required) throughout the program, thus building a surplus of allowances that they can use at a future date. Similarly, firms may choose to ‘borrow’ allowances, by using an allowance from a future year, then repaying that allowance with future reductions (possibly with interest).
Polluting firms have two reasons why they want to be able to bank and borrow. First, the path of the lowering cap (established by legislation) will likely not be set in a way that is optimal for regulated parties. Banking and borrowing credits gives them the flexibility to take an emissions-reduction path that is most cost effective, either by filling their bank with credits through overcompliance in the early years of the market or by borrowing in later years if they expect some kind of efficiency increase to come through at a certain future time. Second, banking and borrowing can protect firms against unforeseen shocks to their compliance paths. For instance, a company may have unanticipated problems that force it to use a more carbon-intensive energy source, increasing its emissions above the number of allowances it possesses. Borrowing allows the firm to get more allowances now in exchange for stronger future reductions.
While some may claim that banking and borrowing look like a way to game the system, they are simply mechanisms to help firms control costs and reduce their emissions as efficiently as possible. A strict cap-and-trade system where firms can only trade amongst each other would be more expensive. Banking and borrowing helps reduce costs while still achieving the cumulative emissions reductions desired. A study by Resources for the Future scholars Harrison Fell and Dick Morgenstern contends that borrowing generates significant cost savings, especially when the cap is being lowered at some rate (which is the case in all serious climate proposals). If borrowing is restricted, costs go up.
Allowance banking and borrowing are key issues for climate policy because they will not only play a major role in the behavior of firms in the cap-and-trade market, but they will also have a strong influence on the actual path of emissions reduction. This gets back to the point we made in the last post, where we said that specific reduction targets don’t matter as much cumulative emissions reductions. The ability to bank means that carbon polluters may strongly overcomply, meaning that they will reduce far beyond the 17-20 percent reduction goals in 2020. Analyses from the EPA and the EIA back this up. The flipside, however, is reductions in later years may be less than the cap as companies start to cash in their banked allowances. As long as the cumulative emissions over the life of the regulation come in under the cap, it’s fine for the year-to-year levels to be ruled by how regulated parties bank and borrow.
The Bottom Line
In the last post, we presented three issues that we deemed essential to any climate bill. Here we discuss the merely important:
How are emissions allowances allocated—are they auctioned, or given away?
How are the public revenues from climate policy spent?
Is the allowance market designed for economic efficiency—does it allow banking and borrowing?
In our next post, we will travel further down the rabbit hole and address some further issues climate policy that are still relevant and meaningful, but less important than what we’ve talked about so far.
Throughout the progressive blogosphere, Earth Day generates tons of buzz as like-minded liberals gather in chat rooms and on message boards for an annual rally to protect Mother Earth. Re-energizing (pun intended) focus on the environment in the wake of a so-so Copenhagen Summit is a worthy endeavor, of course, but it can sometimes feel like preaching to the choir.
Meanwhile, the Kerry-Graham-Lieberman bill is languishing in the Senate with little hope of movement before November’s elections. And despite its tri-partisan co-sponsorship, conservatives continue to insist on peddling the notion that climate change and Santa Claus share more than a melting polar ice cap. Meanwhile, their supporters continue to buy it, grasping at incontrovertible “proof” like leaked emails from Cambridge.
While the right is intent on pretending climate change doesn’t exist, there’s one aspect of it that’s getting tougher and tougher to ignore: energy security. Not everyone believes that the earth is warming, but most eagerly accept the idea that America should be buying less gasoline from the Middle East. The most credible messenger is the military — the one organization whose mission demands that it become more energy efficient.
[T]he most innovative and effective actors in the carbon-reduction arena bear zero resemblance to this outdated cartoon. No hemp-wearing hippies here: Today, it’s the Army, Air Force, Navy, Marines, and Coast Guard who are aggressively pursuing plans for sustainable energy, reducing carbon, and achieving energy independence.
It’s no mystery why: Our armed men and women are truly the point of the spear. The services aren’t motivated just by the “soft power” of moral authority or the pursuit of idealism for its own sake. It’s in fact “hard power” concerns—the security of our troops, the economic independence of our energy supply, and the long-term need to better control the geopolitical implications of climate change—that have driven the military to take the lead.
Consider the facts. Today, an infantry soldier on a three-day mission in Afghanistan carries over 25 pounds of batteries to charge his equipment, hampering his maneuverability and can even causing muscular-skeletal injuries. In Iraq and Afghanistan, U.S. forces have suffered chilling casualties guarding convoys of trucks carrying oil. Meanwhile, every $10 increase in the price of oil translates into a $1.3 billion increase in the Pentagon’s operating costs.
In all of these cases, clean energy and efficiency programs would not only help reduce our carbon output and achieve energy efficiency; they would directly increase the effectiveness of our military.
Remember in the summer of 2008 when the price of a gallon of gas ran to a shocking $4? Well, multiply that by 100 — literally — to get cost of a gallon every day in Afghanistan. By the time you add the transportation price and supply losses from attacked convoys, the Pentagon estimates that fuel costs the American taxpayer $400 a gallon. And much of that $400/gallon is put in Abrams tanks that get… wait for it… just over a half-mile to the gallon. Ergo, one mile in an Abrams tank costs about $700.
The good news is that organizations like Operation Free — a group of military veterans who recognize the life and death nature of fuel efficiency – are traveling the country to promote the policies that will improve our energy security. So whether or not you “buy” climate change – and frankly, you really should — it’s tough to argue against a military that is trying to cut the tether to carbon-based fuels that hamper mission effectiveness. Focusing on this aspect of the issue may well be the best bipartisan way to move public opinion on reducing the use of carbon-based fuels.
The big development in non-election news from Washington this week has been the collapse of bipartisan negotiations for cap-and-trade legislation, caused by Sen. Lindsey Graham’s defection. Said defection has been a long time in the making; earlier Graham broke off longstanding negotiations with Sens. Kerry and Lieberman on climate change, allegedly because he was angry with Harry Reid for hinting that immigration reform might come first in the Senate. Now that Reid’s backed off that idea, Graham’s been forced to more or less flip-flop entirely on climate change, and is now backing a far less ambitious bill introduced by Richard Lugar that would have no cap on carbon emissions.
As diligently as cloistered monks, the commentariat is working hard to calibrate the exact amount of political damage the Deepwater Horizon oil spill is doing to the Obama presidency. Woeful analogies come fast and furious: the spill is Obama’s Katrina, or Obama’s hostage crisis, his Jimmy Carter moment.
Since copies of the Obama administration’s new 
Over the past few weeks, we’ve written a 
A fascinating experiment is unfolding in the nation’s Northwest, where a candidate for governor of Oregon is campaigning against politics itself. In a recent visit to Washington, D.C., John Kitzhaber, a medical doctor by training who served two terms as governor of Oregon from 1995 to 2003, discussed his approach to his third campaign. Wearing a blazer, his trademark sunrise tie and boots, Kitzhaber described his desire to run a wonky campaign that would be mostly about policy — especially clean energy, the subject of PPI’s 
As with any big issue in Washington, climate policy has its share of sideshows and special-interest pet projects. If somebody’s favorite policy can be plausibly (or even implausibly) tied to climate, it’s a good bet they’ll attempt to do so. Conversely, if someone wants to hijack the climate debate, they may try to attach an unpopular issue to it. There are also a good number of perfectly well-intentioned ideas that, in reality, won’t make much difference in terms of climate policy.
So far, we’ve established the absolutely 
For the last three days, I’ve been running around Stockholm giving what seems to be 
In recent months, we at PPI have been doing our level best to call the nation’s attention to a bright green section of the map in the northeast, where Massachusetts is 
The new bill aims to cripple Iran’s economy in response to Iran’s refusal to halt its nuclear program. But the sanctions being proposed are not the right answer. Such a sweeping measure would end up only hurting ordinary Iranians, especially the middle class that the U.S. must shore up to improve Iran’s chances for reform.
To be clear, the overall intent of this plan is not necessarily to deal a significant economic blow to the entire hardline establishment — that would be next to impossible. Neither will it convince, in the short term, current Iranian leaders to change course on the nuclear program — no outside pressure will. Rather the strategy is to increase the disincentives for individuals to participate in or condone oppressive behavior, with the goal of helping the Green Movement flourish.
This morning’s biggest story is about what’s not happening. This weekend, Sen. Lindsey Graham (R-S.C.) 
In our last post we identified the two absolutely critical issues for any climate policy: putting a price on carbon and targeting meaningful emissions reductions. Pricing carbon imposes costs on emitters, thereby changing behavior and encouraging innovation, but it will also generate revenues. Once they are generated, who receives them and how they are spent are important elements of climate policy.
Throughout the progressive blogosphere, Earth Day generates tons of buzz as like-minded liberals gather in chat rooms and on message boards for an annual rally to protect Mother Earth. Re-energizing (pun intended) focus on the environment in the wake of a so-so Copenhagen Summit is a worthy endeavor, of course, but it can sometimes feel like preaching to the choir.