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Friday, September 28, 2007

Environmentalism + Capitalism = Obviously

posted by on September 28 at 8:24 AM

The conventional thinking that pits big business against environmentalism is officially dead.

This short, simple, no-brainer article from this week’s NYT business section, “Banks Urging U.S. to Adopt the Trading of Emissions,” shows why a cap and trade system for carbon emissions (a local version was scuttled by the Democratic majority in Olympia earlier this year) would fuel the national economy.

A cap and trade system works like this: The government sets a hard limit on carbon emissions then it divvies up the allowable emissions and makes companies buy up credits to collectively hit that limit. The credits that companies buy from the state for the right to pollute take on financial value because the companies then buy and sell the credits from one another. Companies that concentrate on reducing emissions can sell their increasingly valuable extra credits to companies that are maxing out on emissions limits.

Meanwhile, and this is why the big banks think it’s a grand idea, a speculative commodities market will develop on Wall Street around carbon credits. The NYT reports:

The banking companies, which include Citigroup, Lehman Brothers Holdings and Morgan Stanley, are giving strong signs that Wall Street wants Washington to open the way to reduced emissions using a trading system based on the Kyoto Protocol … Carbon traders say emissions permits could become the world’s largest commodities market if developed economies agree to take part in second-phase Kyoto negotiations, to be held in Bali, Indonesia, in December.

The European Union already has a cap and trade system and—in what appears to be a bad sign—the price of the carbon credits tanked. But if you actually look at what happened, I think it’s a good and instructive sign. The European system is based on exceeding limits—that is, the credits are for any emissions over the cap. And the EU overallocated those credits, or more simply: They allowed too much pollution.

If the U.S. adopted a model, like the one I described above, where there was a hard cap and credits were only for emissions up to the limit (rather than a market for excess emissions), there’d be no deflationary spiral like there was in Europe. In fact, the opposite would happen. The credits would become valuable and, more important, companies would start figuring out how to lower emissions.

RSS icon Comments

1

I've said it before and I'll say it again-

Light rail is good not only because it gets cars of the roads but because it helps in building sustainable, walkable neighborhoods. Is this not what most of Seattle has in mind for itself? It works in other cities and will certainly work in Seattle. Sound Transit's plan is good and well thought out. If you haven't familiarized yourself yet, here are some good links-

http://www.soundtransit.org/Documents/pdf/st2/ST2Plan_08_07.pdf

http://www.soundtransit.org/x5313.xml

Ron Sims opposing it is simply political maneuvering.

As for global warming, I implore you to look at the big scheme of things. RTID/ST2 has a miniscule effect on the environment compared to what we could be doing in order to curb carbon emissions- research in green technology, replacing coal powerplants with green power, eating locally grown food, better federal car emissions standards, harsher penalties on polluting businesses, international agreements that curb carbon in places like China... the list goes on.

I'm sorry but a no vote on RTID/ST2 is NOT a no-vote for global warming, but a no-vote for what may be our only chance to create a regional solution to the region's #1 problem.

Posted by Cale | September 28, 2007 8:44 AM
2

Well, my preference--and that of a lot of economists, as opposed to CEOs--would be a revenue-neutral carbon tax. Revenue-neutral as in, the increase in oil and coal taxes would be offset by an equal cut in payroll taxes. Encourage work; discourage pollution.

Actually, a revenue-neutral carbon tax is also Al Gore's preference, although at those Congressional hearings this year, when he was asked, do we need cap-and-trade or carbon taxes?, he answered, probably both. (If that's not a sign the guy isn't running for president, I don't know what is.)

Interestingly, U.S. Rep. John Dingell (D-Mich) just introduced a bill that would impose a carbon tax. Unfortuntely, it isn't revenue-neutral, although Dingell does incorporate an expansion of the Earned Income Tax Credit to help offset the cost for the poor. Worse, a lot of insiders believe Dingell's just floating this up there to get it shot down. But hey, it's a start.

And I'm happy Tim Russert was asking about a gas tax at that last Democratic debate. I didn't quite catch the answers.

For more info, visit the Carbon Tax Center.

P.S. I would love to see how carbon taxes could be applied in some creative way at the state level, although I'm not holding my breath on that.

Posted by cressona | September 28, 2007 8:49 AM
3

Al Gore acts as if the financial markets don't deserve to make any profit at all from protecting the environment.

Posted by elenchos | September 28, 2007 9:07 AM
4

So Josh,
Just checking here...but is The Stranger living up to its rants on global warming....how does Tim Keck offset the carbon impacts of his delivery trucks?

Details, please.

Posted by Rutherford B. Hayes | September 28, 2007 9:15 AM
5

@4,
By starting the Slog which will eventually make hard copy newspapers irrelevant.

Posted by Josh Feit | September 28, 2007 9:18 AM
6

I think the idea that environmentalism and unchecked capitalisim are somehow incompatible probably has more to do with the fact that "big business" is just now floating the incredibly radical idea that some kind of value should be assigned to maintaining the conditions that make life on this planet possible for Homo Sapiens. It really is inspiring to watch those mighty Market Forces spring into action to save us all ten or twenty years after the first signs of irreperable damage began to snowball. Hooray! The Invisible Hand has noticed that the house it lives in is on fire and is already beginning to negotiate the price per foot of fire hose.

Sorry, that was cynical. Yeah, I guess a revenue-neutral Carbon Tax is a good idea. Any of the presidential candidates support it?

Posted by flamingbanjo | September 28, 2007 9:41 AM
7

Unfortunately, none of the cap and trade proposals currently making their way through Congress will reduce emissions enough on their own to make enough of an impact on the environment. So, #2, when Gore said we need both cap and trade along with revenue neutral carbon taxes, he wasn't playing politics, he was telling the truth.

For back up, check out this report released by the World Resources Institute this week on the 6 proposals currently making their way through Congress.

I know the graph makes it look as if the Sanders-Boxer, Waxman proposal makes it look as if we could achieve the kinds of cuts we need between now and 2050 if we passed it, but it's misleading according to the guy who wrote the report.

I wrote an article about this analysis this week and when I asked the report's author if one of the conclusions I could draw is that the WRI supports the one proposal that achieves the goals, he said no. The reason those bills (one Senate, one House) "have a very preferable showing in this analysis is because they are vague." (Basically, they don't require any sector of our economy to reduce its emissions and instead tells the EPA to come up with the amounts by which each type of emitter needs to cut back. We've seen what kind of environmental zealots the EPA hires.)

All of the bills trying to put a cap and trade policy in place fall short of the mark as the report's author told me. "They all have to have complementary policies or further tightening."

Cap and Trade is not going to solve our environmental problems. We need to find a lot of different pieces to the puzzle.

Posted by Charlie | September 28, 2007 9:47 AM
8

whoops! i posted first in the wrong thread.. how embarrassing.

on the other hand it does kind of fit...

Posted by Cale | September 28, 2007 10:06 AM
9

Al Gore acts as if the financial markets don't deserve to make any profit at all from protecting the environment.

Maybe Al Gore doesn't condone extortion.

Posted by tell me another one | September 28, 2007 10:07 AM
10

"@4,
By starting the Slog which will eventually make hard copy newspapers irrelevant."


Amazing how Josh plays tough guy outside the office but does the suck up inside. Way to go, lap dog!

Now, one more time: how does Tim Keck OFFSET his carbon generating truck deliveries.

Posted by Rutherford B. Hayes | September 28, 2007 10:15 AM
11

Cale @8:

whoops! i posted first in the wrong thread.. how embarrassing.
on the other hand it does kind of fit...

Reading your post, Cale, it didn't occur to me that you were mistakenly posting on this thread. So your post did kinda fit, I guess.

Posted by cressona | September 28, 2007 10:25 AM
12

Have to agree with the carbon tax people.

But, when you do the numbers, the RTID/ST2 package is just plain bad for the environment on every measure, including transit.

Sad.

When do you think Greg Nickels will announce he's supporting No on RTID/ST2, as our green mayor?

Posted by Will in Seattle | September 28, 2007 10:51 AM
13

and, @3, ever noticed that those places with carbon taxes make MORE profit than those without? Real economists don't care about how a market chooses the correct result, and realize that true GDP should include not just goods, but bads. Pollution is a bad. Air pollution, stream pollution, global warming gas increase from more SOV than transit, you name it, it's bad.

An economic system that does not measure negatives (bads) is a flawed and artificial system.

Posted by Will in Seattle | September 28, 2007 10:54 AM
14

Nice spin, except that you're confusing advocacy with results, and leaving out the fact that these market models are used by their advocates to BLOCK more effective forms of regulation. Carbon trading's profitability is no proof of its adequacy to address the environmental crisis.

Posted by Trevor | September 28, 2007 10:57 AM
15

I'd rather see a carbon tax than a cap and trade system. A cap and trade system would be well and truly fucked up by members of Congress before it passed and would result in something completely nightmarish being enacted into law that would do nothing except make more money for commodity traders. Thanks but no thanks.


The thing is a carbon tax wouldn't be too onerous. I saw one proposal ran the numbers and said that in order to reach the ideal amount of carbon emissions we'd need to pay 50 cents per gallon more for gasoline (a 16 percent increase at current prices) and about 25 percent more for electricity.


One question I have though is whether or not we'd need to impose a tariff on imported goods to make up for the fact that American manufacturers were being asked to pay higher prices for energy. We're offshoring a lot of our pollution to countries such as China (which is why the air in Beijing can be cut with a knife). It seems unfair to American workers to make manufacturing in America less competitive because of environmental regulation than manufacturing in third world countries where environmental regulation is non-existent and I'd rather see other countries improve their environmental standards than have us lower ours (further) in the name of competitiveness.

Posted by wile_e_quixote | September 28, 2007 2:26 PM

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