Cap and Giveaway
Air Date: Week of April 24, 2009
Powerful polluters could be the biggest winners of legislation to address climate change.
Emerging legislation on climate change could give trillions of dollars over time to polluting industries. The details of Congressmen Henry Waxman and Ed Markey's bill includes a cap and trade scheme that would limit greenhouse gas emissions but give away about half of the permits to pollute for free, instead of auctioning them off. Peter Barnes, a senior fellow with the Tomales Bay Institute, talks with host Jeff Young about what the bill could mean for consumers, industry, and the emissions reductions.
YOUNG: From the Jennifer and Ted Stanley Studios in Somerville, Massachusetts - this is Living on Earth. I’m Jeff Young.
A powerful Congressional committee is at work on a piece of legislation that could profoundly change how we power our country. California Democrat Henry Waxman, who chairs the House Energy and commerce committee, is the bill's lead author. Waxman says it would cut greenhouse gases, boost renewable power and create jobs.
WAXMAN: Our economic future and clean energy are inextricably intertwined. The economy that grows the fastest in this century will be the one that makes the greatest investments in new energy technologies.
YOUNG: The bill's centerpiece is a cap and trade program—limiting the amount of carbon dioxide that can be emitted into the atmosphere, while setting up a system to trade emissions permits.
Those permits will be very valuable, but as it stands, Waxman's bill says nothing about how they should be allocated, whether given away or auctioned. Billions, perhaps trillions, of dollars could rest on such technical differences.
We've asked Peter Barnes for some help in understanding what’s at stake here. Barnes is an entrepreneur and author who’s written extensively on climate change policy.
Peter, what do we know about how industry will get these permits?
BARNES: The general understanding is that the bill is going to give about half of the pollution permits for free to utilities and other industries. And this is a big deal because we’re talking about trillions of dollars ultimately that is being allocated to private companies.
YOUNG: Now you said trillions. Not billions.
BARNES: That is correct. Over time, not on a one year basis, but over time the amount of money involved with these pollution permits is in the trillions of dollars. So this is a very big economic question involving who is going to pay and who is going to benefit. But there is more than one way to do a cap and trade system. Broadly speaking, you can have a cap and give away system where the permits or some percentage of them are given away free to polluting corporations. That’s one model. Another model is cap and dividend where the permits are auctioned and the money – the value of the permits – is returned to the people to protect families from the rising energy prices, which are going to result from capping carbon emissions.
YOUNG: Now clearly you prefer that we have a hundred percent auction and indeed that’s what President Obama was talking about early on. He even sent his budget man Peter Orzag up to the Hill to talk about the importance of a hundred percent auction. Why do you think we’re not hearing more from the White House now about the importance of a hundred percent auction?
BARNES: Well, I can’t really say. I think the White House is letting Congress do its thing. Unfortunately, the power of the utilities and other industries is very great and it’s gonna take some courageous members of Congress who can stand up to those lobbies and act on behalf of middle class families because if the utilities do have to pay more for coal, which they would, they will simply pass on their higher costs to the customer and the customer will be ultimately the one who pays.
YOUNG: However, I mean, can’t the utilities return some of this money to their rate payers and in, I don’t know, a form of rebates or any other way.
BARNES: They could, and that’s better than not returning it, but bear in mind that if they do give rebates, its going to be in proportion to energy use, and that’s not the right way to send a price signal.
YOUNG: You’re not really giving them a real strong incentive to conserve energy.
BARNES: That’s correct. If you give the money back on a per capita basis, so its not tied to your energy use, then people who use more energy, people who have big homes and lights and drive SUVs and so forth are gonna be paying more than people who use a little energy. And that’s the way it should be.
YOUNG: You know, though, I mean looking at the really tough political hardball game that they have to play if they want to get any kind of limit on greenhouse gas emissions passed – isn’t giving away some emissions just, you know, the price that we’re going to have to pay?
BARNES: Well it may be. But I think a case could be made that giving money back to the American people to offset the higher energy prices, we’re all going to face is actually politically, a better strategy than giving it to the large polluting corporation. If you do it this way, you’re building a broad popular constituency that will support the steadily declining cap on carbon and the corresponding increase in energy prices. You need that broad constituency because a carbon cap isn’t going to work over night. This is a thing that’s got to last and work for forty years. And if it doesn’t have popular support, we’re gonna hear cries of drill, baby, drill and let’s get back to the good old days of cheap energy. We don’t want that to happen.
YOUNG: If this bill proceeds along these lines where we have up to fifty percent, half of the credits given away in the early years, what do you think that’s going to mean? Do you think its going to be effective policy, not just in terms of who does or doesn’t pay money, but is it going to be effective policy in terms of bringing emissions down.
BARNES: Well we will, I hope, see some emission reductions. But the point here is that from an environmental standpoint, we actually want to have a price signal. Yes energy is going to cost more, but the way to protect consumers is not to eliminate the price signals. The way to protect consumers is to give them money back after they have faced the price signal. It’s the price signal that we need to get everybody to conserve, to innovate, to invest in new clean technologies, and the more we avoid giving this price signal, the longer its going to take to actually reduce emissions.
YOUNG: Peter Barnes is a senior fellow at the Tomales Bay Institute and author of the new book "Capitalism 3.0: A Guide to Reclaiming the Commons."
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