Comments: “Greenhouse Gas Emissions” invites confusion. We do not know how these are defined, and leads to a focus on difficult to measure “emissions” instead of easily measured production of fossil fuels (Coal, oil, natural gas, tar sands, oil shale, methane).
“significant sources”, i.e. not all sources. It is difficult/impossible to claim to monitor all source of emissions, while it is easy to monitor all production or import of fossil fuels: This ties back to the basic mistake of focusing on emissions, not production.
“clean technology”. The bill would subsidize selected technologies, either in development or research. If the price of pollution permits is high then no subsidies will be needed, and governments have a poor record of choosing the right technologies to subsidize, c.f. bio-ethanol, the hydrogen economy and the abandoned FutureGen scheme for carbon dioxide capture and sequestration.
“from covered facilities”, note again that not all facilities are covered. Charging a fee for fossil fuel production or importation would automatically cover all facilities. Just poor program design.
“66% reduction in emissions by 2050”. This is far too slow. So long as we are using any fossil fuels, there will be emissions and the level of atmospheric carbon dioxide (and associated global warming) will continue to rise. Note that there is not even an estimate of the impact on atmospheric carbon dioxide (sic).
“Offsets”. Anyone who talks “offsets” just does not understand the problem. There is a well known “carbon cycle” by which atmospheric carbon dioxide with water and energy from the sun is converted to plant material and oxygen (by photosynthesis). This plant material quickly (in the case of grasses and annuals) or slowly (in the case of trees) dies, decays, burns or is eaten, at which stage the plant material and oxygen give off energy (as seen by burning plants), carbon dioxide and water. Only a proportion, actually a small proportion, of the carbon in the carbon cycle is in the form of carbon dioxide, and yes there can be important shifts within the cycle as when over the life of a forest it withdraws/sequesters carbon, or when it is burned it releases formerly sequestered plant carbon as atmospheric carbon dioxide. When a tree burns it shifts carbon within the cycle, when coal (or other fossil fuel) burns it adds carbon to the cycle. It is these cumulative annual additions that are responsible for increased carbon in the carbon cycle, and thus primarily responsible for increased atmospheric carbon dioxide, and global warming/climate change. This all goes back to the primordial conceptual error of focusing on emissions not fossil fuel production.
The idea with an “offset” is that by planting trees x million tons of carbon will be removed (temporarily) from the atmosphere by photosynthesis, and this then equated with adding x million tons of carbon to the cycle, by burning fossil fuel. When the trees eventually die, rot or burn, the carbon will be returned to the atmosphere and we have a clear net addition of the x million tons of carbon to the cycle. Offsets simply do not work. This is not to say that there is money to be made in terms of offsets, just as there was at the time of the Crusades, in selling indulgences. But offsets no more prevent global warming, than indulgences reduced sin. For a hilarious spoof of offsets see cheatNeutral.com [button to cheatNeutral.com].
$300 billion for U.S. forestry and agriculture (i.e. “moving carbon within the cycle”) transition assistance.
Cost to date $300 billion.
Comments: “Trading”. Trading is a totally unnecessary boondoggle. Trading has the reputation of having worked well in controlling sulfur dioxide emissions. The sulfur dioxide program allowed power stations that achieved actual emission reduction below their cap, to sell the unused balance to other power companies that found it profitable to exceed their cap. There were no offsets in the sulfur dioxide program. The only way you could buy an offset was because someone else was actually reducing emissions, not planting trees, or failing to cut them down. It is claimed that by trading in this way the actual cost of reducing sulfur dioxide emissions turned out to be much below the industries ex ante cost estimate: This is probably due primarily to inflated cost projections, rather than the useful saving achieved by trading.
Trading is required because of the bill’s decision to set quantitative caps on emissions. Had a price (fee or tax) been set, there would be no need for trading since polluters could buy additional allowances at the given price. Again, the whole trading feature represents a primordial design error.
There may also be neo-liberal orthodoxy at work, in the idea that “market based policy is good policy”. …. But only if a market is needed. With allowances available ad-lib at a given price, no further borrowing, lending or trading is needed. (Of course this requires an adequately high price, more of this later).
“Market Oversight and Enforcement”, “Carbon Market Efficiency Board”, “Climate Change Technology Board”: redundant. No market, no need for oversight, enforcement or efficiency board. Better to leave the market to pick winners, than the government: Same comment for “Banking and Borrowing” on the next page. If you can buy at a given price, no need to bank or borrow.
$190 billion for transition assistance to workers.
$213 billion for transition assistance to industry.
$307 billion for transition assistance to utilities.
$ 34 billion for transition assistance to refineries.
$ 20 billion for transition assistance to gas processors.
Cost to date $1,064 billion.
Comment: “Emergency Off-Ramps”. Quote: “If the price of carbon allowances reaches a certain range, there is a mechanism that will automatically release additional allowances onto the market to lower the price”. Got that: The bill establishes upper limits on the price of allowances. If price exceed this amount, more allowances will be released. Given these prices why not apply them at all times, make them the (same) minimum and maximum price? Thus removing all the posturing about quantitative caps. Just sell fossil fuel producers as many allowances as they want at the “off-ramp” price.
“Transition Assistance”. So far we have $1.06 Trillion for transitions assistance, over 40 years. Per year this does not sound too bad, $25 billion a year, but what makes us think that the government knows better how make the transition than the market? And, the $25 billion a year is not free, that is money one way or another, the American consumer will have to find, so that the government can spend it. ……. The trouble with these sorts of hand-out is that they give companies a huge incentive to lobby, and thus undermine the integrity of the democratic system. Representatives are meant to answer to the people, not to potential beneficiaries of huge Federal pay-outs.
$800 billion for tax relief for consumers
$911 billion to protect consumers from increased energy prices
$254 billion to help states with the transition
$171 billion for mass transit
$136 billion for a block grant program
$566 billion to reward states for taking action
253 billion to help states and tribes adapt.
Cost to date $4,155 billion.
Comment: “Financial Relief for Consumers”. “$800 billion tax relief fund … which will help consumers in need of assistance related to energy costs…..The precise details of the relief will be developed by the finance committee.” This section would be better described as “Financial Relief for Taxpayers”, since non-taxpayers will not benefit directly from tax-relief. There is not enough detail to either praise or criticize this provision. However, the mention of “help…in need of assistance related to energy costs” is worrying. The whole point of raising energy prices (itself a result of capping emission allowances) is to give consumers an incentive to economize on energy. This policy objective is liable to be totally undermined if assistance is given in such a way that the real cost of fossil energy is lowered.
“$911 billion …. to ensure that consumers are protected from increases in energy costs”. The bill calls for spending about $5.6 trillion, of which $ 0.911 trillion goes to “protect consumers from increased prices”. But the $5.6 trillion will be raised by selling allowances, the cost of which will be passed on directly to consumers. AT best this provision can protect consumers from 16% of the likely price rise. To protect consumers adequately, and as a whole, the full $5.6 trillion would need to be returned to consumers. This is what would be achieved by a “cap-and-dividend” or a “revenue neutral carbon tax”. See capanddividend.org or carbontax.org. [Please provide a direct hyperlink to these two sites] Note that the full $5.6 trillion would need to be returned to consumers, but in a way that did not disguise the higher cost of fossil energy, such as a per capita or per family rebate. See last paragraph.
This design feature is very worrying. It suggests that the bill’s authors have not fully appreciated the financial burden involved in raising energy prices, or the macro-economic (and political) importance of returning the money taken from consumers, to consumers.
$237 billion to protect natural resources.
$ 30.7 billion for “early acting companies”
$ 51 billion for efficient buildings.
$ 51 billion for efficient appliances.
$ 51 billion for efficient manufacturing.
$150 billion for renewable resource technologies.
Cost to date $4,725.7 billion.
$ 92 billion for low carbon electricity
$ 17 billion for advanced energy research.
$ 15.7 billion for CCS technology.
$ unspecified for bonus allowances for geological sequestration of carbon dioxide.
$ 4 billion for fuel-efficient trucks
Cost to date $4,854.4+ billion.
Comment: “Low Carbon Electricity Technology”. The bill provides, very wisely, to explicitly include nuclear in the definition of “low carbon electricity technologies”. Many environmentalists are so concerned at the danger and difficulty of storing nuclear waste that they rule-out the use of nuclear to replace fossil based electricity generation. This fails to recognize that global warming threatens to make the planet uninhabitable (or at the very least greatly reduce its human carrying capacity) whereas nuclear only threatens to make parts of the planet uninhabitable. Just as the US allied with Stalin to defeat Hitler and Togo, and then turned to confront Stalin, so we should use nuclear in order to achieve fossil-free power: Once this has been achieved we can go on to phase out nuclear. So in my mind this is one thing the bill got absolutely right.
“Advanced Research”. Advanced research is something the government is likely to be better at supporting, than the private sector. This is because the outcome is too unpredictable, it may take longer than the market would like to wait, and in any case, results may be such that they can be utilized equally by those who paid for the research and those who did not. $400 million a year, is not much to put into advanced research given the seriousness of the problem. I would jump this at least five-fold to say $2 billion a year, preferably reallocated from the military budget to retain fiscal neutrality.
“Kick-Start Carbon Capture and Sequestration” (CCS): CCS is technically feasible, and there are several plants where carbon dioxide is being captured from flue gasses or natural gas, and is being sequestered underground. However, each example is a “one-off” and nobody is claiming economic feasibility at the present moment. In 2003 President Bush announced FutureGen, a $1.8 billion scheme to build a zero emissions, coal based power plant. In January, 2008 the scheme was cancelled officially due to escalating cost, but some claim because an Illinois rather than Texas site was chosen : Another $1.8 example of government “picking a winner” only to discover that it has a loser on its hands. In any case, this indicates that CCs is far from a proven technology, and is certainly very far from being an economic off-the-shelf technology. Whilst it may be quite feasible to kick CCS, the bills promise to start it may be over-optimistic.
$ 68 billion transition assistance for motor manufacturers.
$ 26 billion support of cellulosic biofuels.
$288 billion to protect natural resources.
Cost to date $5,236.4+ billion.
Comment: “Cellulosic Biofuels”. It is not clear why biofuels should be supported, since the market should be well able to tell whether there is demand for such fuels. This said, the bill is right to be offering aid to all celluosic biofuels, not just corn based ethanol. It is very doubtful that corn ethanol will prove competitive with other biofuels, especially sugar based ethanol, or wood, grass and stover based ethanols.
“Protect Natural Resources”. This appears to be a “motherhood” type provision. It is not clear that dispensing with fossil fuels will put additional pressure on natural resources, especially if solar and wind are the primary replacement energy sources.
“Promoting Fairness to American Workers While Reducing Emissions”. It is not so much as fairness to American workers, as fairness to American Industry (and thus workers and investors). The idea of requiring importers to buy allowances equivalent to the fossil fuel used in manufacture (and transport), if not already paid in the exporting country, is excellent. An alternative approach would be to impose tariffs on energy intensive imports, but this would bring us into conflict with the World Trade Organization. Even with the bills proposal, there may be such conflict, but it will be most easily resolved using the allowance route proposed in the bill.
$ 68 billion to protect foreign forests
$342 billion for foreign adaptation to global warming (and protect national security).
Cost to date $5.646 trillion
Comment: “International Partnership to Reduce Deforestation”. This is a worthy objective, certainly deforestation shift carbon within the carbon cycle to atmospheric carbon dioxide. However it is a secondary objective as compared to reducing the use of fossil fuels: Even if all deforestation was terminated tomorrow, this would in no way reduce the need to stop using fossil fuels.
“Protect National Security”. This sounds ominous. I wonder what this item covers?
“Capping Hydrofluorocarbon Emissions”. The bill is right to provide for a separate program for hydrofluorocarbons. As argued for the main program, it would be better to charge for hydrofluorocarbon emissions, than to set a cap. However, the major trap of arguing (rightly) that carbon dioxide and hydrofluorocarbons are both greenhouse gasses, and thus that they should be covered by the same caps, and be allowed to offset each-other, has been avoided.
Comment: “Retail Carbon Offsets”. It is not clear the purpose of these offsets, or how the scheme would work.
Cost to date $5.636 trillion over 40 years.
Overall Assessment: This summary could be describes as a “bikini-summary”, what it reveals is interesting, what it hides is vital. Key design features not included in the summary include:
- The summary specifies how it plans to spend $5.6 billion over forty years. It specifies that it will be revenue neutral. However, it makes no projections as to how the corresponding revenue will be raised. Presumably by auction, but what proportion of allowances will be auctioned, and what auction prices are expected?
- Of particular importance is the proportion of allowances to be auctioned. Say only 25% will be auctioned with the balance given away free to established polluters. This would mean that the total cost to be passed onto consumers would be about 22 trillion (i.e. $5.6 trillion times 4). And only 4% of higher energy costs would be returned directly to consumers.
Excellent design feature are:
- Requiring importers of carbon intensive products to buy allowances equivalent to the carbon content, if a carbon fee has not already been paid.
- Dealing with hydrofluorocarbons in a different market to carbon.
- Recognition of nuclear as a fossil-free fuel.
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