What's Wrong with Warner

One should not speak-ill of the dead, so let’s say Warner-Lieberman had something for everybody. The result was a bill of 421 pages that was probably read right through in its totality for the first time on the floor of the Senate. In fact the key ideas needed for a Federal Global Warming Bill can be expressed in “cabinet memo” form in four pages.

A cabinet memo includes descriptions of alternative policies, their strengths and weaknesses, and finally a recommendation as to which policy to pursue. Whereas the policy recommended in the cited cabinet memo simply recommends returning all revenues to voters on an equal per capita basis, Warner-Lieberman seems to have allowed anybody with an idea for spending money to have a share of the revenue, carbon sequestration, fossil free energy, income compensation for poor energy consumers, Uncle Tom Cobley and all, while ensuring that the major share of extra consumer costs went straight into the pockets of polluters. As a result everybody got some money, but nobody got enough to drive the bill to approval.

Warner-Lieberman was a (badly designed) “cap-and-trade” (C&T) program. For a summary see

or with commentary . The core idea in such programs is that the amount of greenhouse gas emissions would be capped. Numerous questions then arise:

What is to be capped? “Greenhouse Gas (GHG) emission for specified covered facilities, including facilities that use more than 5,000 tons of coal in a year, facilities in the natural gas sector, facilities that produce or entities that import petroleum- or coal- based fuel.” That is to say not all fossil fuel emissions would be covered, notably some “facilities” using less than 5,000 tons of coal, per year, and apparently domestically produced gasoline appear not to be covered. (With a 421 page document, it is doubtful if anyone knows, except perhaps some industry lobbyist who inserted a key phrase, when no one was looking.)
What would be capped? Greenhouse Gas emissions. The problem here is that this leads to wooly thinking. Admittedly the bill goes on to use coal as an indicator of emissions to be capped, but this still leaves some ambiguity as to what is to be counted as an “emission”. And, still worse, a measurement problem of the amount of emissions actually emitted. It would be much better to focus on fossil fuels (oil, coal, natural gas, tar sands, shale oil, and fossil methane (methane hydrate)) where they are produced, or imported. These are easily measured and can be checked from both production and transportation records.
How would it be capped? Individual caps would be established for the “facilities” described in the first bullet. It appears that some of these caps would be given for free to the individual facilities, and the balance would be sold at auction. Over time the total caps would be decreased until in 2050 the emissions from capped facilities would have declined by 71%, resulting in a 66% decline in total U.S. emissions. This is clearly too little too late.
Can caps be exceeded?Yes. Individual facilities can buy allowances from other facilities that decide not pollute up to their permitted level. The system as a whole can also exceed its carbon emission by 30%, by buying “offsets” from people who are planting trees, or undertaking other desirable shifts of carbon within the carbon cycle. Such “offsets” are a lousy idea. They allow the addition of fossil carbon to the carbon cycle, in return for a shift (or promise of a shift) of carbon within the cycle. Promise of a shift? Yes, if I plant trees that at maturity (in 100 years) will sequester 100,000 tons of carbon, (until they burn, when it is returned to the atmosphere) I get credit for the 100,000 tons, even though some of it will continue to circulate in the atmosphere for the next 99 years. Crazy.
Any other “escape” mechanisms? Yes. If auction price is too high, additional allowances will be “borrowed” from future years, and sold to ensure that the upper price limit is not exceeded. No indication is given as to what these price limits might be, nor what happens if all future allowances have been exhausted.
Is any money returned to consumers? Yes there is provision for Financial Relief for Consumers. This will provide a “$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.” There is no knowing how this will work. At best it will provide financial relief to (some?) taxpayers. 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. Even more worrying there is provision for “$911 billion …. to ensure that consumers are protected from increases in energy costs”. This too explicitly seems to promise that some consumers would be protected from higher energy prices, and thus the need to adjust their consumption patterns. The bottom line is that $1,711 billion of total identified allocations of $5,636 billion would be returned to consumers, or 31% to total allocations would be returned to consumers. Note that the full $5.636 billion would come from consumers as industry passed on its increased costs to consumers. The bottom line is that the net effect of the proposal is a very large tax hike for consumers.

Nuclear is recognized as a fossil-free energy source.
A separate trading scheme is to be set-up for hydrofluorocarbons. (As different from allowing the trading of carbon allowances (the affect global warming) for hydrofluorocarbon allowances (the affect the ozone hole).
Importers of carbon intensive products will be required to buy allowances, up to the value of any carbon content for which equivalent fees have not already been paid.

A better bill would be a simpler bill, hopefully including the following features:

It would control the production of fossil fuels at source. (i.e. coal, natural gas, oil, tar sands, shale oil, and methane hydrate, at the mine, well-head, or point of importation).
It would set a price per ton of carbon extracted (similar to the “off-ramp” price provided for in Warner-Lieberman, but applied from the first ton of carbon produced).
The price would be substantial say $250 a ton of carbon ($73 a ton of carbon dioxide) initially, to be raised progressively as people learned to cope with the higher prices. (This tax would approximately double the cost of coal-based electricity).
Return of all revenues to consumers, but on an equal per capita or per family basis unrelated to fossil energy consumption.
No offsets.
No subsidization of fossil-free energy, since higher price for fossil energy would provide ample incentive to the market to produce fossil-free energy.
No adjustment assistance: The market will make the needed adjustments much faster if not confused with the offer of financial assistance.