The Breakthrough Institute

Update: NASA climate scientist James Hansen has affirmed Williams and Zabel's criticism of cap-and-trade in pending climate and energy legislation. To read his commentary see Andy Revkin's Dot Earth blog here.

Two lawyers at the Environmental Protection Agency (EPA) with more than forty years of collective experience, wrote this week in the Washington Post criticizing pending climate and energy legislation and enumerating the flaws of the cap and trade system both House and Senate versions of the bill espouse.

According to Laurie Williams and Allan Zabel:

"Cap-and-trade means a declining "cap" on total emissions, while allowing trading of pollution permits. Confidence in the certainty of declining caps is based on the mistaken assumption that cap-and trade was proven in the EPA's acid rain program. In fact, addressing acid rain required relatively minor modifications to coal-fired power plants. Reductions were accomplished primarily by a fuel switch to readily available, affordable, low-sulfur coal, along with some additional scrubbing. In contrast, the issues presented by climate change cannot be solved by tweaks to facilities; it requires an energy revolution through investments in building clean-energy facilities.

The biggest obstacle to this revolution is that uncontrolled fossil fuel energy remains much cheaper than clean energy. Cap-and-trade alone will not create confidence that clean energy will become profitable within a known time frame and so will not ignite the huge shift in investment needed to begin the clean-energy revolution. In recent interviews, even the economists who thought up cap-and-trade have said they don't believe it's an appropriate tool for climate change."

Williams and Zabel go on to point out that perhaps the biggest flaw of the proposed cap and trade system is its inclusion of dubious carbon offsets, that are not only close to impossible to verify, but allow major carbon emitters to continue to maintain business-as-usual practices for the majority of the next two decades.

The pair writes:

"Offsets -- considered indispensable to keeping cap-and-trade affordable -- are supposed to be "additional" reductions beyond what is legally required. But experience with offsets in Europe and California has shown that ensuring real "additionality" is not an achievable goal...

Carbon offsets create the illusion of "additional" greenhouse-gas reductions, but we are just getting business as usual. Untrackable shifting of economic activity and perverse incentives such as these are inherent problems for carbon offsets and cannot be solved by certification or verification processes. Since the most flawed offsets will be the cheapest, they will also be the most popular.

The House and Senate climate bills are not a first step in the right direction. They would give away valuable rights in cap-and-trade permits and create a trillion-dollar carbon-offsets market that will not lead to needed reductions. Together, the illusion of greenhouse-gas reductions and the creation of powerful lobbies seeking to protect newly created profits in permits and offsets would lock in climate degradation for a decade or more. The near-term opportunity to create an effective international framework would also be lost."

As Williams and Zabel emphasize, cap and trade is not sufficient to make clean energy cheap and abundant, which is what absolutely must happen if the United States wants to maintain economic competitiveness in the burgeoning clean energy industry and reduce carbon emissions. Instead, Williams and Zabel advocate a carbon fee and rebate approach put forth by Jim Hansen (and very similar to the cap and dividend approach advocated by Peter Barnes).

Breakthrough predominantly agrees with Williams and Zabel's critique of cap and trade and has meted out similar commentary pointing out the flaws of this policy approach, but we have been critical of the viability of a "carbon fee and rebate" or cap and dividend approach as an alternative. While we support the implementation of the highest politically sustainable carbon price possible, the current debate over cap and trade - as well as evidence from carbon pricing efforts around the world - indicates that price will be far too low to drive the clean energy revolution both Breakthrough, and Williams and Zabel are working towards. Furthermore, public opinion research has offered no evidence to suggest that using carbon price revenues to return rebates or dividends to energy consumers does much at all to increase public support for carbon pricing making significantly higher carbon prices a politically unsustainable policy option.

Instead, the key is to devise a strategy that can spur a transformation of our energy sector without relying on politically unsustainable carbon prices. Hence, the Breakthrough Institute focuses primarily on policy strategies to make clean energy cheap. We suggest this could first occur in relative terms through targeted subsidies to facilitate the deployment of current technologies, bridging the price gap Williams and Zabel correctly identify as the primary obstacle to a clean energy revolution. Ultimately, however, we could achieve this goal in real, unsubsidized terms through large-scale investments - on the order of $15 billion annually - in R&D, as well as through the economies of scale and the learning-by-doing experience that accompanies accelerated technology deployment and drives further improvements in both price and performance of emerging technologies.

In this strategy to make clean energy cheap, a politically sustainable carbon fee is critical, but not in the role typically envisioned by cap and trade or carbon tax advocates. The relatively modest price on carbon here plays a supportive role as both the funding mechanism for the investments described above and as a synergistic demand-pull price signal, instead of focusing efforts on making dirty energy expensive through a high, economy-wide carbon price.

Policymakers who are serious about achieving a clean energy future must heed the growing innovation consensus. They must ensure that climate and energy legislation both includes these large scale investments in clean energy R&D as well as targeted, proactive incentives to bridge the price gap and spur the deployment of commercially viable clean technologies in order to fuel a prosperous clean energy economy.

The full article by Williams and Zabel can be accessed here. To read Breakthrough analysis of both the House and most recent Senate version of climate and energy legislation click here and here.