Cap and Trade is No Mirage

On Halloween, the Washington Post published an op-ed article by Laurie Williams and Allan Zabel entitled Cap-and-Trade Mirage. Williams and Zabel are EPA employees, as I once was, too. The article made a couple of assertions about strategies for addressing climate change that are, in my opinion, wrong. The major point they attempt to make is that our cap-and-trade legislation is doomed to failure because it includes carbon offsets. I will counter their assertions about offsets in an upcoming post, but today I will address an earlier point they make in their article.

Here's a quote:

"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... 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."

The energy revolution they claim is needed is required--eventually (and, I would agree, the sooner the better).  But right now we already possess the tools and technologies to reduce our carbon emissions by up to 40%--and at a profit. It's called energy efficiency. Steven Chu, Secretary of Energy, has reduced the energy use in his house by almost 50% with relatively small effort (as he blogged on Huffpost). Similarly, with a lesser effort than he, I have reduced the energy use in my house by an estimated 20-30% with relatively minor investments. And there's lots more I can and should do. Most buildings can reduce their energy use by 30% or more at a net-zero cost. Buildings alone account for 40% of our greenhouse gas emissions, so we can get 12% reductions in total emissions without doing anything else than profitably improving efficiency in buildings. California has held emissions per person constant for almost 30 years while it's rising everywhere else in the US.

The United States emits about double the greenhouse gases per dollar of GDP as Japan. That's not because Japan is a generation ahead of us in clean energy generation. It's because they are a generation ahead of us in using the currently existing energy efficiency opportunities that are right in front of us. Because energy is more expensive there, they have learned to be more judicious and smarter with it.

Cap and trade will make energy more expensive here--although probably not by as much as Williams and Zabel (and I for that matter) would like it to be to force a truly rapid revolution. However, the cap will compel companies to find ways to reduce their emissions. It's true that if the cap were declining rapidly and the only solution were renewable energy, that the concept might fail, but that's not the case; renewable energy is not the only solution. We can easily meet the emissions targets in Waxman-Markey or Kerry-Boxer with technologies and practices that are already widely available. At the same time, these bills contain additional incentives to help push investment towards the development of more renewable energy above and beyond what the cap-and-trade component of the bills might drive by themselves.

So Williams and Zabel are wrong that we cannot take the lessons from Acid Rain and apply it to carbon emissions. In fact, at the time the Acid Rain Program was put in place, many industry studies assumed that it would require very expensive scrubber technology to meet the emissions targets required. The power plant owners discovered that, in many cases, they could meet those targets more economically by switching to a different fuel, or shutting down the dirtiest plants. The costs, it turned out, were much lower than even the most optimistic predictions of environmentalists and only 10% the costs that the industry had predicted. Not only that, but for much of the history of the program, the utilities have actually emitted far less than the cap required, because they were able to find other ways to do so that were cheap.

Williams and Zabel are similarly assuming that there is only one solution and that solution is untenable. The beauty of using cap and trade is that other solutions will also be found, in many cases ones we may not have thought of. In this case, we don't even have to be surprised, though, because the most obvious and cheapest solution is already staring us in the face. Put the cap and trade in place so we can unleash the energy efficiency revolution.
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Steve Offutt of Arlington is working on a book on Cap and Trade