Washington No Longer Asking “Why” But “How?”
It’s progress of a sort. Policymakers in Washington now seem determined to address climate change, if not this year then probably next.
Now the tougher question is, how?
President Obama noted there are “a number of different ways to go after this problem,” but they essentially boil down to three. Congress and the Administration can tax carbon dioxide (CO2) and create an incentive not to produce it. They can reduce CO2 by federal regulation – a command-and-control approach in which the U.S. Environmental Protection Agency (EPA) would set an emission limit for each broad category of industrial source. Or they can control CO2 with a European-style cap-and-trade system.
No option is perfect; all will be expensive, with estimates rising into a trillion dollars or more. But the betting in Washington is that a cap-and-trade system, already a part of the Kyoto Treaty in Europe, is the best way to reduce emissions and cost to consumers and industries.
Under cap-and-trade, government essentially would “cap” total CO2 emissions. Power plants that reduce their emissions below this ceiling could “trade” or sell CO2 allowances to plants that cannot reduce theirs. By limiting the number of allowances available to power plants and other sources of emissions, cap-and-trade essentially puts a price on emitting CO2 and thus provides an incentive for reducing this greenhouse gas. Plants wouldn’t need to buy allowances if they reduce their share of CO2 below the ceiling. electricity
In theory the market for trading allowances will lead to the most efficient reductions. As companies find ways to get “under the cap,” they can sell rather than buy emissions allowances, giving them an added incentive to innovate.
Another advantage of cap-and-trade is that some of the revenue collected from allowance sales can be used to finance the costly technologies capable of reducing power plant emissions. The Obama Administration suggests we need as many as five of these advanced power plants to demonstrate how so-called carbon capture and storage technology would work. This technology has not yet been tried on the scale needed for power plants, but experts from the International Energy Agency to professors at MIT insist it is essential for controlling global warming. That’s because most greenhouse gas emissions no longer come from rich countries like ours, but from fast-growing developing countries unwilling to develop the expensive technology themselves.
Finally, cap-and-trade has the advantage of setting a firm limit on emissions. With the emissions ceiling in place, companies can decide how best to get under it without being told by bureaucrats in Washington, and environmentalists would know that greenhouse gases would be reduced by a set amount.
Alternatively, a direct tax on carbon would also lead to reduced CO2 emissions. Making something more expensive typically reduces its use. And by making the carbon price certain, tax advocates say it would help to make business conditions more certain, too. But tax critics warn of the loopholes and complexity that would inevitably accompany any attempt to tax every source of CO2 – from the corner drycleaner to the municipal power plant. And the administrative overhead needed to manage such a vast new tax would itself be very costly, perhaps rivaling the IRS.
The third option for reducing CO2 emissions, federal regulation, appears to be the least attractive. EPA may soon take steps to regulate carbon emissions, placing responsibility for an enormously complex and expensive mandate in the hands of unelected technicians. These bureaucrats are unlikely to understand, let alone appreciate, the differing regional impacts caused by reductions in carbon-heavy fuels. Southern and Midwestern states that rely heavily on coal, for example, would suffer from higher electricity costs, while coastal states would feel relatively little impact.
Regulation also seems the poorer option because the Clean Air Act is a crude tool for regulating a pervasive gas like CO2. Congress never intended the Act, now more than 40 years old, to cast such a broad regulatory net over virtually the entire fossil energy economy.
Representative John Dingell, the Michigan Democrat who has long championed the interests of the auto industry, said EPA regulation of CO2 could set off a “glorious mess” felt nationwide. Wyoming Republican Senator John Barrasso warned that using the Clean Air Act to address climate change would be a “disaster waiting to happen.”
So expect Washington to finally grapple with climate change. Just don’t expect this to happen very quickly.
Luke Popovich is Vice President, External Communications at the National Mining Association.