As the Environmental Protection Agency (EPA) moves to impose carbon-dioxide emissions cuts on U.S. power plants, the issue of cap-and-trade systems and a possible global exchange for carbon trading might return to the fore. However, the political battle this time around already looks to be much tougher than it was four years ago.
Using the carbon-emission levels of 2005 as a base line, the Obama administration made official today its intent to ask the EPA to craft a rule that would cut back emissions from U.S. power plants by 30% by the year 2030. The new rule would likely have the greatest impact upon the 600 coal-fired power plants in the U.S. If successful, though, this move could also profoundly alter the electricity-generating industry for the U.S.
To conform to the new EPA rule, states could take a variety of actions including setting up cap-and-trade systems or joining the regional systems that still exist despite the backlash against cap-and-trade that hit in 2010. In general, states would agree to cap levels of pollution and then issue permits based upon these levels. The permits could be bought and sold via auctions and/or an exchange.
The reactions to the potential resurrection of cap-and-trade are coming quickly and will be strong.
The National Center for Public Policy Research, a self-described “non-partisan, free-market, independent conservative think-tank” issued a position paper that listed “Top Ten Reasons Washington Should Not Impose New Global Warming Laws or Regulations.”
The group argues, among other issues, that new global warming laws and regulations harm people, and harm lower-income and minorities disproportionately. The Washington, D.C.-based think-tank also reports that U.S. energy-related CO2 emissions already fell 12.6 percent between 2005 and 2012, while worldwide emissions went up 17.7 percent during the same period.
“The climate models upon which President Obama’s belief in human-caused catastrophic global warming is based do not work — since 1979, over 96 percent of climate models predicted more warming by now than has taken place,” according to the report. “Claims that 97 percent of scientists endorse the global warming theory are propaganda.”
The think-tank is also against new investment vehicles and markets based on cap and trade.
“We are not in favor of government-created artificial markets,” says Amy Ridenour, author of the paper and chairman of the National Center for Public Policy Research. “They divert wealth from genuine, productive markets. They also have the potential for creating bubbles down the road and they can cause investors and/or potential investors to lobby to continue or expand obsolete or unnecessary programs to protect their investments.”
The coal industry is also likely to launch legal battles to stop the regulation, and politicians representing coal regions will also be fighting this change.
While many on the left are likely to support the new EPA rule, there are others on the left that oppose this action.
Economic theorist Jeremy Rifkin, featured via the Huffington Post, says in an opinion piece today, “Beyond Obama’s Plan: A New Economic Vision for Addressing Climate Change” that the Obama administration’s effort is inadequate in “addressing the looming global environmental crisis.” In fact, Rifkin argues that his vision that the US and the world economies move away from carbon-based energy and embrace renewable energies is on hold because of Obama.
Much will have to happen before the industry is ready to launch cap-and-trade systems or a global venue for buying and selling permits. In the U.S., some of the groundwork has been laid via regional efforts such as the Regional Greenhouse Gas Initiative (RGGI), a cooperative of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. A similar effort is underway in California.
But when the Obama administration’s first foray into carbon trading evaporated so did any dreams for a global market resembling and functioning like a commodities or securities exchange. The first hope for such an exchange emanated from the Kyoto Protocol, which called on 38 industrialized countries to cut greenhouse gas emissions from 2008 to 2012. Many Wall Street firms were willing to apply their creativity with financial instruments to this potential global carbon exchange.
It may be absolute lunacy to even suggest that a global carbon exchange or a facsimile thereof be reconsidered to facilitate cap-and-trade transactions. But as policymakers and Wall Street firms review the situation they will see that cap-and-trade and thus carbon trading has to happen on a global scale for it to be effective against greenhouse gases. Such an exchange may yet have legs.
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