BUILD A BETTER CAP AND IT MIGHT PASS THE SENATE

Better watch out. But go ahead and shout. Cap-and-trade is coming to town. (See SENATE STEPS UP TO CAP-AND-TRADE)

But the devil is always in the details. And a Yale professor here brings up a significant detail.

The Tyndall Center for Climate Change Research in Britain calculates that 23% of China’s emissions are for export goods and 6% of China’s emissions are for goods exported to the US. (See WHO OWNS CHINA’S CARBON EMISSIONS?) Professor Chevalier argues that for a cap-and-trade system to be fair, it should include the Tyndall Center’s recommendation to focus on the consumers of the emissions-creating goods, not the producers.

A provision of the current Senate cap-and-trade legislation makes goods imported from nations that do not have carbon caps subject to charges when imported, equalizing costs between a US with cap-and-trade expenses and a China without them.

The price of imported goods would go up but there would be no incentive to produce goods w/high emissions and, ultimately, the policy is likely to incentivize emissions-free production as the only practical way to make cheaper goods.

Interestingly, the provision is endorsed by a big utility (American Electric Power Company) and a big labor union (International Brotherhood of Electrical Workers). It doesn’t get much better than that.

A Carbon Cap That Starts In Washington
Judith Chevalier, December 16, 2007 (NY Times)
and
A Carbon Tide: Past, Present and Future; Global emissions of carbon dioxide, measured by the weight of carbon it contains
December 16, 2007 (NY Times)

WHO
Judith Chevalier, professor of economics and finance, Yale School of Management.

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WHAT
Professor Chevalier explains that the Lieberman-Warner Climate Security Act now working its way through the Senate would cap US greenhouse gas emissions and implement a permit trading system, allowing the free market to control climate change. She then discusses a unique favorable feature of the bill, its consideration of consumers’ emissions rather than just producers’ emissions.

WHEN
The Lieberman-Warner bill was approved December 6 by a crucial Senate subcommittee and is expected to come to the Senate floor in early 2008.

WHERE
At the recent Bali cummit on climate change, neither the US nor China joined the existing mandatory cap-and-trade systems now in use by the EU (ETS) and the UN (CDM).

WHY
- Mandatory global caps on emissions would stop the progress of climate change but the US and some large emerging economies like China, India and Brazil assert that capping emissions would hamstring their market growth.
- One of the first objections to Lieberman-Warner is that it would put the US at a disadvantage to China and India.
- But if imported goods from countries w/o caps required emissions permits when coming into countries w/caps, the charges would equal out.

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QUOTES
- Chevalier: “A television made in a low-emission factory would require fewer permits, lowering its relative price. Consumers, of course, would have an incentive to choose the TV from the low-emission factory…A problem would arise, however, if a producer needed to buy permits to make televisions in a country with a carbon cap, while no permits were required in a country without a cap. The television from the country without the cap would be cheaper…Environmentalists call this the “leakage problem”: …emissions caps applied in only some economies will lead to emissions surges in others.”
- Nathaniel Keohane, director of economic policy and analysis, Environmental Defense: “The best policy — both in terms of the environment and in terms of economic theory — would be to have all countries take on binding emissions caps under an international agreement…But we have to recognize that’s not going to happen overnight…[consumption caps are] a good first step…it would ensure that the pollution we cut here at home doesn’t simply end up coming out of a smokestack somewhere else. It levels the playing field for American companies in the global economy. And it also helps us move toward a truly international system, by providing an incentive for developing countries to take on binding caps of their own.”