Pricing Carbon
Obama met early this week with several Senators who are leading negotiations over a climate change … I mean, clean energy and jobs bill. Although details continue to be hashed out, what seems clear at this point is that whatever legislation emerges from these negotiations will not include a comprehensive cap-and-trade regiment similar to that included in the Waxman-Markey bill passed by the House this past summer or the Boxer-Kerry legislation that emerged from Senate committee late last year.
And that’s a good thing.
Cap-and-trade, often coupled with carbon offset schemes, sets up a speculative market that, in its nascent form in the E.U., has allowed several of the world’s largest polluters to cash in on pollution credits to the tune of several billion dollars a year without leading to pro-active measures to reduce carbon emissions.
One notable alternative to cap-and-trade that hues to the idea of allowing ‘the market’ to put a price on carbon is the notion of cap-and-dividend. The idea has been promoted, most prominently, by Working Assets co-founder and Who Owns the Sky author Peter Barnes. Senators Maria Cantwell (D-WA) and Susan Collins (R-MA), who both attended Obama’s White House discussion, introduced cap-and-dividend legislation – The Carbon Limits and Energy for America’s Renewal Act (Clear) Act – late last year.
This website offers some basics on how cap-and-dividend works and Cantwell’s website offers several documents about the CLEAR Act. The Economist has even endorsed the plan.
The Senate bill under negotiation will likely be a hodge-podge of cap-and-trade – perhaps a sectoral cap on energy production, give-aways to fossil fuel and nuclear energy industries, and some attempt to curb EPA regulation of carbon.
While ‘letting the market decide’ is never an ideal I get behind, the U.S. Congress could do worse than implementing a cap-and-dividend approach to pricing carbon.
