Common Tragedies

Thoughts on Environmental Economics

A compromising position

Posted by Danny Morris on May 18, 2009

The reviews are in and things are…bearable. I was hoping the brand spanking new Waxman-Markey (now w/ substitute amendments!) would be like a Star Trek, but it looks like instead we got a Soloist. The enviro-blogs from Grist to the Rommtrack are voicing their qualified, lukewarm support for the bill, essentially saying a bill that half sucks is better than no bill at all. Even the mighty Paul Krugman is willing to look past the the obvious flaws, saying

The legislation now on the table isn’t the bill we’d ideally want, but it’s the bill we can get — and it’s vastly better than no bill at all…

…opponents of the proposed legislation have to ask themselves whether they’re making the perfect the enemy of the good. I think they are.

After all the years of denial, after all the years of inaction, we finally have a chance to do something major about climate change. Waxman-Markey is imperfect, it’s disappointing in some respects, but it’s action we can take now. And the planet won’t wait.

You can’t make everyone happy, though. Greenpeace and friends expressed their disappointment in the bill before they even had a chance to read it. And we won’t even start on the Republicans, who have around 450 amendments they want to tack on to the bill.

Generally, I agree with Krugman et al. that it’s not the best bill, but it will do. The most important thing about a climate change bill is that it puts a price on carbon. This bill will do that. Awesome. Now, if it requires firms make up their reduced evil quotient by drowning a puppy for every ton of avoided carbon emissions, then I won’t be stoked on the idea. But it doesn’t do that (from what I’ve read so far). It sets a limit on the amount of emissions the US can generate every year, starting in 2012. That’s pretty cool.

Does it suck that it allocation will not be 100% auctions from Day 1? Yes, but if you really thought this thing was going to make it through committee with anything close to that, then you must have a sunnier outlook on the world in general than I. On the aggregate, I’d rather give away emissions credits to polluting industries for a few years than let them continue polluting with no restrictions. We’re trying to moving the marginal private cost curve toward the marginal social cost curve, and that will require a little give and take, especially when you’re dealing with Blue Dog Texas Democrats with oil refineries in their home districts.

One part of the bill that holds a lot potential (both good and bad) is the section about offsets. Again, as we’ve discussed ad nauseum, their is a lot of controversy surrounding them. If they prove to be legit, then they can be a boon for both industry and the environment. If not, then we’ll throw a lot of money down a hole potentially bigger than the TARP.

The biggest factor in determining which one we’ll have on our hands is international offsets. The Rommtrack says in his post that he’s a big believer in domestic offsets and the systems set up in the bill will help make them robust. He’s probably right, but that doesn’t mean firms will buy them. The EPA analysis of the first version of Waxman-Markey says even if you exclude international offsets, the market volume never reaches the $1 billion limit, and it definitely won’t if there are plenty of cheap and delicious offset credits floating around in the forests of Brazil and Indonesia.

Regardless, they are an important part of an important bill that could be a lot better in a lot a of ways. You may disagree with me, but can we at least say something is better than nothing. Is that a good compromise?

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2 Responses to “A compromising position”

  1. I am not sure international offsets will be that easy. In Brazil there are still; several hurdles to overcome. The foremost is that the government resists any formal idea regarding REDD mechanisms and will probably try to stall any true progress in that area in Copenhagen. The second one is that you may find cheap offsets offers down in Brazil. But can you find lots of trustworthy certified ones? Not for offsets on the millions of tons category. In the Amazon region, there are another set of obstacles: land rights are messy, very hard to find forest land with legal land rights, most won’t pass a well-performed due diligence. There are no formal rules regarding offsets. The whole regulatory framework is lacking. I’m following the case of a company trying to find certified and trustworthy means to offset 4 million tons of carbon annually in the Amazon. So far he found not one single sound solution.

    The Brazilian government wants all offsets based on deforestation and degradation in the Amazon region to be financed through voluntary donations to the foundation it has recently set up. It won’t work and will not yield offset certificates. We’ve been working with NGO’s, Amazon state governments and corporations to design the proposal for an adequate framework for REDD and rainforest-based carbon offsets in Brazil. But most of us – me included – don’t think any solution will be adopted in this government. We’re aiming at 2011, already.

  2. Danny Morris said

    Sergio,

    I’m certainly not implying that international offsets are easy. I made a passing reference to them without elaboration because they definitely required more than I was able to muster at midnight last night. My point was simply to highlight that international offsets are going to be much cheaper than domestic ones, so anyone thinking that domestic offsets will be equally desirable is kidding themselves. As far as trustworthiness and verification, we have a long way to go as far as setting up a reliable regulatory framework, not to mention all the jurisdictional problems likely to emerge as countries try to throw themselves in the market. But, I guarantee that if this bill passes and the US is ready to buy 1 billion offsets in 2012, countries will find a way to get into the market. It’s definitely something to watch moving forward.

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