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What about that other climate bill?

Posted by Danny Morris on March 30, 2010

This post appeared originally on Progressive Fix, the schnazzy new blog from the Progressive Policy Institute.

You may not have noticed lately, but there are other major legislative initiatives, including climate and energy, on the Senate’s docket. One climate action bill that has received a lot of attention is the bill sponsored by Sens. Maria Cantwell (D-WA) and Susan Collins (R-ME). When the bill, officially called the Carbon Limits and Energy for America’s Renewal (CLEAR) Act, was first introduced in December, it caught the eye of some in the enviroblog world, but didn’t make much of an immediate splash in the Senate. Between the long build-up of the Kerry-Lieberman-Graham multi-partisan grab bag and the poorly understood Copenhagen outcome, however, it filled a vacuum with a poorly appreciated concept at the time: offsetting costs of climate legislation to consumers by cutting them a check.

The Basics

Also known as “cap-and-dividend,” the Cantwell-Collins bill is pretty simple: starting in 2012, it would mandate monthly auctions of pollution permits, called carbon shares, to the first seller (producer or importer) of fossil fuel carbon into the economy. The bill sets a floor price (shares can’t be sold for less) of $7 and a ceiling price (shares can’t be sold more) of $21 in the first auction in 2012, with the cap lowering — leading to rising prices — over time.

Most of the revenue from these auctions is distributed back to citizens in the form of a monthly check, while the rest is placed in a Clean Energy Refund Trust (CERT) fund established by the bill for use on a variety of different purposes: energy R&D, climate change adaptation, non-CO2 greenhouse gas reductions, international forestry and agriculture offsets, carbon capture and storage projects. First sellers cannot trade carbon shares and carbon derivatives are prohibited. In addition, the legislation has economy-wide emissions reduction goals of 20 percent below 2005 levels in 2020, 42 percent in 2030, and 83 percent in 2050.

The Good

Advocates of Cantwell-Collins praise it for being simple and transparent. As has been noted by others, it is a mere 40 pages, certainly an easier read than Waxman-Markey, the behemoth, 1,400-page cap-and-trade bill passed by the House last June. It regulates fossil fuel-related CO2 as far “upstream” in the economic supply chain as possible, meaning that whoever produces or imports a fossil fuel is on the hook for the CO2 content. Under Cantwell-Collins, coal mines and oil producers are responsible for paying for carbon, which means that only about 3,000 facilities need to be regulated. This upstream approach is administratively more streamlined, affecting far fewer parties than Waxman-Markey, which regulates electricity producers, natural gas distributors and manufacturers (over 75,000 regulated facilities).

The CLEAR Act also rejects the convoluted system of free and auctioned allocations in Waxman-Markey for a straight-up auction of all carbon shares. All regulated parties must participate in open monthly auctions, the revenue from which is split 75-25 percent: 75 percent is redistributed per capita to every American citizen and 25 percent is placed in the CERT. Whether you agree with the approach or not, offering to cut a monthly check for every U.S. citizen is not a bad way to gain some political support. Also, from the perspective of regulated firms, the use of price floors and ceilings, also known as a price collar, would reduce future price uncertainty and help them better predict investment needs.

Finally, the bill is co-sponsored by a Republican and a Democrat. That bipartisan provenance could certainly help its chances for passage.

The Bad

So with a bill that’s easy to read, easy to monitor and easy on the wallet, is there anyone who won’t like it? Well, anyone who favors hard targets for emissions reductions and anyone who believes in markets, for two. First, while the bill establishes economy-wide reduction goals as strong as Waxman-Markey, the auction system alone will not reach them. National emissions are capped at 2012 (note that it only caps CO2 emissions, unlike Waxman-Markey, which covered other greenhouse gases as well), and the cap doesn’t tighten until 2015, at which point it decreases by 0.25 percent that year, then by an additional 0.25 percent every corresponding year (so in 2016, the cap reduces by 0.5 percent, in 2017, 0.75 percent, etc).

This slow lowering of the cap will result in only five percent reductions below 2012 emissions by 2020, well short of the 20 percent reductions by 2020 goal. Even at that, the cap is not rock solid due to the price collar, which functions as a sort of safety valve. That is, if the auction price goes higher than the established ceiling price, then that essentially releases extra carbon shares for firms to bid on until the price falls back below the ceiling.

That means the remaining reductions to be met in 2020 will have to come from technology advances, land use offsets in forestry and agriculture, and reductions of non-CO2 gases, all of which are paid for by the CERT (which will be administered by the Department of Treasury). If we assume an initial carbon price of $15 in 2012 (a middle-range price, based on analyses done by the EPA and EIA), and the projected cap of roughly 7.2 billion carbon shares, then the CERT will get about $27 billion in the first year of the program.

That’s $27 billion to be split among all the uses listed above to help reduce emissions, as well as adaptation projects, energy efficiency efforts, and support for trade-sensitive industries and low-income families. The problem with a bill that’s only 40 pages is that it doesn’t have a lot of room for details — indeed, the CLEAR Act provides no guidance on how to prioritize uses of CERT funds. Although CERT funds will increase as the price of carbon shares rise, it will likely not even be close to enough to compensate for the majority of necessary carbon reductions.

A carbon market could mobilize private capital to help address some of these issues efficiently, instead of leaving all the choices and funding responsibility to the federal government. While it’s understandable that the public and politicians might still distrust markets in the wake of the recent financial collapse, the fact is that when it comes to finding inefficiencies and catalyzing innovation, nothing works better. But the “market” in Cantwell-Collins is simply an auction system. Unlike in Waxman-Markey, regulated firms can’t trade their permits, and carbon derivatives are strictly prohibited. These restrictions are going to severely limit the efficacy of the program to find the cheapest emissions reductions.

Also, there is a huge amount of risk in carbon markets (both in terms of accurate compliance and extreme events), so while they should be tightly regulated, derivatives are a necessary component because they allow firms to hedge against the risk of non-compliance or shifting standards. You will be hard-pressed to find any industry player who will advocate for a market without any trading, and there will need to be at least some industry support for any viable future climate legislation. Moreover, the monthly auction system may generate more carbon share price volatility than a continuous market, making it even more unattractive to firms.

The Upshot

Cantwell-Collins injects some great ideas into the climate policy debate that had not been prominently discussed before. If a policymaker wants to reduce the burden of increased energy costs on consumers, a direct rebate is an efficient and effective way to do it. The bill overall, however, is a somewhat naïve approach that does not fully appreciate the ability of markets to generate efficient emissions reductions and does not limit carbon emissions effectively. Its merits (simplified approach, upstream regulation, price collar) are outweighed by its limitations (extremely slow cap reduction, heavy reliance on CERT-funded reduction programs, draconian market restrictions). The CLEAR Act will continue to play a role in the climate debate of the Hill, but in its current form, it is unlikely to be the last bill standing.

Posted in cap and dividend, Climate Change, Legislation | 2 Comments »

Old McDonald hates climate legislation

Posted by Danny Morris on January 13, 2010

The American farmer, long the backbone of our upstart and formerly agrarian society, is one of the proud archetypes we Yanks like to incorporate into our national identity (much like the cowboy and the Hasselhoff). The strong farmer, reserved in demeanor and stout in constitution, laboring dutifully for the good of the nation. It’s a powerful image. Know what else about farmers is powerful? Their lobbyists. How powerful you ask? Well, powerful enough that after agriculture and land use were excluded from regulation under Waxman-Markey, they got one of their favorite Congressmen (Collin Peterson, D-MN) to throw a tantrum and threaten to derail the whole bill unless he got what. In the name of the mighty farmer.

So now that farmers got what they want, that’s one less obstacle for climate legislation working through the Senate, right?

Sigh…
The American Farm Bureau Federation, the most powerful group in this most powerful lobby, has come out firmly against any climate bill. According to Reuters:

In a speech opening the four-day AFBF convention, Stallman said American farmers and ranchers “must aggressively respond to extremists” and “misguided, activist-driven regulation … The days of their elitist power grabs are over.”

Vast amounts of farmland could become carbon-capturing woodlands under cap-and-trade, “eliminating about 130,000 farms and ranches,” said Stallman. One federal analysis says 8 percent of crop and pasture land could be turned into trees by 2050 because trees would be more profitable than crops.

On top of that, Rep. Peterson is having second thoughts about all his hard work being difficult last Spring:

Blue Dog Democrat Collin Peterson, who played a major role securing rural lawmakers’ support for cap-and-trade climate legislation this summer, now says he would vote “no” if a similar bill returned to the House for final passage.

The Agriculture Committee chairman said he was “stuck voting” for the bill (which awaits Senate action) in June because House Speaker Nancy Pelosi granted his requests for broad agriculture concessions, but he won’t support it again if it remains unchanged.

Man, I totally hate it when I get ‘stuck’ soing something I agreed to do in exactly for just about every concession I asked for. Poor Collin Peterson, 2009 was a rough year.

As for the Farm Bureau Federation and their concern that a swarm of carbon-hungry forests are going to swoop in and conquer the Grain Belt, they might yet be saved from the onslaught of immobile carbon zombie hordes, with their sinister foliage and penetrable cellulosic skin. A new study out of the University of Gothenburg in Sweden finds that paying people to preserve forests may not be sufficient to keep them standing. According to researchers Martin Persson and Christian Azar, a price on carbon from a cap-and-trade regime will drive demand for carbon-neutral fuel sources, such as palm-oil. This will compete directly with REDD schemes designed to pay for the preservation of tropical forests. In almost all the scenarios modeled in the study, clearing forests and planting palm oil is more profitable, meaning additional incentives aside from REDD program are necessary to keep forests standing.

While the study focuses on tropical forests and palm oil, and thus is not directly applicable to the Grain Belt per se, it does suggests that the competition for land between biofuels and forest carbon offset is not  so cut and dry. Demand for biofuels from US sources has the potential to overwhelm demand for offsets, especially if cheaper international options are available. Farmers may yet be saved from being taken over by ravenous groves of fast growing trees. Thank God, because they need all the help they can get.

Posted in Agriculture, Climate Change, Legislation | 3 Comments »

Senate Debate vs. House Debate

Posted by Danny Morris on July 9, 2009

The beauty of writing for two blogs is you get to post the same thing twice and you get double the credit for it, or something like that. This post originally appeared on Weathervane, RFF’s fancy and informative climate blog:

How will the Senate Climate Debate Differ from the House Debate?

By Daniel F. Morris

The climate debate kicked off in the Senate this week with the Obama administration encouraging senators to pass legislation comparable to H.R. 2454, the mammoth bill that passed by a vote of 219-212 last month. In testimony given to the Environment and Public Works Committee, Energy Secretary Steven Chu, Agriculture Secretary Tom Vilsack, Interior Secretary Ken Salazar, and EPA Administrator Lisa Jackson all urged the Senate not to slow the momentum behind the passage of the House bill.

The formation of the Senate bill and the debate surrounding it will be significantly different from the experience in the House. First, a huge component of the Senate strategy will involve wrangling 60 votes to block a potential filibuster, which will probably require more compromises to accommodate Midwestern Democrats who currently feel compelled to oppose the bill. Concessions may involve the stringency of the cap in the early years of a cap-and-trade market (14% reduction of 2005 emissions by 2020 instead of 17%), allowance allocations given away to energy-sensitive industries, especially coal, oil, and manufacturing, and the role of nuclear power in the nation’s future energy portfolio.

Second, the bill will receive much more scrutiny at the committee level than the House bill received. H.R. 2454 was fully marked up only by the Energy and Commerce Committee. Input from other committees, like Ways and Means and Agriculture, were included in a manager’s amendment inserted during floor debate. In contrast, the lead for drawing up the Senate bill will be Sen. Barbara Boxer (D-CA) in the Environment and Public Works Committee, but the legislation will ultimately include pieces constructed by at least five other committees, including, Agriculture, Commerce, Energy and Natural Resources, Finance, and Foreign Relations. Senate Majority Leader Harry Reid (D-NV) has tentatively slated a deadline for the bill to clear the committees of Sept. 28, so September will be a hectic month. Boxer is indicating she wants to wait until after the August recess to take up any climate bill.

Aside from dynamics distinct to the Senate, there are a number of specific issues that may develop disparately from the House debate. Some of the prominent topics are:

  • Price collar: H.R. 2454 established a minimum carbon price (or price floor) of $10, but did not include a matching maximum price. The strategic reserve auction mechanism (Sec. 726) protects much more against extreme price volatility than consistently high allowance prices. In the interest of protecting regulated industries and reducing overall costs of the entire program, the Senate will likely take a much closer look at employing a price collar that sets both a minimum and maximum price for emissions allowances. Previous studies conducted by RFF scholars, one by Dallas Burtraw and Karen Palmer and another by Harrison Fell and Richard Morgenstern show that use of a price collar can reduce the total costs of implementing a cap-and-trade system.
  • Competitiveness: President Obama expressed some dismay about the last-minute addition of protectionist language (Sec. 3) included in H.R. 2454 targeting imports from emerging economies that do not take on similar emissions reductions. Language in the bill explicitly names China and India as countries that deserve scrutiny. Those concerned that such language will lead to conflict in future climate negotiations with the two countries see the Senate as the place to scrub the inflammatory verbiage. Foreign Relations Chairman John Kerry (D-MA) has already stated that he and others in the committee intend to make changes in the hopes of avoiding retaliatory measures from India and China. Midwest Senators Carl Levin (D-MI) and Sherrod Brown (D-OH), however, have expressed support for the provisions and disagree with the President’s assessment. The matter will no doubt receive considerable attention from both the Foreign Relations and Finance committees.
  • Market Regulation: Both chambers want to see stringent regulations for the potentially huge carbon trading markets to come out of cap-and-trade measures. H.R. 2454 split responsibility for oversight between the Commodity Future Trading Commission and the Federal Energy Regulatory Commission. Sen. Dianne Feinstein’s (D-CA) experience with FERC during California’s deregulation woes of the early part of the decade have led to her strong distrust of the agency, and she has introduced a bill giving CFTC full authority for regulating carbon markets. This debate may continue to evolve as the Senate bill begins to take shape.
  • Agriculture: In the House debate, powerful agriculture concerns found voice in Rep. Collin Peterson (D-MN), who had a major influence over the final version of the bill, including a provision that give authority to the Dept. of Agriculture to determine what constitutes domestic forestry and agriculture offsets. Many farm groups lined up against the House bill after its passage and their influence could spell doom for Senate passage. Agriculture Committee Chairman Tom Harkin (D-IA) has already expressed his dissatisfaction with the House bill and intends to protect agriculture and farmers. Expect agriculture to play an even bigger role in the Senate debate.

Undoubtedly, other issues will surface over the summer as committees begin drafting separate pieces. The Senate has somewhat of a head start in that a major energy provision has already been shepherded through committee by Energy and Natural Resources Chairman Jeff Bingaman (D-NM).

The path to President Obama signing climate and energy legislation is far from clear, however. The Senate bill must navigate skeptical and apprehensive Midwest Senators, substantial efforts from environmental groups to strengthen it, and ardent opposition from many in the Republican minority. Even though the Fourth of July was last weekend, it appears that we can look forward to plenty of fireworks for the rest of the summer.

Posted in Cap and Trade, Climate Change, Legislation, Political Economy | 4 Comments »

Offsets, offsets, offsets

Posted by Danny Morris on June 16, 2009

Offsets.

Offsets.

(related to) Offsets.

It seems like all anyone can do anymore is talk about offsets (at least in my sheltered life). Partially that’s because they are emerging as the key issue that could make or break the Waxman-Markey bill, and possibly a future Senate bill (which may make a splash before the end of the summer).  The three links above provide a good snapshot of the world of offsets as it stands now.

The first link is a rundown of the lobbying brawls surrounding the amount of offsets in Waxman-Markey. It does a good job of highlighting the difference between industry lobbyists (they heart offsets) and environmental lobbyists (they don’t trust them). One thing the article gets wrong, however, is who decides what is an offset:

Near the top of the lobbyists’ wish list is persuading Congress to specify which projects would be eligible as offsets. The bill creates large categories, then allows third parties to decide what is eligible as an offset. Those third parties probably would be similar to groups in the voluntary offset market like the Chicago Climate Network or the Climate Action Reserve in California.

That is an incorrect statement. Third party standards will probably be followed closely or entirely, but it is the Offsets Integrity Advisory Board (OIAB) that will be housed in the EPA that will be the the final authority that determines what is an offset. Thankfully, the bill itself does not say what counts as an offset, but you can imagine the fury that will burn around the OIAB if they make a decision that enrages a powerful and well-endowed interest group.

Actually, you need not imagine that because it has already occurred, which brings us to the second link above. Way back when Waxman-Markey emerged from committee markup, Collin Peterson (D-MN), chariman of the House Agriculture Committee started throwing a hissy fit about the supposed lack of role for agriculture offsets. He basically threatened to torpedo the whole bill if it gave offset market oversight to the EPA. Peterson is still stewing about an EPA rule that may make biofuel producers responsible for their full carbon footprint, including the possible indirect landuse changes resulting from ethanol production, so his solution is to bring down Waxman-Markey unless he gets his way. Discussions between Peterson and Henry Waxman’s staff have been on-going, but as of today, it sounds like Waxman is done playing with Peterson and House leadership may look to take their chances with a floor debate.

At this point, it can feel like using economic arguments is sort of like sternly yelling at a freight train, but I’ve got a loud voice, so I’ll give it a shot. This bill in no way excludes agricultural offsets. It doesn’t exclude any kind of offsets, nor should it. The point is to establish a market system where offsets can be brought, and let the market decide what makes a good offset. The role of OIAB is essentially quality control and setting standards. If your offset is legit, then you don’t need to worry. If it’s just a play to get make more money for Monsanto without any real carbon benefits, then there’s a chance it won’t make the cut.

Even though the offset language in the bill doesn’t favor a certain kind of offset, it contains a number of additional standards for forest offsets. That’s probably because everyone recognizes landuse and forest emissions are a big slice of the climate pie (20% of global emissions), but it also because we have a ways to go before we figure out how to make international forest offsets and REDD (Reducing Emissions from Deforestation and forest Degradation) work effectively.

The third link connects to the latest and greatest studies related to REDD and offsets. Basically, if we want to keep temperature changes below 2 degrees C, we need forest carbon. In the short term, capacity building, establishing pilot projects, and setting baselines for forests are the priorities. In the long term, international offset markets are going to sustain efforts to reduce emissions, so long that enough revenues make their way to indigeneous communties to compete with other land uses.

How well can these international offset markets work? According the authors of the economics study, offset prices between $10-$30 may capture 1-4 billion tons of CO2 per year, or 12-20% of current global emissions. Additionally, international links between markets may significantly reduce global allowance prices (by about 40%). Not bad. It’s important, however, to view these studies in context of the others. If we don’t get local buy-in and solid capacity building, we don’t get our offset markets. Conversely, if the market benefits don’t make their way down to the people on the ground, then all those forests (and investments) could go up in smoke. An when indigeneous people feel like they are being exploited by foreign investment, it’s none too pretty.

Posted in Agriculture, Forestry, Legislation, Offsets | 6 Comments »

Tropical Forest Conservation in Waxman-Markey

Posted by Andrew Stevenson on June 9, 2009

Originally posted on RFF’s climate policy blog Weathervane.

For many environmental advocates, the generous forest conservation provisions in the Waxman-Markey energy bill (summary here) are a no-brainer. They target one of the world’s largest—20 percent of the global total—and most cost-effective—about half the world’s deforestation at under $10 per-ton—sources of greenhouse gas emissions reductions while protecting some of the world’s most treasured natural places.

It seems these provisions provide something for everyone, as they have found support from a broad coalition of stakeholders. U.S.-regulated entities like the potential cost-containment benefits from offsetting up to 1.5 billion tons of their emissions by paying for cheaper reductions in developing nations, and that forest conservation does not create competitiveness concerns. The global development community likes the possible poverty reduction benefits of channeling an additional $10 billion per year by 2015 in what could be seen as U.S. foreign aid to tropical forest nations. Climate policy wonks like that this forest financing will strengthen U.S. participation in ongoing global negotiations.

Is it possible, therefore, that these provisions could survive attacks from equally-strong skeptics of offsets, foreign aid, and climate action during House and Senate debates?
 
As the debate unfolds, expect three key issues to come into play:
 
1) Whether the uncertainties in Waxman-Markey’s forest “set-aside” provisions can be clarified.

Currently the bill allocates 5 percent of allowance values (Section 753(b)(1)) for the purchase of “supplemental emissions reductions”—not offsets—solely from international forest conservation. This “set-aside” must be used to purchase 720 million tons of emissions reductions per year from 2020 to 2025 and 6 billion tons overall from 2012 to 2025, and the EPA administrator is required to increase the allowance allocation if necessary to meet this target.

Based on reasonable assumptions about the size of the cap-and-trade program and cost of forest tons, including analysis done by EPA, the U.S. will be lucky to purchase half that amount (about 300 million) with the current 5 percent set-aside. Meeting the required amount may require saving up money in the initial years to spend later, but even this approach cuts it close, and will take away funds from needed capacity building in early years. Does the EPA have the authority or the will to actually follow-through with this requirement? Where will these allowances come from (they’re certainly not going to come without a fight)? 
 
2) Whether the U.S. can demonstrate a plausible pathway to delivering offset tons from forests when cap-and-trade kicks off in 2012.
 
Forest carbon transactions in voluntary carbon markets accounted for about 7.5 million tons in 2007. With the relatively stringent requirements in the bill for developing countries’ participation in U.S. carbon markets—and the current low levels of market-readiness in many of these countries—how will they be ready to potentially deliver 1 billion or even 100 million tons in 2012? One answer is that they need funding for policy-planning and capacity building, on the order of several billion dollars per year between 2010 and 2012.

The good news is that these needs are being addressed by international negotiators in Bonn as we speak—including a strong U.S. forest team—and through other initiatives. The question is, will it be enough? Should the U.S. allocate substantial additional funds in its FY10, FY11 and FY12 foreign aid budgets to specifically target this issue? Or is there another innovative solution out there?
 
3) Whether the institutional structure that manages these forest programs can be strengthened.
 
Currently, the bill places authority to manage the forest set-aside and offsets programs with the EPA, in consultation with the State Department and several other departments. This is not ideal for several reasons. First, although the EPA has expertise in environmental markets, these forest programs will require much greater on-the-ground international development and conservation experience, and international environmental negotiation experience than it possesses. With the amount of funding on the table—about $10 billion per year, as stated before—and the need to get the most bang for the buck, it may make sense to create a specialized agency with expertise in all of these key areas. What should this agency look like? How should it be structured to most effectively manage these new funds and programs?
 
These are some of the key questions that academics and environmental organizations—including RFF’s climate and forest carbon policy teams—will be seeking to answer over the next several months. If policymakers are going to continue to support strong forest conservation provisions in U.S. climate policy, which many stakeholders would argue are absolutely essential from a scientific and economic perspective, these salient questions will need good, robust answers.

Posted in Climate Change, Deforestation, Legislation, Uncategorized | Tagged: , , | 1 Comment »

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?

Posted in Cap and Trade, Legislation | 2 Comments »

 
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