Daily Score Blog

In spite of what you may have heard, Europe's carbon market is working beautifully. The EU's Emissions Trading Scheme (ETS) has been operational since 2005 and we're now getting a good look at how it functions. It turns out, it's a remarkable success story, both environmentally and economically.

Let's briefly review the major pieces of evidence.

1. European Environment Agency. A November 2009 report finds that the continent is well on its way to meeting its Kyoto targets thanks in large part to its cap-and-trade program. In fact, by 2007,14 countries had already exceeded their reduction goals, including the wealthy industrial giants of France, Germany, and the United Kingdom. To wit:

EU‑wide policies are expected to contribute towards most of the planned emissions savings by the end of the period 2008–2012, in particular the European Union Emission Trading Scheme (EU ETS), the promotion of renewable energy sources, policies targeting the energy performance of buildings and internal energy market policies. 

Here's a nickel summary from Joe Romm:

...the Europeans are poised to surpass their targets under the terms of the Protocol. It is no longer plausible for those who don’t want a U.S. cap-and-trade system to point to the European Trading System (ETS) as a failure. Quite the reverse.

...the EEA analysis concludes the EU-15 will not need to rely on offsets to meet their Kyoto target

(There's more good stuff at Treehugger.) Importantly, the reductions analyzed in the EEA report do not include the effects of the global economic downturn, which has unintentionally provided much steeper reductions.

2. The German Marshall Fund of the United States. A July 2009 report is a goldmine of valuable lessons from the European experience, but for now I'm going to focus just on the carbon market aspects.

With all the hand-wringing over the alleged risk of market manipulation in cap and trade, you'd almost forget that the United States already has a carbon cap and trade program up and running. But it does.

RGGI, a regional program among 10 Northeast states, has been auctioning permits, allowing trading on a secondary market, and even, in a way, encouraging trading in derivatives. And guess what's happened so far?

...we find no evidence of anticompetitive conduct. Participation by a large number of firms is an encouraging sign of competitiveness and efficiency in the secondary market.

That's according to a May 2009 report (pdf) by Potomac Economics, the designated market monitor tasked with keeping a close eye on RGGI's market function. It's the most recent analysis available and it's an encouraging sign. But really, it's no accident that RGGI has been successful so far. Administrators have prized transparency, regulation, and oversight in ways that can usefully inform federal cap-and-trade legislation. 

I draw three major lessons from the report.

On the announcement that the Clean Energy Jobs (CEJ) bill cleared a key Senate committee last week, Friends of the Earth complained:

The bill’s backbone is a poorly regulated carbon trading scheme that entrusts the Wall Street bankers who brought us the current economic crisis with the responsibility to solve global warming.

Sheesh.

Of course, this isn’t true. It’s not even sort of true. It’s just an attempt to torpedo a bill by sowing confusion about an important and sensitive issue. (There are some of legitimate critiques of the bill -- and Friends of the Earth (FoE) makes some of them -- but this one is a red herring.) You can rest assured that if CEJ passes it will not be administered by Bernie Madoff.

At heart, the argument is not about CEJ or cap and trade. It’s about a basic mistrust of market economics. And it has high stakes: it’s rhetoric that could sabotage a real chance to put a legal limit on greenhouse gas emissions.

This kind of critique isn’t a first for FoE. In fact, in March 2009, they authored a surprisingly influential and widely-cited critique of carbon trading: a 13 page policy paper called “Subprime Carbon: Rethinking the World’s Largest New Derivatives Market” (summary here). The paper does make a few sound points along the way, but it substantially over-reaches in its conclusions. What’s worse, however, is that the paper is dressed up to appear to be a critique of cap and trade, but the substance really applies only to offset programs -- and then only in a debatable and hypothetical way.

In a nutshell, the argument spins out a doomsday scenario in which bad offsets replay the housing bubble, muck up the financial sector, and destroy the global economy. More specifically, the argument goes like this: FoE worries that financial firms would intermediate in providing carbon offsets by purchasing offsets and offset derivatives (especially futures), some of which could be of questionable value. Firms might then repackage and securitize the offset products, much as happened with mortgage-backed securities, selling them to various kinds of investors and ultimately, perhaps, to the firms regulated under the carbon cap. If it turns out that large numbers of offset projects go bad (meaning that they cannot be certified as legitimate offsets because they do not sufficiently reduce carbon), then the offset-backed securities could be worth less than they were believed to be. And if the carbon derivatives market is sufficiently gigantic (as FoE believes it will be), the reduction in value of carbon derivatives might to a worldwide financial collapse mimicking the recent asset bubble collapse in 2008.

As you can see, there are several strands of argument and it takes a moment to untangle them. Let’s dig in.

I love reading Matt Taibbi. I mean, who else puts together a sentence like this?:

The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Funny and righteous at the same time. Good stuff. But in a piece he wrote for Rolling Stone this past July, he made some awfully curious -- and curiously unsupported -- allegations about carbon markets:

...if the Democratic Party that [Goldman-Sachs] gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Yikes. It's pretty scary stuff, but Taibbi doesn't elaborate. At all. 

Which is frustrating.

It's frustrating because this is precisely the kind of thing you hear all the time from cap and trade critics. Taibbi's telling a big hairy ghost story here, but because he doesn't explain it we can't know whether to be spooked or just laugh it off. At minimum, somebody needs to explain how it is that a carbon-credit market will replicate the commodities market in ways that make it eligible for gaming by Goldman or others. And then someone needs to explain why that risk -- if it's even true -- is worse than the risk of failing to cap carbon.

That's where Paul Krugman comes in.

An interesting piece in the Christian Science Monitor yesterday by Robert Dujarric (who heads the Institute of Contemporary Japanese Studies at Temple University) makes the case that Americans can be motivated to act on climate measures by rousing their sense of patriotism.

I've written before about the powerful terminology of war in this context. But this is a new take. Dujarric recommends taking aim at particular targets. Namely, the sinister foreign oil barons who are getting rich and powerful thanks to  our oil addiction.

Is it an effective call to arms to remind Americans that the money we spend at gas pump and on our heating bills funds "Mahmoud Ahmadinejad's nuclear and missile programs, enrich[es] Muammar Qaddafi (while he rants at the UN against the United States, and give[s] assistance to Vladimir Putin as he threatens American interests in the Caucasus and Central Europe?"

Should we start talking about climate policy as a move to "wage war to bankrupt oil tyrants?"

Worries about “gaming” or market manipulation sometimes crop up as an objection to cap and trade, often with reference to recent shenanigans in the financial markets. Some fear that a cap-and-trade system could be manipulated to artificially raise—or lower—permit prices to generate profits for a few at the expense of consumers. While distrust and concerns about scamming a carbon market are understandable, they’re not warranted.

To put some of these fears to rest, it’s informative to look at existing cap-and-trade programs. Neither of the two programs regulating greenhouse gases nor a third controlling acid rain pollutants has been corrupted by gaming or market manipulation.

The European Union’s Emissions Trading Scheme (ETS) was the world’s first cap-and-trade program restricting carbon dioxide releases when it started in 2005. The system has succeeded in creating a Europe-wide carbon market and trading program. There have been hiccups in the ETS, including an initial overallocation of allowances to polluters and some price volatility. Yet the problems are fixable and are already being addressed as the program evolves. The challenges are not attributable to a fundamental flaw in the policy or to lack of regulatory oversight. And the market has grown more robust as the number of traders has increased, making price manipulation difficult. Partly thanks to the ETS, the EU is on track to meet its emissions reduction obligations under the Kyoto Protocol.

The Regional Greenhouse Gas Initiative (RGGI), with a membership of 10 Northeastern and Mid-Atlantic states, held its first auctions in September 2008. Additional auctions are scheduled. While still in its early days, RGGI appears to be off to a good start, with low permit prices and no evidence of gaming.

The US Acid Rain Program has a track record dating to 1995. The program regulating power plants has exceeded expectations, beating the SO2 emissions cap years ahead of schedule and costing only one-fourth of what was expected. After more than a decade, analysts have concluded that the SO2 cap-and-trade program has also been free of gaming.

In short, cap-and-trade programs are already up and running with no evidence of sinister manipulation. That’s no surprise to specialists who study markets.

I've got an emerging obsession: the risk of market manipulation in cap and trade programs. It's something you hear about all the time, at least in carbon policy circles, but the details about "gaming" always seem to be in very short supply. Still, it's something we should take a close look at because the alleged consequences are so severe.

So at the moment, I'm gearing up to read everything important that's been written on the subject. (If you know of good stuff, please send it my way.) In the meantime, I want to share this recent short brief written by economist Laurence DeWitt at Pace University.

He takes a look at how the RGGI carbon cap and trade system has fared:

So far there have been no discovered instances of even attempts to exercise market power--and there has been great vigilance in searching for such actions. In addition to the careful scrutiny of Potomac Economics, which serves as RGGI’s official market monitor, the federal Commodity Futures Trading Commission (CFTC) has already become active in monitoring and analyzing the exchange traded RGGI derivatives. 

And a look at how the national SO2 and NOx cap and trade programs have gone:

It should also be noted that we have several decades of national experience with SO2 and NOx cap and trade programs with no indications of any significant effort, successful or otherwise, to manipulate the market. SO2 and NOx programs are relatively small markets—and thereby offer more potential for manipulation--so this experience to date is very relevant.

In fairness, DeWitt's piece is much too short to do justice to the subject matter. I plan to dig into the details further in the coming weeks, but I thought it provided a nice high-level expression of the basic facts of the case.

Via Climate Progress, a transcript from Marketplace that is just riveting. It's about the bark beetle infestation and forest die-offs around Helena, Montana. Here's an excerpt:

JIM ROBBINS: This was all forest here. And now it’s a lot of smashed pieces of wood here and pine needles and occasional patches of weed that we’ll have to spray next year.

SAM: So Robbins says when people are faced with these kinds of images daily, in their own backyards, it becomes a lot harder not to believe in climate change.

ROBBINS: There’s a saying that there are no atheists in foxholes. I think there’s something along that line happening here. I mean, there are still some people who refuse to believe it. But I think there’s been an erosion of that disbelief and it’s changed pretty dramatically.

SAM: And a lot of people don’t want to call it global warming simply because it’s such a politically charged term. They basically equate it with Democrats like Al Gore. People they’d never vote for.

Helena’s Mayor Jim Smith definitely falls into that category. But Sarah, he told me something I’d never heard before. He said when your community is threatened, the political debate over climate change no longer matters.

SMITH: Whether this climate change is man caused or just the natural order of things, I don’t know and I don’t have a lot of time to ponder that important question. We just got to deal with the situation on the ground here regardless of what the cause is. So we’re doing that.

As you might expect, Joe Romm has much more to say, connecting the dots between climate change, bark beetles, and threatened forests in the West. And needless to say, this sort of thing stands to worsen if carbon emissions go unchecked.

As the US Senate begins to consider comprehensive climate policy, let's hope that certain powerful western senators -- cough, Max Baucus, cough -- are paying close attention to their home states. Turn your attention away from the airless hyperpolitics of DC lawmaking and you can see that there are serious dangers in failing to reduce emissions very soon.

A CNN/Opinion Research poll released today shows strong public support for cap-and-trade legislation. As Alex Kaplun of E&E points out, this is despite months of attacks from those opposed to climate and energy policy.

The poll found 60 percent of the public expressed support for a cap-and-trade proposal that would "limit the amount of greenhouse gases that companies could produce in their factories or power plants." About 37 percent of voters say they would not support such a proposal.

Most interesting, perhaps, the poll found a relatively strong level of support among Republicans for the legislation, with about 4 in 10 backing the bill. A solid majority of both Democrats and independents back the measure.

There's a clear generational divide. Younger voters are more inclined to support the measure, with 68 percent of those under the age of 50 supporting the legislation but with those older than 50 evenly split.

The latest national survey by the Pew Research Center for the People & the Press, conducted Sept. 30-Oct. 4 among 1,500 adults (reached on cell phones and landlines) revealed some disheartening trends when it comes to opinions about climate change. At the same time, things are looking decent (if not rosy) for cap and trade policy.

• 57 percent think there is solid evidence that the average temperature on earth has been getting warmer over the past few decades. In April 2008, 71 percent said there was solid evidence of rising global temperatures.
  
  
• Over the same period, there has been a comparable decline in the proportion of Americans who say global temperatures are rising as a result of human activity, such as burning fossil fuels. Just 36 percent say that currently, down from 47 percent last year.

• The decline in the belief in solid evidence of global warming has come across the political spectrum, but has been particularly pronounced among independents. Pew found that just 53 percent of independents now see solid evidence of global warming, compared with 75 percent who did so in April 2008.
  
  
• Republicans, who already were highly skeptical of the evidence of global warming, have become even more so: just 35 percent of Republicans now see solid evidence of rising global temperatures, down from 49 percent in 2008 and 62 percent in 2007. Fewer Democrats also express this view -- 75 percent today compared with 83 percent last year.

Despite this trend backwards when it comes to skepticism (is it a seasonal thing?), the survey found more support than opposition for a policy to set limits on carbon emissions.

• Half of Americans favor setting limits on carbon emissions and making companies pay for their emissions, even if this may lead to higher energy prices.
  
  
• 39 percent oppose imposing limits on carbon emissions under these circumstances.

There have been a couple new developments since I last wrote about the US Chamber of Commerce and its whacked out stance on climate change (basically, denial and roadblocking important legislation):

First, Nike stepped down from the Chamber board of directors while keeping its membership in the group.

Second, Apple split with the Chamber.

And as Grist points out, the Chamber has tried to do damage control, without changing its opposition to clean-energy legislation. And, the New York Times editorial page pronounced that “no organization in this country has done more to undermine [climate] legislation.”

Furthermore, hundreds of business executives descended on Washington this week in support of a clean energy economy, including Starbucks, HP, Ebay, Duke Energy, Levi Strauss, Cliff Bar, Avista, Exelon, PG&E and many others. Calling for investment in American jobs instead of global warming pollution, the CEOs participating in the Business Advocacy Day for Jobs & Competitiveness -- an effort organized by the new We Can Lead coalition -- are telling the Senate to take action with strong climate legislation like the Clean Energy Jobs Act introduced last week by Sens. John Kerry (D-MA) and Barbara Boxer (D-CA).

So, our question remains...Which Northwest company will be the next to step up and condemn the Chamber's heavy-duty lobbying against smart climate and energy policy? Lobbying being done in members' names?

Ahem, Microsoft...? Grist's Jonathan Hiskes met with Microsoft’s chief environmental strategist, Rob Bernard.

Microsoft has never been considered an environmental leader, but it’s got a decent climate policy on paper. It opened an energy-efficient data center this summer that could lead to significant energy savings, particularly if the company finds ways to use the innovations in larger server labs.

Given all this, why is Microsoft a Chamber member? Bernard told me Microsoft takes climate change very seriously and tried to distance the company from the Chamber’s climate shenanigans. “The views expressed by the U.S. Chamber of Commerce do not reflect Microsoft’s position on climate change and we are not participating in their climate initiatives,” he said in a followup email.

Kudos to Hiskes for asking the tough questions. I would think Microsoft employees would be asking those too--or employees at Amazon, Boeing, or Costco for that matter.

Meanwhile, as part of SEIU’s ongoing campaign to shed light on the extreme positions of the US Chamber of Commerce, they put together this video highlighting the recent high-profile exodus for the Chamber’s "backwards position on climate change."

We'd like to see some Northwest business leaders willing to leave the Chamber with an achy breaky heart too.

For your Friday afternoon reading pleasure, here's Alan explaining cap and trade to the Stay Puft Marshmallow man:

"We’re consuming too many marshmallows and we’re all getting overweight, so we’re gonna start cutting down on the quantity of marshmallows..."

Read the full article here.

It's not a perfect analogy.  People (well, some of us) really do want more marshmallows.  But nobody (except maybe these clowns) actually wants more CO2 emissions.  We want the good things that energy provides, like cold beer and hot showers, but we'd prefer to get them without all the pollution.

Still, the marshmallow analogy is a both a clear and entertaining way of thinking about how cap & trade works.  If you want your family to lose weight, gradually reduce the size of the marshmallow bag you bring home from the store; and if you want to cut carbon emissions, gradually shrink the amount of emissions that you let fossil fuel companies spew into the sky.

Next week, we'll see how many marshmallows Clark can fit in his mouth.

Photo courtesty of jumbledpile under the Creative Commons license via Flickr.

*** This is a preliminary summary of a huge bill, so it's not Sightline's final answer. Look for a more thorough and polished analysis next week. ***

Weighing in at 821 pages, the Kerry-Boxer climate bill introduced into the US Senate yesterday is officially a whopper, though it's certainly more svelte than the companion House bill that it substantially mirrors. (Apparently, it's Kerry-Boxer, not Boxer-Kerry, despite what you may have heard.)

Update, 1:20: quick aside on the price ceiling: Lots of folks asking what I think about the "price collar" approach in this bill, especially the price ceiling that appears to be a cap buster. In a nutshell: the price ceiling ends up being no worse than the quality of the program's offsets. (By analogy, however, getting hit by a bus is no worse than getting hit by a truck!)

I'm officially not a fan of the price ceiling, but it could wind up being okay. The program would sell whatever permits are sold at the price ceiling (i.e. above the cap) by using the reserve account -- and the reserve account is initially stocked with permits from the cap's pool. In other words, the existence of the reserve account means that there's a slight tightening of the cap in early years, which means no real cap busting. 

If the reserve is depleted then it is re-stocked by selling more offsets to create new permits. And because offsets will almost certainly be cheaper than the ceiling price, subsequent permits sold in excess of the cap will effectively get offset-plus. 

There's more explanation of these features below the jump.

Okay, now let's dig in.

This Saturday, I will be speaking about energy efficiencies at the annual Wild Idaho North! Conference. Preparing for this presentation has given me a chance to zero in on the true potential of efficiencies for buildings and homes. I also used a recent gathering of Sightline supporters to help focus my thoughts. I had two minutes to talk about energy efficiency and here’s the gist of what I said

Efficiency programs and policies in Cascadia, if they are done well, can:

Right! And toxic sludge is good for you. And coal is clean. And unicorns are real. And cigarettes don’t cause cancer. And pigs can fly.

We’ve heard it before. Denying climate science has been a tactic all along to stall action on climate and energy. But now there seems to be some muscle—or at least some money—behind a campaign called “CO2 is Green,” which has launched an advertising push attempting to undermine not only the US Environmental Protection Agency's recent ruling that CO2 should now be classified as a pollutant, but, also—and more immediately dangerous—to derail the forthcoming vote in the Senate on the Waxman-Markey cap-and-trade bill.

According to Guardian.co.uk, a former oil industry executive has stumped up some of his cash to pay for television advertisements to be shown in Montana and New Mexico. Here’s the transcript of the ad (see it on YouTube):

Congress is considering a law that would classify carbon dioxide as pollution. This will cost us jobs. There is no scientific evidence that CO2 is a pollutant. In fact, higher CO2 levels than we have today would help the earth's ecosystems and would support more plant and animal life. Please take action. Contact your senator and congressman today and remind them CO2 is not pollution and more CO2 results in a greener earth. Go to CO2isgreen.com, because we all need CO2.

We all need CO2. It's true. It's the quantities that matter.

So, why Montana and New Mexico? The ads urge voters to contact Montana’s Senator Max Baucus, the Finance Committee chairman and the second-most-senior Democrat on the Environment and Public Works Committee. Baucus is in a uniquely powerful position on climate issues and in past has backed bills to cap emissions and allow companies to trade pollution allowances. New Mexico is home to Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D). A half-page ad by CO2 is Green ran in Monday's Washington Post.

The group's founder, H. Leighton Steward, says that higher carbon dioxide levels would spur more growth of plants and trees. But he’s no biologist. He’s the former vice chairman of Burlington Resources, a Houston-based oil and gas company bought by ConocoPhillips in 2006, received more than $600,000 in fees, stock and options for being a director of another oil firm, EOG Resources. He received the American Petroleum Institute's Gold Medal for Distinguished Achievement in 2001 and remains an honorary director of the oil industry lobby group. “I'm not getting a penny for this,” said Steward, who has reported he owned oil company stocks but no coal stocks. “It's just something I thought people should know.”

Uh huh.

According to the Washington Post, Steward (the name itself is rife with irony) has joined forces with Corbin J. Robertson Jr., chief executive of and leading shareholder in Natural Resource Partners, a Houston-based owner of coal resources that lets other companies mine in return for royalties. Its revenues were $291 million in 2008. They have formed two groups -- CO2 Is Green designated for advocacy and Plants Need CO2 for "education"—with about $1 million. (They are trying to establish legal charity status for Plants Need CO2.)

The Guardian’s Leo Hickman, points out that the ads are ripe for spoofing, but there’s a catch :

It's certainly tempting to laugh it off. (For extra merriment, visit the "CO2 is green" website and read the “Why do people believe these myths?” section: "They have been misinformed by people that benefit financially from propagating the myth." Oh, the irony.) But the advert is also a juddering reminder there are still powerful, influential forces straining every last sinew and dollar they possess to deny that rising CO2 levels are a problem. That such efforts should so easily be traced back to oil industry operatives is not wholly surprising, but sobering nonetheless.

It is funny -- in that depressing kind of way. So, if you laughed at first but now you’re choking on all this like I am, here’s some medicine to help you feel better…

Earlier this month, Duke Energy, Alcoa and Alstom all pulled out of the American Coalition for Clean Coal Electricity, an industry group whose ads have asserted that the House climate bill would make energy unaffordable. "We thought [the bill] had evolved in ways to be affordable for our customers," said Duke spokesman Tom Williams.

And, as I wrote late last week, a group of large corporations -- including New Mexico utility PNM Resources, California utility PG&E, power generator Exelon and Nike -- have all denounced the US Chamber of Commerce's opposition to climate legislation.

So, there is true green out there in the corporate world. Bright green, in fact. The oil lobby ads just remind us that some “green” looks a lot like slime.

Let's just hope voters in New Mexico, Montana, and elsewhere can smell the difference.

Image courtesy of boardwalker, Flickr.com.