Yesterday we introduced you to Bill Becker and heard all about PCAP’s policy suggestions. Today we focus on some of the nuts and bolts of weaning the United States off of carbon, specifically cap-and-trade, cap-and-auction, and carbon taxes.
S&R: John Podesta said today [at the Energy and Climate Change roundtable] that the process of decarbonizing, of getting ourselves off of fossil fuels, would be a massive and breathtakingly difficult process for our country and the world. How will PCAP help the President and Congress convince the American people that decarbonizing our economy won’t be too difficult to undertake at all?
Bill Becker: Well, a couple of things. John is right, this is going to be a massive undertaking. We’ve got 200 years of a fossil economy that we need to reinvent, and we need to do it on a dime – turn on a dime. And we need to do it as a global community instead of as one country. And we don’t have a czar who can impose this on us – the democratic process is frustrating to say the least. So it’s a huge undertaking.
The comparison I hear most people make is to FDR and World War II, how we turned production of automobiles into tanks on a dime, where we began to produce what we needed to win that war, where we rallied the nation to get involved with victory gardens and war bonds. They even had something called victory speakers which reminds me of Al Gore’s training of a thousand people to go out and give his speech. People in the community actually went out and gave 10, 15 minute speeches about supporting the war effort. What FDR had, finally, after a long, frustrating time, was strong public support to lead because of Pearl Harbor, because of the Depression.
This is a more subtle and insidious issue. It isn’t like we’re suddenly attacked. It’s like the frog in the water that heats up slowly until it’s boiling. It’s a leadership challenge to be sure. But I have a feeling that the American people are waiting to be asked to do something, that our political leaders in recent times have not had the courage to enlist the American people the effort, whatever it might be, in reducing gasoline consumption or oil use. [Our political leaders] didn’t have the courage to tell the people of New Orleans that they shouldn’t move back into this place because it’ll be flooded again.
I think there’s a pent up, sort of Kennedy-esque “ask what we can do for the country” spirit, and the American people are waiting to be asked to get involved. I think that one of the things the next President needs to do is rally that spirit and tell people what they can do, suggest what every American can do in every home or every automobile, and get us all involved. But there has to be a clear goal that we all can strive for. There needs to be amazingly inspirational leadership of the kind that John Kennedy often gave with his speeches, and I think we’ve got a candidate that can do that.
I think also that the weather is going to conspire and the oil market is going to conspire and, when we put a cap on carbon, the economic signals will conspire to help people change their behaviors. What we saw with gasoline prices going above $4 is that people began to voluntarily do what those of us in the energy conservation and efficiency business have wanted them to do for many years. They began to buy more smaller vehicles, more fuel efficient vehicles. They began to drive less, to use more mass transit, they began to walk more. All of those things. Their behavior was changed by the marketplace. So because oil is a declining resource, the price is naturally going to go up, a carbon tax would make prices up as well, so I think that economically people will want to change.
But I think that the President can rally us toward a cause. And the cause is to maintain the country that was created by the Founders, was defended by generations before us, and is going to be inhabited by generations after us. I think the patriotic thing to do, and the President can make this clear, is to address this problem, address it quickly, and to ensure a decent future for our kids.
S&R: You’ve talked about cap-and-trade, specifically cap-and-trade with an auction instead of a giveaway. I’ve wondered myself ever since I started blogging on energy and climate why the focus is on cap-and-trade over carbon tax. What’s PCAP’s reason for focusing on cap-and-trade as opposed to a carbon tax?
BB: Because the momentum seems to be behind cap-and-trade, and we could try and fight trench warfare about a carbon tax, which most economists seem to agree is the better and simpler approach, or we can go with where the momentum is. But the truth is if Congress passed a cap-and-trade or cap-and-auction system like we’re talking about, it’ll be a virtual tax. I use that term because taxes are like the third rail of politics, unfortunately, and I’ll say something about that in a minute, but we believe that if you have system that moves upstream and deals with 1500 entities it’ll be a good system and a workable one.
The really intrinsic advantage of cap-and-trade over a carbon tax is that with a cap-and-trade you’re assuring the level of carbon emissions. With a carbon tax you’re assuring the amount of income, in a sense. So the more effective approach is to cap carbon emissions and be certain by adjusting the price signal that the cap will be met. I do think cap-and-trade is superior in that way to a carbon tax.
S&R: [Senator] Clair McCaskill mentioned [during the Rocky Mountain Roundtable on Energy and Climate Change] that cap-and-trade might be too big to manage. Do you think that going to the 1500 points of entry upstream will make it viable?
BB: It’ll make it infinitely easier to manage.
What you have now is a system that’s the result of political compromise and tradeoffs. It’s trying to make sure that everyone’s taken care of, which is a good thing, but the result is a real patchwork with all kinds of nuances, all kinds of complexity. It’s hard to administer and probably pretty costly to administer. I think you need a system that the marketplace can trust, the American people can trust, that is transparent and that we can understand how it works so it’s hard to game. The people within the system can’t game it because it’s completely transparent. The administration costs are low. I think a system like that has a much better chance of working. I think it has a better chance of being perceived as equitable, so that’s the way we would go
The downside to that, I admit, is that, if you go upstream, the big emitters like big industries or power plants will not have a permit they can sell. And there’s a number of people I respect who contend “you’ll never get an upstream system through the Hill because there’s not people pushing for it, not enough people are going to profit from it.” So there’s going to have to be some sort of balance when we talk about the national interest vs. the property interest of utilities and large industries. Not any approach is perfect, but I prefer the upstream and I think that PCAP as a project does too.
S&R: The Congressional Budget Office did an analysis of cap-and-trade vs. carbon tax, and one of their concerns on the cap-and-trade option was that we’d end up with wild carbon price fluctuations leading to the end users’ bills fluctuating month to month, even week to week or day to day if you’re talking spot markets and oil. How can you address that with a cap-and-trade system?
BB: Well, I haven’t read the CBO report, but I do know that one of the attributes of cap-and-auction has to be flexibility, and what I mean by that there needs to be a quasi-independent entity – some people have talked about a carbon Fed, for example – that can monitor the marketplace and see whether the price that they’re setting is adequate to bring down carbon emissions or whether the kind of adverse effects you talked about are happening, and that is empowered by Congress to make, within limits, adjustments to the cap-and-trade system so we don’t have to go back to six more years of debate on the Hill in order to fine-tune it. It may be a while before we get it right, before we know exactly what price has the effect we want, what mechanisms need to be in place.
One of the things we’re proposing while we do that experimentation and fine tuning is that the President encourage EPA to immediately begin regulating greenhouse gas emissions under the Clean Air Act. As you know, the Supreme Court virtually said it was [the EPA’s] obligation to do so. This administration has delayed that. But a technicality is that the President doesn’t have the power to order the administrator of the EPA to do that – Congress has delegated that authority to the administrator. But the President can strongly encourage the administrator, can probably even hire someone who promises to do it right. But we need to begin to regulate [carbon emissions] under the Clean Air Act, probably the State Implementation Plan (SIP) process. And we’ve been talking to a number of states, including California, who think that’s a workable system. With a few administrative tweaks they think that [the SIP] regulatory regime can be applied to carbon emissions.
Now, the thing is, some people object to regulation – it’s a safety net. If cap-and-trade doesn’t work like we thought, we’re still reducing greenhouse gas emissions and we have a regime in place. If cap-and-trade is a marvelous success, if it’s wildly successful, then the regulatory regime becomes moot because there’s no emissions to regulate or because we’ve already achieved the targets set by the regulations. We think that has to happen. It’s kind of the belt and suspenders approach – you’ve got both levels of support, if one fails, the other doesn’t.