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The Story of Cap & Trade (Discussion Follows)

| Tuesday December 1st, 2009 | 12 Comments

road-to-copenhagen

They’re at it again – the creative team who brought you the wildly popular Story of Stuff are following up with “The Story of Cap and Trade: Why You Can’t Solve a Problem With the Thinking That Created It.”

Building on the momentum of The Story of Stuff (over 8 million views to date) Annie Leonard and Free Range Studios have teamed up with Climate Justice Now! and the Durban Group for Climate Justice to bring what is to be the first of six short films in the coming year.

Many prominent scientists, politicians and business interests have been on opposing ends of the cap and trade discussion for a long time. Leonard acknowledges that some very smart people (some of them her friends) support cap and trade, but she isn’t convinced. (Watch the video above)

The Story of Cap and Trade, not unlike The Story of Stuff, hopes to serve as an educational tool to illuminate the shortcomings of this strategy and spark debate surrounding this key component in the climate legislation conversation.

Cap and trade is nothing new, and the EPA has implemented several of these programs with varying degrees of success. The strategy is simple – cap the amount of pollutant (in this case, carbon) that people can emit, pass out pollution permits (a set amount that will decrease year to year), give credits where people reduce, and then allow polluters to purchase credits to make up the difference.

Sounds simple, right? Hey, it worked for acid rain, right? Not so fast. Story of Cap and Trade paints a different picture, one with uncertainty and a less than equal playing field. The film contends that you have to look deeper into the carbon market’s flaws – because the “devil is in the details.”

The first major “devil” they site is the idea of pollution permits. Critics of cap and trade point out that the very idea of the highest emitters receiving the most permits for “free” is counterintuitive, and we only have to look at the performance of the European trading system for evidence that this doesn’t work.

The second “devil” is offsets. This is where the market gets a bit scary. Even in their most simple form, carbon reduction projects are difficult to measure. Therefore, in the complexity of this new potential multi-trillion dollar carbon market, the opportunity to game the system could be massive.

Earlier this year, Friends of the Earth published a report that focused on the growing concern of “subprime carbon.” They say that carbon trading is essentially the same as the trading of derivatives, and not unlike junk bonds or subprime mortgages, subprime carbon carries a higher risk of delivering on its value and thus is prone to price volatility. An excerpt:

In November 2008, banking giant Credit Suisse announced a securitized carbon deal that bundled together carbon credits from 25 offset projects at various stages of UN approval, sourced from three countries and five project developers. These assets were then split into three portions representing different risk levels and sold to investors, a process known as securitization.

Unless you’ve been living under a rock, the above scenario and language used to describe it, sound frighteningly familiar to what precipitated the most recent market crash…

The third and perhaps most destructive “devil” is that of distraction. By putting so much emphasis on cap and trade, people are distracted by the real challenges and solutions.

217x188_capandtradeSo what are some solutions the film offers? Well, the same ones we’ve known about for years – notably, a clean energy economy and paying our “ecological debt.” They contend that any system that depends on cheap energy, namely coal, is as unsustainable as a system that isn’t equitable for the developing nations.

So how come we don’t learn from our mistakes? Well, to be fair, some ague that we have. With regard to the European trading system, they have since stopped giving away free permits, choosing to auction them instead and thus stabilizing the price and lowering emissions. Not so convincing however, is the argument that the Acid Rain Program is a solid example of how cap and trade will work for carbon. Critics say that this comparison (carbon vs. SO2, mainly) isn’t apples to apples, and that the complexity of the carbon issue is much larger in orders of magnitude.

So what to do, who to believe? Well we can all start by watching the Story of Cap and Trade, and then ask a bunch of questions. Leonard herself wants to “ensure that Americans and others clearly understand the solutions on the table and to inspire them to push our leaders for real solutions to climate change.”  So, what do you think:  Is cap and trade really a good first step, or just better than nothing?


▼▼▼      12 Comments     ▼▼▼

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  • Nick Aster

    Honestly, I’m not so impressed with this one. Annie does a good job of explaining the Cap and Trade concept, but I’m not at all convinced it’s a bad approach.

    There is lots of agreement that cap and trade worked just fine on SiO2. In fact, that it was the key to controlling acid rain.

    Granted CO2 is a much bigger, more multinational problem, but why is it really that much different? It seems that what Annie fears (understandably) is that unscrupulous companies will find loopholes and ways to manipulate the system. Well, that might be true, but I don’t understand why that wouldn’t happen under the other proposals she (very briefly) touches on.

    It may be that changes to the way Cap & Trade is supposed to run have happened that will weaken its effectiveness, but I’m not really aware of those details.

    Assuming offset programs and the potentially flaky aspects of the program could be enforced (ie – the “strong laws and citizen action she advocates”), then what’s really wrong with giving the market a chance? I just don’t buy the “those greedy capitalists will screw us” argument and want to hear a sounder reason to oppose this.

    • Brian Thurston

      There are other criticisms of the SO2/CO2 comparison. Critics argue that really only the “cap” portion of the SO2 program was the part that worked.

      Most of the reductions came from plants just switching to a low sulphur coal (so they didn’t burn less coal, just one that emitted less of the pollutant), and for preexisting and inexpensive scrubbing technologies – it didn’t spur the innovation expected – most of the reductions were “low hanging fruit.”

      Also, regulating one or two specific pollutants is much easier than something like carbon. And cap and trade for carbon, on the other hand, relies almost entirely on permits and offset projects that require fundamental change in infrastructure – pretty risky. The SO2 program did not have all of the speculative risk – the one aspect that looks so ripe (and attractive) for the “greedy capitalists.”

    • Ellen Hong

      Annie’s Story of Stuff became a major hit primarily because it was easy for both adults and children to understand the downside of consumerism and capitalism. I was expecting her new video campaign to focus more on solutions to climate change for everyday citizen. Unless we all read and understand 821 pages of Senate Bill 1733 completely, it is too hasty to assume its failure. I think she should focus on driving people to consume less and consume smarter. I want to remind her that Facebook is becoming a mainstream because it is easy to participate and it invites everyone. The global warming is a global problem. Everyone should understand how to participate in reducing carbon emission. Making some people look evil and stupid simply won’t work.

  • Jen Boynton

    I love the simple and elegant example of how C&T works. I also think that our movement requires multiple voices and even if we know we will end up with a C&T solution– it’s still important for activists to sound the alarm about the dangers of a weak system. This is an important part of the process.

  • Elizabeth Krueger

    The Cap & Trade video throws the baby out with the bathwater. The current bill is flawed, but should we make the perfect the enemy of the good (or at least better than today)? She does make some suggestions that I agree with – like not giving all the permits away – but to simply say that Cap & Trade is bad does not get to a better solution. I’d rather have seen emphasis on educating consumers on what to look for/lobby Congress for in a better bill.

    (I actually had a similar reaction as to the Story of Stuff. In my opinion, The Story of Stuff put everyone in either a white or black hat – pure good or bad, with no shades of gray – which limits its credibility.)

    • http://www.globalwarmingisreal.com/blog Tom Schueneman

      Yeah, I agree that the video seemed to focus too much on vilification and not enough on offering solutions. I had an opportunity to speak with one of the principal consultants on the video, Daphne Wysham, as well as the Jonah Sachs, the founder of Free Range Studios. I wrote a post reflecting their perspective and a short synopsis on the video at CleanTechnica (and was quickly taken to task for doing so):
      http://cleantechnica.com/2009/12/01/the-story-of-cap-and-trade/

  • http://www.globalwarmingisreal.com/blog Tom Schueneman

    Here are a couple of responses from the climateinsider list:
    First from Dave Roberts at Gris (with a rebuttal below)t:
    ow, I suppose I’m generally viewed among greens as a defender of cap-and-trade—or, in the less charitable version, a defender of the “party line,” a shill for the administration, a sell-out “insider,” whatever. A “pro” in the “pro vs. anti cap-and-trade” argument. But that’s not how I see it. It’s more that I think it’s the wrong argument. Activists like Leonard are just mis-identifying the barriers to effective climate action. I’ll have lots more to say on that subject soon, but for now, let’s focus on the video.

    The video contains four basic arguments against cap-and-trade:

    1. Allowance giveaways are bad. This is true. It would be better to auction 100% of the pollution allowances and use the revenue to invest in clean energy and protect consumers. The bill in Congress gives away too many allowances (Leonard elides the fact that the bulk of them are devoted to consumer protection, though it’s open to debate whether they’ll be used that way, and some Senators are pushing for more giveaways).

    The most obvious solution to this is to give away fewer allowances. Yet Leonard and crew imply that allowance giveaways are inherent to cap-and-trade and the only solution is to ditch it. They imply that other “real” solutions would somehow be immune to polluters seeking loopholes and special favors, but never explain why.

    The allowance giveaways in the climate bill reflect the power of the fossil fuel lobby. Switching policies would not diminish that power. Reduce that power and any climate policy gets better. The policy isn’t the problem; the power of the fossil fuel lobby is.

    2. Offsets are bad. Leonard’s “argument” against offsets, if it can be called that, is fairly typical for this genre. She highlights a few ridiculous-sounding projects from the Clean Development Mechanism (CDM), implicitly conflates those projects and the CDM with offsets generally, and then concludes, based on the anecdotes, that offsets are bad and they make cap-and-trade toothless.

    The reality is far more complex. The quality of offset projects varies widely, as do enforcement mechanisms. The bill in Congress actually contains some fairly stringent measures for policing offsets. Many people close to international policy negotiations believe that high-quality offsets are a vital measure enabling a stronger international treaty. (See Glenn Hurowitz.) Many think that emissions reductions will prove cheap enough that offsets won’t be extensively utilized in early years. Others think that moving emission reductions overseas short-sells the clean energy revolution needed here in the U.S.

    These are complex topics, and they’re not well-served by the simplistic, hand-waving dismissal of offsets in Leonard’s video. Regardless, if you think offsets are a problem, the obvious solution is to reduce the number of offsets. But again, Leonard and crew pretend that offsets are inherent to cap-and-trade and the only solution is to ditch it. Again, they pretend that “real” solutions would be immune to similar loopholes and giveaways.

    One more time, from the top: The number of offsets in the climate bill reflects the power of the fossil fuel lobby (and the common impression that reducing emissions will be costly). Switching policies would not diminish that power (or that impression). The policy isn’t the problem; the power of the fossil fuel lobby is.

    3. Carbon markets are bad. I hesitate to call this an “argument” in the video, since it mainly consists of using the words “Enron,” “bubble,”“Wall Street,” and “scam” suggestively, without saying anything at all specific about why this commodity market—which would be one of any number of commodity markets, most of which work perfectly well, including the carbon market in Europe—would be uniquely evil. I’m with Kevin Drum: there’s no meat here. I’ve never seen anything to this argument but the kind of suggestive handwaving that’s in the video. I don’t know why the green left has decided that markets are bad, in and of themselves, but it seems both politically unwise and substantively thin.

    It’s certainly true that certain financial instruments should be eliminated or regulated more heavily; this is true for financial markets in general. There’s some fairly strong language in the bill about regulating carbon markets; that language will likely be folded into the larger financial market reforms that the Senate will address soon. But no one, outside this narrow topic, is suggesting that markets should be abolished!

    Remember, trading of allowances is the feature of cap-and-trade that makes it more flexible than a flat tax that applies to all entities equally. This was always the argument for C&T over a tax. Instead of rebutting that argument, Leonard et al. seem instead to have decided that “market Goldman Sachs derivatives bugga bugga!” suffices.

    4. Cap-and-trade is a “distraction” from “real solutions.” Of all the arguments, this is, forgive my bluntness, the silliest. The idea is that cap-and-trade has (for reasons never explained) magically come to dominate the policy conversation and made people forget about other options. “Cap-and-trade makes citizens think everything will be OK if we just drive a little less, change our light bulbs, and let These Guys do the rest.” Whaaat? It does? Any empirical evidence for this? Polls? Surveys? Anything? Honestly, it’s a depressing hallmark of liberalism to view progress—or the impression of progress—as a deflating force. Over on the other side of the aisle, they’re constantly declaring victory. Why do we think they do that? Does it seem to be de-motivating the conservative base?

    First of all, there are reasons cap-and-trade has garnered the most support, but C&T bashers are so busy attacking a caricature they can’t see them. Second of all, what is the sociopsychological theory here supposed to be? If we just stopped talking about cap-and-trade, everyone would wake, as though from mysterious trance, and start talking about “real” solutions? The only reason the world hasn’t come together around tough measures that would financially damage fossil fuel companies is that the world’s citizens are, like kittens, distracted by the shiny cap-and-trade bauble?

    This is the worst feature of the C&T bashers (and carbon tax advocates): their utter political naivete and Romanticism. There’s no plausible story about power here, and no real effort to tell one. It’s just: “Once everyone hears our clever arguments, the world will unite around Real Solutions!” It’s irresponsible.

    The video concludes by saying, “the next time somebody tells you cap-and-trade is the best we’re going to get, don’t believe them.” But why not? Literally nothing in the video even addresses that point! It’s a fundamentally political point that the video just wishes away. At this point the green left desperately needs less Mead and more Machiavelli. Unless greens get serious about identifying the loci of political and financial power, identifying ways to block or leverage that power, and building power of their own, they’re going to lose. Policy arguments are more-or-less orthogonal to that important undertaking, not a substitute for it.

    ———

    There are also some straight-up errors in the video. Europe’s trading system is working, despite relentless hype to the contrary. Any program that caps and reduces CO2 would help those hurt by climate change, even if the money was distributed inequitably. The Clean Air Act does not enable EPA to “cap” carbon the same way cap-and-trade does, and would not serve as an equally effective substitute for a cap. Etc etc.

    But my larger critique is that the video, and the bashing of cap-and-trade generally, just misses the point. I’ve got longer posts on this coming up, but here’s a capsule summary: it’s clear that politics as currently constituted, particularly in the U.S., will not tolerate a high price on carbon. So we’re going to end up with a fairly low price, hopefully with mechanisms to automatically raise it over time. A different carbon pricing mechanism won’t solve that problem.

    The smart response would be to secure the low-and-rising carbon price and then start pushing other emission reduction policies, namely sector-specific regulations, industrial policies focused on capacity building, and large-scale investments in RD&D. If all the C&T bashers would turn their energy in that direction, we’d be having a much more productive conversation. Instead they’re echoing arguments from Exxon and Don Blankenship, vaguely hoping that if cap-and-trade is politically destroyed, a herd of ponies will thunder in to replace it. Once and for all: there are no ponies.

    And now from Todd Brilliant from the Post Carbon Institute:
    Dave,

    You of all people know that there ARE better solutions than cap and trade. Didn’t you just interview Lester Brown? Yeah, you did (http://bit.ly/4zUKuu) so I’m assuming you read his book, “Plan B (pick a version)”.

    Here’s a quick refresher, an excerpt from Chapter 10: Shifting Taxes & Subsidies

    “Tax shifting is not new in Europe. A four-year plan adopted in Germany in 1999 systematically shifted taxes from labor to energy. By 2003, this plan had reduced annual carbon dioxide (CO2) emissions by 20 million tons and helped to create approximately 250,000 additional jobs. It also accelerated growth in the renewable energy sector; by 2006 there were 82,100 jobs in the wind industry alone, a number that is projected to rise by another 60,000 jobs by 2010.

    Between 2001 and 2006, Sweden shifted an estimated $2 billion of taxes from income to environmentally destructive activities. Much of this shift of $500 or so per household was levied on road transport, including hikes in vehicle and fuel taxes. France, Italy, Norway, Spain, and the United Kingdom are among the countries also using this policy instrument. In Europe and the United States, polls indicate that at least 70 percent of voters support environmental tax shifting once it is explained to them.

    Some 2,500 economists, including nine Nobel Prize winners in economics, have endorsed the concept of tax shifts. Harvard economics professor and former chairman of George W. Bush’s Council of Economic Advisors N. Gregory Mankiw wrote in Fortune magazine: “Cutting income taxes while increasing gasoline taxes would lead to more rapid economic growth, less traffic congestion, safer roads, and reduced risk of global warming—all without jeopardizing long-term fiscal solvency. This may be the closest thing to a free lunch that economics has to offer.”

    You can read the rest of it here: http://www.earth-policy.org/index.php?/books/pb4/PB4ch10_ss2

    Dave, don’t bash Annie for asking for better solutions. You can wrap your critique around nitpicks, semantics, and a difference of opinion on effective mobilization strategies, or you can step up to the plate and start endorsing better solutions.

  • canadaguy

    Cap and Trade schemes are ineffective, counterproductive, and environmentally damaging, while carbon offsets are an out and out fraud.

    http://www.selfdestructivebastards.com/2009/12/cap-trade-and-offset.html

  • ancientviking

    The people who made this video seem terrifically talented.

    But the substance of their video is awful. You need 60 votes to get the Senate to pass anything, and you can't get 60 votes for an extreme left law. It's just never going to happen. And ignoring 60 votes is just putting your head in the sand.

    How did Annie L. get so misled? For a comic response to THE STORY OF CAP AND TRADE, now on Funny or Die, watch here…

    http://www.funnyordie.com/videos/b2ddc4ea34/ann

  • http://www.completesociety.org/ Ted Ko

    Worldchanging has a solid, point by point critique of the Story of Cap & Trade

    http://www.worldchanging.com/archives/010840.html

    IM-not-so-HO, Annie Leonard and everyone who was behind this video have really hurt their own credibility with this. Whether or not you like cap & trade, the way they go about arguing against it is terribly unprofessional and just makes them look silly. (and btw, as this author notes, insulting to all the passionate activists who've been working for so many years on practical solutions)

    They've gone from being applauded for the Story of Stuff to being yet another disinformation source that informed sustainability champions need to find a way to counteract. It's not that they don't have some valid concerns, it's that they present the issues in a “dumbed down”, labels & soundbites way which puts them in the same camp as the “death panel” or “drill, baby, drill” people.

    It's bad enough we need to fight the deniers (Sen. Inhofe, US Chamber) or the gamblers (Breakthrough Institute, Superfreakonomics). People like Annie Leonard have opened up a new front in the battle: misguided activists who misinform the public and cause us to waste energy on non-constructive debates.

    Wouldn't you rather see all the energy that has been and will be wasted counteracting and debating this video actually go in to constructive, practical thinking about all the many climate policies that we need to get passed soon?

  • ancientviking

    The people who made this video seem terrifically talented.

    But the substance of their video is awful. You need 60 votes to get the Senate to pass anything, and you can't get 60 votes for an extreme left law. It's just never going to happen. And ignoring 60 votes is just putting your head in the sand.

    How did Annie L. get so misled? For a comic response to THE STORY OF CAP AND TRADE, now on Funny or Die, watch here…

    http://www.funnyordie.com/videos/b2ddc4ea34/ann

  • http://www.completesociety.org/ Ted Ko

    Worldchanging has a solid, point by point critique of the Story of Cap & Trade

    http://www.worldchanging.com/archives/010840.html

    IM-not-so-HO, Annie Leonard and everyone who was behind this video have really hurt their own credibility with this. Whether or not you like cap & trade, the way they go about arguing against it is terribly unprofessional and just makes them look silly. (and btw, as this author notes, insulting to all the passionate activists who've been working for so many years on practical solutions)

    They've gone from being applauded for the Story of Stuff to being yet another disinformation source that informed sustainability champions need to find a way to counteract. It's not that they don't have some valid concerns, it's that they present the issues in a “dumbed down”, labels & soundbites way which puts them in the same camp as the “death panel” or “drill, baby, drill” people.

    It's bad enough we need to fight the deniers (Sen. Inhofe, US Chamber) or the gamblers (Breakthrough Institute, Superfreakonomics). People like Annie Leonard have opened up a new front in the battle: misguided activists who misinform the public and cause us to waste energy on non-constructive debates.

    Wouldn't you rather see all the energy that has been and will be wasted counteracting and debating this video actually go in to constructive, practical thinking about all the many climate policies that we need to get passed soon?

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