The Story of Cap & Trade (Discussion Follows)

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?

Brian Thurston is a sustainability consultant working on research, strategy and policy development. Brian is interested in building awareness and unique relationships within and between corporate, government, and NGO partners. He holds a BA in Literature from University of Southern California, and a MS in Environmental Policy from The Johns Hopkins University.