NRDC Says "Cap" Without "Trade" Won't Reduce Global Warming

| by NRDC

The editorial by David Sokol titled "Let's Have Cap and No Trade" suggests that the US can achieve the same 83% cut in our greenhouse gas emissions by allowing companies either to participate in a program that caps dangerous carbon emissions or opt out of such a program and develop their own emission reductions plan. He goes on to further suggest that a cap-and-trade bill like the American Clean Energy and Security Act (ACES) introduced by Chairman Henry Waxman and Subcommittee Chairman Ed Markey would allow speculators to use unregulated practices in a regulated market. The reality is that this bill not only calls for aggressive oversight to prevent market manipulation, but it will reduce our output of global warming emissions while spurring investment in clean energy and green jobs.

Addressing each of Mr. Sokol's points in turn:

1) First, allowing utilities to opt out of putting a cap on dangerous carbon emissions will not adequately reduce pollution. For this to work, incremental goals must be achieved and not left to utilities to address as a balloon payment to be paid by their rate payers 40 years down the road. In other words, the Waxman-Markey bill is structured to provide regulated utilities with the transition assistance needed to invest in the short term (energy efficiency), medium term (smart grids), and long term (renewable energy, like wind and solar, and carbon capture and storage) solutions needed to reduce our pollution and put us on the path to a clean energy econony. While Mr. Sokol is correct that some unregulated utilities, like merchant providers, will not receive the same level of transitional assistance and have to pay for some of their allowances in the early years, he is wrong to assume that these costs are not creating an important price signal for these operators to drive down their carbon emissions over time, which will ease the burden of other sectors of the economy.

2) Second, the authors of the ACES bill anticipated and addressed Mr. Sokol's concern that carbon trading would encourage unregulated trading practices into the energy markets. The bill (see section 351) actually calls for aggressive oversight of not only the carbon markets, but of the oil, natural gas, and coal markets as well. Under the bill, the US energy markets will no longer receive the regulatory exemptions that have allowed them to trade with little oversight over the past decade, made them prone to speculative excess, and subjected Americans to energy spikes. Reporting requirements, position limits and enhanced market oversight will greatly improve the transparency and allow utilities to more easily understand the price signals coming from these markets.

3) Third, Mr. Sokol fails to appreciate that it is the trading of carbon pollution permits that creates the price signal needed to help utilities determine the pace of their low carbon investments. By establishing a price for emissions year in and year out for 40 years, utilities are able to make investment decisions in low carbon technologies based on their economics relative to the price of allowances in the marketplace. If, for example, the price of carbon is higher than the economic cost of energy efficiency improvements achievable in their region, utilities will accelerate their investment in efficiency programs. This will be beneficial to the local economy, the utility, and ultimately consumers. It will also create economic incentives for capital intensive investments like carbon capture and storage (CCS). The cost relief from not emitting 90% of the carbonpollution from a power plant makes it a compelling investment and one that will accelerate the commercialization of CCS to the benefit of everyone.

4) Finally, Mr. Sokol's point about "consumers paying twice" seems to be an argument that there are short-term and long-term costs to driving down emissions, and that consumers will be paying now for long-term reductions. This is not the case. This is simply a matter of investing now for a low carbon future that will reduce the overall costs of energy while creating clean energy jobs. Many short term gains can and will be made from energy efficiency, but longer term investments must also be made to reduce the costs of energy in the future, and consumers will ultimately be the ones who benefit.

In sum, while Mr. Sokol seems confident that the electricity sector can reduce global warming pollution on its own, it seems imprudent to rely on such a promise given the risks of failure. Putting a cap on dangerous carbon emissions will accelerate investment in clean, renewable energy and do it in a way that grows jobs, encourages investment and reduces our dependence on foreign oil.

OpposingViews Exclusive: Click here to read David Sokol's response to the NRDC