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NEW YORK — The U.S. government often deals with such complicated issues and speaks in such confusing language that many Americans just seems to tune out. So it has been with “carbonomics.’’ But the time has come to pay attention, because this matter now is front and centre, and there is a lot riding on the outcome.
President Barack Obama has proposed “cap-and-trade’’ legislation — carbonomics — as a key weapon in the fight against global warming. For Congress, put up or shut up time has arrived.
Business leaders and environmentalist support the idea. Some others see it as a form of madness, or at the least very bad policy.
A cap-and-trade policy has been in place in the European Union since 2005, and it has already spawned a multibillion-dollar global carbon market that’s increasing exponentially. But a growing chorus of critics worries that cap-and-trade will give big polluters a way of dodging their responsibilities and do more for speculators on Wall Street than for the environment.
Cap-and-trade is designed to make polluting expensive. Here is how it works: The government sets a limit on the amount of greenhouse gases the country may emit. That limit is then divided into shares among businesses. If company A wants to exceed its share, it has to pay someone else to equally reduce its greenhouse-gas emissions. Company A can buy an “allowance’’ from a company that is not using its full share, or it can buy an “offset.’’ Offsets come from companies in countries that don’t have cap-and-trade laws, but agree to reduce their greenhouse-gas emissions, and therefore reduce global emissions, in exchange for money. Offsets are more attractive because they cost less. But studies by the Government Accountability Office and others show offsets often yield little to no environmental benefit.
Take, for example, the experience of European Union companies that paid millions of dollars for offsets in China. The companies were allowed to exceed their emissions cap in exchange for funding what were supposed to be new clean gas and hydroelectric plants in China. But it turns out that these plants were already under construction. The upshot? The offsets provided an excuse for EU companies to exceed their emissions cap, but did not lead to overall reductions in greenhouse gases.
In another example, EU companies paid millions of dollars for offsets from an Indian company that manufactures a refrigerant gas. The Indian company agreed to reduce its toxic emissions, and in return, it was paid for every ton of pollution it no longer generated. But the offset payments proved so lucrative, the Indian company increased gas production just to earn millions more in offsets. A Stanford University study concluded that offsets were “an excessive subsidy that represents a massive waste of developed world resources.’’
The United States does not yet have a national cap-and-trade policy, but some states do. And the domestic market in offsets is booming. It’s not just companies buying them. Environmentally conscious individuals are purchasing offsets to assuage their guilt over the carbon footprint left by everything from extravagant parties to air travel. For example, they spend millions on offsets from garbage dumps that clean up methane from rotting trash. Sounds good, but these landfills already were collecting methane to sell as fuel. The offsets are an added windfall.
Despite all the problems, carbon trading is expected to become the world’s largest commodity market by 2020. Wall Street firms like JP Morgan Chase, Deutsche Bank and Goldman Sachs are spending millions to buy companies that offer offsets. Credit Suisse has even issued carbon derivatives.
Environmental groups like Friends of the Earth worry that the rush to invest in carbon could create a speculative bubble. They say that without careful oversight, offsets will make money for Wall Street, raise costs for consumers, and do little to counter global warming.
Who knows? You pick a side and hope for the best. It’s decision time.
By Dan Rather
Dan Rather is the former anchor of CBS-TV News and is a columnist with Hearts Newspapers.