Cap and trade or charade?

Posted By PAUL BERTON AND LORRIE GOLDSTEIN

Posted 7 months ago

Governments think they can cut man-made greenhouse gases by introducing cap-andtrade schemes. But will the environment really win, or do energy companies and stock market speculators stand to gain more than Mother Nature? Sun Media's Lorrie Goldstein and Paul Berton get into a heated exchange on the topic.

GOLDSTEIN:Paul, when it comes down to it, so-called cap-and-trade schemes to reduce man-made greenhouse gas emissions have nothing to do with saving the planet. But plenty to do with skyrocketing energy prices, bigger government and windfall profits for giant energy companies and stock market speculators. Surely, you can see this.

BERTON:So, we should simply do nothing?

GOLDSTEIN:Actually, we could re-direct current government subsidies to the fossil fuel industry into research and development of low carbon or no carbon emitting energy. Governments could set hard emission caps for industry with firm deadlines, without cap-and-trade, and then fine the hell out of companies that don't comply and put that money into research as well.

BERTON:I agree with the first part. But won't cap-and- trade accomplish the same thing by punishing overusers and rewarding those who find efficiencies?

GOLDSTEIN:In theory, yes. But what really happens is that governments undermine cap-and-trade by (a) exempting entire sectors of the economy from having to lower emissions, (b) giving away carbon permits for free to industry instead of auctioning them off, and (c) giving out more permits than current emissions. All of that has happened in Europe.

BERTON:Governments are not perfect. We could have simplified things with a plain carbon tax, an inevitability you have long opposed. So now we're looking at the more politically palatable yet far more complex cap-and-trade system, with its inherent weaknesses. But the weakness is in the governments (and politicians) who implement it, not the system.

GOLDSTEIN:It's the politicians and the system. With a carbon tax, you know how much money you'll raise once you set it, but you don't know how high it has to be to actually affect human behaviour and thus lower emissions. With cap-and-trade, you theoretically know how much emissions will fall (although in Europe, they rose) but you don't know what it will cost. They're both hit-and-miss.

BERTON:I know you keep insisting emissions rose in Europe, but would you like to elaborate? Most experts agree there are significant and consistent reductions in emissions in Europe.

GOLDSTEIN:Cap-and-trade in Europe involves about 12,000 big industrial emitters accounting for about half of all Europe's man-made CO2 emissions. The scheme was set up in 2005 and total emissions went up in 2006 and 2007. As I've written, last year they dropped, but the biggest reason was the global recession. There's also the issue of whether an emitter is reporting a real drop in emissions, or lower emissions by buying carbon credits through, for example, the UN's Clean Development Mechanism, which critics say is ineffective and corrupt.

BERTON:I know these are complex systems and measurements, but sorry, the EU reports emissions fell for the third straight year in 2007. And most experts agree that is the case.

GOLDSTEIN:Real cuts, or cuts achieved by buying "hot air?" Are these experts independent, or already shilling for cap-and-trade? New York Times reporter James Kanter, who knows his stuff and runs the paper's "Green Inc." blog, reported in June, 2008 in "The Trouble with Markets for Carbon" that the European Environment Agency calculated annual emissions from the 12,000 large European emitters trading in carbon credits rose 0.4% in 2006, 0.7% in 2007. Feel free to Google it.

BERTON:The European Community National Inventory Report Submitted to the UNFCCC (United Nations Framework Convention on Climate Change) on May 27, 2009 shows emissions down in 2007. Anyone -- journalist, politician, stockbroker, businessman -- can find a way to manipulate the figures, but common sense and history shows we must put a price on carbon if we're to reduce it. Again, that should have been a carbon tax, but a cap-and-trade system will have to do.

GOLDSTEIN:You mean the same United Nations that runs the Clean Development Mechanism, the world's largest carbon offset market, that even environmental groups complain is riddled with fraud? Journalists are supposed to critically assess government claims. Get cap-and-trade wrong and it's going to make the recent global stock market crash look like a picnic. Know who the biggest early booster of a cap-and-trade market was in the U. S.? Enron. Ring any bells? Know who wants it now? AIG ($173 billion in U. S. federal bailout cash); Morgan Stanley ($25 billion); JP Morgan Chase and Co. ($25 billion); Merrill Lynch ($10 billion) and Goldman Sachs, which got a chunk of the AIG cash.

BERTON:Heaven knows I'm not going to defend any of those companies, nor will I defend capitalism more than to say it's not perfect but it's the best we have. Europe's system is complex, the EU had lots of troubles initially and abuses are inevitable in any system, but it's improving. Some industries and some countries are performing pathetically, but they are buying credits. Overall, across Europe emissions decreased by 1.2% between 2006 and 2007.

GOLDSTEIN:But if they're buying credits they may not be lowering actual emissions, or global emissions. What's the good of a wind turbine in Germany if it just lets a coal plant in eastern Europe pollute more? Anyway, enough. I don't support cap-andtrade, but we both know it's inevitable. Here's what I recommend. The market has to be as broad as possible (no exemptions) and the government should auction off ALL permits, then give ALL the money back to the public upfront in income tax cuts. We'll need it because the price of electricity, produce and manufactured goods will skyrocket. Then we need someone incorruptible to ensure government "caps" on emissions are real, the carbon credits are real and industry reductions are real. I nominate Auditor General Sheila Fraser.

BERTON:The point of cap-and-trade is it's a global solution for a global problem. Meanwhile, given the crisis we're facing in terms of climate change and fuel shortages, higher energy prices are not necessarily a bad thing. We all need to think more about using less.