August 10, 2013
By DIRK FORRISTER and PAUL BLEDSOE
WITH more than
a million people in China dying prematurely each year from breathing its dirty
air, and with warming temperatures portending rising sea levels and disruptions
to food production, the centrally planned Communist country is experimenting
with a capitalist approach to address the problem: it is creating incentives so
that the market — and not the government — will force reductions in emissions.
The United
States invented this approach in the 1990s to deal with acid rain. The effort
was tremendously successful in reducing sulfur dioxide emissions that were
poisoning lakes and streams, contaminating soils and accelerating the decay of
buildings, at a cost lower than even its advocates anticipated.
But the United
States has taken a policy detour that has hurt its efforts to reduce greenhouse
gases. Congress has spurned the cap-and-trade approach China is trying, even
though it is widely recognized as a cheaper way to lower emissions. As a
result, President Obama has had little choice but to turn to government
regulation to reduce these pollutants. Consumers will pay a higher price for
electricity as a consequence.
China, the
world’s largest emitter of carbon dioxide, has begun its effort in the southern
city of Shenzhen, paving the way for a national Chinese market in a few years.
Like Europe, which voted to extend and improve its emissions market, and
Australia and New Zealand, Shenzhen chose a carbon market as the most efficient
way to lower its greenhouse gas emissions.
Under the
Shenzhen program, the government will set limits on carbon dioxide discharges
for 635 industrial companies and 197 public buildings that together account for
about 40 percent of the city’s emissions. Polluters whose emissions fall below
the limit can sell the difference in the form of pollution allowances to other
polluters. These companies must decide whether it is cheaper to reduce
emissions or pollute above their limit by buying allowances, whose price will
be set by supply and demand. But the pressure will be on, because the limits
will decrease over time. Six more regional pilot programs are planned over the
next year.
More than 20
percent of global greenhouse gas emissions are now subject to carbon pricing
systems. About 60 other states, provinces or countries are considering similar
approaches, according to a recent World Bank report.
Carbon
cap-and-trade programs align environmental goals with market incentives.
Conventional regulatory approaches “cannot ensure achievement of emissions
targets, create problematic unintended consequences, and are very costly for
what they achieve,” says the economist Robert N. Stavins,
director of the Harvard Environmental Economics Program.
So how did
America detour away from emissions markets, which are the preferred approach of
many economists, climate and consumer advocates, and many electric utility
companies that own and operate power plants?
It all comes
down to politics. Before the last recession, political support was building for
a carbon market, with various Republicans, including Senator John McCain, his
party’s 2008 presidential nominee, supporting a market-based approach. After
House Democrats approved a cap-and-trade bill in 2009 that put a price on
fossil-fuel emissions, the issue became a target of the Tea Party. In the midst
of the worst economy in 75 years, the Senate declined to take up the measure,
and cap and trade became a dirty term on Capitol Hill.
Even so,
several states already have turned to this approach. California’s effort began
in January. Nine mid-Atlantic and Northeast states use it under the Regional
Greenhouse Gas Initiative.
In Washington,
faint whispers of a carbon tax are still occasionally heard as a solution for
budget and environmental problems in a single policy. But even if that were to
happen, the tax would probably be small and would not guarantee the reduction
in emissions needed. Like a tax, carbon markets can also generate revenue that
can be rebated to consumers or used to lower other taxes.
The United
States can still move back into a leadership position in the effort to reduce
carbon dioxide in the atmosphere. Learning from the experiences of the European
Union and other programs, America can avoid the hiccups that hampered early
efforts.
As the effects
of a warming climate become increasingly apparent and the costs of adaptation
rise, inaction will become an untenable political position. Markets play to
America’s strengths. As the first President Bush said about his policy of
emissions markets for controlling acid rain, markets “harness the creativity
and ingenuity of the private sector.” What could be more American than that?
Just ask the Chinese.
Dirk
Forrister is president and chief executive officer of the
International Emissions Trading Association. Paul Bledsoe
is a senior fellow in the energy and climate program at the German Marshall
Fund of the United States.
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