As Lisa Lerer reports in Politico today, one of the steepest hurdles looming over the Senate climate bill is the fact that there are a lot of coal-state Democrats out there who want to see major changes to the legislation before they'll vote for it. Last week, 14 senators wrote Harry Reid demanding more protections for coal-heavy utilities. And the industry wants to see the bill's near-term emission targets relaxed. Currently, the Senate cap-and-trade program aims to cut greenhouse-gas emissions 20 percent below 2005 levels by 2020. Senators like Max Baucus have asked for 14 percent or 17 percent.
But here's a question: Would weakening the near-term targets really make the climate bill any cheaper? That's certainly the rationale behind loosening the cap. A less stringent cap means that there are more tradable pollution permits out on the market. Higher supply means that the price of carbon pollution falls—and therefore dirty energy becomes slightly cheaper. So the coal industry argues that a weaker near-term cap would ease potential rate increases on consumers and make the transition less onerous. (True, it'd also mean more and more CO2 piling up in the atmosphere, but set that aside for now.)
Anyway, that's the theory. The reality, though, could be quite different. As Raymond Kopp, director of Resources for the Future's climate program, points out, weakening the short-term cap—while keeping the target for 2050 in place—might actually do very little to budge carbon prices. That's because polluters are allowed to "bank" permits and save them for the future—if, for instance, they expect that carbon reductions down the road will be even harder. (After all, a cap-and-trade program, by design, targets the easiest cuts first.) So if the 2020 target is weakened, and there are more permits floating around in the early years, polluters will just buy up more of them to bank for later. The carbon price will be more or less the same as it would be if polluters had to make cuts. Indeed, EPA and EIA analyses of the climate bill bear this out.
Now, Kopp's prediction might not pan out—the EPA analysis assumes that polluters will have perfect information about the future when deciding whether to bank permits, and in the real world many companies don't. Plus, many companies may be short-sighted and use the permits in the short term to pollute, even when they should be saving them for later, when cutting pollution will likely be more expensive. Still, it's not a sure thing that a weaker short-term cap will make the bill any cheaper.
(Flickr photo credit: capitolclimateaction)
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COMMENTS (4)
Maybe I'm just oversimplifying, but let's consider this:
1. Most liberals probably agree that the stimulus was too small, and we need more government deficit spending to get unemployment down.
2. I don't think "polluters" actually want to produce carbon dioxide, they just want to make money making electricity. So most of the "cost" is just the cost of building a new cleaner coal plant, or building a renewable energy plant.
3. Why doesn't the government just subsidize the cost of the new plant? You know, straight up just pay for it, call it an interest free long term loan if people are worried about it.
I remember a post about a century old coal plant near Chicago that's only open because it ... view full comment
Maybe I'm just oversimplifying, but let's consider this:
1. Most liberals probably agree that the stimulus was too small, and we need more government deficit spending to get unemployment down.
2. I don't think "polluters" actually want to produce carbon dioxide, they just want to make money making electricity. So most of the "cost" is just the cost of building a new cleaner coal plant, or building a renewable energy plant.
3. Why doesn't the government just subsidize the cost of the new plant? You know, straight up just pay for it, call it an interest free long term loan if people are worried about it.
I remember a post about a century old coal plant near Chicago that's only open because it's exempted from all Clean Air rules. What if the bill simply paid to replace the plant? Would a utility really say no to that? If we're worried about fairness, why not figure out the amount of dollars going to Illinois to replace that plant per capita, and give the same amount of money to every other state to replace dirty old plants. Republicans are all for giveaways to corporations, and replacing all those old powerplants has to create jobs. Think of it as Cash for Clunkers, but industrial scale.
Jim Webb and Lamar Alexander are sort of calling for something along those lines with their proposal for big nuclear-plant subsidies:
http://www.motherjones.com/mojo/2009/11/webb-calls-massive-nuclear-inves...
I guess the objection is that nuclear power might not be the most cost-effective use of money, and that it'd be better to put a price on carbon and let the market figure out how best to make reductions. Though, it's a fair point, if we need more economic stimulus, would ... view full comment
Jim Webb and Lamar Alexander are sort of calling for something along those lines with their proposal for big nuclear-plant subsidies:
http://www.motherjones.com/mojo/2009/11/webb-calls-massive-nuclear-inves...
I guess the objection is that nuclear power might not be the most cost-effective use of money, and that it'd be better to put a price on carbon and let the market figure out how best to make reductions. Though, it's a fair point, if we need more economic stimulus, would direct spending really be such a no-no?
Right I agree.
So I submit we should do both, essentially bribe folks like Webb and Alexander by offering the subsidies if they also agree to Cap and Trade. I know Webb said he wouldn't vote for the existing Cap & Trade bill even with the subsidies involved, but every man has his price, and politicians are notoriously easy when it comes to selling their votes. :). Guarantee a plant in Virginia if we have to. Just make it crystal clear that Webb won't get a bill for nuclear power only because the entire left wing of the Democratic caucus is willing to filibuster to prevent it unless they get Cap and Trade.
Whatever misallocation occurs because of the direct investment, is worth it for es ... view full comment
Right I agree.
So I submit we should do both, essentially bribe folks like Webb and Alexander by offering the subsidies if they also agree to Cap and Trade. I know Webb said he wouldn't vote for the existing Cap & Trade bill even with the subsidies involved, but every man has his price, and politicians are notoriously easy when it comes to selling their votes. :). Guarantee a plant in Virginia if we have to. Just make it crystal clear that Webb won't get a bill for nuclear power only because the entire left wing of the Democratic caucus is willing to filibuster to prevent it unless they get Cap and Trade.
Whatever misallocation occurs because of the direct investment, is worth it for establishing a price for carbon. Market forces are generally much more powerful then some one time government subsidies (hence why nuclear investment stopped as soon as the government subsidies ran out the first time). From your link it looks like Webb is planning 10 years of subsidies, at a 20 billion dollar total cost. That's nothing in the grand scheme, we could double it, and it would still be worth it if we got a good cap and trade system in the bargain.
Yeah, my guess is that that's what a climate deal's going to look like eventually--and it doesn't seem too shabby. I'm still skeptical that nuclear power's a cost-effective way to reduce emissions, but I'm not opposed to new plants either and it would be a reasonable trade for a price on carbon.
And I'd imagine Webb will eventually vote for a climate bill in exchange for nuke subsidies--otherwise, why would Democrats bother taking up his bill? (Alexander has already said he'll never vote for cap-and-trade no matter what, so he has zero leverage.)
Yeah, my guess is that that's what a climate deal's going to look like eventually--and it doesn't seem too shabby. I'm still skeptical that nuclear power's a cost-effective way to reduce emissions, but I'm not opposed to new plants either and it would be a reasonable trade for a price on carbon.
And I'd imagine Webb will eventually vote for a climate bill in exchange for nuke subsidies--otherwise, why would Democrats bother taking up his bill? (Alexander has already said he'll never vote for cap-and-trade no matter what, so he has zero leverage.)