Why We're Asking the Wrong Questions on Cap-and-Trade

Why We're Asking the Wrong Questions on Cap-and-Trade

Image CC licensed by Flickr user Number Six (bill lapp)

With the launch of the Western Climate Initiative (WCI), California is putting its weight behind a regional cap-and-trade program scheduled to start auctioning carbon permits in 2012.

Modeled on the success of existing cap-and-trade programs in Europe and the East Coast, WCI partners would eventually represent much of western North America from Canada to Mexico, making it the largest regional cap-and-trade program in the hemisphere. It could determine the fate of climate change legislation nationally and globally.

The most common concern raised when discussing climate national or regional legislation is cost. Cost was used as a reason to thwart passage of a climate bill in the Senate, and now Texas oil companies are using the cost argument to suspend California's climate law, which would thus halt the cap-and-trade program.

Arguing over the minimal costs of cap-and-trade, however, keeps us focused on the impact to 1 percent of the economy, while ignoring the mounting costs to the entire economy of continuing to do nothing.

Simply put, we've been asking the wrong questions. Instead of asking how much cap-and-trade will cost, we should be asking how much it saves us -- in fuel, emissions, ecosystems, and money. The glacier in the room is that the real costs won't come from cap-and-trade, but from climate change itself.

Recent analysis by UC Berkeley professor David Roland-Host on the risks California faces from climate change detail the impacts to major sectors including water, energy, tourism, health, real estate, agriculture, and transportation. From shrinking snow pack to increased wildfires, severe storm damage, eroding beach property, reduced agricultural outputs, and premature death from heat exposure, pollution and disease -- the combined economic impacts of climate change for California alone could approach $10 billion a year. Literally trillions of dollars in assets are at risk, which is one reason the insurance industry is watching climate change legislation very closely.

Major companies such as Google, eBay, Levi's, Patagonia, Virgin, and Warner Bros. have come out in favor of California's climate change policy, which studies show would save money and improve the economy. The most recent economic analysis released by WCI in July, the proposed cap-and-trade program would provide net savings across the region of $100 billion by 2020 and spur long-term job growth. These cost savings are in addition to other benefits, such as improved public health, and economic development across a wide range of industries from investing in a cleaner, greener economy.

Even members of the fossil-fuel industry support cap-and-trade efforts. "Shell is a strong proponent of establishing a North American-wide cap-and-trade program, one that will eventually link up with international systems," Kimberly Corley, Shell's senior advisor on CO2 and environmental affairs, wrote in the company's comments on the WCI's mandatory reporting requirements.

Industry is both supportive of standardized protocols for reporting and verification, and, of course, concerned over the cost of compliance.

In its comments, Shell calculated compliance costs over the first three years as high as $800,000 per plant for new monitoring and verification procedures. With 30 plants in the Ontario province, where the companies' tar sands operations are largely centered, that represents a compliance cost of less than $10 million a year.

Even if compliance costs across the whole region were 10 times that at $100 million a year, we're talking about a company that generated profits of more than $4 billion just in the last quarter. In other words, the cost of compliance for the monitoring requirements is a fraction of the profits they make over a single weekend.

The additional cost of purchasing permits, of course, would depend on the politics in each jurisdiction -- primarily whether they were auctioning or giving away the permits -- the market price of carbon, and how fast industries can shift to lower-carbon technologies.

But a slew of reports has concluded that the costs of capping carbon would have a minimal impact on small businesses and S&P 500 companies alike, and would not compromise economic competitiveness or force jobs overseas. Likewise, the most recent EPA analysis of the American Power Bill found it would cost American families somewhere in the range of $100 a year, while California's new cap-and-trade program could actually provide net savings of $100 a year to the average family.

In fact, WCI calculates that enacting a cap-and-trade program could provide net savings to the whole region of $12 billion a year. While significant, this is still less than 1 percent of total economic activity in the region. This means the net impact to most businesses and consumers -- in either cost or savings -- will be largely negligible.

As the economic recession lingers, and the political rhetoric heats up this fall, it's worth remembering that the impact on business from pricing carbon will in all likelihood be modest, with a variety of benefits.
The industries that will hurt the most from being forced to clean up their acts are also the ones hurting us the most. A recent report by the Ella Baker Center reveals that the two major backers of Prop 23 -- the ballot initiative to halt climate change legislation -- are among the state's biggest polluters. Valero and Tesoro refineries have repeatedly violated pollution laws, dumping tons of toxic chemicals into the environment, often in areas populated by minority communities.

As these companies attack climate policy at the ballot this November, the fate of California's fledgling cap-and-trade program hangs in the balance. If California pulls out it will deal a major blow to climate negotiations at the federal level, which will of course continue to stall international climate negotiations.

Everybody wants cost savings, energy security and job growth. We have the opportunity to take proven, profitable steps in that direction. But the longer we keep arguing over whether or not it will cost us anything, the more costly it becomes.

Andy Mannle is a writer, speaker and education director at West Coast Green.

Image CC licensed by Flickr user Number Six (bill lapp).