One of the biggest sticking points in the Western Climate Initiative (WCI) has been the question of “Scope”—which emissions get included in the cap and trade program. Most public interest organizations argue for a broad cap that includes all the major sources of emissions that can be reliably measured and regulated. (Sightline’s argued this here, here, here, and here.) And the biggest source of emssions, of course—the biggest by far—is transportation fuel.
Somewhat surprisingly, the debate about including petroleum is not a greens versus businesses standoff. In truth, most of the participating businesses and utilities are on the same page about Scope: they want it to be comprehensive. But this important agreement gets too often overlooked.
So, I’m setting the record straight here with a list of Western utilities and businesses already on record for a genuinely economy-wide cap (i.e. one that includes transportation fuels):
Alcoa, Boise Cascade, Chelan County Public Utility District, Clark Public Utilities, Florida Power & Light, Grant County Public Utility District, Independent Energy Producers Association, Industrial Customers of Northwest Utilities, Oregon Business Association , Oregon Forest Industries Council, Oregon Municipal Electric Utilities Association, Oregon’s Public Utility Commission, Pacific Gas and Electric Company, Pacific Northwest Generating Cooperative, Portland General Electric, Oregon’s Public Power Council, Puget Sound Energy, Sempra Energy, Southern California Edison, Tucson Electric Power Company, Washington Public Utility Districts Association, WEST Associates Members (including Arizona Electric Power Cooperative, Arizona Public Service, Colorado Springs Utilities, Idaho Power Company, Basin Electric Power Coop, Los Angeles Department of Water and Power, Pacificorp, Platte River Power Authority, Xcel Energy/PSCo, Public Service Company of New Mexico, Salt River Project, Sierra Pacific Power, Southern California Edison, Tri-State Generation and Transmission, and Tucson Electric Power), and Weyerhaeuser. [You can find their written comments here, here, and here.]
Now, not all business support capping transportation fuels. Chevron, BP, Western States Petroleum, and a few allies oppose it, while other businesses have either not participated in the WCI process or have simply remained silent on the subject. But the support for a broad scope constitutes a pretty strong majority.
So what’s going on? Why do the vast majority of utilities (and those who rely on utilities) support including transportation fuels? Simply put: it’s in their self-interest.
Most of these utilities believe that including transportation fuels reduces the risk of price spikes for carbon permits. In low-hydro years—when clean electricity gets scarce, and when utilities need dirtier power that requires carbon permits — it will be an advantage to have permits available from sectors that are largely price-independent of electricity. These sectors inlude consumer natural gas and, most importantly, the transportation sector.
Plus, many of the utilities feel that there’s just something unfair about including only a small share of the region’s emissions under an enforceable cap, while allowing the much larger transportation sector to wriggle out. I can’t say I blame them.
Absent the cap, WCI would likely try to address transportation sector emissions with “complementary policies,” such as VMT strategies and vehicle efficiency programs. Many of these policies are fine ideas, but ultimately, a cap is a cheaper way to go. Because we can’t predict the future, a truly economy-wide cap makes the most sense. It ensures that the cheapest and easiest reductions get made first, regardless of where opportunities arise.
Barry
“a truly economy-wide cap … ensures that the cheapest and easiest reductions get made first, regardless of where opportunities arise. “Hmmm, what I think it ensures is the price of every aspect of life goes up for everyone: food, transportation, home heat, etc. The people who will be forced to cut back first will be the poor. Ouch. The people who won’t have to cut at all will be the wealthy.Here is yet another in an endless line of examples, this one from The Independent newspaper: “Greenhouse gas emissions from aircraft, increasingly implicated in climate change, will continue to grow even if the airlines join Europe’s emissions trading scheme…British Airways’ chief economist admitted yesterday…the ‘burden of reduction’ would fall on ground-based industries, while the aviation industry would buy emissions permits under the scheme to continue its expansion, said Andrew Sentance, who is also BA’s head of environmental affairs.”How much more clear does it need to be? If you are excited by the prospect of allowing the marketplace to foist the ‘burden of reduction’ onto the backs of whomever can least afford to resist it…then i guess you’re happy with our carbon pricing schemes.
Eric de Place
Barry,I very much appreciate your concern about the price impacts of climate policy. It’s something to worry about. But a couple of clarifications are in order:1. It’s entirely possible to enact a cap & trade program (or a carbon tax regime) and make the policy economically progressive: simply rebate all the revenue on a per capita basis. But there are many, many other strategies too. And we’ve devoted an entire blog series to Climate Fairness, here: http://www.sightline.org/daily_score/series/climate-fairness.2. “An economy-wide cap ensures that the cheapest and easiest reductions get made first” because of the nature of the carbon markets. Because firms can trade for allowances, those will the cheapest reduction opportunities will make the cuts, then sell the permits to other firms who face higher reduction costs. The result is that, across the economy, we’re getting carbon reductions at the lowest possible cost—both to businesses and consumers. 3. If we’re going to cut our carbon emissions, we’ll have to put a price on the carbon pollution. We can do it directly, via taxs or cap & trade; or we can do it indirectly via interventionist regulation (which can carry substantial costs that are often regressive and which provide no public revenue to smooth the transition). Alternatively, we could choose not to reduce emissions—and that’s probably the most harmful strategy of all for low-income folks.
Barry
Eric, thanks for engaging in the topic of who can afford to buy energy.1. I agree it might be possible to create a cap & trade program that is economically progressive. It’s just that there isn’t any serious proposal by any government body to do so. My point is that all the current cap & trade schemes…and all the ones seriously considered by actual government bodies…do not address economic fairness in a way that will allow them to be successful. I also think that to create such a beast would lead to a silly situation where carbon prices were sky-high for everything in order to impact the carbon choices of the wealthiest folks. That would entail huge sums to be collected at every till and rebated continually to the populace. It might be “possible” but it might not be the best way to achieve the goal. The effective carbon price all depends on who is creating the emissions and what their price-sensitivity is.2. I agree again that an economy-wide cap results in the carbon reductions at the lower possible costs to the economy as a whole. But that is meaningless if the scheme fails. The “economy” doesn’t need to commute to work and heat its home and put food on the table, individuals do. In a democracy, if you create a scheme that hammers the majority of the population without solving the problem it will be rejected. My point is that schemes that cause the poor and middle class to compete with the wealthy based only on price are going to fail badly. The poor emit very little carbon compared to the wealthy. The poor are the most price sensitive. The poor will carry the entire “burden of reduction” first until they “break” under the load. You can’t squeeze lots of carbon from people who aren’t emitting much to start with. But you can create a social powder keg by trying. See emerging food riots for the wonders of a flat price scheme to distribute essential but limited supplies.3. “If we’re going to cut our carbon emissions, we’ll have to put a price on the carbon pollution.” I totally disagree. We are in the middle of a decade long experiment in just this idea and the actual data shows it is not working. All these “price on carbon” schemes are just looking to continue a trend that is taking off on its own. The BC Carbon Tax of 2.5 cents per liter was dwarfed by a fuel price increase of 25 cents per liter since the time the Carbon Tax was announced, and it is not even in effect yet. The marketplace is providing a dramatic increase in “flat price on carbon” already. So what is happening?What the data shows is ever increasing hardship for the poor and ever increasing emissions by the wealthy. Ex: the fastest growing source of emissions on the planet is aviation. The fastest growing segment: private jets. I took data sources from Sightline articles about this and calculated that a private jet emits 1,000% to 2,500% as much GHG per passenger as a bus going the same distance. The most carbon intensive segment of travel is the most expensive and yet the fastest growing. In the UK, where data is available on this trend, aviation accounts for 10% of the nation’s GHG already. At current growth rates it will account for 100% of the nation’s allowable GHG in a few decades. It is a non-trivial example of how the wealthy are increasing their fossil fuels usage despite massive price increases far beyond anything a cap & trade law could possibly impose politically. Please show me any carbon scheme being seriously proposed anywhere in the world that would address this trend.There is every indication from actual reality (as opposed to “secret” modelling) that the wealthy already consume the majority of fossil fuels and will continue to increase their slice of the pie as prices rise. If so, the system will fail at the voting booth. It’s not a question of morality or fairness…it is a question of whether we have a system that will lead to the carbon cuts we desperately need.4. “Alternatively, we could choose not to reduce emissions.” Again my point is by pursuing only a flat price for carbon we are, in effect, choosing to not reduce emissions. I think an essential tool is missing to address the growing imbalance in pain and hardship. That could be tiered pricing or personal emissions caps or cap & whatever or something else. But without it we are pursuing an economically elegant idea that is leading to social disaster.The issue everyone seems to be avoiding/missing is the carbon emissions and price sensitivity of the different economic strata….locally, nationally and globally. I think the results of the last few years shows we are ignoring this at our peril.