There’s a viral Web video making the rounds. I don’t like it. (For context, read my first post on this subject: “A Story of Ignorance About Cap and Trade.”) Today, I’m going to catalogue its errors.
You can find the transcript here (pdf), though just reading the transcript doesn’t give you the full picture of the snark conveyed by the animated cartoons that accompany Annie Leonard’s delivery in the video. Here’s the video:
Now, let’s take an inventory of all the errors. Get comfy, it’s gonna take a while.
“Okay, meet the guys at the heart of this so-called solution. They include the guys from Enron who designed energy trading, and the Wall Street financiers like Goldman Sachs who gave gave us the subprime mortgage crisis.”
False. For decades environmental activists, progressives, and scientists have labored against overwhelming odds to enact a cap and trade program. In no sense are “these guys” from Enron and Wall Street at the heart of the solution. They are not now and they never have been.
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But I’ve got to hand it to her: this insult really stung. All these years that tens of thousands of folks like me have worked long hours at low pay (or no pay) to hash out a workable and effective climate policy and it turns out that our purported allies like Leonard would rather paint us as duplicitious bankers in pin-striped suits. (That’s not an exaggeration, by the way: that’s how the animated cartoon depicts cap and trade proponents throughout the video.)
“Their job is to develop brand new markets. They stake their claims and then when everyone and their grandmother wants in, they make off with huge amounts of money as the market becomes a giant bubble and then bursts.”
Odd. Uh, what? This doesn’t really have to do with cap and trade so I should probably leave it alone, but it’s perplexing that this is what she thinks markets do. But I want clarification from the bien-pensants to my left: are progressives now anti-market in all circumstances? Do the recent bubbles mean that we’re now supposed to be, in principle, opposed to stocks, commodities, etc? Are we supposed to hate the acid rain cap-and-trade programs too?
“…they’ve got a new idea for a market—trading carbon pollution.”
False on two counts. It’s not a new idea. Brokers have participated in cap and trade markets since the 1990s and in carbon markets for about a decade. There have been no instances of gaming or market manipulation.
What they trade is not carbon pollution—sounds nasty, right?— but a limited right (an “allowance” or “permit”) to emit carbon pollution.
“They’re about to develop a new $3 trillion bubble…”
Deception. A trading market is not a bubble. There are trading markets for US Treasuries, soybean futures, municipal bonds, and stocks in Coca-Cola to name just a very few things that are traded. (Oh, and carbon permits, I almost forgot.) None of these things are bubbles.
“…how are we gonna reduce carbon 80% and not go back to living like Little House on the Prairie? Well, these Cap and Trade guys are saying that a new carbon stock market is the best way to get it done.”
False. These “Cap and Trade guys” (that’s me and the banksters, I guess), are saying—as we have been saying for years—that the best way is to put a cap on carbon. I work on climate policy full time and I have literally never heard anyone say that “a new carbon stock market” is the best way. I’ve never heard anything like it, in fact.
“…these guys take their fee as they broker this multi-trillion dollar carbon racket, I mean market.”
Classy. Not that this kind of thing merits a response, but its worth pointing out that carbon trading brokers reduce costs. That means they save money for consumers (and businesses) and help the whole program function more smoothly. Buyers and sellers of carbon permits (or anything else for that matter) don’t have to use a broker; people use brokers because it’s cheaper and easier too — and, yes, brokers take fees for their services.
“A lot of environmental groups that I respect do too. They know it’s not a perfect solution and don’t love the idea of turning our planet’s future over to these guys…”
False. Cap and trade does not “turn our planet’s future over to these guys” (meaning the Wall Street guys). The most elemental fact about cap and trade is that carbon trading is absolutely unrelated to the program’s environmental integrity. Even if some bad guys made money on trading, the program would still reduce emissions. The trading doesn’t affect the cap. At all. Not even a little.
Under cap and trade, our planet’s future remains where it is now: in our hands. It’s up to governments to set firm legal limits—cap, in other words—on climate pollution. Trading carbon permits doesn’t change that.
“…even the economists who invented the cap and trade system to deal with simpler problems like fertilizer pollution and sulfur dioxide, say cap and trade will never work for climate change.”
False. They do not say that it will “never” work for climate change. (Go ahead and read the lengthy footnote provided for this claim in the transcript.) They are skeptical, to be sure, but largely because they are concerned about enforcement of a global program. Of course, it’s unlikely that we’ll ever have, or even want, a global program. We’ll have national or regional programs that are loosely coordinated.
“When it comes to any kind of financial scam, like subprime mortgages or Bernie Madoff’s pyramid scheme, the devil is always in the details. And there are a lot of devils in the details of the cap and trade proposals on the table.”
Deception. I don’t even know what this is supposed to be about other than fear-mongering. Bernie Madoff! Ooga-booga! What on earth do “financial scams” have to do with cap and trade? (Hint: we never find out.)
“Devil number one is known as Free Permits, which is why some people call this system Cap and Giveaway.
False. Free permits are not a feature of cap and trade, but rather of cap and trade done poorly. There’s a simple solution: auction or sell the permits. The major US cap-and-trade bills take a complicated hybrid approach, auctioning some, giving some away, and reserving the value of others for public benefits.
“In this scheme, industrial polluters will get the vast majority of these valuable permits for free. Free! The more they’ve been polluting, the more they’ll get.”
Confusion. Free allocation of permits does not imply that the allocation occurs on the basis of historical pollution. There are plenty of other principled ways to give away permits, some of which will be undertaken by the climate bills in Congress.
“In Europe where they tried a Cap and Giveaway system, the value of the permits bounced around like crazy…”
Confusion. It is more or less common knowledge in climate policy circles that the reason that
the value of permits in Europe bounced around initially had little to do with the fact that permits were given away for free. It was because too many permits were distributed at the outset, a problem that has since been corrected.
“…energy costs jumped for consumers…”
Confusion. Increased energy costs have nothing whatsoever to do with the method of allocating permits. Any program that restricts carbon—taxes, cap and trade, or regulation— will increase costs.
“Carbon emissions actually went up!”
False. Carbon emissions went down.
“MIT economists say the same thing would likely happen here in the US.”
Cherry-picking. She doesn’t mention the legions of economists who support cap and trade.
“Instead of just giving permits away to polluters, we could sell them and use the money to:
- build a clean energy economy
- or give citizens a dividend to help pay for higher fuel prices while we transition to that clean energy economy
- or share it with those who are most harmed by climate change. Some people call this paying our ecological debt”
Deception. The implication here is that existing cap-and-trade proposals won’t do these things. In fact, they will—at least partially.
“Did you know that in the next century, because of the changing climate, whole island nations could end up underwater and the UN says 9 out of 10 African farmers could lose their ability to grow food. Wouldn’t a real solution benefit these people instead of just polluters?”
Odd. Is this even relevant? Or is it just a sneaky innuendo that a cap on carbon would not benefit the African farmers (and others in the Third World) whose livelihoods are threatened by climate change?
In fact, the best thing we can do is put the brakes on climate-changing emissions post haste. Then we should figure out how to help people adapt to the changes that are already inevitable. Luckily, cap and trade provides an excellent framework to do both of these things. That’s what the coming summit in Copenhagen is all about.
“..operators of a polluting factory can claim they were planning to expand 200% but reduced the plans to expand only 100%. For that meaningless claim, they get offset permits—permits that they can sell to someone else to make more pollution!”
Deception. She selectively cites a few instances of nutty-sounding abuses in one particular carbon offsets program and then conflates them with offsets generally. (Dave Roberts has a nice treatment of this in his post on the video.) But this one is a bridge too far. The cap-and-trade proposals in Congress would not allow this kind of thing. In fact, they go to great lengths to specify exacting standards for offsets—and this kind of thing is wildly out of bounds.
I’m not a fan of offsets. They may turn out to be a good thing, but they do worry me a lot. Still, they are a problem for any carbon policy. They will plague carbon taxes, regulation, or voluntary action just as they do cap and trade. So if you’re worried about offsets, as I am, the logical thing to do is to try to reduce their role and tighten the standards used to certify them.
“We’re not even close to a global agreement on a carbon cap to begin with…”
Deception. Europe has a cap on carbon and the United States is very close to having one (and Canada will follow the US’s lead). So that will cover all of the world’s largest contributers to the problem of climate change. Many other nations, including some of the big dynamic developing countries, have said they will consider a carbon cap if the rich countries lead. Forging a global agreement on a carbon cap is what the big summit in Copenhagen is about.
“…we’re putting the cart before the horse and rushing off to trade schemes and offsets.”
False. Cap and trade puts things in the right order. To wit, it puts a cap on carbon emissions—something that no other carbon policy does. Other policies, like carbon taxes, are more concerned with setting a price on carbon put are perfectly happy to let the market determine how much carbon is emitted. (Also, what does it mean to “trade schemes”?)
“We don’t need to let these guys design the solution…”
Deception. “Thes guys” (the Wall Street guys, according to her video), did not design the solution. Cap and trade was pioneered by the US Environmental Protection Agency where it proved to be remarkably successful. It’s since been rolled out successfully for numerous air pollution programs, a carbon cap-and-trade system in Europe (successfully) and a carbon cap-and-trade system in the northeast US (also successfully).
Go EPA go! Cap that carbon!
Confusion. Letting the EPA cap carbon should be a last resort. Enacting a cap based on regulatory fiat is almost sure to be the more expensive and unfair way to do it. Command and control regulation would create arbitrary winners and losers, raise prices for consumers, and lack mechanisms to address equity concerns.
Unless, that is, the EPA did what it’s good at doing: enact a cap-and-trade program. Now that’s something I could support.
“…a U.S. cap and trade law proposed in 2009 guts the Clean Air Act…”
False. The cap-and-trade laws in Congress do not “gut” the Clean Air Act. (Interestly, this claim is actually not cited in the transcript; or rather, there’s a citation but it is supporting an unrelated claim in the next paragraph.) It is possible that US federal law will reserve carbon reduction for new comprehensive energy and climate laws—the laws that include cap and trade—but the EPA will retain all of its authority to do everything that it has been doing since its inception. The only thing the EPA might lose—and I say “might”— is its ability to manage carbon policy, an ability that it has had for less than a year.
“…cap and trade makes citizens think everything will be okay if we just drive a little less, change our light bulbs and let these guys do the rest.”
Deception. And a classy one at that. It’s true that cap and trade takes a comprehensive approach to climate change, rather than relying on small-bore individual actions that have, to date, proved totally inadequate to addressing climate change. That’s a good thing. But to be successful, cap and trade will likely need the support of dozens or hundred of complementary policies—the very sorts of things that are included in the current legislation in Congress.
Moreover, cap and trade does nothing to allay anyone’s concerns about adapt
ing to the climate changes that are already inevitable. It may, however, provide some much-need funding to address these problems.
“These cap and trade proposals are mostly about protecting business as usual.”
False. Cap and trade is about fundamentally changing the current energy economy away from fossil fuels and toward clean energy, efficiency, and conservation. There’s no other policy that’s so far-reaching in its scope, especially when one considers the other important components in the energy and climate bills in Congress.
“Right now, the US subsidizes fossil fuels at more than twice the rate of renewables. What? We shouldn’t be subsidizing fossil fuels at all!”
Deception. Cap and trade would, in effect, put a price on fossil fuels, thereby reducing their net subsidies. It also provides a revenue stream that can be directed toward subsidizing renewable energy.
“I know we’d all love to sacrifice nothing, save the planet and get rich doing it.”
“We can’t solve it with the mindset—their mindset…”
Classy. And this is how the piece wraps up, with what passes among progressives for name-calling and taunts. Needless to say, this stuff has pretty much nothing at all to do with cap and trade. There are no real solutions offered in the video, nor anything other than bromides that we can’t “get rich” saving the planet.
For a more credible assessment of cap and trade, let me suggest Sightline’s Cap and Trade 101: A Climate Policy Primer. For more on the bills in Congress, please see Alan’s excellent post on the Waxman-Markey bill, which passed the House last summer, and my roughed-in notes on the Clean Energy Jobs Act that’s now in the Senate.
Thank you Eric! I know this was hard work and I applaud you for taking it on. I’m so worked up about the kind of anti-everything, non-thinking reflected in this video I don’t know where to begin. But for starters, she seems not to notice that we talking about a government-regulated CAP. The market is only brought in as a means for distributing SOME of the allowances. I have found that people who are most strongly opposed to cap and trade also overstate the goals and intentions of the program. It is one piece of a comprehensive carbon-reduction policy, directed at one segment of the economy that responds well to market signals: large corporate consumers of fossil fuels. This is putting pollution in their language (dollars!) It is essentially the same as a tax which self-corrects in response to growing demand. The biggest difference being the CAP! Don’t they support a cap? I have yet to hear anyone opposing cap and trade come up with an alternative which has the equivalent environmental benefit. A flat carbon tax will never be on par with a cap for ensuring environmental integrity. So what’s their better idea? Government rations? These folks are fighting against a realistic, near-term opportunity to create major change.
Thank you! She and her ilk are as bad as the folks on the other side celebrating “climategate.” Too bad they have zero understanding of markets, environmental regulation and its history or how this actually works. Unfortunately, her team combined with the folks on the right may actually succeed in preventing the implementation of any meaningful program. The difference will be that the folks on the right will congratulate themselves for saving us all from stupidity, while her side will blame any of us who’ve been working to get this to happen for many years and attend another anti-globalization rally.
‘ve spent a lot of time researching how carbon trading works, so was surprised to read the assertion that “The trading doesn’t affect the cap. It just doesn’t.”Actually, it does. Trading is supposed to be about finding the cheapest places to make “reductions.” Here in Europe, where we’ve had cap and trade since 2005, the reductions that are cheapest are the result of over-allocation and offset purchases. Look at the EU’s own data on transfers of pollution permits and you’ll see that played out.Lobbying made these holes; cap and trade amplifies their effects. Allocations are routinely applied according to “competitiveness” criteria, which result in massive over-allocations in most industrial sectors (especially cement and steel) which then provide a cheap source of purchasable permits for others (mostly the power sector). But what is purchased are reductions in name only. The interactions of this actual trading system (as opposed to the fiction of a market without distortion) work to spread loopholes in the regulation of certain sectors across all sectors covered by the scheme. This undermines the “cap.”Trading also pushes capital after the cheapest cuts first. But what is cheapest in the short term is not environmentally effective or socially just in the long term. In the real world, stopping coal power is not the same as planting trees or destroying refrigerant gases – yet creating a commodity called “carbon” requires that they be treated in this way. It requires that you create single commensurable emissions reduction units out of incommensurable things.There’s more to say, but you can find that in the responses to Dave Roberts’ original blog post or in this book we’ve just written: Carbon Trading: how it works and why it failsIn sum, the one thing this article gets right is that cap and trade are two different words. Yet to assume that trading doesn’t undermine the application of a cap is “just colossally ignorant”.
Some of your replys do not seem to correct the opinion suggested by the video, they are most likely to be upset answers. Would be more credible if you weren’t so lack of serenity
Oscar – Interesting points. But (as might be expected) I’m unconvinced.I agree, the ETS started out with a big problem with overallocation. In my read of the situation, that was largely a result of the fact that there just wasn’t good & consistent data on emissions across European nations. Without good data, the political pressure for over-allocation was high. And as data came in that confirmed that the ETS had overallocated, carbon prices collapsed—and reductions in the first compliance period were minimal as a result. But this overallocation problem has largely been fixed, as real data came in. To me, the ETS overallocation problem was not a theoretical problem with cap & trade, but a problem with the ETS’s implementation of cap & trade. It’s less of a worry in the US context, where data collection on fuel consumption is, perhaps surprisingly, much more accurate & uniform than it was in the EU when the ETS started. It’s also not a problem with a cap & trade program that covers essentially all measurable emissions (as is true in the US proposals) rather than just industry and electricity (as is true in the ETS).You also mention offsets. I agree, that’s a problem with the ETS. But again it’s NOT a problem with cap & trade in the abstract, but one that resulted from a particular set of relaxed standards related to offsets, including flaws in the CDM. You could have cap & trade with no offsets, or with smart limits on offsets. (Consider RGGI’s offset standards—offset quality is high, because they only allow certain categories of projects to count as offsets.)Now, it’s probably defensible to say that any cap & trade proposal will have some flaws—loopholes, favoritism towards certain industries, etc. But that’s true of ABSOLUTELY ANY SYSTEM. Carbon taxes can have equivalent loopholes, exemptions, and so-forth. And carbon taxes essentially let the market decide how much carbon to emit at any given price. The same is true for a system of sector-by-sector regulation (which, in my view, would be a political, economic, & climate nightmare in the US context).I could go on. I may sound like I’m making an argument to the effect that “we shouldn’t let the perfect be the enemy of the good.” But I’m not. I see equal or greater potential flaws in any other system of reducing carbon emissions—cap & trade has the singular virtue of, well, having a cap. And I’d rather put my efforts into establishing a hard cap, and making sure that the resulting markets are well-regulated and that offsets are carefully limited and as real as we can make them. Scrapping cap & trade now, and hoping that we can create the political will to create another system with equivalent climate results sometime in the next 10-15 years seems like a far greater risk for the climate.
Eric,I think you’re on point on much of this criticism. But there is one part that strikes me as intellectually dishonest. There are two aspects of Cap & Trade that are intrinsic to it: free allocations & offsets. These are both real problems for the reasons laid out in the video. Without those, the policy morphs into something else. Goldman Sachs own analysis raises significant issues with the efficacy of the policy. I don’t think pretending either ACES or CEJAPA is perfect is the best way to strengthen the bill.
Real solutions won’t be coming with a cap-n-trade system. “Look everyone. We’re reducing emissions! Continue to fly willy-nilly wherever you like around the globe. Don’t worry about the morning rush hour traffic jam – electric cars are on the way! Building bigger ships stacked with even more containers is totally more efficient” Wall Street investment brokers say. The lady is right. Cap-and-trade is a Distraction keeping real solutions out of the hands of those who need them.
Eric, while I appreciate your desire to close ranks on carbon reduction, and your seeming fear that somehow Annie Leonard is aiding the deniers, I don’t think you’ve adequately addressed her three main issues, particularly offsets.There is a real danger that offsets may mean ripping up mature forest ecosystems and planting with palm. Offsets may also mean “exporting carbon emissions” by companies locating their biggest carbon sources to third-world nations, while keeping their carbon sources in the US and selling their credits.If you have insight on how Ms. Leonard is mis-representing the offset issue, I’m all ears. But to me, offsets are a huge hole that you can drive several million SUVs and a few coal plants through!
Eric de Place
Sam–I agree that ACES and CEJ are imperfect, and maybe highly imperfect, for a whole host of reasons (some of which are mentioned in the links I included at the bottom of the post). And I agree that the bill in the Senate should be strengthened. But one point of clarification: neither offsets nor free allocations are intrinsic to cap and trade. It’s perfectly possible to design a cap and trade program with no offsets and where none of the allowances are given away for free. In fact, that’s the cap and trade I’m most supportive of! It’s true, however, that both ACES and CEJ allow a large number of offsets. They also provide free allocation for a large share of permits (though allocations are trickier than meets the eye in these bills). In any event, both of these flaws are fixable. They are a function of imperfectly constructed forms of cap and trade, not features that are intrinsic to cap and trade itself.Jan –Offsets are a huge potential problem. Without wading in too deep now, I’ll just make a couple of points:1. Leonard’s criticism of cap and trade as being all about offsets, or intrinsically including offsets, or whatever she’s trying to say, is not accurate. As I said to Sam, large numbers of offsets are a function of poorly designed cap and trade, not cap and trade per se.In my judgment the appropriate response to concern about offsets—and some past offset programs have been very concerning—is to reduce their presence and strengthen their credibility.2. I don’t think it’s fair for folks to pretend that offsets are a problem that is unique to cap and trade when, in fact, they are a problem for any realistic carbon policy. Any large scale carbon regulation or price policy (taxes, etc) would end up including a bunch of offsets and loopholes. It’s not like cap and trade somehow favors offsets—any more than tax policy favors loopholes and exemptions or regulation favors picking winners and losers. In many ways, offsets are just a function of an imperfect political system.3. Finally, not all offsets are necessarily bad. A close examination of offsets doesn’t lend itself the black and white portrayal of them that we usually use in carbon policy circles. At their best, offsets can extend carbon policy into difficult-to-cover sectors, find inexpensive opportunities to reduce carbon, and transfer wealth and technology from the rich nations to the poorer ones. I’d argue that inasmuch as we’re going to have a carbon policy with offsets, we should all be working hard to make sure they’re as much like this description as possible.
Eric—thanks for fighting the good fight against disinformation. It is all too easy to believe that because cap and trade has had flaws, that those flaws are both inherent and unique to cap and trade. As you point out, they are not, and because we have a little experience with them, we have a chance to improve already.Cap and trade advocates on the progressive/environmental side seem very concerned about the political vulnerabilities cap and trade presents (read: lobbying). But taxes and subsidies are much more vulnerable to shifting political winds than cap and trade. Because trading systems create economic winners as well as losers, it is politically hard to remove or raise a cap once it’s been established. Conversely lowering taxes and scrapping subsidies happens all the time. We linked to you over at our company’s blog: http://cop15.vattenfall.com. keep up the good work!
Jan—another point on offsets:No offset project has ever been approved by the CDM (Clean Development Mechanism) that involves ripping up mature forest ecosystems and replacing them with palm. It just hasn’t ever happened. Look on the CDM website, where they have posted detailed documentation for EVERY PROJECT approved under the system and see for yourself. You’re conflating the UNREGULATED voluntary offset market (which is flawed but does broadly adhere to a variety of voluntary standards) and the REGULATORY offsets market that generates credits which can be used in cap and trade. The only thing you can drive a couple of SUVs through is the blatant gaps in your knowledge and logic with respect to offsets.Eric—I think your point on the benefits of good offsets is right on. Avoid the temtation to offer up offsets up as some sort of rhetorical sacrifice—it feels like your trying to throw the naysayers a bone by agreeing to one of their points when you really should be emphasizing that they’re wrong on that, too.