Tuesday, February 3, 2009

Open Letter warning President Obama about a Global Cap-and-Trade Scheme

President Obama, please read this!

The energy and environmental policy that you have proposed for the U.S. is a patchwork of policies, ranging from higher fuel efficiency standards and subsidies for energy conservation and renewable energy, to "an economy-wide cap-and-trade program".

The problem is that the cap-and-trade program is not what it claims to be: it claims that it would reduce greenhouse gas emissions 80% by 2050. However, a cap-and-trade program would not only be ineffective in reducing greenhouse gases, it would actually be counter-productive and lead to further pollution and environmental harm. Moreover, a cap-and-trade program would come at the detriment of other policies, the very policies that we need to implement, in order to reduce greenhouse gases.

President Obama, you have an important choice to make in the lead-up to C4, the Copenhagen Climate Change Conference. Instead of supporting cap-and-trade, it makes more sense to work towards an agreement for all countries to commit to each reduce greenhouse gases by a set percentage per year. Each country can then work out how best to make their reductions, leaving them a wide range of policy instruments (such as standards, taxes, fees, subsidies and rebates) to choose from, each establishing the mix that best facilitates the shifts that need to take place in their area of the world. While I am convinced that feebates will work best in many cases, areas should each decide for themselves what policy instruments they prefer. The main goal now is to support the commitment that is there around the world to steadily reduce greenhouse gases, to use this as the basis for a global agreement and to work out sanctions (such as tariffs) to back up this commitment.

Yes, we should help developing nations, but we should reconsider how we want other countries to "develop". We don't want to pay India, Pakistan and other Asian and African nations to imitate the lifestyle of "developed" countries, i.e. people traveling by car or plane to work in polluting industries, to return home to feed on a diet of meat and ice cream. Current levels of meat production alone add nearly 6.5 billion tons of CO2-equivalent greenhouse gases every year to the atmosphere, which constitutes some 18% of the worldwide annual production of 36 billion tons. Environmentally spoken, we need to ensure that "developing" nations do NOT develop into lookalikes of what we're now.

A global cap-and-trade scheme would not lead to reductions in greenhouse gases, instead would be counter-productive and would most likely make things a lot worse, for many reasons. But first, let's get one thing straight: a cap-and-trade scheme is NOT a "market" solution.

1. The cap is a regulatory monstrosity requiring extensive administration and policing, at substantial cost and risk of fraud and failure. It's a recipe for disputes, even war, about political decisions to prohibit one what another is allowed to do.

2. A cap-and-trade scheme may claim to give markets clarity by "putting a price on pollution", but it does not set a price, it only produces "permits to pollute", while floating the price. That may give speculators, lawyers and financial advisers opportunities to enrich themselves, but it doesn't give markets clarity about the cost of resources. Even in the unlikely case that the whole world would agree on a global cap-and-trade scheme, it's likely that politicians would keep changing the price, the number and the conditions of these permits -- there would be little or no clarity for investors, instead there are bound to be privileges for some and confusion for others, which all comes at the expense of giving markets the clarity they ask, in order to plan and develop the job and investment opportunities in the clean industries that we all need.

3. Apart from cost clarity, markets need investment confidence. Markets work better with some idea where best to invest and where to create job opportunities. Permits-to-pollute effectively constitute a tax on many products. It's the stick without the carrot -- it only targets pollution and protects polluters who want to keep polluting. Markets, by contrast, don't work well in the sole prospect of death and taxes. Instead, markets prosper in a healthy environment that promises opportunities for profits, investment and appreciation of brand name and assets, i.e. the carrot.

4. Markets are not calling for opportunities to trade in permits to spoil the environment. A small group of people may call for trading in permits, typically those who would feed on the profits of such trade. Indeed, those who advocate cap-and-trade most are likely to be the same lawyers, bureaucrats, speculators and financial advisers that have brought the world into the worst global crisis since the Great Depression. These are some of the very people that earlier sought to gain commission by propagating the myth that it was in the economic interest of the U.S. to become dependent on oil imports, to keep sending borrowed money to some of the politically most volatile regions in the world, while nurturing a perceived need for a U.S. military presence in those areas. All this has come at a terrible environmental and financial cost, at the cost of much human misery and at the expense of many good job and investment opportunities in local markets for clean and safe ways to produce energy.

5. While a cap-and-trade scheme is silent about what is to happen with the proceeds of the sale of permits, there should be no surprise as to what would happen if a cap-and-trade scheme would be imposed globally. A substantial part of the proceeds will flow from the rich and most polluting nations to the poorest places in the world, such as India, Pakistan and other Asian and African nations. A global cap-and-trade scheme would only allow the rich and polluting countries to keep polluting, while the people in these poor countries would be inclined to spend the money on things like polluting cars and eating meat, the very things that cause the worst pollution. Handing over money to government bureaucrats in poor countries makes them prone to accept bribes by industrialists who seek to sell more nuclear and coal-fired power plants. It's not markets that want this. Nobody benefits from this. It's a recipe for environmental disaster, corruption, terrorism and war, all resulting from policies that were ill-conceived and doomed to fail.

Should I go on describing why a global cap-and-trade scheme wouldn't work? Let's face it, cap-and-trade is a scheme designed by polluters to keep polluting - what both people and markets want is the opposite: Both people and markets want government to stop protecting the polluters and to instead support the safe and clean solutions that we all want and need. People want to live in a healthy environment. Markets want to invest in solutions that combine prosperity with a healthy environment.

Markets do not want to give "developing" nations the proceeds of such a cap-and-trade scheme. It isn't that markets are greedy, but the truth is that a global cap-and-trade scheme would be counter-productive and only lead to more people driving polluting cars and eating meat. I suggest that, if we are to impose a form of tax anyway, then let's simply impose fees on polluting practices, while using the proceeds where they were raised, in order to create better alternatives at the very places where such alternatives are needed most. Insisting that, to be applicable for rebates, alternatives should be clean and safe, that would genuinely allow market mechanisms to sort out what works best, while optimizing consumer choice and opportunities for jobs and for investment. That is what markets want and how they work best. Such a combination of fees and rebates (FeeBates) can be self-funding and budget-neutral, thus avoiding unnecessary bureaucracy and political turmoil. Nonetheless, as I said earlier, each area should be allowed to decide on their preferred mix of policies.

In conclusion, we should reject a global cap-and-trade scheme and instead work on a global commitment to reduce greenhouse gases, which should be assisted by information on how best to achieve afforestation, to make and use solar cookers, build pyrolysis ovens and bury biochar, build solar concentrators and wind turbines, build desalination plants, use carbon-negative building techniques, etc. All this can be done with technologies and resources that already are locally available all around the world. Ensuring that countries have access to such information will make that they can develop without being dependent on supervision and imports from other countries. To help other countries obtain this information is as much in their interest as in our own interest.

President Obama, I plead to you, don't let polluters misinform you. Please show the kind of leadership that we all expect from you and reject a global cap-and-trade scheme -- instead, unite the world into a commitment to come together annually to set a percentage by which each country should reduce greenhouse gases.

While the premise to unite the world may sound simple, we are aware that the challenges will be huge and exhausting. Please keep your strength in the confidence that the whole world, our children and our children's children will thank you for this!

Sam Carana


Energy and the Environment

UN Climate Change Conference, Copenhagen, Denmark, December 9 - 18, 2009

How Meat Contributes to Global Warming

The Feebate Network

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