Lexington, KY - With nearly all of its electricity coming from coal-fired power plants, the average Kentucky household would be hard hit by increased energy costs under a cap-and-trade system to curb carbon emissions. Not so under a "cap-and-dividend" system, which would pay out to every citizen, in equal measure, the revenues collected for permits to pollute the air with CO2.
The cap-and-dividend idea was introduced in 2009 on the Senate floor as the bi-partisan CLEAR Act by Sen. Maria Cantwell, D-Washington, with the co-sponsorship of Sen. Susan Collins, R-Maine. It was a clear alternative to the better known Waxman-Markey cap-and-trade bill. The CLEAR Act was an open invitation for lobbyists to wield their craft. The bill received little fanfare and didn't pass. Regardless, climate change continues, and scientists see the urgency growing the longer we delay addressing it by curbing greenhouse-gas emissions.
"It will take some kind of extreme event to get Congress to act on this. And how extreme that is, who knows?" said Peter Barnes, the originator of the cap-and-dividend formula. "There have been a bunch of extreme events in fairly recent years. You know, hurricane wipes out major U.S. city. Biggest oil spill in the Gulf of Mexico. Japanese nuclear meltdown. Heat wave. Obviously, these aren't big enough. What size of an extreme event will we need? I don't know."
Climate scientists won't point to a specific extreme weather event and say it's due to climate change, but such events fit the pattern of what scientists expect to see more of with planetary warming due to greenhouse gases accumulating in the atmosphere.
"The general public was never offered convincing and humanized tales of travails that might realistically beset us: the squalid ruin of the world's mountain meadows and coral reefs, the mounting impoverishment due to crop failures, the invasions of tropical diseases, the press of millions of refugees from drowned coastal regions," wrote Spencer Weart, astrophysicist and science historian, in his award-winning book, The Discovery of Global Warming.
Neville Brown, a British specialist in strategic studies with a varied background in geophysics and meteorology, notes in his book, History and Climate Change, that it was in 1827 that Jean-Baptiste Fourier concluded that atmospheric gases were like a "glass cover," creating a greenhouse effect heating the earth. Fourier predicted that continued CO2 release from industrial development would increase the effect. He reached these conclusions based on undisputed science regarding the absorption of radiant heat by different gases, CO2 among them, and then applied that to solar energy reflected by the Earth.
The idea of human activities driving climate change clashed with what seemed possible in the context of long-held views of the world's natural order. Weart gives a compelling and accessible account of the modern discoveries (and ensuing controversies) that have led climate scientists to conclude that greenhouse emissions from human activities are accelerating warming of the planet.
The National Academy of Sciences recently released America's Climate Choices (free pdf: http://tiny.cc/acchoices). The report joins a host of scientific papers and reports worldwide that conclude greenhouse gases are significantly driving climate warming. The NAS report urges immediate action and lays out strategies and approaches to addressing climate change, but doesn't advocate for a particular course.
Nearly 85 percent of greenhouse emissions in the United States is CO2 produced by fossil fuel combustion and other industrial processes and products - the lion's share from tail pipes and smokestacks. The United States has historically released far more CO2 into the atmosphere than any other country. Recently China surpassed the U.S. in CO2 emissions. It would take China many years for its emissions to equal that which has been released into the atmosphere by the United States over the last century. Scientists say that some of that CO2 will stay in the atmosphere as long as 3,000 years. Because of these facts, many argue that the United States should show leadership in reducing CO2 emissions.
CO2 is also threatening the health of oceans, which absorb it, creating a more acid condition in the water.
"Time is running out to limit acidification before it irreparably harms the food chain on which the world's oceans - and people - depend," stated an article in the August, 2010, issue of Scientific American. The National Academy of Sciences has just published Ocean Acidification: A National Strategy to Meet the Challenges of a Changing Ocean (http://tiny.cc/acidif).
The NAS report states: "The chemistry of the ocean is changing at an unprecedented rate and magnitude due to anthropogenic carbon dioxide emissions; the rate of change exceeds any known to have occurred for at least the past hundreds of thousands of years."
It goes on to say that unless "CO2 emissions are substantially curbed, or atmospheric CO2 is controlled by some other means ... there is a risk of ecosystem changes that threaten coral reefs, fisheries, protected species and other natural resources of value to society."
In 2005, Europe established the Emissions Trading Scheme, a cap-and-trade system meant to curb CO2 emissions. The initial model was the Acid Rain Program, a cap-and-trade system implemented under the EPA in the '80s to curb pollutants causing acid rain. But curbing CO2 is a more complex challenge.
"The gist of it is that it hasn't worked," said Barnes, speaking of the CO2 cap-and-trade in Europe. "It hasn't reduced emissions. It has led to windfall profits and all sorts of schemes that enrich clever schemers, but it doesn't do much to reduce actual emissions."
Barnes identifies two features in European cap-and-trade he says undermine the goal of reducing emissions: free permits and offsets. The cap puts a numerical limit on the quantity of CO2 emissions permitted, and it descends over the years, reducing the quantity of CO2 emissions. Permits are made available to businesses. By giving away permits to companies, like energy plants, windfall profits are realized for those businesses. The public was outraged in Europe when energy companies raised their prices to match the system's created scarcity, despite those companies having received free permits.
International offsets allowed European companies to purchase carbon credits from companies anywhere in the world - companies that would make operational decisions to reduce their CO2 emissions and then sell those carbon credits as if they always represented real reductions in carbon emissions. "Various studies have been made saying that a lot of those things were not genuine emissions reduction," said Barnes. "They were sort of hypothetical and fictitious."
Barnes warns that cap-and-trade creates a marketplace for carbon credits where carbon investment products, which he compares to the Wall Street housing derivatives that wreaked havoc on the U.S. economy,
would exploit and distort the created carbon market. Think stock market bubble.
As an alternative to cap-and-trade, Barnes devised cap-and-dividend, which he introduced in his book published in 2001, Who Owns the Sky?
"The idea is simple, elegant and far-reaching. It could change the very future of our economy," said Dale Jorgenon, Harvard University professor of economics. The idea is that we all own the sky, and that any enterprise polluting it should pay for that use of the atmosphere.
With cap-and-dividend, no permits are given away free. All permits are auctioned to the highest bidders. Funds raised by that auction are largely paid out to citizens with social security accounts to help them meet rising energy costs. The Cantwell-Collins Bill proposed to pay 75 percent of the auction revenues as dividends to citizens. The remaining 25 percent would go into a Clean Energy Reinvestment Trust Fund to pay for additional greenhouse gas emissions reductions, low-carbon energy investment, climate change adaptation and related regional economic adjustment projects. It has also been proposed that the 25 percent could go into funding job creation and national debt reduction.
Barnes says that there are precedents for each piece of cap-and-dividend. He points to auctions of airwave frequencies and offshore oil leases as having established the principle underlying the auction of carbon pollution permits. The Alaska Permanent Fund, which pays dividends to Alaskans from the state's oil field leases and royalties and sales from other natural resources, Barnes cites as the precedent for the dividend feature.
"It has some permit trading," said Barnes of the cap-and-dividend system, "but no offset trading, which eliminates most of the abuses that would occur under a cap- and-trade system - abuses that are occurring in existing cap-and-trade systems."
The Cantwell-Collins cap-and-dividend bill also differed from cap-and-trade in that it would assign permits at the carbon source rather than the emissions end. Permits would apply to the raw resources or "upstream sellers," such as mined coal or imported oil.
The bill also would impose fees on imports from countries that don't impose comparable limits or fees on the use of fossil carbon as does the United States, taking away unfair competitive advantage that would undermine U.S. companies.
Of particular concern to the coal industry, the bill foresees sequestration technology and would give emitters credit for every ton of sequestered CO2.
"The bill could be improved by raising dividends for people in coal-dependent states," said Barnes.
Sen. Cantwell's office didn't respond to inquiries regarding the future of the bill.