Super Tuesday is Super for a US based cap and trade system

Super Tuesday is Super for a US based cap and trade system. Discussion of the various candidates stance on cap and trade for carbon

One things for sure, post Super Tuesday with Governor Mike Huckabee far behind, Mitt Romney out, and McCain the all but crowned Republican nominee, the US is getting a cap and trade system for carbon. The question is which one. I thought I'd track a little of the candidates' various positions.

The major differences that are left between the parties are on how to do it. In general the Republicans favor US based systems, the Democrats favor a Kyoto based approach. The Democrats favor 100% allowance, the Republicans favor a slower adjustment scheme (The Kyoto mechanisms today are actually closer the Republican stance).

Don't forget, the real reason the US has not ratified Kyoto is less about whether to use the market based mechanisms (we were the ones who actually advocated putting carbon trading in), and more about the fact that under Kyoto, our major economic competitors in China and India have no commitments to reduce greenhouse gases, and under Kyoto effectively receive foreign aid from developed nations to build out their powerplants and infrastructure. And this concern has gotten worse, as China has now passed the US as the largest emitter of greenhouse gases, but has consistently refused to consider its own emissions reductions. So in reality, even if the Democrats win, we may still get a US focused cap and trade system if that is all that can get through the Senate.

But while any candidate election would likely make a US cap and trade a foregone conclusion, unlike McCain who has actually put forward US cap and trade legislation with a Kyoto "linkage", Hillary and Barack both talk a new treaty and about a G-8 plus major emitters "extra Kyoto" approach that includes China. This sound surprisingly like the approach George W Bush took at the G-8 summit proposing to work within a group of the 15 largest emitters. Not surprisingly, it failed when the Bush Administration refused to sign up to commitments without China and India on the hook, and China still is not interested in signing commitments. Unlike McCain, I'm not sure Barack Obama and Hillary have figured out the details here. But we shall see.

First, the last naysayer.

Mitt Romney

In 2004 Mitt Romney told the Boston Globe he was not sure global warming is happening.

In 2007 on the global warming issue he has continued to be anti Kyoto, at least. "As governor, I found that thoughtful environmentalism need not be anti-growth and anti-jobs. But Kyoto-style sweeping mandates, imposed unilaterally in the United States, would kill jobs, depress growth and shift manufacturing to the dirtiest developing nations." Source

And the Republicans.

Mike Huckabee

Bottom line, likely no Kyoto and but maybe a cap and trade.

Huckabee has come out in support of "economy-wide" cap and trade, in a Bloomberg article on Huckabee's support for the McCain sponsored bill.

Huckabee adopted the National Governors Association policy:

"not sign or ratify any agreement that mandates new commitments to limit or reduce greenhouse gas emissions for the US, unless such an agreement mandates new specific scheduled commitments to limit or reduce greenhouse gas emissions for developing countries within the same compliance period;"

Kyoto was a mistake, but "Earth in the Balance" is not. You do not have to hug a tree to appreciate one. It would have been a mistake to sign the Kyoto Treaty since it would have given foreign nations the power to impose standards on us. But Al Gore was not entirely wrong when he spoke of earth "in the balance." Balance is exactly what we need more of in this discussion. All of us need to have a healthy respect for our resources, a responsible level of use of those resources, and a comprehensive plan for either preserving or renewing those resources. Source: From Hope to Higher Ground, by Mike Huckabee, p. 70 Jan 4, 2007 Source

John McCain

A keen proponent of market based environmental solutions, and anti tax to boot. He is heavily in favor of cap and trade, and as coathor of the McCain-Lieberman Senate bill backing a US cap and trade is the only candidate who has actually been doing anything about it. But he has not necessarily supported ratifying Kyoto without Chinese participation like Hillary Clinton (her husband was the one who signed it originally) appears to be advocating.

Among other things McCain-Lieberman calls for cap and trade, with the amount of allowances to be determined in the future, up to 15% of allowances permitted from other systems (like Kyoto's CDM mechanism), and an enforcement penalty of 300% of the per ton market price for companies over their cap. A good summary has been done by the Pew Center, as well as a comparison with other climate change legislation.

In 2003 McCain did a good LA Times Op Ed piece defending cap and trade as a solution to global warming.

In a further interview he reaffirmed his belief that market based environmental solutions will work.

"Is your party where it needs to be on global warming yet?

Sen. McCain: It varies in my party, so I can't say "my party." But where I think our party needs to be is to be more involved in market-based economically beneficial green technologies which will then reduce greenhouse-gas emissions.In other words, Lieberman's and my cap-and-trade proposal is market based. General Electric, the world's largest corporation believes they're going to make profits off of green technologies. I was just out at the port of Los Angeles with Schwarzenegger and BP is going to sequester carbon and take some offshoot materials and convert them into some kind of fuel, as I understand it. That's going to be beneficial to BP to do that; in other words, it's economically profitable to do these things.

Ponnuru: One of the stumbling blocks people sometimes have is that they look at these proposals to deal with the problem and they seem, not the ones you're talking about but some of these other ones, incredibly draconian, like Kyoto, and then you look at the pay-off and it'll solve 0.7 percent of the problem. Is the problem so enormous that these kinds of measures can't really get you very far?

Sen. McCain: [They can] if they're market-based. If business and industry sees a way to make money and get returns to their stock holders, then they're going to move in that direction. And I really believe that again, this cap and trading thing, which is still being sorted out a bit in Europe, is a good market-based approach to it. And again, carbon sequestration is fine, all of these things are fine, but if you want an immediate impact on reduction of greenhouse gases then start building nuclear power plants. And I'm not saying that's the only answer but I think it's a significant part of the answer."Source

McCain has adopted the Republican Main Street Partnership issue stance:

"The Republican Main Street Partnership supports the goal of immediate, near-term reductions in greenhouse gases, and would move toward this goal by providing strong incentives that have minimal adverse impact on the economy, and to continue to apply our best scientific minds to developing a better understanding of the long-term nature of climate change and the means to cope with it.

Two objectives should be accomplished:

create an "early action crediting system" to provide assurances to companies that actions taken now to reduce emissions of greenhouse gases will be recognized and credited in the eventual system of emissions reductions standards that will be developed; and

commit the necessary resources to national and international scientific efforts to better understand the cause and effect of global climate change.

With regard to global warming, the Republican Main Street Partnership recognizes that a longer debate over the proper U.S. role in implementing the Kyoto Protocol should and will occur. In so doing, we hope to bolster our scientific understanding of the problem and perhaps, in turn, provide immediate incentives for communities and corporations to act in their own and the nation's best interests in reducing emissions. We are strongly committed to acting on the emerging consensus for progress and constructive change, and maintaining America's ability to lead the world in the critical area of environmental protection. Source: Republican Main Street Partnership Issue Paper: Environment 98-RMSP2 on Sep 9, 1998" Source

Ron Paul

A strong environmentalist and free market libertarian, who opposes the Iraq war, Kyoto, and energy company subsidies for all the same reasons, for one, the constitution does not permit it, two, it is the job of the private sector, not government. Despite being the only non cap and trade Republican left in the mix, I always find it hard to disagree with Ron Paul. He and I are kindred spirits when it comes to small government.

Ron Paul on the environment:

"The federal government has proven itself untrustworthy with environmental policy by facilitating polluters, subsidizing logging in the National Forests, and instituting one-size-fits-all approaches that too often discriminate against those they are intended to help.

The key to sound environmental policy is respect for private property rights. The strict enforcement of property rights corrects environmental wrongs while increasing the cost of polluting.

In a free market, no one is allowed to pollute his neighbor's land, air, or water. If your property is being damaged, you have every right to sue the polluter, and government should protect that right. After paying damages, the polluter's production and sale costs rise, making it unprofitable to continue doing business the same way. Currently, preemptive regulations and pay-to-pollute schemes favor those wealthy enough to perform the regulatory tap dance, while those who own the polluted land rarely receive a quick or just resolution to their problems.

In Congress, I have followed a constitutional approach to environmental action:

- I consistently vote against using tax dollars to subsidize logging in National Forests. - I am a co-sponsor of legislation designed to encourage the development of alternative and sustainable energy. H.R. 550 extends the investment tax credit to solar energy property and qualified fuel cell property, and H.R. 1772 provides tax credits for the installation of wind energy property. Taxpayers for Common Sense named me a "Treasury Guardian" for my work against environmentally-harmful government spending and corporate welfare. - I am a member of the Congressional Green Scissors Coalition, a bipartisan caucus devoted to ending taxpayer subsidies of projects that harm the environment for the benefit of special interests. - Individuals, businesses, localities, and states must be free to negotiate environmental standards. Those who depend on the land for their health and livelihood have the greatest incentive to be responsible stewards." Source

From an interview with Grist:

"What, if anything, do you think the government should do about global warming? They should enforce the principles of private property so that we don't emit poisons and contribute to it. And, if other countries are doing it, we should do our best to try to talk them out of doing what might be harmful. We can't use our army to go to China and dictate to China about the pollution that they may be contributing. You can only use persuasion.

You have voiced strong opposition to the Kyoto Protocol. Can you see supporting a different kind of international treaty to address global warming?

It would all depend. I think negotiation and talk and persuasion are worthwhile, but treaties that have law enforcement agencies that force certain countries to do things, I don't think that would work.

You believe that ultimately private interests will solve global warming? I think they're more capable of it than politicians.

What's your position on a carbon tax? I don't like that. That's sort of legalizing pollution. If it's wrong, you can buy these permits, so to speak. It's wrong to do it, it shouldn't be allowed." Source

Then the Democrats.

Hillary Clinton

Hillary Clinton has previously stated she would ratify Kyoto (though has discussed "fixing" it first), and has come out in favor of aggressive cap and trade systems. It is a little hard to understand how she will reconcile her stated desire for environmental protection as a key part of trade policy, and a Kyoto protocol that places no emissions reduction commitments on major US trading partners like China and India. The short answer may be she has backed off Kyoto, focused on cap and trade and a new treaty for Kyoto.

The Hillary Clinton global warming agenda from her website:

"Hillary's plan to promote energy independence, address global warming, and transform our economy includes:

A new cap-and-trade program that auctions 100 percent of permits alongside investments to move us on the path towards energy independence;

Has said she will vote to ratify Kyoto and is a big supporter of cap and trade, with 100 percent auction of allowances.

A requirement that all publicly traded companies report financial risks due to climate change in annual reports filed with the Securities and Exchange Commission" Source

Her previous statements were very strongly pro Kyoto. "As Senator, I will work for New York to get its fair share of federal mass transit funds and to increase the amount of money that goes to transit funds. And, I will vote to ratify the Kyoto Protocol to bring all nations together to address global warming and build a better future for us all. Source: www.hillary2000.org, "Environment" Sep 9, 2000" Source

But recently she has started hedging a bit, talking about the flaws of Kyoto. "I will start by reigniting our international involvement. We cannot sit here, in the United Sates and expect to deal with global warming if we do not cooperate with other countries. Getting back into process, you know when President Bush took us out of Kyoto, I regretted that but he had an opportunity to start his own process, he didn't want to do Kyoto, do something else. Reach out to India and China they have to be part of this. One of the flaws of the Kyoto process was I don't think people anticipated, even in the early 90s how quickly China and India would grow. China is now growing at 12 percent a year. They are the second highest user of energy but they are now the highest emitter of green house gases in the world. India is not far behind. We have got to get a new international process." "Energy and Environment: Speech on the Green Building Fund," Hillary Clinton's official candidate website, July 24, 2007

And further here. "The President's failed unilateral energy policy is a part of our failed unilateral foreign policy. It's deprived us of the credibility and the leverage we need to solve the climate crisis. I'll change that by leading the process to develop a new treaty to replace the Kyoto Protocol, which is set to expire in 2012. One of the worst messages the President sent was when he took office and rejected completely Kyoto. He could have said we don't like Kyoto but we're immediately starting a new process. But that didn't happen. Well, come January 2009, I'm sending a different message. I want to act quickly to help develop a new treaty. I will engage in high level meetings with leaders around the world every three months, if that's what it takes to hammer out a new agreement. My goal will be to secure a deal by 2010. We can't wait for two more years. I will establish an E8 that's modeled on the G8 which is where the big industrial economies come together. We need the world's major carbon-emitting nations to come together to tackle these challenges."

Barack Obama

As aggressive a global warming activist as you will find in the election, he is actually more Republican on his global warming position that he looks. He like Hillary, favors cap and trade, technology investment, and a 100 percent auction for allowances. But with his extra-Kyoto Global Energy Forum and a noncommital "re-engage" Kyoto strategy, like Hillary he does not appear to have worked out the details.

The Obama statements:

"Restore U.S. Leadership on Climate Change

Create New Forum of Largest Greenhouse Gas Emitters: Obama will create a Global Energy Forum -- that includes all G-8 members plus Brazil, China, India, Mexico and South Africa -the largest energy consuming nations from both the developed and developing world. The forum would focus exclusively on global energy and environmental issues.

Re-Engage with the U.N. Framework Convention on Climate Change: The UNFCCC process is the main international forum dedicated to addressing the climate problem and an Obama administration will work constructively within it." Source

"Reduce carbon emissions by 80% by 2050

Cap and Trade: Obama supports implementation of a market-based cap-and-trade system to reduce carbon emissions by the amount scientists say is necessary: 80% below 1990 levels by 2050. Obama's cap-and-trade system will require all pollution credits to be auctioned. A 100% auction ensures that all polluters pay for every ton of emissions they release, rather than giving these emission rights away to coal and oil companies. Some of the revenue generated by auctioning allowances will be used to support the development of clean energy, to invest in energy efficiency improvements, and to address transition costs, including helping American workers affected by this economic transition.

Confront Deforestation and Promote Carbon Sequestration: Obama will develop domestic incentives that reward forest owners, farmers, and ranchers when they plant trees, restore grasslands, or undertake farming practices that capture carbon dioxide from the atmosphere. Source: Campaign booklet, "Blueprint for Change", p. 24-27 Feb 2, 2008" Source

"Q: What do you think the toughest choice you have left to make is? What haven't you made up your mind on yet? And why haven't you? A: The issue of climate change. I've put forward one of the most aggressive proposals out there, but the science seems to be coming in indicating it's accelerating even more quickly with every passing day. And by the time I take office, I think we're going to have to have a serious conversation about how drastic steps we need to take to address it. Source: 2007 Democratic radio debate on NPR Dec 4, 2007"

"As president, I will place a cap on carbon emissions and require companies who can't meet the cap to buy credits from those who can, which will generate billions of dollars to invest in renewable sources of energy and create new jobs and even a new industry in the process. I'll put in place a low carbon fuel standard that will take 50 million cars worth of pollution off the road. I'll raise the fuel efficiency standards for our cars and trucks because we know we have the technology to do it and it's the time to do it." Source: Take Back America 2007 Conference Jun 19, 2007

"I proposed a cap-and-trade system, because you can be very specific in terms of how to reduce the greenhouse gases by a particular level. What you have to do is you have to combine it with a 100% auction. Every little bit of pollution sent up into the atmosphere, that polluter is getting charged for it. Not only does that ensure that they don't game the system, but you're also generating billions of dollars that can be invested in solar & wind & biodiesel. On a carbon tax, the cost will be passed on to consumers. Under a cap-and-trade, plants are going to have to retrofit their equipment. That's going to cost money, and they will pass it onto consumers. We have an obligation to use some of the money that we generate to shield low-income and fixed-income individuals from higher electricity prices. We're also going to have to ask the American people to change how they use energy. Everybody is going to have to change their light bulbs and insulate their homes. It's a sacrifice that we can meet." Source: 2008 Facebook/WMUR-NH Democratic primary debate Jan 6, 2006 Source

So here comes the cap and trade. But the how is still up in the air. In the interests of full disclosure, this is an area I fully believe in, and I am not only involved with at least one business that would likely benefit from a US cap and trade, though also a few businesses that would likely suffer from a cap and trade.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, and a blogger for CNET's Cleantech blog, and the Chairman of Cleantech.org.

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About the author

    Neal Dikeman is a founding Partner at Jane Capital Partners LLC, advising the technology and venture arms of multi-national energy companies in cleantech. While at Jane Capital, he has cofounded superconducting technology company SC Power Systems, Inc. (now Zenergy Power plc), and wireless technology startup WaiterPad POS Systems, and he is currently involved in launching a new venture in carbon credits. Dikeman edits and writes the Cleantech Blog, where he has written extensively on biofuels, solar, and global warming.

     

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