November 17, 2009
Is the Left Turning Against Cap-and-Trade?
Accountability & Transparency Trends
With a post-Kyoto agreement looking increasingly unlikely to come out of the Copenhagen climate summit, environmentalists are regrouping and debating the best strategy for promoting greenhouse gas reductions. A consensus on the left has emerged around a cap-and-trade formula, which is already in place in Europe and is being considered in the U.S. Congress. But the economic impact of cap-and-trade is a wild card and it has its skeptics across the ideological spectrum.
Most liberal analysts claim the European scheme is flawed but getting better, while many conservatives blast it for being both inefficient and for not reducing carbon emissions. Just recently, Kenneth Green of the American Enterprise Institute testified before the Senate Finance Committee and noted that cap and trade tries but fails to cap carbon emissions. Instead, it “caps economic growth.” Many conservatives argue for a carbon tax, claiming it is more cost certain, which businesses crave. Liberal skeptics believe some conservatives disingenuously support carbon taxes as a way to throw a wrench into Congressional debate and ultimately undermine support for carbon reduction legislation.
In recent weeks, the controversy has taken a new turn, as right critics gained allies from the left. While most environmental groups (ENGOs) are rallying for a worldwide cap-and-trade system, some aggressive ENGOs, including Friends of the Earth and Greenpeace, have long made the case that carbon offsets are a boondoggle that would not help the environment very much. Now the iconoclastic duo, joined also by Public Citizen, has launched a new attack, spearheaded by a report by Friends of the Earth titled “A Dangerous Obsession.” According to FoE, cap-and-trade has not produced sweeping results because of rampant corruption and inefficiency inherent within the system. It claims carbon trading schemes are allowing speculators to grow rich but are not delivering the emissions cuts promised.
The trade in carbon permits and credits, mainly based in Europe, was worth $126 billion in 2008 and is predicted to balloon to $3.1 trillion by 2020 if a global carbon market takes off. But instead of being a trade between polluting industries, says FoE, it has become one dominated by banks and speculators making big profits. It’s feeding a carbon bubble, FoE says, that when popped could rival the economic damage brought on by the sub-prime mortgage debacle. Friends of the Earth and Greenpeace continue to push for a carbon tax, although it differs in structure from one advanced by many conservatives.
The renewed attack on cap-and-trade was greeted with glee by gum-up-the-works conservatives at The Wall Street Journal and on Capitol Hill. But the truly interesting response has been the defensiveness by the left, which has been struggling to hold its cap-and-trade coalition together. The liberal site TreeHugger dismisses FoE’s claim, citing a study authored by liberal NGO economists and released by the German Marshall Fund that the trading systems in Europe have led to annual carbon reductions of 2.5-5% with the “carbon market now worth 56 billion US dollars.”
Patrick Birley from the European Climate Exchange, jumped into the fray, calling the report “misguided,” and accusing Friends of the Earth of demonstrating a loose grasp of financial markets by relating carbon trading to complex sub-prime trading. “Carbon trading is a very simple trading tool much like trading in oil or gas,” he said. He pointed out that carbon trading is merely a tool to achieve carbon caps set by governments.
The fierce contretemps further dampens Congressional prospects for a cap-and-trade system and leaves the left in the position of fighting itself at the very moment it needs to close ranks behind a bill, any bill, that could get to the President’s desk.
Jon Entine is a visiting scholar at the American Enterprise Institute and supervising editor of NGOWatch.org.
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