Climate Bills and a Green Economy

U.K. Rolls Out Carbon Trading for Businesses - Would the U.S. Adopt It Too?

While the U.S. Congress argues whether or not to adopt climate change legislation that includes cap-and-trade, the United Kingdom has rolled out a new mandatory carbon trading program sweeping in businesses that, up to now, have not been covered by the European Union's Emissions Trading System.

April 16, 2010

Energy Priorities - Under the Carbon Reduction Commitment Energy Efficiency Scheme, large private and public sector organizations in the U.K., such as banks, supermarkets, hotel and restaurant chains, hospitals, government offices and universities, will be required to report their CO2 emissions and some will have to buy allowances.

The registration period started April 1, 2010, and will run through September 2010. An estimated 20,000 organizations will be required to report and about 5,000 will need to buy allowances starting in 2011.

The purpose of the CRC is to encourage energy efficiency, which the program intends to accomplish by making the cost of buying allowances more expensive than reducing energy use.

One estimate is that the scheme will result in savings of about ₤1 billion (~ $1.5 billion USD) and a reduction of 4.4 million tons of CO2 per year by 2020.

The U.K. seems to be on the forefront of carbon trading programs, first with its own Emissions Trading Scheme that predated the EU's and now with the CRC. While a CRC-like program is unlikely to be adopted anytime soon in the U.S. due to wide disagreement over cap-and-trade and various attempts to roll back existing programs, such as California's AB 32 measures, it nevertheless could become a template for the future.

It will be important, however, for CRC to avoid becoming a poster child against cap-and-trade by demonstrating that it is not subject to the various problems that have plagued the EU's Emissions Trading System, including price collapses, hackers and improper recycling of certified emissions reductions.

Cut Out the Carbon Middleman

July 1, 2009

Reuters – The opposition by the Republicans to the idea of carbon trading is a bit baffling, given that it is a classic Wall Street-driven solution for dealing with a serious problem.

Sure, carbon trading, which is the centerpiece of the Obama administration-backed American Clean Energy and Security Act, would carry a cost for consumers and companies that emit too much in greenhouse gases. But the economic impact of the bill’s so-called cap-and-trade scheme would be modest — costing the average household $175 a year in added expenses, according to the Congressional Budget Office.

What’s actually more baffling is President Obama’s infatuation with this trading scheme, which will benefit the global environment, but will also fatten the wallets of Wall Street traders. A simple tax on polluters and carbon producers would get the job done without the kind of wealth transfer to the gilded class that Republicans generally support.

It’s easy to see why Wall Street, which has been waiting for carbon trading to ignite in the United States, favors the measure.

The bill would impose a hard cap on carbon emissions for all U.S. companies. But it would permit businesses that produce less carbon emissions to sell “credits” to companies that exceed the cap — hence the name cap-and-trade. The legislation calls for the carbon credits to be traded on regulated exchanges and that, of course, is where Wall Street comes in.

Wall Street trading desks will make money from handling both ends of the cap-and-trade transactions. Yet it’s not too hard to imagine that there are some Wall Street bankers already dreaming up some newfangled “green-friendly” investment product that will capitalize on this trade, which can then be peddled to retail investors.

Cap-and-trade just might be the shot in the arm that the ailing structured finance market needs. Is that the kind of “green jobs” we really want?

Another obvious winner from the passage of a cap-and-trade bill will be the Chicago Climate Exchange, which has struggled to find a market since it opened for business in 2003. The Green Exchange, a soon-to-launch trading platform being built by CME Group’s Nymex division also should get a needed jolt.

The hedge fund industry is looking to catch the green wave, as well. Da Vinci Invest Ltd. of Switzerland, for instance, recently began raising money for its carbon-trading Green Falcon Fund.

But a so-called carbon tax on companies based on the level of greenhouse gases their products produce would cut out the Wall Street middleman altogether. A carbon tax also would make greenhouse gas pariahs, like gas-guzzling cars, cost a lot more. And that’s something that would immediately impact consumer behavior.

Selling a carbon tax, however, would take political courage because of that dreaded three-letter word. And sadly that kind of courage is in short supply in Washington.

Obama Years Ago Helped Fund Carbon Program He Is Now Pushing Through Congress
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Al Gore 'profiting' from climate change agenda

Cap and Trade Carbon Emissions or Impose a Flat Carbon Tax?

Originally Published in 2007

TIME Magazine - With cap-and-trade programs, governments limit the level of carbon that can be emitted by an industry. Companies that hold their emissions below the cap can sell their remaining allowance on a carbon market, while companies that exceed their limit must purchase credits on that market.

Carbon taxes are more straightforward: a set tax rate is placed on the consumption of carbon in any form—fossil-fuel electricity, gasoline—with the idea that raising the price will encourage industries and individuals to consume less.

At the moment, cap-and-trade has the upper hand, since it serves as the backbone of the current Kyoto Protocol, and helped the U.S. reduce acid rain in the 1990s—but don't write off the tax just yet.

Supporters of the carbon tax argue that a cap-and-trade system would be too difficult to administer—and too easily gamed by industries looking to sidestep emissions caps.

Cap-and-trade advocates counter that, like all other flat taxes, a carbon levy would disproportionately burden lower-income families, who spend a greater percentage of their income on energy than rich households.

So which system will have the largest impact on carbon consumption? A 10% flat carbon tax might reduce the demand for carbon about 5% or less, according to an analysis by the Carbon Tax Center, an environmental advocacy group. That may not be enough.

Businesses and governments haven't figured out how the two competing regimes can work together, but in the end, the world may need both.