A backwards step in
U.S. energy policy
By Marlo Lewis, Jr.
Which climate-related initiative
poses the biggest threat to America’s economic
future?
Is it:
(a) the Kyoto Protocol, with its
growth-chilling restrictions on carbon-based energy
use;
(b) Sen. Jim Jeffords’s (I-Vt.)
“Clean Power Act,” which would impose Kyoto-like
carbon dioxide (CO2) controls on the electric power
industry; or
(c) the McCain-Lieberman “Climate
Stewardship Act,” which would cap CO2 emissions
from the electric power, manufacturing, and transportation
sectors?
Surprisingly, the most toxic climate
policy is none of the above headline grabbers but rather
one most people have never heard of — “transferable
credits” for “verified” greenhouse
gas reductions. If enacted, this plan will mobilize
corporate lobbying for Kyoto and dozens of kindred energy
rationing schemes like McCain-Lieberman.
Surprisingly, the chief sponsors
of this political force-multiplier for the Kyoto agenda
are three anti-Kyoto stalwarts: President Bush, Sen.
Chuck Hagel (R-Neb.), and Sen. Pete Domenici (R-N.M.).
The motives of these honorable men are not in question.
However, on this issue they have been deplorably advised.
On Feb. 14, 2002, Bush directed
several agencies to transform the Department of Energy’s
Voluntary Reporting of Greenhouse Gases Program (VRGGP)
into a program awarding “transferable credits”
for verified greenhouse gas emission reductions.
Responding to the president’s
initiative, several months later Hagel introduced an
amendment to the Senate energy bill directing the Department
of Energy to expand the VRGGP into a crediting program
— only to withdraw the amendment a week later
due to lack of support. However, Domenici’s recent
staff-drafted energy bill revives the Hagel amendment.
All of which just goes to show that bad policy ideas
never die; they just get recycled.
Originally known as “credit
for early action,” transferable credits began
as a strategy to win corporate and congressional support
for Kyoto-style regulation. The strategy’s chief
architect was the pro-Kyoto activist group Environmental
Defense. President Clinton endorsed the idea in 1997.
Meanwhile, the Pew Center on Global Climate Change,
headed by former Clinton-Gore Kyoto negotiator Eileen
Claussen, marketed the plan to corporate America. Kyoto-leaning
Sens. John Chafee (R-R.I.) and Joe Lieberman (D-Conn.)
introduced early credit legislation in the 105th and
106th Congresses.
The basic idea was simple: Award
credits to companies that begin to comply with Kyoto
before it is even ratified, and allow those companies
to sell or use the credits to offset future regulatory
obligations. In effect, participating companies acquire
Kyoto stock that bears dividends if — but only
if — Kyoto or similar regulation is ratified or
enacted. Credit-holders thus acquire cash incentives
to support Kyoto, or lobby for its domestic equivalent.
Although touted as “voluntary”
and “win-win” (good for business, good for
the environment), transferable credits create a coercive
system in which one company’s gain is another’s
loss.
Tradable credits have value only
in relation to an emissions reduction target or “cap.”
If the cap is not broken, then every credit awarded
for “voluntary” reductions in the “early
action” period must be subtracted from the total
available in the mandatory period. Thus, for every company
that gains a credit in the early action period, there
must be another that loses a credit in the compliance
period.
Consequently, companies that do
not “volunteer” will be penalized —
forced in the mandatory period to make deeper reductions
than the cap itself would require, or to purchase credits
at higher prices than would otherwise prevail.
The scheme has a vast potential
to corrupt the politics of energy policy. Because it
penalizes non-participants, many businesses will “volunteer”
just to avoid getting shoved to the shallow end of the
credit pool later on. The calculated political result
is a critical mass of companies holding energy rationing
coupons — assets that mature only under Kyoto
or comparable regulation.
When it comes to climate policy,
Lieberman, Environmental Defense, and the Pew Center
on Climate Change may be wrongheaded, but they are not
naïve. They all advocate: (a) energy rationing
— carbon “cap-and-trade” programs
— and (b) government-certified energy-rationing
coupons — what Domenici’s draft bill calls
“transferable credits with unique serial numbers
for verified reductions.” The two policies are
so clearly linked that it’s embarrassing to hear
Bush advisors try to deny it.
When will the Bush administration
and its pro-energy allies on Capitol Hill wake up? If
they embrace Chafee-Lieberman, America will get stuck
with McCain-Lieberman. If they create energy rationing
coupons, America will end up with energy rationing.
Credits for early reductions are
the pre-regulatory ramp up to an energy constrained
future. They have no place in an energy bill worthy
of the name.
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