Waxman-Markey Climate Change Bill

I have spent the better part of four years studying proposed US climate change legislation, state and local climate actions, the roll-out of the Kyoto Protocol and the implementation of the European Union’s Emissions Trading Scheme. I have written about the large scale issues that must be considered in federal legislation, and looked in depth at some of the issues surrounding offsets and trading, and have recently published op-eds and blogged on the way the Waxman-Markey bill deals with offsets. I have just finished co-teaching a graduate level course in carbon trading that explored many of the issues surrounding how a cap and trade system for greenhouse gases could work. I know that any attempt to control greenhouse gases through a market is complicated and difficult, but I also believe that this is the only way forward.

Like many, I care deeply about the problems of climate change, and believe that unchecked, it will drastically alter the world we live in, and not for the better. From that perspective, I see problems with the Waxman-Markey comprehensive climate change bill recently passed out of the House Energy and Commerce Committee. In particular, many decisions made to garner more conservative democratic votes have weakened some ways of fighting climate change, and the political prognosis is that more changes may have to be made for ultimate passage. Despite this, I am still optimistic about our chances to really tackle climate change, and I want to briefly address some of the concerns of the environmental groups about the Waxman Markey Bill.

Probably the biggest disappointment for environmentalists is the pace and target of reduction. The original Waxman-Markey discussion draft called for a 20% reduction (from 2005 levels)  in greenhouse gases from capped sources by 2020, and the new bill only calls for a 17% reduction (though it still estimates that by using other policies besides cap and trade, the overall reduction might still approach 20%).   The IPCC and most scientists estimate that we need larger reductions earlier to reach a stabilization temperature that would avoid some catastrophic changes to the environment.   The IPCC calls for a 40% reduction by 2020 from the developed countries. The failure to meet the IPCC recommendation has caused some environmental organizations to withdraw support for the Waxman-Markey Bill.

I agree that the divergence of the bill’s target from what is needed early on is disappointing. However, I do not think it is disastrous or cause to withdraw support from the bill. Importantly, the overall target of a reduction by 83% by 2050 is in line with recommended reductions. While delaying earlier reductions will indeed change the need for longer term reductions, it doesn’t mean that we cannot go in later and require greater reductions as needed. The world is already experiencing the effects of climate change, and they get clearer and clearer by the year. Once the United States has committed to a system of reduction, a cap and trade and other direct controls, altering the ultimate cap will be less difficult than starting from scratch, particularly as the effects become more and more obvious and pronounced. This occurred with respect to the Montreal Protocol for ozone, and was anticipated for NOx reductions when it looked as if CAIR would be implemented. While greenhouse gases have more direct interaction with economic growth than ozone depleting substances, once the system is in place, a more stringent reduction is only a matter of degree. 

By the time that we are approaching significant reductions (around 2030) we will already have needed significant technological innovations to move from a carbon economy or to otherwise sequester greenhouse gases, and so, additional incremental reductions should not be impossible. On the other hand, if we do not pass a cap and trade bill when we have the political opportunity to do so, there is no guarantee that we ever will or that its terms will be better. Additionally, real international reductions from the major developing countries, such as China, are going to depend on the developed countries, particularly the United States, making significant reductions itself. Going to Copenhagen without a serious attempt to reduce greenhouse gases, which the Waxman-Markey bill is, will significantly impede international negotiations and necessary reductions and targets form the developing world.

The other major criticism has to do with the giving away allowances for a set time to various industries, such as electric power generation and petroleum refining. The Waxman-Markey discussion draft did not address this issue at all, and it should be noted that many prior bills also assumed that some of the allowances would be given away. This bill actually only gives 59% for several years to industry. Economists would argue that this doesn’t affect actual reductions, and for the most part, they are correct. It doesn’t matter who owns the allowances, their number will still be limited and emissions will still be subject to the same cap. This simply “buys off” some of the entrenched interests that would oppose CO2 reductions.

The real effect is not so simple of course. Judging from what happened in Europe, unsophisticated businesses that receive allowances for free may hold on to them even when it would make economic sense to trade them and invest in emissions reductions, delaying the development of new technology that will be necessary for reductions. Moreover, by requiring utilities to use their allowances to avoid rate increases, instead of allowing such increases but rebating money for any use to families, this discourages reduction of the use of coal fired power. Still, the overall cap remains the same, and this will hopefully by support with little cost in climate change effects.

Other provisions of the bill that worry environmentalists have to do with offsets, which people are rightly suspicious of. This bill, more than any other, provides mechanisms for ensuring that offsets are genuine and not illusory. Unfortunately, it isn’t necessarily enough, nor does it mandate how much review of general environmental effects of offsets should be done. Still, the mechanisms do allow the EPA to roll out the offsets program with strict verification, and environmental protection. The major question is will it have the expertise and political will to do so. I believe that with proper advice, it will.

So all in all, I am favorably disposed to the Waxman-Markey bill. I credit Henry Waxman for his patience and ability to reach out to hear every point of view on this bill. Like his retention of some of John Dingell’s staff when he became Committee chair, this demonstrates that he is really interested in educating and convincing Congress of the need and wisdom to control climate change, and not just interested in “winning.” We environmentalists need to take a page from his playbook. We need to do the best we can, and not sacrifice the environment solely based on particular provisions. This bill has significant and stringent limits, and sets up a system that can go further in the future.