Cap and Trade Is So 2009: Time for an Alternative?

As recently as May 2009, cap and trade was the preferred policy solution for the Kyoto Protocol, federal legislation in Congress, regions, and states. But in mid-2011, the market-based policy doesn't seem to have many friends anymore.

Internationally, the 1997 Kyoto Protocol (whose major outcome was the first cap and trade program for carbon, the European Trading System) will likely expire with nothing to replace it.

Federal climate progress is stalled until at least 2012 as the Republican-led House focuses on slashing budgets. Their conservative leadership has dusted off the old "jobs vs. the environment" argument and generally sneers at anything related to a problem they associate with Al Gore. Looks like some people would rather condemn millions of species to extinction and increase the chance of extreme weather events flattening their Midwest and Southern states (others too, but those are the ones that have made the headlines recently) than admit that Al Gore might have been right. So even though cap and trade in the 90s was a Republican-backed market-based proposal that gave companies flexibility as an alternative to top-down regulations, nowadays it's hard to find any Republicans in D.C. to support it.

Among the states, Republican Governor Chris Christie of New Jersey dropped his state out of the northeastern states' Regional Greenhouse Gas Initiative (RGGI) that auctions emissions permits to electric utilities in late May of this year. A few months earlier in February, Republican Governor Jan Brewer withdrew Arizona from the Western Climate Initiative, a program of several Western states and Canadian Provinces that hopes to launch alongside California's cap and trade system.

As these other states move to the right and drop out, California is still giving cap and trade a chance. Is it one last chance? California's recent reconsideration of cap and trade is a result of a Superior Court ruling in a lawsuit brought by environmental justice groups who alleged that the California Air Resources Board (CARB) failed to consider real alternatives to the cap and trade program adopted in December 2010, CARB released a supplement to the environmental analysis of its 2008 AB32 Scoping Plan document. The Supplement presents five alternatives to the Plan's cap and trade component. These are:

• a "no project" alternative (that is, taking no action and hoping other policies are sufficient to achieve the reduction goal);
• a cap-and-trade program similar to the one described in the original Scoping Plan;
• old-fashioned regulations as opposed to cap-and-trade;
• a carbon fee or tax;
• or a combination of the above.

CARB is taking public comment on the Supplement to its 2008 Scoping Plan from June-August 2011, culminating in a Board hearing scheduled for August 24, 2011.

The Supplement correctly notes that cap and trade is not a single thing. The policy outcomes depend on several factors including the point of regulation and how the revenue collected is used. The generic cap and trade model that was in fashion back in the Pelosi years gave away permits to large polluters for free, and split the revenue among dozens of special interest handouts (some of which were well-intentioned, but opaque to cynical voters). But the strategy of gathering the lobbyists into one smoke-filled room collapsed as various players felt they were short-changed and kept trying to outmaneuver each other.

Perhaps Sacramento's revisiting of cap and trade can shine the light on another approach: climate dividends for everyone. If all the permits are sold (auctioned) to the upstream fossil fuel companies, most of the money raised could be sent back to the public as an equal per capita check every month. The monthly dividend would stimulate consumer spending, create jobs and investment in clean technologies, and address the environmental justice concerns about insiders gaming the trading system. The environmental justice plaintiffs may be pleased to know that this type of dividend could flow from a carbon tax as well. Rather than handouts in a smoke-filled room, the majority of funds would flow back to the people in the light of day. In a world of high unemployment, high gas prices and small budgets, even people who dislike Al Gore might like getting a check in the mail.

The politics of cap and trade have changed since the 90s. The pre-2009 cap and trade model with its giveaways to polluters and complicated offsets is out of fashion. California's reconsideration of carbon pricing provides a chance to create an alternative that can serve as a model for the world.