The Limits of Cap-and-Trade

On Friday night, the U.S. House of Representatives passed the country’s first cap-and-trade system intended to reduce carbon emissions. The bill, which passed by a narrow 219-212 (largely party-line) vote, still must be passed by the Senate, where it faces strong opposition. The House bill would reduce U.S. carbon emissions 17 percent below 2005 levels by 2020, and 83 percent below 2005 levels by 2050. The legislation introduces a cap-and-trade system for carbon emissions and by mandating energy producers increase production from renewable sources such as wind and solar.

While this is a positive development, there is certainly room for concern. Indeed, environmental groups are divided on how to respond to develops in the United States. Many have celebrated the development, but some, including Greenpeace and Friends of the Earth, have criticized the bill for being too watered down and having too many compromises to effectively address the challenges of global climate change.

The real question is will this work? The European Union has been developing its cap-and-trade system for years, with little real success. Most countries have failed to meet targets (those that came close did so largely because of economic downturns, such as Germany’s progress as a result of the collapse of industrial production in the former east). And the European Union was forced to retool its approach after it became clear that most member states were gaming the system, over-estimating their baseline emissions to make meeting reductions easier.

Meanwhile, there’s a blame-game going on. Australian doesn’t want to establish targets for reductions until the United States does; the United States doesn’t want binding international targets unless China is a part of the system, and China wants to measure reduction levels in different ways. Indeed, the question of fairness in reducing carbon emissions remains unresolved. As Roberts and Parks point out in thier book, A Climate of Injustice: Global Inequality, North-South Politics, and Climate Policy (a great read, by the way), there are at least four ways one could measure emissions, each with different implications for fairness:

  1. Total Emissions: just add up the total carbon emitted by a country and establish reduction targets based on this figure. This measurement would benefit the industrialized countries, since their target levels (as a percentage reduction fo current emissions) would be higher.
  2. Per Capita Emissions: divide current emissions by population, then establish reduction targets. This approach is favored by countries which large populations, like China and India, for obvious reasons.
  3. Efficiency of Emissions: divide current emissions by GDP, resulting in a measure of emissions per unit of production. This approach is favored by developed countries with large economies, like the United States, for obvious reasons.
  4. Historical Responsibility: measures total carbon emissions over the past fifty (or so) years. Because carbon emissions remain in the atmosphere for fifty years or more, gasses that were released in the 1960s are still contributing to climate change. This measure forces those with the greatest historical responsibility for emissions (like the United Kingdom and the Untied States) to pay for those emissions as well.

The different systems of calculation have real implications. If we look at total emissions, China is the world’s second largest producer (with approximately 5.1 billion tons of carbon dioxide emitted in 2005, just behind the United States at 5.8 billion tons emitted). China should be a party to any effective international agreement addressing carbon emissions. But if we look at par capita emissions, China emits just 3.9 tons per person, placing 91st overall and falling well behind countries like the United States (19.6 tons per person), Australia (18.4 tons), Russia (10.8 tons), Spain (7.9 tons), France (6.2 tons), and Iran (6.0 tons). Based on this measure, China could easily claim that their emissions do not rise to the level of those in the developed world (of even much of the developing world), and it is therefore justified in continuing to increase its emissions.

Questions of fairness need to be addressed. But even setting those thorny questions aside, it remains unclear whether or not a cap-and-trade system could even work to reduce greenhouse gas emissions in time to avert catastrophic climate change. (For a great parody of the cap-and-trade system, visit the folks at Cheat Neutral).

A bleak picture indeed.

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