By Wayne Lusvardi
Cap and trade is dead everywhere except California and Mars
Perhaps you’ve seen the cartoon where a fictional NASA Mars Rover craft has landed on the planet Mars and a robot arm extends a digitized message on paper to two Martian aliens. One Martian reads the message to the other: “It says since our atmosphere is 95% CO2 we have to buy carbon credits.”
Soon California, with only 0.0387% atmospheric CO2, and Mars may be the only places you can sell a carbon credit because the Chicago Climate Exchange (CCX) has finally shut down for lack of business, leaving California and its Western Climate Initiative as the only cap and trade exchange remaining. And there may be a crackup coming to the Western Climate Initiative formed in 2007, as there are now Republican governors in New Mexico, Arizona, and Utah.
While environmentalists were encouraged by California’s rejection of the roll back of green power by voting down Prop 23 on November 2, the closing of the Chicago Climate Exchange may not bode well for the future of Cap and Trade. At its peak the Chicago Exchange was trading carbon permits amounting to 10 million tons of pollution at up to $7.40 per ton in 2008. Prices dropped to $1 per ton in 2009 and the Exchange has been dormant for months. The Midwest exchange once had 450 members including Ford, DuPont, Motorola, Honeywell, International Paper as well as cities and universities.
Cap and trade is a both a Federal and regional environmental policy that allows an industry to reduce emissions and sell a credit to another polluter who can continue polluting. Under different versions of cap and trade the price of the pollution credit can go to the company that reduces pollution or to government. When payment goes to the company that reduces pollution cap and trade is a market; when it goes to government it is a tax. Of course, government tacks on transaction costs or fees to regulate the market. However, states like California may be able to use cap and trade to capture back some of the revenue they pay for imported energy from polluting power plants in remote, rural Utah or New Mexico. Out-of-state pollution, not California pollution, may be curtailed but electrons and permit charges may flow to California. Cap and trade may create California into a green planet in more ways than one.
At the federal level, cap and trade was part of The American Clean Energy and Security Act of 2009, authored by California Congressman Henry Waxman, also known as the Waxman-Markey bill that died in the U.S. Senate. Oddly, California’s cap and trade model is copied from Enron, the first full-fledged green energy company. Cap and trade has been criticized as just a last gasp attempt to extend the U.S. bubble machine economy to green energy. California, like Mars, has a volcanic geology with subsurface magmatic gas bubbles that can rise to the planet’s surface at any time.
But it wasn’t Republicans who killed the Midwest’s cap and trade market but Democrats from coal and industrial states under the Democrat-controlled Congress. The U.S. House of Representatives narrowly passed a cap and trade bill in June 2009, but it died in the U.S. Senate for lack of 60 votes needed for passage. It was Democrats from the smoke stack states in the U.S. heartland that pulled the plug on the Midwest’s cap and trade exchange. The Exchange was left open, however, until after the midterm Congressional election.
All eyes now turn to California along with its Santa Rosa-based carbon “seminary,” The Post Carbon Institute, and the California Air Resources Control Board’s (CARB’s) cap and trade program authorized under the state’s Green Power Law (AB 32).
California took the lead in 2007 in forming what is called the Western Climate Initiative along with Arizona, New Mexico, Oregon, and Washington. In 2007 Democrats Janet Napolitano and Bill Richardson were governors of Arizona and New Mexico respectively. Oregon and Washington also had Democratic governors. Utah and Montana (both Republican states) later joined the WCI as well as the Canadian provinces of British Columbia, Manitoba, Ontario and Quebec. The Canadian Province of Alberta, one of the largest producers of oil and gas in the world with the greatest refinery capacity in Canada, was conspicuously absent from membership in the WCI.
Quoted in the Nov. 3 issue of the National Geographic online, Emilie Mazzacurati, head of North American research for Point Carbon, a Reuters company that follows the development of carbon markets, in a statement bound to be criticized as self-serving, said the importance of Prop 23 being defeated in California “cannot be overstated.” She indicates that it is the market size, dependence on energy imports, and voter affirmation of green power in California that will encourage other jurisdictions to remain in the Western Climate Initiative. Tony Massaro, political affairs representative for the California League of Conservation Voters said: “Prop 23 was the only place in the country where the words ‘global warming’ were actually, literally, on the ballot.” Of course, global warming was not on the ballot on Mars either, where the atmosphere is 95% CO2 and the average temperature is minus 9.4 degrees Fahrenheit (Mars. 15th Edition. Chicago: Encyclopaedia Britannica, Copyright, 1997).
But there are signs of a possible crack up in the Western Climate Initiative. New governor of Utah Gary Herbert is a “global warming denier,” who replaced Jon Huntsman, a moderate Republican who embraced cap and trade, but who departed in 2009 to serve as Ambassador to China. The Utah state House passed a resolution calling global warming a “conspiracy” while demanding that the governor pull out of the Western Climate Initiative.
Although Arizona governor Jan Brewer is not a global warming denier she has advocated pulling out of the WCI other than as an observer.
New Governor of New Mexico Susana Martinez, a Sarah Palin endorsed Republican, strongly opposes the Western Climate Initiative saying it is nothing but a new energy tax.
California’s recently passed Prop 26, which puts a “cap” on any “raid” (cap on raid) of regulatory fees, does not apply to the state’s cap and trade law because it only affects fees imposed after January 1, 2010. California’s Global Warming Solutions Act was enacted in 2006.
California may be headed into another “perfect energy storm” with plans to roll out its cap and trade program in 2012 as the price of natural gas is falling due to new oil and gas extraction technologies of slant drilling and “fracking.” Californians can’t say oil companies, which supported Prop 23 to halt green power in California, didn’t warn them about the risks of rolling out cap and trade in a market of falling energy prices.
The petroleum industry backed Prop 23 may have been defeated at the California polls, but Cap and Trade is now effectively dead in the Midwest. California would probably have to colonize Mars first before it could replace some of the states likely to bolt from its Western Climate Initiative’s cap and trade program (Utah, New Mexico, Arizona). Unlike Mars and the Midwest, California is definitely not a red planet.