Free Market Environmentalism
“No challenge poses a greater threat to future generations than climate change,” President Obama stated during his State of the Union address. It would be easy to dismiss the President’s words as banal and empty platitudes were it not for the landmark agreement he made in November with President Xi Jinping of China, which stipulated that both countries would commit to radically reducing fossil fuel emissions. A classic conservative argument for forestalling action against climate change says that domestic sacrifices are in vain because of the large percentage of carbon emissions that come from China. The November deal was evidence that President Jinping is ready and willing to tackle climate change in partnership with the United States.
Climate change is a remarkably difficult problem to solve. Its scope is wide, its impact uncertain, its deniers plentiful, and its cost devastating. The number of adjustments that must be implemented across the globe to successfully address the problem make it a daunting and politically fraught issue in even the world’s strongest economies. It is difficult to ensure commitments to carbon abatement because every country is wary of being played the fool, cutting its emissions only to find other countries taking advantage of the market vacuum. Over the past few years, cap and trade has gone from the policy of choice for seriously addressing climate change to a pariah term referred to as Cap and Tax.
Cap and trade is an emission-trading program that attempts to manage pollution and greenhouse gas emissions by creating a system of market-based incentives. A maximum limit or cap is set on the total amount of carbon to be released during a set period, and that amount is divided and allocated in the form of carbon credits or permits. These permits are distributed by a central government authority and are then eligible to be sold or traded on a secondary market. Corporations are required to obtain permits equal to the amount of carbon that they pollute, and market forces set the price of pollution permits at the efficient level for production. The scheme attempts to internalize the costs of environment externalities and gives corporations an incentive to decrease their carbon output, effectively working with human nature instead of against it.
The European Union Emission Trading System was launched in 2005 and is the largest greenhouse gas permit trading scheme in the world today. It has had mixed levels of success and has been tainted by corruption and the influence of business interests. Initially, policymakers released too many permits and so it was easy for companies to reduce emission levels to the required rates without major abatement or structural change. It is understandably difficult for legislators to know what will be the proper levels of abatement, and governments tend to overestimate the economic cost and legislative difficulties of implementing abatement programs. Emission trading has been employed successfully in the United States in California, where the program raised over $1.4 billion in the first year of its implementation. The Acid Rain Program of the 1990 Clean Air Act was essentially a cap and trade scheme for SO2 pollution, which causes acid rain. The program was extremely successful and by 2007 managed to cut SO2 emissions by 50% from their 1980 levels.
Environmental activists have been criticized for being too timid in their approach to a problem the size of climate change. Climate activist Larry Lohman argued in the New Scientist magazine that “nothing less than a reorganization of society and technology that will leave most remaining fossil fuels safely underground” can protect against the devastating impacts of climate change. The documentary film “The Story of Cap and Trade” argues that cap and trade systems give unfair advantages to firms that received free credits, create opportunities to cheat through the introduction of carbon offset credits, and stifle other innovative efforts to tackle climate change. Conservatives also dismiss cap and trade as simply another way to tax corporations and lower profits, referring to the scheme as Cap and Tax—an easy way to dismiss a useful program without addressing its actual qualities.
Nonetheless, there is still hope for global agreements to address climate change. This past December, officials representing over 200 nations met in Lima, Peru and committed to reducing fossil fuel emissions. This marked the first time that such a large number of both developed and developing nations met and agreed to cut back on emissions in concert. However, the negotiations at Lima did not produce a real treaty; nations are encouraged and “peer pressured” to uphold their commitments to reduction, but the Lima Accord is legally non-binding. The Accord is fairly representative of current climate activism around the world: inspirational, ambitious, important, and, ultimately, insufficient to tackle the enormous challenge of climate change.