Researchers Warn Carbon Cap Attacks May Harm Other Air Trading Efforts

Researchers Warn Carbon Cap Attacks May Harm Other Air Trading Efforts

University researchers are warning that political attacks in 2010 on ultimately unsuccessful legislation to create a carbon dioxide cap-and-trade program could doom other market-based programs for conventional non-carbon pollutants, despite the past successes of such programs including the agency's first trading program to reduce acid rain.
 
“That's our concern, that as a result of people being opposed to climate policy” instead of debating the policy they “chose to demonize the policy mechanism, namely cap-and-trade, which is just a means to an end,” Harvard professor Robert Stavins said in an Oct. 2 interview with Inside EPA. Stavins and Massachusetts Institute of Technology professor Richard Schmalensee recently published a report assessing the history of EPA's acid rain program.
 
The report assesses the “ironic history” of EPA's renown market-based trading program for sulfur dioxide (SO2) to limit acid rain, which was not designed to protect public health but led to massive health benefits. The paper, “The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment,” will soon be published in a peer-reviewed journal.
 
The four “ironies” of the program are that it focused on reducing acid deposition in lakes and forests , and did not anticipate the dramatic health improvements that have been the primary benefit; the cost-effectiveness of the program was due to the unrelated concurrent railroad deregulation allowing lower-emitting Western coal to be brought to Eastern power plants; that cap-and-trade, originally championed by Republicans, has since been “demonized by conservative politicians in recent years;” and that court decisions and regulatory responses have led to the collapse of the SO2 market despite the trading program's overall success in cutting SO2.
 
In the interview, Stavins said the despite the acid rain program's success, attacks on carbon trading might discourage EPA or other regulators from pursuing new trading programs for non-global warming pollutants. Stavins said carbon trading critics -- who fought the reelection of lawmakers who voted for the carbon trading bill -- have so “successfully demonized the means that they have tarnished it, and tarnish does not come off easily.”
 
Emissions caps and trading programs are “a sensible policy instrument, and an ideal instrument for climate change but it may not be available,” Stavins said. He also warned “that conservatives themselves who, after all, want business-friendly kind of regulations, may particularly regret that” if their attacks are used to attack a future trading program they may support.
 
Schmalensee said in a Sept. 28 interview that researchers “are in fact quite upset” that cap-and-trade may be dead as a policy mechanism. He noted that whenever a market-based program is again proposed, it will not be called cap-and-trade. “We will call it emissions trading or economic incentives but not use the term 'cap-and-trade.'”
 
Both researchers said it is difficult to imagine that defeat of cap-and-trade as a climate policy will help proponents of a carbon tax. “The dynamic is a little weird,” Schmalensee said, noting the “kill shot was” use of the term “cap-and tax. And this is just plain tax, so I find it hard to see how it helps the carbon tax conceptually.”
 
Stavins agreed, noting, “My fear, however, is if it was possible to successfully defeat cap-and-trade by calling it cap-and-tax, surely it is a lot easier to characterize a tax as a tax. What happened to cap-and-trade does by no means indicate that a carbon tax would receive a more positive political reception from those opposed to climate policy.”
 
However, Stavins added that, “Within the academic community there are people who prefer a tax over cap-and-trade, so they certainly are more vocal now and I don't object to that.”
 
Stavins said the two researchers decided to write the paper after participating in events marking the 20th anniversary of the 1990 Clean Air Act amendments, which both had a role in drafting.
 
Human Health Benefits
 
He notes other aspects of the paper -- including that health benefits from the SO2 program were not a major driver for developing it -- are not widely known. Schmalensee added, “The big benefit is human health, but that was not a factor when” the amendments were adopted that created the acid rain program.
 
Additionally, the fact that federal appeals court decisions have led to the collapse of the SO2 market by rejecting EPA trading programs is another irony, according to the paper. This is particularly true because the lawsuit that vacated the agency's original trading program, the Clean Air Interstate Rule (CAIR), never intended to do so, and with the later rejection of the Cross State Air Pollution Rule (CSAPR), the unlawful CAIR remains in effect.
 
Whether the defeat of carbon cap-and-trade will hamper EPA's response to the CSAPR vacatur is possible, according to Schmalensee. “We will have to wait until we see something. . . . I don't know how powerful that gun will be, we will have to wait until someone pulls the trigger,”  he said.
 
Meanwhile an EPA source familiar with the paper says the agency acknowledges that any “effort at analysis has limitations” in its ability to project benefits or impacts but, “as the paper points out, the history of the acid rain program and other pollution control efforts has been successful and the track record is that they have surpassed their original benefits projections.” -- Dawn Reeves