Five Percent: Conserve Energy

Climate Change Is Important: Energy Conservation is the First Step

June 27, 2009

Explain Cap and Trade (How ACES Will Work)

Category: Climate Change,Policy – Tom Harrison – 5:31 pm

Cap and trade seems incredibly complex, counter-intuitive, unfair, and misguided — if that’s your view, you have it about right, but the funny thing is, it will work — here’s why. The recent passage of the American Clean Energy Security act (ACES) in the House is a big milestone for cap and trade, but it will only pass the Senate if people understand what it is, and why it’s a good thing.

The first thing to know, is that the main part of cap and trade is the cap. The cap says: no more than a certain amount of CO2 can be released in a given year — major polluters are given a limit. Every year the cap gets tightened according to a predictable schedule. We are aiming for a target, and know what we have to do to get there.

The trade part is what makes things seem complicate and strange. So if I am an electricity utility executive, and I have a bunch of coal plants, I may find that I am releasing more CO2 than my limit. What makes trade cool is that if I don’t want to lay off my work force, I can decide to buy credits from another company — I can pay to pollute. Sure, it makes my costs go up, but now I have more incentive to clean up my act.

And no, it doesn’t mean we have more pollution, just more flexibility. My competitor, who had the foresight to start a wind, solar or conservation project a few years ago is the only one I can get the credits from. And if there’s anything that makes me madder than paying to pollute, it’s paying my competitor. In the first few years, all industries combined will release as much as is allowed by the cap. And that’s a lot, but overall, it’s less CO2 than before.

So, still being that electricity utility executive, I could stick my head in the sand. Or I could do what American business has done so well: I could respond to this new market. Suddenly those crackpot wind turbines start looking like a good deal, and it makes more sense for me to encourage households to conserve, or better yet, make their own power with solar panels. I am still in the business of delivering electricity to my customers, but the clean kind makes more sense now than the dirty kind. And next year, the cap is going to get tighter, so there will be fewer credits to buy, and they’ll cost a little more. Time to get with the program.

Now I’ll change hats. I am an executive at a clean energy producer. I get credits, too, but I don’t really need them, so I can sell them to the highest bidder. In 2009, my business was growing, but at a significant disadvantage compared to the established utilities — I had to invest a lot into research, development and new construction — all of this costs money, for the employees, products I need to install, and the labor needed to make it all work. I’m happy to be employing all those people, but it makes my challenge a bit easier when I am able to sell my credits to the existing companies.

And like any new technology, it becomes more efficient as it matures and scales up. New advances in technology make it possible for me to sell my clean energy cheaply, and there’s a lot of incentive for me to do so.

That’s the heart of cap and trade: a way of making CO2 more expensive that encourages businesses to take on the risk and additional cost (read: jobs) of developing and implementing new, clean technologies.

Cap and trade may increase the cost of electricity and other products a little. The current high estimate of the cost of the ACES bill is less than $1 a day for most Americans. But if it were $2 a day, would that really matter?

Now I’ll pretend that I am not sure about this whole thing, and it seems complicated and messy — why couldn’t we just tax the CO2 emitters? We could indeed, and it’s not just a bad idea. But nobody like taxes, and more important, it’s not that predictable, and if the regulators get it wrong, there’s a lot of room for cheating. In the end, the government has a simpler job in issuing and managing the permits than it does collecting taxes.

Now I’ll pretend that I am not so sure this climate change thing is something we caused, or something we can fix. I sure hate to be spending an extra dollar a day when it’s going to change so much. Ok, I’ll admit I have a hard time doing justice to this position, except to say: what if they’re right and the CO2 we’re emitting is the cause, and the fires, floods, droughts, storms and so on that we’re already suffering a little from become worse? And what if Europe, or Japan, or China gets a jump on us — won’t we find ourselves a fading country much like Britain found themselves after they ran out of wood?

The ACES bill is far from perfect. I would like to see it set tighter caps, and aim higher than it has. But this is a big change, and one that’s hard for people to get a handle on — at present, it’s hard to see how it’s the most important thing for us to be doing. But while our economy and health care issues are clear and evident problems, climate change is the far, far more important issue to begin solving.

If you’re not sure that this bill is right, please read all that you can to help understand it. Climate change is a serious problem indeed. Cap and trade is a good solution to help us move to a new system of energy that will not continue to cause climate change. Many industries will have to change, and most companies hate change, so will fight strong and hard against this bill. But it is our voices that will get heard.

Learn the facts, and put your support behind this bill. It’s our best chance to start solving this problem.

And call, fax, write, or meet your senator, local and state reps, skeptical family, friends and neighbors.


  1. Maureen —

    Thanks for your comment. I think it’s safe to say that any proponent of pretty much any (first pass) legislation to regulate carbon emissions would admit that there’s a significant chance that the regulation will not “work”.

    I have three comments on your points. I cannot argue over the freedom issue, as I suppose I have a rather different viewpoint. However, your comment “There is little incentive for energy producers since the cost will be passed on to consumers.” seems a contradiction in itself — indeed, the producers will pass on the costs to consumers, which is the expectation. Two things have happened: 1) the producer has paid for credits from a producer of renewable energy (whose costs go down), and 2) the producer passes along their increased costs of fossil fuel energy to you, the consumer.

    Wind and solar electricity, which are in many places about the same cost as coal or gas now become less expensive than coal or gas. This tends to magnify the incentives we have seen working already as new clean energy options come online. In the not-too-long run, economies of scale (and the cost of carbon) seal the deal — clean energy can be produced at scale, and quite likely at a lower (potentially far lower) price than fossil fuels, even at today’s very inexpensive prices.

    As for China and India, it seems likely (confirmed yesterday at the G-8 summit) that they are going to wait for the US to do something about climate before they do. While this is not the ideal outcome for the world, it is certainly “reasonable” — the US has availed itself of the benefits of nearly free energy for a century, and reaped many benefits, which only now China and India are beginning to gain. The US has been the main contributor to climate change, and even if China has caught up in overall emissions, their population is still five times ours — we (Americans) are, by any standard, profligate carbon emitters. Should we not lead the world, as we have in many other cases, in finding a solution?

    Finally, I encourage you to consider what many believe to be a major opportunity for the US — ours to take, or lose. Our size and power still gives us the opportunity to set the new standards for what will eventually be the new power sources of this new century. All change has cost, and even if the costs are higher than estimated, very few have made the point that massive increases in wealth could accrue to those who lead the new energy revolution. There is room for several winners, but the laggards will be losers.

    So if you don’t like seeing your freedoms disappear, consider what happens when China leads the world to a clean energy future (and yes, that’s the direction things are going now).

    We can get China and India on board by leading and demonstrating that we know how to solve problems and make things that look costly for us turn out to be major windfalls.

    Read some energy history to see how this worked in the past when old forms of energy were supplanted by new.

    Comment by Tom Harrison — July 10, 2009 @ 2:36 am

  2. I appreciate your comments Tom and you sound like you sincerely believe what you are saying. Yes, the whole idea is to make energy expensive so we’ll use less. I personally cannot use less energy and I don’t want the government coming in and telling me how much I can use or how I have to spend more to make my house efficient before I can sell. We are in a depressed economy and the timing is terrible.

    A plan that does not use nuclear energy will NOT work, ever. The Chinese and Indians are not going to follow our lead – the Chinese are stepping up their building of coal plants. We will destroy our standard of living for nothing. The goals are noteworthy. Who couldn’t agree with these goals? When they add nuclear power; when they get rid of the ballooning aspect of the tax; when they get rid of the massive increase in government agencies and workers; when they get rid of the special interests who have taken charge of this bill; maybe it will have a chance. Until then, it is just another controlling, massive tax on the middle class that we will never get rid of.

    I looked into a photovoltaic roof for myself – very expensive for very little gain. My town won’t let me put geothermal in and I can’t afford it anyway. No room for a windmill. No plan will work without nuclear, at least we need nuclear for business.

    I know my history quite well and I am a big supporter of new sources of energy, but taxing us to death becomes ripe for corruption. We’ll be paying off government inspectors, the crooks on Wall St. will be corrupting energy, and so on.

    A tax on the air we exhale – it’s wrong, just plain wrong.

    Comment by Maureen — July 10, 2009 @ 8:11 am

  3. It’s wrong to suggest that nuclear somehow represents a cost-effective silver bullet here. It’s certainly an option, but at scale, and in the long term, it faces significant technical hurdles and costs. I just read David Bodansky’s book Nuclear Energy, and wrote up some thoughts on it, if you’re interested.

    As far as the morality of the Breath Tax… the atmosphere has no sense of right or wrong. It’s just physics. And it’s not our personal exhalations that are the problem. They amount to only on the order of 100 kg of CO2 per year, compared to the 20,000 kg each American causes to be released through industry.

    Comment by Zane Selvans — July 10, 2009 @ 12:28 pm

  4. Thank you for the information Zane. I read it, but I don’t agree. There hasn’t been a nuclear accident in this country since 1979, no one died, and Chernobyl was a third world country’s incompetence. I don’t agree about the costs at all, but, full disclosure, my husband is a nuclear engineer. Our planet is very important but it is not necessary to destroy our standard of living to rush into something so we can be the lead nation when no one is following as the recent G-8 summit demonstrated. The climate bill is so botched by special interests, I find it to be a mess as I read it.

    Comment by Maureen — July 10, 2009 @ 7:34 pm

  5. Regarding the threat to our standard of living, I would suggest reading “Energy at the Crossroads” by Vaclav Smil. It has a lot of interesting information about how energy use correlates with various measures of standard of living: per-capita GDP, literacy rates, life expectancy, etc. For all of them, there are examples of nations in which people are living high quality lives and using much less energy than we are, and in general, quality of life does not continue increasing on average beyond a certainly amount of energy use. I suspect that the two are not as tightly linked as you think.

    For some examples of ways in which we could be using a lot less energy, without decreasing our standards of living, I suggest watching Amory Lovins’ lecture series at Stanford from last year. You can also download the talks from iTunes (just search the iTunes store for advanced energy efficiency stanford amory lovins)

    Comment by Zane Selvans — July 10, 2009 @ 8:29 pm

  6. […] The Repower America campaign (”We Campaign”) has put up a toll free number that you can call to leave a voice message supporting climate change legislation that will be heard by your Senators: call 1-877-973-7693 (1-877-9REPOWER). Punch in your zip code and leave a voice mail message supporting comprehensive climate change legislation. […]

    Pingback by A Simple Call You Can Make To Support Climate Change Legislation | Five Percent: Conserve a Little Energy — August 20, 2009 @ 7:58 pm

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