The 10 Dominoes Toppling Lieberman-Warner

Some days the facts just line up like so many dominoes, and you just have to let 'em fall. Even if it means bidding adieu to the sacred cow of climate action called Lieberman-Warner, the cap-and-trade law upon which so many ardent hopes of progress are still riding.

The bill, crafted and negotiated inside the Beltway bubble, has become the wrong bill at the wrong time for solving climate. At least it is today, when you line up the evidence like so many dominoes.

Domino #1 - Justice

I give California's Environmental Justice Movement credit for starting this particular chain of tiles to fall. They released a strong declaration that resolves this:

The California Environmental Justice Movement stands with communities around the world in opposition to carbon trading and offset use and the continued over reliance on fossil fuels.....

I found the 21 "whereas" clauses of their declaration compelling and persuasive. Here are a few particularly good ones:

11. Whereas, Phase 1 of the EU-ETS has been documented as giving billions of dollars....free of charge, to the biggest corporate emitters of greenhouse gases who are responsible for causing the global warming crisis and thereby created one of the largest transfers of wealth from low- and middle-income people to private corporations in the modern industrial era; and.....

15. Whereas, the EU-ETS and CDM fail to address and further deepen entrenched social inequalities, irresponsible development trends, inadequate hazard reduction policies, and are silent on confronting disaster vulnerability of populations worldwide; and

16. Whereas, carbon trading is undemocratic because it allows entrenched polluters, market designers, and commodity traders to determine whether and where to reduce greenhouse gases and co-pollutant emissions without allowing impacted communities or governments to participate in those decisions; and

17. Whereas, the political power of the major global polluters has resulted in carbon trading schemes that include inadequate reporting systems, are impossible for the public and regulatory agencies to monitor, allow gaming of the system by market participants, and lack meaningful penalties for failure to comply;.....

Awfully hard to disagree, even if the Environmental Justice Movement was so imprudent as to reference the American Enterprise Institute in its Fact Sheet on the Cap and Trade Charade for Climate Change.

This phrase, for example, from "Whereas" clause #17 above: cap and trade allows "gaming of the system by market participants." Proof came in news stories on the same day, as if on cue. Let's have a look.

Domino #2 - Worthless Credits

It came first in the form of this article from the Financial Times which said many carbon credits being traded in the EU market are "environmentally worthless."

The government issued draft guidelines more than a year ago, but their official publication was delayed until Tuesday after the FT revealed companies were profiting from selling carbon credits which were environmentally worthless.

But wait, there's more.

Domino #3 - Safety Valve

The attempted gaming of the system continues apace on this of the Atlantic, too. Greenwire reported on backroom talks on Capitol Hill to insert a "safety valve" provision into the Lieberman-Warner bill. The saftey valve would be triggered if the price of carbon rose above a predetermined amount. In essence, it would stop the cap from really working.

Greenwire reports that environmental groups have been united in their opposition to the safety valve concept since it first surfaced more than a decade ago (!) during the Clinton administration. In addition, even Environmental Defense, a strong supporter of the L-W bill as it stands, is on record saying a safety valve provision would be a dealbreaker. But you never know.

Some longtime climate policy observers predict the negotiations over a cost provision may still yield agreement. "I've had the sense in informal conversations that when it comes to a deal, if there's really a deal on the table, they could live with that," Richard Morgenstern, a senior fellow at Resources for the Future, said of environmental groups.

Morgenstern, who worked at U.S. EPA and the State Department during the Clinton administration, added, "They don't want to offer it up too soon."

And you wonder why the Energy Justice community is leery of the system being gamed by market participants. They've been left out in the cold too many times.

Sorry to say, that's not all the evidence, either. There are powerful structural forces at work keeping the rules of the game the same as they ever were.

Domino #4 - Nihilism of Existing Law

Corporations are the primary polluters and the primary carbon market participants, and we would be naive to assume that their actions will be primarily dictated by any other motive than the profit motive. They will do everything in their power to game the system -- even break the law -- if it serves the corporate interest more than harms it. This is not a cynical comment or a moral condemnation but an accurate description of observable behavior, encouraged by the existing body of law.

Professor Daniel Greenwood of Hofstra University's College of Law explains in this paper what corporations must do for shareholders.

The shareholders of corporate law are entirely imaginary creatures who have one interest alone: the maximization of returns from holding shares of a single corporation. The law models shareholders as if they were aliens, with no interest in the society in which the corporation functions; as if they were undiversified, with no investments in competing companies; as if they were shareholders alone, with no interests as employees, consumers, suppliers, neighbors, citizens or human beings; and as if they were nihilists, with no values or morality to counter-balance their desire for profit.

Moreover the reality of the stockmarket means that these fictional shareholders influence the corporation as if they were eternal and rootless, with no commitments to any particular time, place, product or process. Obviously, no human being shares these interests or values.

Which explains why corporations can justify doing things that no individual can. Professor Greenwood also explains in this paper why existing corporate law literally encourages managers to put profit-making ahead of complying with the law.

So, from both the vantage point of legal scholarship and the perspective of the most vulnerable populations, relying on cap and trade -- first and foremost -- to solve climate looks like an awfully bad idea.

Domino #5 - Feeding at the Trough

If the primary actors are out to game the system, it stands to reason that they'd construct a system that could be easily gamed. And with Lieberman-Warner, they have.

The bill creates a new form of currency called carbon credits. This new money will be worth hundreds of billions of dollars each year. Once the lobbyists on K Street figured that out, they went to work for their clients, and they've arranged for 40% of this king's ransom to be handed out to corporate polluters for free.

Pass Go, collect your carbon credits. Milton Bradley would be proud -- life imitating a board game.

A number of national environmental organizations have found ways to come to terms with this state of affairs and rationalize a compromise. The Environmental Justice Movement, has not.

Domino #6 - Hope for Change

But the Obama wagon is rolling. And candidate Obama is talking about 100% auction of carbon credits, repeatedly. In other words, no free handouts to polluters on his watch. If he gets a watch; and L-W hasn't become the law of the land.

Worth betting on? Now that McCain has scored zero on LCV's 2007 National Enviornmental Scorecard?

Domino #7 - A Better Way

But if not Lieberman-Warner, what? A look all around the country outside Washington DC reveals a wealth of proven options about which lawmakers in the Capitol have no clue. The vanguard of climate action over the last 8 years has found refuge in states and cities, and they are just starting to make themselves heard in the nation's capital.

One of the best summaries to emerge is in the current issue of Natural Resources and Environment, a publication of the American Bar Association. It's an article called Federal Climate Legislation as If the States Matter (sub req'd). Read it and you'll see that they do, far more than L-W comprehends.

We cannot hope to successfully address climate change without fully engaging states and their local governments as partners in the national effort......One would think that the climate change bills introduced in Congress in 2007 would assign an important role to the states. One would be wrong.

This, despite the fact that

the majority of states have now implemented comprehensive planning processes involving stakeholders from all sectors of the economy to identify a portfolio of measures and policies for achieving significant emissions reductions.

And all that, without recourse to cap-and-trade. The authors offer detailed and specific suggestions -- suitable for hardcore policy wonks -- that create a nuanced framework for forward movement. It becomes clear that L-W needs much, much more work before it -- or successor legislation -- is ready for prime time.

Domino #8 - A Better Way, McKinsey-style

The white shoe consulting firm with great influence in corridors of power -- McKinsey & Co. -- has weighed in with its own analyses of global warming solutions. Two in particular stand out. Both are silent on cap and trade.

Last December, Mckinsey -- in partnership with the Conference Board -- released a report called Reducing Greenhouse Gas Emissions: How Much at What Cost? (pdf)

The answer? About a 40% reduction in total greenhouse gas emissions by 2030 at essentially no cost, or negative cost.

How? By "using tested approaches and high-potential emerging technologies."

Achieving these reductions at the lowest cost to the economy, however, will require strong, coordinated, economy-wide action that begins in the near future.

Not exactly something Congress appears well-equipped to do on its own. But with a supportive executive branch? And in partnership with states and cities? Perhaps. But neither are part of L-W in 2008.

Domino #9 - A Better Way, McKinsey Two

McKinsey made its case for this approach just last week in a report called The Case for Investing in Energy Productivity.

For a global investment of $170 billion a year for the next 13 years -- or less than 1/2 percent of global GDP -- global energy demand and greenhouse gas emissions can be cut in half by 2020.

That's not all. The investments would yield a 17 percent rate of return and collectively generate energy savings that by 2020 would be worth $900 billion annually.

And that's still not all. The investments would increase energy productivity -- the level of output achieved per unit of energy consumed. As a result, hundreds of millions of dollars that would have been invested in new energy infrastructure projects could be put to better uses.

The list of things Congress hasn't thought of or included in L-W keeps getting longer and more and more important to consider.

Domino #10 - Wallace and Gromit

Those claymation heroes who starred in a short called The Wrong Trousers have inspired a climate policy paper of the same name, with the following appended subtitle: Radically Rethinking Climate Policy (pdf). Published in Nature last October, it argues that, like the mechanized trousers of Wallace which run amok, the Kyoto protocol has led to unintended consequences and needs to be replaced.

What's relevant here is what the authors -- Prins and Rayner -- recommend in place of Wallace and Gromit. They have suggestions for tailoring The Right Trousers for the climate problem. Instead of a silver bullet cap and trade regime, they recommend silver buckshot:

The flexibility of our silver buckshot approach, emphasizing technology investment and adaptation, would allow early policy interventions to serve as a series of policy experiments, from which lessons could be drawn about what works, when and where.

Cooperation, competition, and control could all be brought to bear on the problem as appropriate. A particular advantage of this approach is that it allows for switching strategy. Policy actors (not just governments) would have the ability to abandon courses of action that are not working, and transfer their efforts to those that might, by responding to price signals in genuine markets....

There's a lot of evidence mounting that a ground-up approach to climate action is needed as much as a top down approach. Have a look around. There's bound to be many more rounds of dominoes before this game is over.

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