Air Date: Week of April 9, 2010

The Obama administration recently made two decisions to reduce our dependence on foreign oil - expanding offshore oil drilling and tightening the fuel efficiency standards of cars. But taking action on climate change by capping our greenhouse gas emissions is still a big political challenge. Economist Robert Stavins talks with host Jeff Young about the administration's energy goals and about two bills in Congress that promise to slow climate change without slowing the economy.

Transcript

YOUNG: Those Senate negotiations are also being shaped by dramatic announcements by president Obama. In just two days, he took two steps that could transform the energy landscape. Opening up parts of the U.S. coast to offshore drilling and setting strict, new emissions standards on vehicles.

Robert Stavins is with us now for some analysis of how the energy and climate proposals might all fit together. He’s an environmental economist with Harvard University’s John F. Kennedy School of Government. And professor Stavins, let’s start with your assessment of the ideas we just heard from Senator Cantwell.

STAVINS: So a cap and dividend approach is actually a cap and trade approach by a different name. It is a cap and trade mechanism which uses a specific allocation of the allowances that is 100 percent auction, and then uses a specific use of the revenue, which is 75 percent of that revenue going directly back to households in the form not just of checks once a year, but from a political perspective—quite cleverly—every month, presumably with your congressman’s and senator’s return address and name on the envelope.

[YOUNG LAUGHS]

STAVINS: That is the essence of it; it is what I would call a populist approach. And it appeals to what is fundamentally we’re seeing now—a resurgence of populism in the United States, I think, from both the left and the right. It appeals to the populism from the left because it’s 100 percent auction, so we’re going to hurt those bad corporations; it appeals to the populism of the right because it looks like a tax cut, we’re going to send everybody a check in the mail.

YOUNG: Do you think that that broad appeal—if people look at that and say, ‘Wait a minute, you’re going to put money in my pocket, hey, I’m on board.’ Would that provide the political momentum to overcome the strong entrenched interest that the proponents of action on climate change have to deal with to overcome big oil, big coal, etc.?

STAVINS: Well, it would be difficult because it makes—as soon as it’s 100 percent auctioned that means that companies are paying not only their compliance costs, they’re paying for the right to emit. That’s what they’re buying those allowances for.

So it definitely increases the cost to the regulated sectors, so that’s why the question is, Is that populist politics ultimately more successful at establishing a constituency for action than the conventional, regional and sectoral politics of the cap and trade system used in the House of Representatives? I don’t know what the answer to that is. If it turns out the politics of this approach is better then I would be an enthusiast of this legislation if they just fixed one or two things.

YOUNG: So, what are the problems you see with Senator Cantwell’s approach?

STAVINS: So, the problem with this approach is that it is essentially cap and trade without the trade. Now there is some trade involved, but it is highly restricted. I think that the reason that they’ve done that was because they’re very concerned about the use of markets. As a result of the recession, the continuing high rates of unemployment, and the fact that the recession was at least partially due to some market manipulation.

Now, observing those problems with markets and then saying we’re not going to allow markets is in my opinion roughly equivalent to the head of the Federal Aviation Administration observing a plane crash and therefore banning flying.

YOUNG: Let’s talk a bit about senators Kerry, Graham and Lieberman working on some sort of bipartisan, you might call it tri-partisan, bill. Does the president’s action on offshore drilling help those senators get closer to crafting a compromise?

STAVINS: Well, this is an interesting question. I mean frankly it confuses me somewhat. Those three senators are trying very hard to put together a bipartisan piece of legislation; they’re including within it some very meaningful movements on CO2 emissions reductions through cap and trade and other mechanisms on various sectors.

And one of the ways they’re building political support is also to put in attention to nuclear power and to offshore, and for that matter onshore, oil exploration and development. This has the appearance, anyway, of the president having stepped outside of that process, the White House, and having announced what was one of the bargaining chips sort of already giving it away as opposed to holding it back. So it does surprise me.

YOUNG: Several of the people involved in this process keep saying, cap and trade is dead. Senator Graham of South Carolina says, ‘Cap and trade is dead!’ And yet, the proposal they’re working on, what little we know of it so far, looks a lot to me like cap and trade. Is cap and trade dead, or has it just assumed another form here?

STAVINS: I don’t think it’s dead at all. I think it’s been a very successful policy several times in U.S. history that’s how we phased the leaded gasoline out of the market faster than anyone thought and saved about 250 million dollars per year, a lot of it passed onto consumers in terms of lower gasoline prices. It’s also how we’ve cut sulfur dioxide emissions as a precursor of acid rain.

And ironically, the U.S. having been the party that got the cap and trade provision into the Kyoto Protocol, now we’ve backed off, at least politically it seems to some degree in the U.S., the European Union’s gone ahead, Australia’s using this approach, New Zealand is, Japan—where I was just a week and a half ago—has reversed themselves, they’re going forward with cap and trade. So all of them are turning behind and looking and saying, ‘Wait, you were leading us, United States, where are you now?’

YOUNG: Professor, thanks very much.

STAVINS: My pleasure.

YOUNG: Harvard environmental economist Robert Stavins. There’s much more about the emerging energy and climate bills at our website, l-o-e dot org.

 

Links

For more on environmental policies, check out Robert Stavins’ blog.

For more on the CLEAR Act click here.

Check out the World Resources Institute's analysis of Senator Cantwell's bill.