Is U.S. climate policy better off without cap-and-trade?

October 25, 2012

When negotiations over a cap-and-trade bill in the Senate collapsed back in April 2010, environmentalists despaired. The legislation to reduce U.S. carbon emissions, wrote Ryan Lizza, "perhaps the last best chance to deal with global warming in the Obama era, was officially dead."


Down, but not out. (Associated Press)

But a surprising thing happened next. Even though cap-and-trade died, U.S. carbon emissions kept dropping. Since 2006, the United States has cut its carbon-dioxide emissions by 7.7 percent — comparable to what Europe is achieving under its cap-and-trade system. What's more, a new analysis from Resources for the Future (RFF) suggests that the United States is on pace to cut greenhouse-gas emissions even more deeply by 2020 than would have been the case if Congress' climate bill had passed into law.

So does that mean environmentalists were wrong to despair? Is U.S. climate policy better off without cap-and-trade? Not so fast. In the short term, yes, the United States has found ways to slash emissions without a comprehensive climate bill from Congress. But it's harder to see how those cuts will continue over the long run.

First, let's take a look at the RFF paper, written by Dallas Burtraw and Matt Woeman. The analysis notes that President Obama pledged to cut emissions 17 percent below 2005 levels by 2020 at the Copenhagen climate talks. Surprisingly enough, RFF estimates, we're now on track to meet those goals, cutting emissions 16.3 percent by 2020. "Perhaps even more surprising," the authors note, "domestic emissions are probably less than would have occurred if the Waxman-Markey cap-and-trade proposal had become law."

How can that be? The paper projects that U.S. emissions will drop in the next eight years for a variety of reasons. Cheap natural gas will keep pushing out dirtier coal in our power supply. The U.S. economy will become more energy-efficient. At least 29 states have passed laws requiring their electric utilities to use more renewable energy. California is setting up its own cap-and-trade system — and nine states in the Northeast have a modest cap for power plants. Finally, the Environmental Protection Agency (EPA) has cranked up fuel-economy standards for cars and light trucks and set strict carbon standards for new coal plants. All of that stuff will add up.

If Congress had passed a climate bill in 2010, by contrast, that would have undermined some of these initiatives. The climate bill would have stripped EPA of its authority to regulate carbon under the Clean Air Act. The bill would have preempted California's ambitious cap-and-trade program. What's more, under Congress' program, many companies could have bought cheaper "carbon offsets" — which have come in for criticism — rather than making immediate cuts. 

All told, the RFF authors calculate, the United States would have cut emissions just 13.6 percent by 2020 if Congress had passed cap-and-trade. That's less than what's expected to happen on our current trajectory. (U.S. companies would have also bought offsets worth about 15.8 percent of emissions, mostly funding projects overseas.)

So does this mean U.S. climate policy is better off without cap-and-trade? Not necessarily. A few points:

1) As Michael Levi points out, the RFF paper assumes that a congressional climate bill would have negated Obama's fuel-economy standards, which will require new cars and light trucks to average 54.5 miles per gallon by 2025. But the fuel standards might have survived anyway — they can be justified on non-carbon grounds if they save consumers money.

2) Levi also notes (you should really read his whole post) that the RFF analysis assumes the Obama administration will continue to use its EPA authority to drive down carbon emissions from existing power plants, refineries, steel mills, and so forth. Obama's campaign surrogates have predicted much the same thing. But this is hardly assured. Obama could well lose the election, after all. And Republicans have vowed to halt the EPA's crackdown on carbon.

3) Burtraw adds some additional context in a follow-up post at RFF. "Focusing on 2020 can be misleading," he points out. The cuts that the United States makes in the next eight years are just a tiny part of the climate story. Developed nations have pledged to cut their emissions a whopping 80 percent by 2050, in the hopes of limiting global temperature rise to no more than 2°C. Those sorts of steep cuts, Burtraw argues, will require a price on carbon pollution to achieve. Natural gas and a smattering of state policies won't cut it.

So the short version is: The United States is on pace to meet its short-term 2020 emissions goals — even without a big cap-and-trade bill. That's noteworthy. But without a hard cap on emissions, those cuts aren't assured. (Natural gas could become expensive, for example, which would allow coal to stage a comeback.) What's more, it's hard to envision how the United States will ever get the truly big cuts necessary to stave off drastic climate change unless Congress puts a price on carbon.

Related: What we can learn from Europe's cap-and-trade program

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