By Steven Mufson
Sunday, April 20, 2008
How much are we willing to spend to save the planet? And just how much does saving a planet cost these days, anyway?
Those will be two of the hottest questions in politics as Earth Day is marked this week. They will persist over the coming year as Congress attempts to craft legislation to slow global warming by reducing U.S. emissions of greenhouse gases. But these two big questions have also driven the environmental movement to try its most delicate balancing act: pushing for legislation that slaps a price on greenhouse gases that's high enough to change corporate and individual behavior, while at the same time arguing that the costs of such a law wouldn't cause too much economic pain.
Listen to John Engler, former Michigan governor and president of the National Association of Manufacturers, and you'll hear that the price of the leading legislation -- cosponsored by Sens. John Warner (R-Va.) and Joseph I. Lieberman (I-Conn.) -- will be far too steep. "It would be like every month having a press conference announcing that you were closing another 1,000-person plant," Engler says. "I think you end up with a lose-lose proposition for the American worker and the environment."
Then listen to Nathaniel Keohane and Peter Goldmark of the Environmental Defense Fund (EDF), and you'll hear that the cost to the economy would be barely noticeable. After looking at scenarios done by five respected economic-modeling groups in government and academia, the EDF pair note that the median projected impact on annual growth of slowing greenhouse gas emissions is three-hundredths of a percentage point. Instead of reaching a GDP of about $23 trillion in January 2030 without greenhouse gas limits, Keohane and Goldmark say, the United States would get there in April of the same year if it took the greener path.
But look beyond this sharp, albeit predictable, divide between industrialists and environmentalists. The question of cost isn't simply a matter of money but also one of metaphor. Is slowing climate change a vital matter requiring shared sacrifice, along the lines of the everybody-pitch-in ethos of World War II? Or is it more like the Apollo space program, a noble national project in which ordinary citizens were basically spectators? Is the fight against global warming a question of setting limits or expanding horizons?
One set of answers demands that we all pull together to do our bit; the other requires little involvement from most citizens. One metaphor calls for Washington to set up a framework of limits and incentives like those in the Lieberman-Warner bill; the other favors major government spending on research and development. So who's right? The answer will help determine how green a world the United States is willing to pay for.
Let's start by thinking about the cost of doing nothing.
Former vice president Al Gore admits that policies limiting greenhouse gases would have a serious price tag. "This is one of the most difficult things we've ever done," he says. But "there will be a much larger cost if we do not deal with it."
That's what the World Bank's former chief economist, Nicholas Stern, said in a 2006 British government report that jump-started the debate over the costs of slowing global warming. Stern called climate change "the greatest market failure the world has ever seen," warning that it could shear 5 percent off world GDP and perhaps much more.
Future costs could include more severe hurricanes and flooding -- from New Orleans to Florida, from the Netherlands to Bangladesh. That worries corporate and financial elites who might quibble with some of Stern's methods for arriving at his estimates, but not his underlying point. Paul Volcker, a former chairman of the Federal Reserve, calls the costs of addressing climate change "manageable" -- unlike the costs of inactivity. "If we don't do anything," he adds, "I think there will be very likely great costs."
That brings us to the price of action. The main bill on the legislative table is the 548-page Lieberman-Warner proposal for a "cap-and-trade" system.
The very phrase cap-and-trade is a pithy marketing gimmick to explain a complex system, favored by many environmentalists, that aims to control thousands of emissions sites worldwide, from pig farms to power plants. The system establishes rules for a new market -- a sort of new board game in which we're all players and where the price of carbon emissions depends on the moves we make. Come up with a cheap, clean energy technology? The price of a ton of carbon emissions drops; we all win. Waste a lot of electricity? That price soars, and so do the costs of electricity, gasoline, steel, airline tickets and petrochemicals; we all lose.
Here's how cap-and-trade works. The government gives companies allowances -- that is, permits to emit greenhouse gases -- based on their past emissions, but set at lower levels than in the past (this is the "cap" part). Companies can then simply cut their emissions levels, or buy allowances from more efficient companies in order to let a less green firm keep spewing greenhouse gases (this is the "trade"). They can also buy extra allowances at government auctions.
Another wrinkle: Firms running over their greenhouse-gas quotas can also buy "offset credits," pouring money into fume-cutting companies or projects in the developing world in order to compensate for the firm's own excess polluting at home. (It's a bit like buying absolution.) The underlying premise is that it doesn't much matter whether emissions are cut in Cleveland or Beijing, just that they're reduced overall. As time goes on, the government would give away fewer allowances and auction off more, creating a vast revenue stream (and, potentially, a huge pork barrel). By 2050, if all went according to plan, U.S. emissions would be 71 percent below their 2005 levels.
This sounds pretty complicated. For those who remember the Cold War, cap-and-trade can feel a little like Gosplan, the central planning board that oversaw the Soviet economy -- only with good intentions, as well as vigorous input from many conservatives and corporate executives who consider the cap-and-trade legislation the best deal they can get.
No one can say exactly how much the proposed system would cost consumers or industries. That might actually help its chances in Congress. It's a harder target to assail than a straightforward tax on carbon emissions -- an option favored by many economists but virtually no politicians.
Still, supporters of the Lieberman-Warner bill fear that ads from its foes will do to cap-and-trade what the famous "Harry and Louise" campaign did to the health care reforms proposed early in the Clinton administration. (Remember those ads, with the fictional couple fretting that Clinton was creating a Brobdingnagian new bureaucracy?)
But some sort of cap-and-trade system has a genuine shot, in large part because the partisan lines on climate change are far more blurred than they ever were over the Clinton health care initiative. All three remaining presidential candidates support the cap-and-trade approach. Sen. John McCain (R-Ariz.) even co-sponsored two earlier versions with Lieberman, although both were defeated. Moreover, a lot of the country's leading industrialists, utility executives, technology pioneers and financiers are lining up to promote the Lieberman-Warner bill. And last week, President Bush, a longtime foe of cap-and-trade, said he might accept some kind of plan that covers utilities only.
But if a new U.S. political consensus is emerging about the need to do something about climate change, the major stumbling block to legislation is still its potential cost.
Any cap-and-trade system would raise the price of many common purchases, from plastic bottles to tanks of gas, by upping the cost of anything containing carbon. One U.S. government study says that Lieberman-Warner would add about 35 cents a gallon to gasoline prices in 2030 -- about the same amount that prices have risen in the past two white-knuckle months. The Energy Information Administration, the analysis wing of the Energy Department, estimates that the bill would mean the loss of 60,000 jobs by 2030, out of a total workforce of 170 million, since some energy-intensive businesses would relocate to countries that won't cap their greenhouse-gas levels.
On the other hand, environmentalists say that Lieberman-Warner could prove much cheaper than expected. Companies innovate when there's an economic incentive to do so, they argue, so good old-fashioned capitalist logic should drive them to find greener, cheaper ways to produce their products while spewing less carbon dioxide. Exhibit A here is a rather similar cap-and-trade regime for sulfur dioxide that was designed to reduce acid-rain emissions. That system achieved its target reductions at much lower costs than expected -- and became the model for climate activists. Those activists also suggest that the drive to find greener technologies would pay as yet unforeseen economic dividends, driving productivity gains in much the same way that mass production, semiconductors and the Internet did in other eras of transformation.
The cost of cap-and-trade legislation will have a lot to do with whether carbon dioxide from coal plants can be captured and stored underground so it won't leak out into the atmosphere -- something that isn't being done on a commercial basis anywhere in the world. So will it work? Will we be able to attach capture facilities to existing plants, or will they be limited to new plants? Former CIA chief John Deutsch, now a professor at the Massachusetts Institute of Technology, estimates that if the government-set cost of belching forth a ton of carbon were more than $30, industrialists would have ample incentive to capture and bury their emissions.
If Big Coal has its way, though, the country will dismiss cap-and-trade as too expensive, both because of higher prices and lost jobs. (The mining industry pegs the overall cost of Lieberman-Warner at $5.3 trillion over 40 years.) So what's the alternative? Bush and the major coal companies argue that the United States should put money into research and development instead, in hopes of finding greener ways to run the economy and thereby cut emissions.
This approach is clearly in the interest of the coal companies. But it has also been given new intellectual heft by two former strategists for environmental groups, Ted Nordhaus and Michael Shellenberger, whose recent book "Breakthrough" made the case for a government-led R&D push far bigger than anything Bush has suggested. (Think the Apollo program, only bigger.) To R&D advocates, the sheer magnitude of the reductions that climatologists say are needed points toward the search for a machina ex deus, so to speak.
Other environmentalists warn that we can't just wait for a technological breakthrough. Gore, for one, is pushing for a political breakthrough that would let us make better use of the tools we already have for cutting emissions -- energy efficiency, solar power, windmills and so on. "This is not a technological problem," says Cathy Zoi, head of Gore's Alliance for Climate Protection. "It's a mobilization problem."
But Nordhaus and Shellenberger argue that we simply cannot "achieve an 80 percent reduction in greenhouse gas emissions without creating breakthrough technologies that do not pollute" -- such as, say, grabbing and burying the carbon dioxide from coal plants. And such things, they warn, can only happen with federal help. Their position is not complete heresy among liberals; Sens. Barack Obama and Hillary Rodham Clinton both included substantial investment programs in their campaign positions on climate. The R&D schemes may not cost as much over the short term as a cap-and-trade system, but to make a difference, the hunt for greener technologies would have to carry a hefty price tag, too.
Ultimately, the cost of acting to cool the planet -- along either major route -- is not just a matter of accounting but one of politics and perspective. Climatologists have made real political headway in arguing that Earth's polluted, roiling atmosphere must be close to the top of the U.S. and global agenda. To them, the question isn't whether we can afford to do something to slow down climate change; it's whether we can afford not to. Yet energy, green or otherwise, is an expensive business; the International Energy Agency says that the world will spend more than $20 trillion on energy projects over 25 years. And when you consider that the United States has just spent, depending on how you count it, anywhere from $1 trillion to $3 trillion on the Iraq war, perhaps it's not a question of what we can afford as much as what our priorities are.
Steven Mufson covers energy for The Post.