With a crowded fall agenda, the House and Senate will be searching for time to focus on a nationwide emissions policy in the coming months. How far will Congress get in creating and voting on an emissions policy? And what are the key questions that remain about climate science and how best to approach a national solution? During today's OnPoint, Ray Kopp, director of the Climate and Technology Policy Program at Resources for the Future, previews the congressional climate discussion.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Ray Kopp, director of the Climate and Technology Policy Program at Resources for the Future. Ray thanks for coming on the show.
Ray Kopp: Thank you, Monica.
Monica Trauzzi: Ray, there's been a tremendous amount of discussion and a huge emphasis on climate and energy since the Democrats took over Congress. As we head into the final months of 2007, what are you expecting on the climate front? Is the momentum going to continue or is there just too much opposition to an overall emissions bill for anything to be truly successful?
Ray Kopp: Well, there's certainly a lot of opposition to very aggressive bills. But that's not to say there's not going to be some progress. I mean certainly the Congress is moving at a pace that by standards of two years ago is light speed, both in the House and Senate a tremendous amount of activity over the design parameters of important legislation, as you say, economy-wide very large programs encompassing all energy sources in the United States. At the same time, there's a presidential campaign on its way. No matter whether a Democrat or Republican is elected president, it seems to me their attitudes towards climate change will be quite a bit different than, the current administration suggesting executive leadership going into the next administration. So, all those things together I think provide increased momentum for federal activity, not to mention the fact that states are moving rather rapidly and federal policy probably wants to get a little bit ahead of the states. So, I do think you're going to see some action. I don't think you're going to see any bills passed in the near term.
Monica Trauzzi: The House and Senate both took up sweeping energy bills prior to the August recess. And CAFE and RPS were among the most debated issues. Are the decisions they made regarding energy an indication of how things are going to go on the climate front?
Ray Kopp: Well, not necessarily. CAFE is still a very contentious issue. It's a way of regulating greenhouse gases along with fuel economy from the light duty vehicle fleet. But it may not be the most effective, cost effective way to go ahead and regulate those emissions. And a renewable portfolio standard, in RPS, renewable power sector is a way to bring in again, renewable energy into the electric power sector but it probably is not the workhorse needed to bring forth real changes. So, they are steps perhaps in the right direction. Some people would think that what's needed is a very different form of regulation, a cap and trade, or in fact, a carbon tax that's more all encompassing, but there are bits and pieces. So, they do move you in the right direction.
Monica Trauzzi: Let's talk about some specific legislation, the Lieberman-Warner draft proposal seems to be sort of a middle ground proposal if you're comparing it to Senators Boxer or Bingaman, Spector, but some environmentalists are concerned that it doesn't go far enough. How does Congress find that balance of going far enough on the environmental side, but putting something on the floor that can actually get votes?
Ray Kopp: Well, there is a real political challenge, right. I mean the question is what is far enough? These bills have targets for emission reductions over the next couple of decades or so. And presumably behind that is some idea of where you want the overall emissions in the, the overall concentrations of greenhouse gases to stabilize at some point in the future. Right, now those arguments or that debate for example, is being conducted in a bit of a rarified atmosphere because trying to decide what the goal ought to be without knowing how expensive it's going to be to attain that goal, at least to an economist, and I'm an economist, is only half of the problem, OK. Until we bring the cost side in we're not going to be able to make the kinds of tradeoffs that we need to choose among these various competing pieces of legislation. And so the fact of the matter is that I think that if you laid those things down in a spectrum you'd find the Bingaman bill is perhaps less costly than the McCain-Warner, Lieberman-Warner Bill and at some point there's going to be a political decision about how much cost you're willing to bear and that will determine in some sense which of those Bills is in the sweet spot for the electorate.
Monica Trauzzi: And now that Senator Warner has signed on to a bill, what kind of influence do you think he might have with his colleagues in getting the needed number of votes?
Ray Kopp: Those bills are still empty vessels in some sense. They point in some particular directions, but there's not enough substance in there for the folks who are going to be directly regulated or indirectly affected by these regulations to understand how that particular policy would affect them. Again, if you look at the Bingaman bill, it's very specific about who gets regulated, how permits would be allocated and gives you a better idea of how you're going to deal with competitiveness issues, issues associated with higher energy prices that low income groups would face, how states might adjust to these kinds of activities. Some of these other little pieces of legislation are more, they're vague with respect to some of those terms, and they just lay out broad goals. But, they don't lay out means of implementation. Until you get down to say exactly who is going to be regulated and how hard are they going to be regulated, I don't think you're going to be able to start signing people up for particular pieces of legislation. And again, without executive leadership, it's hard for, I think for the Congress to do that independently.
Monica Trauzzi: Senator Boxer is opposed to a safety valve and as you mentioned Senator Bingaman is very much in support of it. What kind of friction is this going to create among Democrats as these two powerful chairs go head-to-head on a very major issue?
Ray Kopp: Well, the safety valve is, it has proponents, and it has people who think it's one of the worst ideas ever generated by an economist. It's designed to do one thing and that is to provide the economy some certainty with respect to the cost of meeting a greenhouse gas target. And so, the idea is you can set a safety valve at $25 a ton and then you know with certainty that permit prices were not going to rise above that. If you don't have a safety valve and you just set a target then the permit prices will go wherever the target is going to take them for those prices and then they get to a point that's quite damaging to the economy. So, you've got to decide in your heart of hearts, whether you are very concerned about how much is this going to cost the economy and you want to provide some certainty there, or you're more concerned about the absolute cap in terms of emissions. So, it's a bit of a tradeoff you know between the economics of this and the environmental aspects of this. And I do think at some point, there will be a balance struck, but it does point to the importance of cost in all of these kinds of discussions.
Monica Trauzzi: And Congressman Dingle has had a lot to say regarding the bills and also the economics of cap and trade, and he believes that cap and trade could significantly hard the U.S. economy. And as a result, he has proposed his own plan for a carbon tax. He's likely to play a big role in negotiations in the House as we proceed into the fall. How do you see that all playing out?
Ray Kopp: Well, Congressman Dingle is obviously a very experienced legislator. And he recognizes how important the cost of these particular programs is going to be to moving legislation through Congress. And so what he's done is he's laid down a marker and says I'm going to lay out a Bill here where the cost is very transparent in terms of the carbon tax. I may not necessarily support that in the end, but I'm going to put that out there so people can see how much support are we going to have for a carbon tax at $20 a ton or $40 a ton, or $50 a ton. And that gives you some idea that if we know where we're, how much money we're willing to spend we can know in some sense how aggressively we want to go in terms of a cap. So, I think it's a very interesting way of kind of getting this debate where it needs to be focused. And that is, at some point, how much is all this going to cost the American public and how much are they willing to spend? And once we decide that then I think kind of coming to the final solution in terms of the package of elements that need to go into a piece of legislation may go rather quickly.
Monica Trauzzi: Do you think the amount of attention being paid to cap and trade versus carbon tax is a little unbalanced? And why is there so much support for a cap and trade versus carbon tax?
Ray Kopp: Well, I mean some of it is obviously political. I mean the experience we had with the Btu tax in the Clinton administration was not particularly good. And I think a lot of politicians do not want to repeat that. I mean, from an economic perspective a carbon tax is an extremely potent and powerful tool. Some people think it's going to be easier to implement than a permit cap-and-trade system given the complexity of allocating allowances. But with a taxing scheme, you're still going to have to think about how you're going to allocate the revenues generated from the tax. So, they do both have strengths and weaknesses. They can be made almost identical. So, from an economic perspective I'm perfectly happy having a cap-and-trade program in place as long as it has some design elements that mimic a carbon tax. And one of those of course is the safety valve. The safety valve is the mechanism you put into a cap-and-trade program that allows it to mimic the economic properties of a carbon tax. But, I do think that the cap-and-trade probably has more, political momentum behind it. It will have all the same economic properties as a carbon tax if it's well designed. And therefore, the fact that there's more emphasis on it right now I don't think is too much of a bad thing.
Monica Trauzzi: So, is there a bill that you believe fits the parameters for being a successful economically and also environmentally ...
Ray Kopp: Well, what you could say is there are certain design principles that you would like to see built into any bill. The most important thing of course is that it covers all the greenhouse gases and it covers the whole broad U.S. economies. So, you don't want to focus on just, let's say the utility sector. You want to have everybody brought in. And the more gases you bring in, the more sources you bring in, the more, less costly it's going to be to reduced, for particular targets. Economic efficiency is really important. So, if you use an incentive based program like a large-scale, cap-and-trade program, particularly if it's all upstream or a carbon tax program those are going to give you economic incentive kinds of properties. So, those are pretty important. Probably the most important aspect of this is what targets are you going to set and how quickly are you going to try and hit those targets? So, if we're looking at emission reductions for 20/20, 20/30 and 20/50, the more aggressive you go after those targets the more quickly you're going to have to roll the capital stock over in the United States, that energy capital stock. And the more quickly you do that, the more expensive it's going to be. So, that's the fine balance being able to hit the targets that you think you need to hit to maintain the climate at particular levels that you think are protective of human health and welfare, while at the same time not pushing so hard on the macro economy that you cause slow downs or recessions or serious economic costs. And so that's the fine balancing act.
Monica Trauzzi: Taking the discussion one-step further, how much of what Congress does this fall is going to play into the discussions that we're seeing on the international level?
Ray Kopp: Well, quite a bit. I mean the, when the U.S. for the most part withdrew from the international discussions, I think it gave up a golden opportunity to help the world think about how we all collaborate and cooperate on climate change. No matter what the U.S. does, no matter what the European Union does or Japan or all the developed countries, alone they cannot tackle this problem. This is a global problem and all the big emitters have to be involved. Without U.S. leadership that doesn't seem to be going very far. What happens now though is the European Union looks at the U.S. and says well, gees they're really, they're taking this seriously. There's momentum here for the U.S. to kind of get its house in order in some sense and put in place a realistic program to control greenhouse cases. And when that happens, and probably not, we don't necessarily have to pass the legislation for that to happen I think that credibility is building now. But as soon as the next president is elected, you can be fairly sure that the world is going to look to that president and say, all right you're back engaged in the program now. What do you think we ought to do internationally to bring China and India onboard? Importantly, reduced deforestation rates in Brazil and Indonesia, those are massive emitters of greenhouse gases. Help us with some new ideas to kind of move the ball forward. So, I do think there's a golden opportunity for the U.S. to play a role because it is building credibility and it's going to switch administration and have administrations that are more inclined to engage internationally on the climate issue.
Monica Trauzzi: All right. We are going to end it right there on that note.
Ray Kopp: Good.
Monica Trauzzi: Thanks for coming on the show.
Ray Kopp: Sure.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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