Is cap and trade the most cost effective way for the United States to transition to a low-carbon economy? During today's OnPoint, Dirk Forrister, managing director of Natsource and a former chairman of the White House Climate Change Task Force during the Clinton administration, discusses the costs associated with emissions trading. Forrister, who is also a member of the International Emissions Trading Association's U.S. Working Group, explains how IETA is engaging the United States as it creates an emissions trading scheme. He also gives his take on the Senate's progress on the Kerry-Boxer climate bill.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Dirk Forrister, managing director of Natsource and a former chairman of the White House Climate Change Task Force during the Clinton administration. Dirk is also a member of the International Emissions Trading Association's U.S. Working Group. Thanks for coming back on the show.
Dirk Forrister: Thank you, Monica.
Monica Trauzzi: Dirk, IETA hosted a symposium this week focusing on why a cap and trade is the most cost-effective way for the U.S. to transition to a low-carbon economy. What was the overall take-home, the overall message coming out of this forum?
Dirk Forrister: Well, a couple of IETA's larger member companies, one representing the industrial side of IETA and the other representing the financial side collaborated on this paper, American Electric Power and JP Morgan. And they looked back at the history of all of the emission trading programs that have existed over the last 20 years and found that they actually have worked quite well and much more cost-effectively than the original predictions. So really, it was a bit of an encouraging sign of their look at this to show that, done right, the consumer benefits really will be delivered.
Monica Trauzzi: You say done right, I mean that's a major point for debate right now, especially in the Senate as it takes up the Kerry-Boxer bill. You know, many people are still concerned about the economic impacts of a cap and trade. Make the case against those naysayers.
Dirk Forrister: Well, essentially what this study found was that using the full suite of tools of flexibility of beginning with an amount of free allocation, allowing use of offsets, allowing use of banking and borrowing, all of that has no negative impact on the environmental performance, but it actually does bring the cost down. And it was reassuring to sort of look at, particularly in the acid rain example, how much lower the costs were over time than the original predictions. And essentially seeing an environmental program that delivers under budget and ahead of schedule is a pretty encouraging thing. I think the other message that came out of it though was that we, as a community inside of IETA, all expected from the start that there would not only be environmental oversight to make sure that the environmental benefits are achieved, but also financial services oversight. So, we did have Chairman Gensler from the CFTC and address the group and talk about what we consider to be sort of sensible rules of the road to make sure that the trading part really works. So it's not just cap, it is cap and trade and you can trust both to really deliver benefits.
Monica Trauzzi: How is IETA working specifically with the U.S. as it creates its own emissions trading scheme?
Dirk Forrister: Well, I think we're trying to bring some expertise to the table. The group represents 180 some odd companies that span not only the affected industries from the emissions side or the financial providers, but also accountancies and lawyers, so the full industry that it takes to run a cap-and-trade program. And, essentially, the experience to date has been that actually business can handle this and there is a strong coalition of business that supports this type of approach. I think many more voices supporting this than doing nothing and having EPA regulate. And that really seems to be the scenario that we're headed toward if we don't get an agreement on the Hill, is that EPA has to do a command-and-control system that's going to cost a lot more and achieve a lot less.
Monica Trauzzi: Is the U.S. adequately prepared for a federal carbon reporting system?
Dirk Forrister: Well, I think if you look at the reporting systems on CO2, the biggest emitters in the power sector have actually been reporting for about a decade under existing rules at EPA. You know, we also have new reporting rules coming in on other emitters covering other gases, but I actually think that's one area where the U.S. is a little ahead of where Europe was when they started their program, because we do have good reporting data, at least on the biggest set of gases on CO2.
Monica Trauzzi: All eyes are on the Senate right now as it begins to take up climate legislation and Republicans have been boycotting the Senate EPW's markup of the Kerry-Boxer bill. What's your take on sort of those partisan squabbles that we're starting to see coming out as this legislation makes its way through the Senate?
Dirk Forrister: Well, apart from sort of the theatrics of it, I do think that we need the Republican side to engage on this. They have a lot to offer and a lot of good ideas to offer and I do hope that members of the Republican side of the Senate will start to engage. I think many of us took a lot of encouragement when we saw Senator Lindsey Graham step forward with Senator Kerry and at least give broad outlines of what he would be looking for in a bill, but also signaling that he is serious about engaging on this. And when you start adding up, we have a long history of Senator McCain's involvement in the issue and there are other Senate leaders from the Republican side that I'm sure will bring some ideas to the table and I hope they do engage. Today's markups, at least I was watching the beginning of it before coming here and it seemed a little more positive than yesterday, so hopefully it's moving in the right direction.
Monica Trauzzi: Should the U.S. be allowed more access to the international offsets markets when we're talking about the Kerry-Boxer bill specifically?
Dirk Forrister: Well, I do think that the international offsets provisions of the House bill are little better than where the Senate draft is starting out. I think that this is a good example of how the U.S. can reengage internationally and bring our ideas to the table. The existing international offsets programs have not delivered as well as we had hoped, but they do produce and they are providing a good degree of cost containment in the European and Japanese systems that are currently in operation. But as the U.S. comes in with our very large appetite, there's going to be need for good rules on new types of crediting, either sectoral crediting or red crediting, in addition to making the CDM work better. But I do think that that package of ideas that's pending in Copenhagen really will be an important part of the package for the U.S. and give us a way of engaging with the rest of the world.
Monica Trauzzi: How important do you think the U.S.'s progress will be at the Copenhagen meeting, sitting here a month before that meeting not being close to final passage of a bill in the Senate? And is there a way that the U.S. can sort of avoid having this blame game play out at the Copenhagen meeting?
Dirk Forrister: Well, I think the fact that the House of Representatives has passed a bill and that we're moving through our normal process is a good sign. What I've told my friends internationally is that I never actually expected the U.S. to have final legislation within one year. It always takes us two years on big issues like climate change or the Clean Air Act of 1990, which I worked on, or even energy bills that I worked on in the 90s. It takes us the full two-year cycle to work through our system, so I think it's possible that internationally we could agree on the fundamental design and then have a lot of the details yet to be worked out internationally continue in a process after Copenhagen.
Monica Trauzzi: Most experts who are watching the negotiations closely agree that President Obama needs to have a strong presence at the meeting. What do you think he needs to do leading up to that meeting and at the meeting in order for them to be on the right track for the negotiations?
Dirk Forrister: Well, I think he's the best communicator in the world on these issues right now and I believe if he can send a reassuring signal of his seriousness in helping the House and Senate reach closure next year and of having a serious U.S. contribution to the program. I think it's also reassuring to the rest of the world to know that he is fully behind the idea of cap and trade, because it's the only kind of engine that can deliver the kind of economic mobility that you need behind this problem or to address this problem. And I think if he puts his shoulder to that wheel it will be very reassuring to his colleagues internationally. The other thing he can do is obviously talk to his colleagues around the world and encourage the large developing countries to join the system as well.
Monica Trauzzi: OK, we'll end it there. Thank you for coming on the show again.
Dirk Forrister: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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