Cap on Emissions

Who Owns the Sky?

It is an amazing question, one that we first heard posed by Peter Barnes, author and social innovator who has just published Carbon Capping: A Citizen's Guide. It should be mandatory reading for every American. It explains how if done right, a carbon cap is the single best tool to fight climate change, but if done wrong, will transfer hundreds of billions of dollars from families to corporate polluters. And in it, he considers three answers to the question "Who owns the sky?"

The possibilities are (1) polluting corporations, (2) government, and (3) all of us as co-owners. Answering this question right is crucial to a fair and lasting carbon capping system.

And then, he explains why the design of the carbon capping mechanism we adopt into law is what will determine whether the answer we choose as a nation is #1, #2, or #3.

Carbon capping comes in three varieties: cap-and-giveaway, cap-and-auction, and cap-and-rebate.

In cap-and-giveaway, permits are given free to historic polluters. This is called ‘grandfathering.’ The more a company polluted in the past, the more permits it gets in the future — not just once, but year after year. As the descending cap
raises fuel prices, everyone pays more, and this extra money flows to the companies that get free permits. An MIT study estimates that grandfathering carbon permits to U.S. utilities would give them hundreds of billions of dollars in extra profits every year for several decades.

In cap-and-auction, permits are sold to polluters, not given away free. Revenue is collected by government rather than private companies. What government does with the money is then up to public officials.

In cap-and-rebate, permits are also sold, not given away free. However, the income doesn’t go to government — it goes to all of us equally. The purpose of revenue recycling is to fix the Achilles heel of carbon capping — its regressive economic impact on American households.

It will come as no surprise that Barnes recommends a cap-and-rebate system. The sky certainly does not belong to big polluters and it's a bad idea to hand it over to government for safe-keeping. But the democratic notion that the sky belongs to every person equally is impossible to argue with. Consider the benefits and the sound logic of such a system, as Barnes explains it:

A cap-and-rebate system, also known as a sky trust, is a way to reduce carbon emissions while protecting household incomes.

The system works by capping carbon, auctioning permits and recycling the revenue to all residents equally. In this way, it makes everyone pay to emit carbon, but arranges things so that we pay ourselves. As carbon prices rise, so does the money we get back.

The centerpiece of the system is a trust. (The trust can be run by government or a not-for-profit corporation.) Each year the trust sells a declining number of permits. It then returns the proceeds to residents by wiring dividends to their bank accounts. No money flows to into the government treasury.

How you’re affected depends on what you do. The more energy you use, the more you pay. Since everyone gets the same amount back, you gain if you conserve and lose if you guzzle. The ‘winners’ are thus everyone who conserves fossil fuel — plus our children who inherit a stable climate.

The premise of a cap-and-rebate system is that the atmosphere belongs to everyone equally. Its central formula — from each according to their use of the atmosphere, to each in equal share — is fair to poor, middle class and rich alike. The poor benefit most, however, because they pollute the least.

From a political perspective, a carbon cap with monthly rebates would be the most popular federal program since Social Security. It would lock in popular support for emission reductions no matter how high fuel prices rise.

On top of that, it would take politicians off the hook for rising prices. If voters complain, politicians can say, “The market sets prices, and you determine by your own energy use whether you gain or lose. If you conserve, you come out ahead.”

For more on cap-and-rebate, and why it offers the best solution for protecting the incomes of American families, take a look at this paper from the Political Economy Research Institute (PERI) at the University of Massachusetts at Amherst.

Where the Action Is

Since the 2006 midterm election, a number of bills to cap emissions have been introduced into both houses of Congress. In October 2007, Senators Lieberman and Warner introduced a bill that has become the focus of much broad and bipartisan support. Even though it is unlikely that it will get signed by the President if it emerges from Congress, it reflects the current thinking in Washington, and will dominate current debate.

Here is a summary of what's in the 214 page bill, compiled by National Environmental Trust, with suggestions for improvement.

Here's a severe critique of the bill, from Friends of the Earth, who call the carbon permit giveaways "obscene."