In the grand tradition of the savings and loan debacle of the 1980s, the mortgage-backed securities meltdown that currently threatens to undermine our financial markets, NAFTA, GATT, and the invasion and occupation of Iraq , our leaders in the Senate are once again preparing to hoist upon an unsuspecting public another catastrophe in the making.
I am referring to Senate Bill 2191, America ’s Climate Security Act. This insidious piece of legislation crafted by Senators Joe Lieberman (I-Conn.) and John Warner (R-Virginia) and lined with ways for the most clever and unscrupulous among us to make “big bucks” includes the:
- Establishment of a greenhouse gas (GHG) registry and a GHG emission allowance transfer system for covered facilities, including specified facilities within the electric power and industrial sectors and facilities that produce or entities that import petroleum- or coal- based transportation fuel or chemicals. Sets forth emission allowances for 2012-2050, with a declining cap on GHGs;
- Selling, exchanging, transferring, submitting, retiring, or borrowing of emission allowances;
- Distribution of emission allowances;
- Establishment of the Climate Change Credit Corporation to auction emission allowances;
- Establishment of an international reserve allowance program.
- Requirement for the proceeds from sales of such allowances to be used to mitigate the negative impacts of climate change on other countries’ disadvantaged communities;
- Requirement to study the feasibility of the construction of:
- pipelines for the transportation of carbon dioxide for sequestration or enhanced oil recovery;
- and geological carbon dioxide sequestration facilities.
So what is wrong with the above you say? Aren’t “Cap-and-Trade” schemes designed to force polluters to reduce GHGs a good idea? In a word – “NO!”
I believe Frank O’Donnell, President of the Not-for-Profit Clean Air Watch, phrased it best when he said, “It’s a lot like the medieval practice of buying papal indulgences. If sinners throw a few bucks into the pot, they can go back to sinning.” This way companies that still belch GHGs can appear green by purchasing offsets such as carbon financial instruments and Renewable Energy Certificates (RECs).
Look folks, I am a true believer in global warming and believe the window to do something about it is very narrow and we have to kick into high gear NOW. But this legislation will ultimately do nothing to get us to where we need to be by 2050. In a way, it’s like invading Iraq on the premise of fighting the global war on terrorism. (How stupid and misguided was that!)
Currently, it is estimated that the market created by trading and swapping credits and RECs is estimated to be around $200 million. If Lieberman, Warner, and their cronies get their way it could reach $4 billion. Wow, that’s a pie you want to get a slice of isn’t it!
In a very simple scenario ABC Company decides to reforest some area of the world in order to appear “green.” ABC Company claims the planting of the trees, will help to lower carbon dioxide and offset the GHGs they emit into the atmosphere. So essentially what is going on is we are “securitizing” trees. (Sound familiar, after all we securitized home loans and see where that got us.) The question I have is what is the value of tree? If it is now a security, how long can it be held? What is the life of a tree? When does the value a tree begin to decline? How will that look on a balance sheet?
I can see it now. Initially there will be a high demand for these credits and that demand will drive up the price of trees, swamps, tulips or whatever is being securitized. Then the inevitable fall will come. The value of the securities will crater and corporations will be writing down the losses and trying to explain to their shareholders why they were stupid enough to by a 20 acre forest in Tanzania that was also purchased by another company at the same time.
Moreover, companies that demonstrate they have lowered their emissions can then sell those credits in this market to the folks who are still polluting. It reminds me of the story of the Potemkin villages. These were fake settlements erected at the direction of Russian minister Grigori Potemkin to fool Empress Catherine II during her visit to Crimea in 1787. According to this story, Potemkin, who led the Crimean military campaign, had hollow facades of villages constructed along the desolate banks of the Dnieper River in order to impress the monarch and her travel party with the value of her new conquests, thus enhancing his standing in the empress’s eyes.
The Act also sets yet to be determined allowances for emissions starting in year 2012. Businesses will be required to reduce their emissions a certain percentage from the previous year. My question is how is that baseline year established?
In addition, the proceeds from SB 2192 will be used to fund “low carbon” energy technologies such as “advanced coal and sequestration technologies programs.” This is a significant windfall for coal plant operators. Although I and most Americans won’t see any benefit from this Act, the owners of coal plants sure will. Although, come think of it, it might be a smart move to buy some old abandoned mine shafts and lease them as places to sequester carbon dioxide. . . . that’s the ticket!
In closing, there is so much we could be and should be doing to lessen the impact we are having on the environment and making America energy independent. But SB 2192 is not going to help accomplish any of that. I believe Caltech professor Nathan Lewis said it best, “the Stone Age did not end because we ran out of stones, and fossil-energy age is not going to end any time soon because we’ve run out of cheap fossil fuel. Don’t wait for that to happen.” We must foster markets wherein renewable energy sources such as wind and solar thermal can come to scale and compete. This will not happen with SB 2192.
– By Kevin Lynn
Delegate and Member Executive Board,
California Democratic Party