Climate Change Policy Thoughts, McCain, Palin, Obama, Et al

Those of you that know me know that fighting climate change is an issue near and dear to my heart – and day to day life, since I am currently involved with a start up working on helping to deliver even better transparency and environmental integrity to carbon credits.

So as a small government, energy focused, environmentally conscious, social liberal, fiscal conservative, who has worked in both oil & gas and alternative energy, I had a lot to like about the McCain-Palin ticket. And I’ve stated that and my reasons for it, and gotten ripped for it for an audience on this blog that is commendably and passionately progressive when it comes to these issues, but unfortunately doesn’t always read to the end of the blog articles or do their research before ripping me for being Republican. But one key area I struggled on was where Palin came down on climate change. Luckily for the 182 small government, energy focused, environmentally conscious, social liberal, fiscal conservatives like me left in America, John McCain’s climate change position has apparently rubbed off on her. Like her or not, this is a very good sign for progressives. It means we as a nation are joining the climate change fight no matter who wins the election fight.

To those of you who say we should have signed Kyoto, don’t forget, Obama, GW Bush, Hillary Clinton, and John McCain all agree on this one, multilateral climate change legislation has to include China and India committing to something. (Hillary actually flopped on this topic). And China and India haven’t agreed. The Senate voted something like 98 to 0 during the Clinton years saying no to Kyoto if China didn’t agree to caps.

The main difference between US politicians has been the willingness of every one on this list except Bush to work to push through some sort of cap and trade in the US – independent of a multilateral framework like Kyoto. McCain has been pretty lock step with the Democrats on this one. And then smaller differences emerge in their approach to tough the caps should be, and whether the profits from trading ought to go into the government coffers as a new (Iraq war size massive) tax, or back to industry to fund future abatements. Of those, Obama talks the toughest game, but McCain is the only one who has ever tried.

The problem with a unilateral approach to cap and trade is that it’s about like going into Iraq unilaterally – it’s a bad a idea. Carbon is a global problem, and lots of separate policies aren’t likely to solve it without significant economic collateral damage. And worse, with cap and trade or taxes, if we try to have separate markets or tax schemes, it means we likely get a different price of carbon in California than in Texas than in China, than in Europe. And if there is no way to equalize the price by trading credits in linked markets, the only route left for industry is to shift production out of the country with the highest price, or lose out to competitors from those markets with lower prices. If the markets aren’t linked (which Obama supports in small amounts and McCain in medium amounts), we will definitely see these geographical price differentials. Then industry will respond by shifting production to China and India, whether it’s overt or not, they won’t have a choice. The power of the consumer dollar will force it to some degree. And the tighter the US carbon legislation is compared to the Kyoto, the bigger incentive to shift production overseas. Hence Obama’s position on 80% auctions for very rapidly implemented, very tight caps results in a large tax windfall to the US government, and a correspondingly large effective price differential on the price of carbon from the US to Europe even, let alone the US to China which still has caps. Where as McCain-Lieberman’s slower and lighter (but still much faster and tighter than Kyoto) plan with explicit links to Kyoto markets, would result in more moderate price differentials. If the markets are linked (meaning you can buy Chinese credits to meet California demands), but the local carbon regulations are tighter, industry has less of a need to shift production ourseas, but can instead cans sometimes shift it’s carbon purchases overseas instead of labor or other materials, but instead we would still see an increased trade imbalance as dollars flow to China to pay for the carbon.

Basically, if the US cap and trade is tighter than foreign cap and trade, either manufacturing has to go off shore, or if the markets are linked and you can buy carbon offshore, then either dollars could go offshore for carbon to keep jobs and production home. That’s why the big push for multilateral climate change, carbon trading markets, and environmental regulation that moves in lockstep with our biggest trading partners.

Hey wait, does that mean that the Democratic position on climate change will actually exacerbate outsourcing to Asia and trade imbalances even MORE than the Republican position this time? ‘Fraid so. The thing I like about McCain on climate change, is that despite getting a bad rap on economics, he’s the only candidate who’s bothered to include the impact on you and I into the complex calculus of climate change legislation.

It’s a catch-22 with no real way out, and a lot of bad options. The worst option however, is doing nothing. Luckily, with Palin now toeing McCain’s line on climate change. That option may finally be off the table.

5 replies
  1. Asa
    Asa says:

    it shows that you're in carbon markets and credits, rather than technological innovation. Cap and trade the McCain way is a windfall to existing heavy polluters, whereas cap and auction spurs innovation by rewarding new entrants (or at least not favoring incumbents). Did you not notice the part where Obama's plan gives back most of the money it raises? I wish we got back the money were spending in Iraq. Government support for R&D is very highly correlated with patents and commercialized technologies. Where do you propose we get the money for that? Cap and trade or auction without new technologoies only gets us so far, and I'd like that innovation to happen here. Good points on the carbon market linking — your expertise in the carbon markets shows through. Cleantech is more than carbon credits, though, and it'll take more.Asa

  2. miskovsky
    miskovsky says:

    Good, relatively clean argument, here. There is, however, one link in the chain of criticism occasionally offered with respect to unilateral US action on carbon (via tax, cap and trade, etc) that I can't quite buy into: Why does the argument assume that all actors in this (undeniably global) system *freeze*, in perpetuity, as soon as the US takes its first step in the direction of responsible CO2 policy? Why doggedly insist that China and India — suddenly left alone in resistance to cooperative action on this topic, now suddenly in the cross-hairs of US and European political/economic pressure, perhaps even facing the potential for constraints on trade and continued access to export markets in the west — could not be brought to the table? Why assume that this will inevitably result in an immediate offshoring of carbon-emitting activities to cheaper locales around the globe, when it's far more likely that this effect would follow the lazier "J" curve so common in macroeconomic systems, perhaps consuming a number of years before fully reflecting the effects of this new regulatory signal? I'd submit that, by the time industry might have reacted to this altered carbon-cost landscape, more sweeping international agreements stand a decent chance of having taken shape. Large actors like the US, taking a (perhaps imperfect) first step, may be precisely what's required to alter that dynamic and drive the Asian nations to action. And let's not lose the proper perspective, here: 550 ppm of CO2 in the atmosphere (our real and shared opponent in this discussion) is a pretty hard ceiling, one we can't negotiate with. We startup people have an expression: "perfect is the enemy of the good." On the topic of climate change, too many well-meaning conservative thinkers seem to insist on a singularly-negotiated, perfectly-constructed, analytically unassailable, top-down-engineered, multi-lateral agreement, regardless of how many years we waste (the last 8, most gallingly) waiting for the actors to agree to sit down. In the meantime, the planet burns.Sorry to say it, but of the two improbabilities I'm asked to buy into ("we act first, then force other big emitters follow", versus "we do nothing until the other guys agree to join us at the negotiating table"), I choose the former. At least it has the decency to take a good swing.

  3. Howard
    Howard says:

    In the Bill Oreilly interview of Barack Obama, regarding the discussion about Obama's energy plan, in response to Bill askingBarack, what if the development of alternate energysources don't deliver. Obama compared his approachto John Kennedy's space program, and how if you go for it , the answers will come. But, the distinction betweenour space program and our energy challenge is … If it had taken us longer than we thought to get to the moon … or, if we hadn't gotten to the moon … no big deal. But, if we put all our hopes into alternative energy, and it doesn't happen in time … or, ifit doesn't work, our entire economy, as well as our national security could end up in ruins. Our country's entire energy infrastructure revolves around petroleum. 167,000 gas stations,the 250 million vehicles. Democrats keep citing how long it will taketo get more oil out of the ground. But, even if an alternativefuel is found tomorrow, how long will it take America to transition from our existing infrastructure to a completely new one? In the meantime, people have to get to work, andgoods have to get to market. This is an important reason tosecure our energy needs with oil drilling and mining oil shale, while we try to develop alternate energy. Obama andPelosi also want to dip into the strategic oil reserve, as a wayof pandering to voters, but what if we have a true emergency,like Hurricane Ike, or Hugo Chavez cuts us off, or Amadinajadcripples the straits of Hormuz? Obama seems to beplaying fast and loose with our country's future … gamblingwith our future, all based on hope and faith … with consequenceswhich could be dire. Obama's plans, or lack thereof, are extremely irresponsible. Not suprising from a candidate whodoes not have the experience, qualifications, or judgement to lead, as President of the United States.

  4. Jacqueline
    Jacqueline says:

    It is important to see the environment as a bipartisan issue. No single candidate, McCain or Obama, has all the answers to the environmental problems we face today. I have been finding and blogging ideas to help red and blue businesses alike to cut their impact on the earth. You can check it out at http://blog.greenercommerce.com

  5. Rob Cas
    Rob Cas says:

    "Luckily for the 182 small government, energy focused, environmentally conscious, social liberal, fiscal conservatives like me left in America"Make it 183. I don't know how I stumbled across your blog, but I have enjoyed reading it thus far. I have just graduated from UT Austin with a Chem eng degree and I'm working at a company here in Austin doing environmental engineering and compliance work. I must say it has been interesting work so far. I know this comment hasn't been all that relative to your post, but I did enjoy reading it. It's just exciting to see there are 182 others out there like me, haha!

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