All cap, no trade

Author Michael Ball, Editor

The use of a carbon market to reduce US greenhouse gas emissions, once a policy goal of the Democrats, appears to be falling out of favor with the party as it decides who will lead the charge to unseat President Donald Trump next year. But environmental markets may not be completely abandoned if a Democrat wins the White House in 2020.

What a difference a decade makes. Nearly 10 years after a failed effort to enact a national cap-and-trade program to slash US greenhouse gas (GHG) emissions, the idea of a carbon market may be falling out of favor with Democrats.

The current field of presidential hopefuls largely agrees that the US should put a price on GHG emissions, with about half explicitly calling for a carbon tax. (Call it a “fee,” if you don’t like taxes). But only a handful are open to the idea of using a cap-and-trade program, and only one – Beto O’Rourke – explicitly supports it.

The failure to get a bill over the finish line during president Barack Obama’s first term in office is one reason why the candidates are getting behind a carbon tax. Democrats were able to get the Waxman-Markey bill through the House of Representatives in 2009, an achievement in its own right. But they pulled the plug on their effort in the Senate a year later, after losing their filibuster-proof majority and failing to win over some of their own members from coal states, as well as Republicans hesitant to give the president any major victories even though some of them had previously backed cap-and-trade.

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Up until that point, cap-and-trade was among the leading ideas for tackling climate change, with a host of legislative proposals coming in the years before Obama took office. Even Vermont senator Bernie Sanders, a longtime carbon tax advocate, co-sponsored cap-and-trade legislation.

But now he has decided to go all in with using a carbon tax, and other fees on fossil fuel companies, to drive down GHG emissions and move the US to cleaner energy sources. Many of his fellow candidates are following suit to varying degrees in their climate plans.

Cap-and-trade is now largely a dirty word in US politics, despite relative successes in California and the northeast US.

Republicans at the national level remain hostile to a carbon market, warning it amounts to a takeover of the US economy that will drive up consumer costs. Some liberal Democrats are increasingly wary that cap-and-trade, which can allow for offsets from outside the main program, can deliver the “real” emissions cuts needed to avoid the worst effects of climate change.

Enter the carbon tax. It is easier to understand and to administer and would appear to leave less room for gaming the system by fossil fuel companies that are increasingly being targeted by the Democrats.

But there may still be some glimmers of hope for environmental market advocates.

Many of the Democrats are calling for some form of a national clean energy standard that would expand on existing state renewable portfolio standard (RPS) programs, which often use renewable energy certificate (REC) trading to help achieve their goals.

In addition, a few in the field are also calling for a national low-carbon fuel standard, something that also relies on credit trading to help drive down the carbon-intensity of fuels like gasoline and diesel.

Those could find some Republican support – and they have in the past – depending on how they are designed. Nearly 30 states already have an RPS, with backing on both sides of the aisle. The technology-neutral approach of an LCFS could be more appealing to critics of the federal Renewable Fuel Standard, which is remains at the center of a war between US ethanol producers and oil companies.

But for now, the crop of Democratic contenders are content to trade in the dream of a national carbon market for a carbon tax.

What’s next for the North American environmental markets?

In this series of blog posts, our Argus Air Daily team are tackling the key trends for these markets. We’ll bring you up to speed on the latest changes and upcoming developments on a state and federal level. Take a look at last week’s post, Eureka! California strikes gold with carbon market.

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