Can markets save the earth from climate change? That is the question I posed yesterday. Today the answer came back loud and clear from none other than the President of the United States himself.
“To truly transform our economy, to protect our security and save our planet from the ravages of climate change” President Obama told the US Congress yesterday, “we need to ultimately make clean renewable energy the profitable kind of energy. So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America”.
Now I’m not for a moment suggesting that the President has been reading my blog (though I don’t rule it out) but the cap and trade system that he referred to last night is exactly the kind of market-based carbon pricing mechanism that I was discussing yesterday.
He could not have been more forceful about his commitment. It was top of his list of priorities: “The only way this century will be another American century is if we confront at last the price of our dependence on oil”, he said.
It is a truly radical policy. Europe has had a limited cap and trade system for years but what Obama is proposing is an economy-wide system.
The idea is this: the government sets a cap, a limit, on the total amount of carbon dioxide that can be emitted. It then issues permits to emit that carbon dioxide into the atmosphere. The permits can be bought and sold on a market – that’s the trade bit – and companies can only emit carbon dioxide if they buy a permit.
The reason President Obama supports cap and trade is because it harnesses carbon reduction to the most powerful motivating force ever developed – the power of capitalism, the power of human ambition.
Businesses won’t seek to cut carbon emissions to save the earth they will do it because it will save them money and therefore increase their profits. Cap and trade creates the “carbon price” we were discussing yesterday because it makes emitting carbon just another cost in a business’ production process.
Just think how powerful a change that could be. What it does is enforce the principle that the polluter should pay for the damage they create.
Tackling pollution is a subject close to the hearts of many of the residents of Muskegon, the little city in Michigan I have been staying in. watch video
Before I left I was invited to spend a morning enjoying the local sport of ice fishing. It was a little frightening at first. My guide, Nathan Jandt, warned me that if I fell through the ice I’d only have a minute or so to get out, after that I’d slowly freeze to death.
“You’d still be alive after five minutes”, Nathan told me, “it’s just that you wouldn’t be able to move anymore.”
Until quite recently freezing to death wasn’t the only peril ice fishermen faced. The fish could make you seriously ill too. That is because they were contaminated by the poisons and dangerous metals pumped and dumped in the lake by the chemical factories that used to fringe the shore.
It took two decades and a quarter of a billion dollars to clean the lake up. Now the advice is that you can eat the fish, just not too often.
So who picked up the tab for this epic clean-up operation? The principle of polluter pays should have applied but most of the chemical firms were either bankrupt or the owners couldn’t be found so it was the people who paid the bill.
The cap and trade system President Obama proposed yesterday is designed to stem the new problem that is affecting Muskegon Lake, the thinning of the ice.
This year has been good, a couple of months of solid ice cover, but in the last decade or so fisherman have been lucky if they can get out on the ice for a full month.
Nathan says that when he drilled his first ice hole with his dad a quarter of a century ago fishermen would put their shanties out on the ice in December and wouldn’t have to take them off until early March. He’s pretty sure the change is down in part to global warming.
In Muskegon many of the companies that polluted the lake escaped without having to pay the costs. The idea of cap and trade is that the polluters who pump greenhouse gases into the atmosphere will pay for the effects of what they do.
But when it comes to global warming we are all polluters and ultimately it will be us who pick up the tab.
I described President Obama’s announcement as radical because it means ordinary Americans are likely to pay more for absolutely everything they buy and many of them are not going to like that.
Our economies are so dependent on fossil fuels that if you charge businesses for emitting carbon dioxide it will raise prices throughout the economy. Everything we do or buy becomes more expensive because virtually everything we do or buy involves the use of fossil fuels and therefore the production of carbon dioxide.
What President Obama proposed yesterday is radical because politicians in democracies are rarely brave enough to do things that are likely to be that unpopular.