This morning, as on every weekday morning, hundreds — perhaps thousands — of men and women get into their electric, hybrid or bio-fueled cars, head to their downtown offices, sit at their computers, and start to trade. For information about just what to trade and at what price, they phone or email fellow Vermonters, consultants working out of their homes or small offices scattered around the state.
All these folks are making good money. And, like everyone else in the state, they’re paying precious little of it in state and local taxes. That’s because, while they and their trading partners are in the private sector, the state government takes a cut of every transaction. Who needs tax revenues when Vermont has developed the “green standard” for measuring carbon pricing, and our state is America’s carbon-trading headquarters?
Paradise? Not quite, but pretty close. And whom do we have to thank for this? That guy who was governor back in the first decade of the 21st century. Douglas was his name. Jim Douglas, the one who said the Vermont green standard “[could] become” the nationwide carbon-pricing measure. That’s why our imaginary carbon-trading center, located on Pine Street in Burlington — in an award-winning building, ultra-modern and constructed entirely of recycled material — is called the James H. Douglas Memorial International Cap-and-Trade Center. Because none of this would have happened if it weren’t for Jim Douglas’ dream.
OK. You can wake up now. Welcome to reality, in which what was just described is pretty close to an impossible dream.
Except for the politics behind it. From that perspective, Douglas’ dream seems brilliant. Though Vermont is unlikely to become the carbon-trading capital of anything, the governor’s lofty idea might help him glide to a fourth term this November. His vision is “to develop a strategy that leverages the state’s green reputation into a leadership role in the emerging carbon-credit market.”
The emerging what?
We’ll get to that in a minute. One of the problems with this whole business is that the “carbon-credit market” isn’t exactly the subject of your typical coffee shop or pub conversation. For now, just accept that there is such a thing as a carbon-credit market, and that it’s emerging.
But just what is the foundation of the governor’s assertion that Vermont can become “the leader” in this market? Exactly what he said: the state’s “green reputation.” Armed with that and soon-to-be-developed “peer-reviewed standards,” which “will bear the Vermont brand — one that is known worldwide for being authentic, pure and unparalleled,” the governor assured his listeners at a November 20 press conference, “the Vermont green standard will be synonymous with a guarantee of rigorous expectations of reducing carbon emissions and helping to promote the goal of reversing global warming.”
Aside from posing the question of who writes this stuff, the above Douglas comment is notable for its complete absence of data. When put forth by responsible governors of civilized states, proposals commonly have some kind of backing — statistical, historical, scientific. Not this one. Its intellectual father is not a scientist or an economist or an energy expert. It’s Jim Douglas, a career government official who understands public finance and how to win elections, but has no apparent expertise in greenhouse gases or credit markets.
“It actually was the governor’s idea,” says John Sayles, deputy secretary of the Agency of Natural Resources and principal coordinator of the whole carbon-trading effort. When asked, he can’t name a single economist or energy expert from a think tank or university who examined Douglas’ idea and found it feasible.
One such expert, William Pizer of Resources for the Future, a respected Washington think tank, pronounces himself puzzled by the proposal. “Most trading is electronic,” he says via email. “Does [Douglas] just mean he is going to bring in a bunch of policy/technical people to an office in Vermont?”
In other words, even if “the Vermont green standard” becomes, well, standard, that Douglas Memorial building on Pine Street seems unlikely. All in all, the governor’s idea seems to be based on a variant of the Field of Dreams strategy: If you talk about it, it will come.
Funny thing is, maybe it will. At least, some people who do have expertise in the field are suggesting that. Most of them work directly or indirectly for the state, giving them what the economists would call a marginal disincentive to call the governor’s idea dippy. But not all of them.
So maybe this dream deserves some serious consideration, which has to begin with some explanation. Just what is carbon trading, anyway?
Start with “global warming,” which by now is common parlance. The world is getting warmer in part because every time an internal-combustion engine runs and almost every time a kilowatt of electricity is produced, carbon dioxide (CO2) wafts skyward. The engines are powered and the kilowatts produced by burning coal, oil or natural gas, all of which emit carbon. The CO2 and other gases trap the heat down here on Earth, acting like the roof of a vast greenhouse; hence the term “greenhouse gases.”
The trick to slowing global warming is to get people to run those engines less and turn off the power more. Societies can do this by passing laws or by levying a tax on carbon production. Or they can tinker with the market to make using carbon more expensive, providing an incentive to conserve it. Mix it all up and voilà! — you get the terms “carbon trading” and “cap-and-trade,” which are neither interchangeable nor precisely descriptive. No one actually trades carbon, as in, “I’ll give you this lump of coal for that piece of graphite.”
What people trade are permits, financial instruments, and how it works can be devilishly complicated. Maybe the easiest way to understand it is through the European system, which really is “cap and trade.” Governments there have set a cap on how much pollution can be emitted, requiring each company — say, a steel mill — to get emission permits saying it can put X amount of goop into the air. At the same time, the mill gets credits that give it the right to emit exactly that amount of goop.
Suppose it goes over its limit, belching out too much goop. Then it has to buy credits from another company that pollutes less than its share. Or, if the mill stays under its limit, it can sell credits to another company that pollutes too much. The buyer in effect pays a “fine” for polluting more; the seller is rewarded for polluting less. The exchange takes its middle-man cut.
If the cap is set low enough, the result is a net reduction in greenhouse gases (GHG), achieved at the lowest possible cost to both the companies and society at large.
But the buyers and sellers are not the only players. Like commodity futures or mortgage derivatives — the “instruments” partly responsible for our current credit mess — these emission credits are tradable. You can buy some right now. Just click on “EU ETS” — the European Union Trading Scheme — and get out your credit card. Or call a broker to start buying and selling what are essentially pollution permits.
The carbon trading scheme is not without its fierce critics. Renowned Indian author and scientist Vandana Shiva says such a system is “in effect reward[ing] the polluters by assigning them rights to the atmosphere and trading in these rights to pollute.” She and her supporters decry the notion of “marketizing” and “monetizing” the health of the natural world.
The anti-carbon trading forces were in Vermont last Saturday for the “March Toward a Better World” from the University of Vermont to Burlington City Hall, where they referred to carbon trading as “paying to pollute.” According to England-based climate-policy analyst Larry Lohmann, one of the speakers, the motive behind what he calls “pollution trading” is to make “reducing emissions cheaper and more palatable for heavy polluters.”
In the December 2006 issue of New Scientist, Lohmann went further, claiming that trading “won’t work” to reduce greenhouse gases. Even if it did work, says Brian Tokar, of the Institute for Social Ecology in Plainfield, “The question is, is this the best way to do it?” He prefers the strategies of “traditional regulation [and] taxing carbon.”
In their journals and rallies, the anti-carbon trading crowd may continue to fight, but in the real world, it has lost. Carbon trading is a key mechanism of the Kyoto Protocol. It is central to the European Union’s program to reduce greenhouse gases. The only arguments left — and they are substantive — are over its implementation.
Even Greenpeace, decidedly on the left fringe of the environmental movement, endorses carbon trading. “We think [a carbon market] can be an important part of the solution,” Chris Miller, an ex-Vermonter who is the organization’s spokesman on global warming, says in an interview. “It’s a way for companies, businesses and countries to move to reduce emissions in the most cost-effective way. What we’ve seen so far with the Europeans is encouraging.”
Even without U.S. government-set caps, governments and businesses are setting carbon standards and trading emissions credits on this side of the pond right now. The California Climate Action Registry was established in 2002 to help “companies . . . to establish GHG emissions baselines against which any future GHG emission reduction requirements may be applied.” There’s also a private, for-profit company called the Chicago Climate Exchange (CCX) — shares in its parent firm can be bought on the London Stock Exchange. Companies that sign contracts with CCX agree to reduce their carbon emissions by a set amount from a “baseline” established in their contracts with the exchange.
That’s what Green Mountain Power Company did in 2004, contracting to reduce GHG emissions by 4 percent below a 1998-2001 baseline by 2006. Had the utility failed, it would have had to buy credits through the exchange. “But we were below the baseline,” said company spokeswoman Dorothy Schnure. GMP got credits, which it hasn’t yet cashed in.
Things get even more complicated in the carbon trading world. Besides big players like CCX, there are firms that operate on smaller and more local levels. Some pay farmers — as Burlington company AgRefresh does — or woodland owners to “sequester” carbon in their forests and fields. Some of these carbon credits, too, can be bought and sold by the public.
But wait. If the European Union, the State of California, a thriving Chicago corporation and even various small companies have already put carbon-trading systems in place, why does anyone think this tiny state could supplant them? It isn’t as though EU ETS and the CCX don’t have their own standards. And, while they may lack the promotional panache of Douglas’ “Vermont green standard” motto, they are up and running.
Indeed, the California Registry points out that it has “developed a General Protocol and additional industry-specific protocols which give guidance on how to inventory GHG emissions . . . what to measure, how to measure, the back-up data required, and certification requirements.”
California would seem to have a head start on Vermont.
Even one of the people working on the project acknowledges that developing a carbon credits trade in the Green Mountain State won’t be easy. “There are numerous existing standards, and it’s probably a tough sell to create new ones,” says Jeffrey Frost of AgRefresh, which brokers carbon credits in agriculture. “But subcomponents of this entire industry are unique. It’s like the old metaphor about mining for gold or selling picks and shovels,” he suggests. “Maybe we can sell the picks and shovels. There will have to be support structures for this industry, such as education.”
Frost thinks Douglas’ plan is worth considering. “It’s not defined yet,” he concedes. “There are opportunities to put the Vermont imprimatur on something, and what that something is needs to be defined. You throw out an idea, and it’s always got some rough edges. But, you know, this is Vermont.”
Also cautiously optimistic is Doug Lantagne, dean of UVM Extension. “It’s worth a look,” he says. “I don’t think it’s a failure to look seriously at it and decide it can’t be done. Look at the situation with a Southwest Airlines or a JetBlue. If you had said, ‘You can make money by going into the airline industry,’ you’d have been told you were crazy. But somebody found the right niche.”
Presumably, those airlines had detailed business plans in place before they spent much money. That’s what state officials and UVM scholars are working on right now. Lantagne says two meetings have been held, and more are scheduled. Like Frost, he is aware of the obstacles but remains enthusiastic, saying, “This could be interesting and lively.”
What’s interesting and lively for Lantagne is good politics for Douglas. To understand why, it helps to know that this idea didn’t come unbidden to the governor like Athena springing from the brow of Zeus. It was his response — or perhaps his non-response — to the Governor’s Commission on Climate Change, which Douglas established in December 2005, and which in turn responded to increasing political pressure to “do something” about global warming.
The commission submitted its report last October. It contained 38 “recommendations,” which were really “policy options,” in the words of one of its members, Elizabeth Courtney, head of the Vermont Natural Resources Council. None of the options remotely resembled a plan to create a Vermont carbon-trading standard.
It isn’t that Douglas is ignoring the report; he plans to follow up on some of its suggestions. But not, it seems, the ones that require the state to spend any money, or that create incentives and disincentives designed to get people to change their habits, such as higher insurance rates or sales taxes on gas-guzzlers. Those measures would be controversial. Most politicians try to avoid controversy, and Douglas is even less daring than most. He also resists new government programs that cost anything or interfere with personal choices.
As he demonstrated again in Washington last week, in his testimony about auto emissions, Douglas is by no means one of those Republicans who denies the existence of global warming, or who reflexively opposes all regulation. But he’d rather do less of it than more.
So, what better response than to concoct an idea that costs neither the state treasury nor a single citizen a red cent, and might bring in a fistful of dollars . . . someday? If nothing else, Douglas’ proposal changes the subject from ‘Why aren’t you doing anything?” to “Here’s my interesting idea.” And if, a few months from now, the officials, scholars and private-sector members of the recently formed Vermont Climate Collaborative decide to abort the project, it has still served the governor politically.
This is not to suggest that Douglas is insincere. A governor can be well meaning and politically shrewd at the same time. Besides, it’s likely that all those smart people from the state government and UVM will come up with something Vermont can do to combat global warming. Even if it’s far less ambitious than turning the state into the nationwide carbon-trading leader.
Perhaps, for instance, Vermont will figure out how to take advantage of an abundant natural resource that’s theoretically convertible into carbon credits: its forests. The Governor’s Commission on Climate Change reported that “Vermont’s most precious and effective mechanism for countering climate change is our forested landscape, which represents nearly 80 percent of the state’s land area and . . . holds the promise of economic benefit, such as offsets under a potential future carbon cap-and-trade system.”
There are problems with this scheme, too: “Potential” and “future” are euphemisms for nonexistent. Besides, one good way to use forests to reduce carbon emissions is to leave them alone — hardly likely in a state where most of the forest is a privately owned source of income.
There are ways to manage forests so they can be logged and also hold down carbon emissions. Some of those ways might be controversial. But one advantage Vermont has is the knowledge it would take to put them in action, once the will is there. Richard Donovan, of the Richmond-based stewardship group Rainforest Alliance, says, “I think we do have expertise in the state, [foresters who] have a good handle on some of the science.”
Donovan thinks Vermont could even become “a leader in the field,” but most likely by concentrating its efforts on New England, not by trying to create a national standard.
So, here’s a scaled-down dream: It’s 2030, and a few score Vermonters are making a pretty good living in the regional carbon-trading business, in the process helping some landowners sell timber while practicing environmentally responsible forestry. Like the rest of us, they pay taxes.
Paradise, or anything approaching it, will have to wait.
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