Cap and Trade: Dead or Alive?

12/02/2010 05:30 pm ET | Updated May 25, 2011

Crossposted with

Dead, say the experts.

Cap and Trade's Brief Carbon Stardom

Once it was a rising star. The Chicago Climate Exchange, launched in 2003 to give companies a place to voluntarily buy and sell carbon emissions, was doing a brisk business (see here and here). In June 2009 the U.S. House of Representatives passed a climate bill that would set up a national cap-and-trade system, and plans were falling into place for the Copenhagen climate confab where the international community was primed to put an international emissions cap into place.

Then a Nose Dive

Alas, it was not to be. In the United States, in a creative but devastating wordplay, climate change "refudiaters" invoked the dreaded "t" word, calling cap and trade "cap and tax," and it stuck. (See here, here and here.) Things for poor little cap and trade -- the brainchild, you might be surprised to learn, of none other than Republican C. Boyden Gray, a lawyer in the Reagan administration and the White House Counsel under President George H. W. Bush -- went from bad to worse as many on the left signaled their opposition to a system they saw as a poorly disguised money grab by big business and speculators (see here and here). A weakened and demoralized cap and trade, once thought to be able to leap over political hurdles in a single bound, found itself unable to rise above the 60-vote threshold for passage in the Senate.

Followed by Gunshots

But cap and trade had not yet hit bottom. During last month's mid-term election campaign, candidate after candidate for U.S. Congress did his or her best to outdo opponents in proving his of her bona fides in opposing cap and trade. Perhaps no one performed better than West Virginia's Joe Manchin whose TV ad for his Senate run featured himself shooting a bullet right through the heart of a cap-and-trade bill.

As election results tumbled in during the night, it became clear that passage of a cap-and-trade bill would not be in the cards any time soon -- a prognosis confirmed by President Obama in a press conference following, in his word, the "shellacking."

And then the final coup de grace. With carbon trading at only five cents a ton, the Chicago Climate Exchange announced it was shuttering.

And a Death Pronouncement

It was, rather ironically, Environmental Defense Fund President Fred Krupp -- a chief architect of the cap-and-trade program for acid rain -- who seemed to sound the cap-and-trade death knell with his pronouncement: "Economywide cap and trade died of what amounts to natural causes in Washington."

Takes a Beating on the World Stage

On the international scene, cap and trade has hit rough water as well. After last year's fiasco in Copenhagen, this year's climate summit, just a few days in, does not appear to be going all that well despite the fact that ambitions for Cancun are relatively modest. The latest new flash is Japan's announcement that it will not participate in an extension of the Kyoto Protocol following 2012.

But Wait ... Could There Still Be a Pulse?

It's worth remembering that not everything that plays out on the world stage, where diplomats have a habit of grandstanding, is indicative of what individual nations think and do. (Anyone read any leaked cables lately?) And not every nation acts exactly as the United States does. Indeed not even every state does.

Fledgling cap-and-trade systems are being developed in California, where an initiative to undo the state's ambitious climate legislation was soundly defeated. Through the Regional Greenhouse Gas Initiative, the Northeast has its own trading system. And European nations are still moving forward with their plans and trading schemes, looking at tightening caps.

And what's more, China, of all places, is getting on board. Remember China? The poster child for the bad-climate actor? The rising behemoth in the world economy that is now responsible for more emissions than any other country including the United States? The one whose intransigence about reining emissions is the very reason many Americans oppose climate legislation here?

Yes, in that very same China a cap-and-trade heartbeat, albeit a faint one, is emanating: a cap-and-trade program, whose details are still to be ironed out, is a centerpiece of China's upcoming five-year energy plan.

Yes, it's important to keep in mind that China's cap and trade is geared toward meeting its 2020 carbon intensity target rather than an overall reduction of carbon dioxide emissions, but they are at least in the game.

And while we here in the United States appear to have decided to ignore the faint Chinese heartbeat, Europe has not. And what do they hear in it? Opportunity knocking.

Earlier this month, China and officials from the European Union met to scope out a pilot carbon-trading program. Could there be a new international economic regime in the making -- one with billions of dollars in carbon credits and low-carbon technologies flowing between Europe and China and the United States locked out?

Pronouncements of the death of cap and trade may be premature.