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Climate Lessons from Kyoto to Sacramento to Poznan

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In Sacramento, the California Air Resources Board just passed its AB32 Scoping Plan, a blueprint for reducing greenhouse gas emissions back to 1990 levels by 2020. They deserve congratulations for taking the lead on this important issue, and moving ahead while our Federal Government was stuck in suspended animation for the last 8 years.

Thousands of miles away in Poznan, Poland, delegates from all over the world were grinding their way through an impossible mission of getting 190 countries to sign on to a global greenhouse gas emission reduction agreement. Will there be mandatory timetables and emissions targets? Who goes first: Europe or China and India? We won't really find out until next December, when the UN Framework Convention meets next in Copenhagen.

But based on the outcome of the last international agreement, the Kyoto Protocol, we shouldn't wait around for an international treaty to save the day. The European Emissions Trading Scheme (ETS) has had major problems. They gave permits away to the largest utilities, which turned around and raised prices to consumers, resulting in windfall profits. The ETS also overallocated permits, which is also partly as a result of the permit giveaway. The overallocation kept allowance prices low, but the weak price signal meant very few, if any, emissions reductions can be attributed to the ETS.

The ETS did teach economists some lessons about how to design a cap and trade system. One of the lessons learned was to auction permits. This prevents windfall profits, sends a price signal to polluters to reduce emissions up front, and provides a source of revenues to the government.

California's Air Board knows this. In 2007 the State convened a Market Advisory Committee, which told them to auction (though not unanimously). Their own staff agreed. They made auctioning a "worthwhile" goal, and finally at the last minute said it was something they would like to do eventually. They left major questions for later. For example, they have a laundry list of what they would do with the auction revenues. That list will need to be whittled down and prioritized.

It is too simplistic to say that Sacramento's climate policy efforts were successful and Poznan's were not. California cannot succeed in tackling climate change unless the world also succeeds. It was interesting to see similarities in the critics at both venues. California's plan was attacked by strange bedfellows: a business constituency who said the plan would be too expensive, and environmental justice advocates who said the cap and trade program would unfairly burden low-income minority communities. The loudest voices of dissent at Poznan were island nations that are feeling that same unfair burden, while the Bush Administration's conservative business agenda has blocked progress for the last eight years by saying that Kyoto was too expensive.

This past year has brought change to the White House. Sacramento's efforts will facilitate Washington's development of a federal climate policy. And Poznan's struggles in the wake of Kyoto will be fruitful if we can learn from past mistakes. Stay tuned...

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