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While President George W. Bush has little environmental cred left after seven years of the least green Administration in modern memory, in this case he had a point. Carbon is a global pollutant, meaning that it has the same impact whether it's emitted from an suv in Boston, a factory in Beijing or a burning forest outside Brasília. Dramatic reductions in U.S. emissions won't bring the intended environmental benefits if emissions by other countries increase at the same time. The problem is, if we don't clean up our own mess because developing giants don't have to, what's the incentive for them to clean up theirs? "If we don't act, China and India will simply hide behind America's skirts of inactions and take no steps of their own," says Senator John Warner of Virginia.
If the U.S. breaks the logjam and adopts a national cap-and-trade program, it may be Warner who will deserve much of the credit. Last December, a bill that the veteran Republican co-sponsored with independent Senator Joseph Lieberman of Connecticut passed out of the Senate's Committee on Environment and Public Works, giving it the best opportunity of any of the many proposed cap-and-trade bills to become law. Lieberman-Warner, as it's known, calls for cutting carbon from most sources to 2005 levels by 2012 and then 70% below 2005 levels by 2050. Environmentalists would like to see it strengthened, with less wiggle room for polluting industries, but with little else on the table, an attainable good bill may be a lot more attractive than an unattainable perfect one. "The sooner we can get something, the better," says Eileen Claussen, president of the Pew Center on Global Climate Change.
Lieberman-Warner hasn't yet gone to a full vote in the Senate, although it may reach the floor by late spring. It will face opposition from the White House, as well as from many Republicans and some Democrats from coal-dependent states. The principal rap against cap-and-trade proposals is that they would be a drag on the economy. A new study by the National Association of Manufacturers, an industry trade group, estimates that Lieberman-Warner would cost the U.S. up to 4 million jobs by 2030 while eroding gdp by up to $669 billion per year. "The environmental community would have you believe that you can make these changes and not only will there not be negative consequences, there'll be positive consequences," says Republican Representative Joe Barton, ranking minority member of the House Committee on Energy and Commerce.
It's true that there will be costs associated with any carbon-pricing plan; ending climate change won't be free. "You want a clean environment, you have to pay for it," says Peter Fusaro, founder of the green investment group Global Change Associates. But just how high will the tab be? An Environmental Protection Agency (EPA) study found that gdp would grow just 1% less from 2010 to 2030 under Lieberman-Warner than without it—and that doesn't take into account the potential economic benefits. In an April study, the International Monetary Fund concluded that smart carbon-cutting policies could contain climate change without seriously harming the global economy. And while the U.S. business community will fight hard over the details of any cap-and-trade plan, a growing number of companies are now begging for the certainty that will come from what many see as inevitable legislation. "I believe it will be a challenge, but it's doable," says Peter Darbee, CEO of the West Coast utility PG&E.
Of course, such a challenge is easier for a major utility to face than it is for some consumers. Any carbon cap with teeth will boost electricity and gas prices in the short term, before carbon-free alternatives can be scaled to market, and that will hurt those already struggling to heat their homes and fill their tanks. Here's a solution, courtesy of Peter Barnes, a pioneering green entrepreneur: a cap-and-dividend system that returns the revenue raised by a cap-and-trade system to citizens through a flat rebate, similar to the way Alaskans receive oil-industry dividends from the state government.
Though a federal cap-and-trade system for carbon would largely be a foray into the unknown, we can examine how the idea is working in the states, many of which are far ahead of Washington. At the New York City headquarters of the Natural Resources Defense Council (NRDC), organization president Frances Beinecke shows a map that identifies in green those states that have committed to or are considering mandatory carbon caps. A year ago, the map was mostly white, but now it's less than half. Not only are states coming aboard one at a time, but some are joining in groups, as in the West and Northeast, where regional greenhouse-gas trading blocs are being launched. "The momentum that has built up in the states is unbelievable," says Beinecke.
To see why a serious cap-and-trade system doesn't have to come at the expense of economic growth, take a look at California. In 2006, Governor Arnold Schwarzenegger signed the most aggressive carbon regulation in the country: California has now implemented law AB 32, which mandates that the state's greenhouse-gas emissions be cut to 1990 levels by 2020, a reduction of about 25%. "There are so many states in the U.S. that have signed on to [carbon cuts]," says Schwarzenegger, a Republican who has bucked the White House and led the way on global warming.
Schwarzenegger's plans have plenty of critics. Cathy Reheis-Boyd, the chief operating officer at the Western States Petroleum Association, worries that if California gets out too far ahead of the rest of the country, local businesses will flee to unregulated states, a phenomenon called "leakage"—which is another reason a national cap is so important. "I think our industry could be effectively pushed out ofCalifornia," says Jim Repman, CEO of the California Portland Cement Co.
Past predictions that environmental laws like the Clean Air Act would decimate California's economy, however, proved false, and AB 32 could be no different. A 2006 report by the University of California, Berkeley, concluded that the law would actually boost the state's gdp by $60 billion and create 17,000 jobs by 2020 as the state's entrepreneurial tech culture churns out new companies to meet the need for energy efficiency. While energy-intensive industries like cement-making may indeed be driven out, they could be replaced by clean-tech start-ups like Solarcity, which has become in a couple of years the state's fastest-growing solar installer, employing more than 200 people. Nationwide, the American Solar Energy Society estimates, there are already 8.5 million jobs in the clean-tech sector, which it projects could grow to 40 million by 2030 with the right policies.