Obama the Explainer

If your friends and family perceive you as the local environmental expert, you’ve probably been in social situations when you had to answer this question: How does cap and trade work? Drawing upon your best environmental economics plus a dash of conversational flair, you stumble through the subject and leave your listeners thinking they sort of understand it. Too bad the President of the United States isn’t nearby to bolster your case. This is how President Obama explained cap and trade during his Earth Day speech at a wind tower factory in Iowa last week:

> And here’s how a market-based cap would work: We’d set a cap, a ceiling, on all the carbon dioxide and other greenhouse gases that our economy is allowed to produce in total, combining the emissions from cars and trucks, coal-fired power plants, energy-intensive industries, all sources.

> And by setting an overall cap, carbon pollution becomes like a commodity. It places a value on a limited resource, and that is the ability to pollute. And to determine that value, just like any other traded commodity, we’d create a market where companies could buy and sell the right to produce a certain amount of carbon pollution. And in this way, every company can determine for itself whether it makes sense to spend the money to become cleaner or more efficient, or to spend the money on a certain amount of allowable pollution.

> “Over time, as the cap on greenhouse gases is lowered, the commodity becomes scarcer — and the price goes up. And year by year, companies and consumers would have greater incentive to invest in clean energy and energy efficiency as the price of the status quo became more expensive.

> What this does is it makes wind power more economical, makes solar power more economical. Clean energy all becomes more economical. And by closing the carbon loophole through this kind of market-based cap, we can address in a systematic way all the facets of the energy crisis: We lower our dependence on foreign oil, we reduce our use of fossil fuels, we promote new industries right here in America. We set up the right incentives so that everybody is moving in the same direction towards energy independence.

President Obama’s talent for explaining complicated things will be very much needed in the coming weeks as Congress debates climate policy legislation. The discussion draft prepared by Reps. Henry Waxman (D-CA) and Edward Markey (D-MA) moves into the mark-up phase next week. Lobbyists representing every affected interest are crawling over Capitol Hill in their efforts to influence the bill. Members of Congress will be reluctant to vote for legislation they don’t understand. That’s why President Obama has to apply his gifts of clarity and persuasion to push a comprehensive climate bill through Congress.

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  1. Lynda Vaskov - April 29, 2009

    All for green. In fact, we are dealers for Mariah Windspheres. However, don’t think you need to worry about congress being reluctant to vote for legislation they don’t understand. They vote for legislation consistently that they haven’t even read. Vote them out and vote for term limits.

  2. Chad - April 29, 2009

    “we can address in a systematic way all the facets of the energy crisis: We lower our dependence on foreign oil, we reduce our use of fossil fuels, we promote new industries right here in America.”
    It is interesting to note that he didn’t mention that our air and water will become cleaner. This is an important side-benefit to a cap or tax, especially because the savings we will have in the health care system will offset some of the price we pay to green our economy. Indeed, in the case of coal, it will likely save us more in medical bills than it will increase the cost of our electricity.

  3. George - April 29, 2009

    I read that CO2 from livestock is the #2 source today. Coal generated electricity being # 1 and transportation # 3. Is anybody addressing this area?

  4. Adam Stein - April 29, 2009

    Well…people are aware of the issue. Various piecemeal efforts are being made to address it. But woe betide a politician who does anything to upset the farm lobby.
    However, keep in mind that a lot of the emissions attributed to livestock are actually from transportation related to the industry. These emissions would be regulated under a cap and trade system, so the issue is at least being partially addressed. Another big problem is deforestation related to grazing and the production of animal feed, and hopefully this will also start to be addressed under future international treaties.
    Short answer: the problem is being attached slowly and indirectly.

  5. Rebecca S. - April 29, 2009

    There are actually proposals before Congress that address agricultural pollution. The EPA even has a program called AgSTAR (http://www.epa.gov/agstar/index.html) that helps farms and landfills build/install energy generators on their property. In other words, we actually have the technology to turn capture methane gasses put off by manure and trash and turn that into biofuel, which can be used as natural gas. This is an area I believe we can actually make progress, because excess manure is one of the biggest issues in the agricultural sector, so it can be billed as helping both farmers/giant food corporations, the environment and the economy!
    Question for TerraPass: Thanks for posting this. I haven’t seen this quote anywhere, and I am that person who awkwardly tries to explain cap and trade at family/friend events. Where did you pull the quote from? Is there somewhere I could find the whole speech or an article in some Iowa paper you got it from? Thanks!

  6. Jeb - April 29, 2009

    I’m bothered that the “clean energy” investments covered under these trades would appear to include a carbon neutral alternative with other environmental and social concerns: nuclear power. But, we’ve always known that one of the downsides of any carbon regulation scheme is that it makes nuclear power look better.

  7. Adam Stein - April 29, 2009

    The complete text of the speech, which was delivered on Earth Day at a wind turbine plant in Iowa, is available on the White House web site:
    http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-in-Newton-IA/
    TerraPass works with a lot of dairy farms to set up methane digesters, and we’re definitely big fans of these kind of projects. Nevertheless, manure management is just one piece of a much bigger picture.

  8. Jason - April 29, 2009

    If we were able to keep progressing in the use of nuclear power, it would end up being the cleanest, most efficient power out there.
    http://is.gd/vndW

  9. Brian - April 29, 2009

    I have a question, that may have been addressed before, but here goes.
    With the “Cap and Trade” idea in mind what is going to keep any buisness in the US from moving out of the country because it becomes too expensive? China and quite a few others don’t always go along with our mindset, and even our best attempts at reducing global carbon seems to be little more than making ourselves feel good.
    Unless the powers that be somehow force them to stay, I don’t see how this could work. I don’t think we want to buy our electricty from outside the country like we do oil.
    Couldn’t we build the wind, solar and other power sources with out spending the energy growing another layer of goverment to oversee the effort? I would rather see that money go straight to the new power items.
    This Newbe to Terrapass thanks you.

  10. Adam Stein - April 29, 2009

    Hi Brian,
    You’re asking good questions, but these are complicate topics. I’ll try to give some really brief answers.
    With the “Cap and Trade” idea in mind what is going to keep any buisness in the US from moving out of the country because it becomes too expensive? China and quite a few others don’t always go along with our mindset,
    Any long-term fix to climate change has to be global. Otherwise, as you note, industries will just migrate to countries that don’t have environmental protections. There are a number of ways to motivate China and India to follow our lead, some punitive (trade restrictions) and some friendlier (technology transfer). The first step, though, is putting a framework for reducing carbon emission in place in the U.S., and then negotiating international agreements. This will be a multi-year process, maybe a multi-decade one.
    and even our best attempts at reducing global carbon seems to be little more than making ourselves feel good.
    Well, it’s a bit early to be this pessimistic. We’ve really just begun, before the financial crisis hit, the latest data suggested that Kyoto was having a meaningful effect on carbon emissions.
    I don’t think we want to buy our electricty from outside the country like we do oil.
    I’m not really sure how true this is in principle, but anyway, you don’t have anything to worry about. Electricity doesn’t transport well and we have great renewable resources in the U.S., so we’ll be making most of it within our own borders.
    Couldn’t we build the wind, solar and other power sources with out spending the energy growing another layer of goverment to oversee the effort? I would rather see that money go straight to the new power items.
    It will go straight to project developers. There’s this myth that carbon pricing somehow involves channeling massive amounts of money through government and then bestowing it on favored projects. In reality, carbon pricing just sets up the right incentives for private actors, and let’s them decide what to do. Think of the stock market — the government regulates the activity, but it doesn’t tell anyone what to buy.

  11. Keith - May 1, 2009

    If you vote them out, there’d be no need for term limits. If someone is good, then we should keep them in office so they can continue to do good. We have term limits in Colorado and many of the best state legislators have to leave after only 8 years. That just gives unelected lobbyists more influence because they know the issues better than all the inexperienced legislators.
    But in any case, voting for term limits on a national level is moot unless you can get a constitutional amendment passed by 2/3 of the states and that’s a tall order.
    (P.S. – I think I have my facts correct re. “8 years” and “2/3 of the states”).