DeFazio Votes Against Wall Street Speculation In Climate Change Legislation
Congressman Peter DeFazio (OR-04) today voted against H.R.2454, the American Clean Energy and Security Act. The legislation will the subject American carbon emissions to an unregulated market as part of an attempt to stop global warming. Unfortunately, the measure passed the House of Representatives by a vote of 219 to 212.
"Here we go again. Just a few short months ago, the world economy stood at the brink of total disaster because of market manipulation and the lack of regulation in the financial sector. Now we are constructing a whole new speculative market in carbon allowances and offset trading while our economy is still struggling to recover from the last economic collapse. I voted against this bill because a deregulated market is not the way to respond to one of the most important and pressing challenges of our time, global warming," DeFazio said. "Furthermore, speculation in the carbon market will unnecessarily drive up energy costs in unpredictable ways. And, by best estimates a cap and trade system will only produce modest reductions in our carbon emissions over the next century."
The cap and trade system included in the energy bill is an unregulated market based system, susceptible to gaming by Wall Street. A cap and trade system sets pollution limits (the "cap") and doles out allowances that can be bought and sold to meet the targets (the "trade"). Carbon credits can be sold as "futures contract" meaning, the carbon credit is sold at a certain price, on a specified date. This is a form of "derivative." We can look forward to carbon offset derivatives futures tranched into collateralized debt obligation insured by credit default swaps mimicking the recent mortgage trading by AIG and others.
Furthermore, the bill includes a provision for "offsets." Offsets allow polluters to forego any meaningful change in behavior in the U.S. by investing in projects in developing countries. Most studies show offsets are dubious and difficult to verify. For example, a report by David Victor, the head of Stanford University's Energy and Sustainable Development Program, found that "between a third and two-thirds" of offsets used in the European cap-and-trade market do not represent actual emissions cuts. In fact, in 2005-2007 Europe emitted more carbon and added $60 billion in costs by trading carbon.
Finally, cap-and-trade doesn't go far enough to protect consumers against rising energy costs. If the bill had at least auctioned allowances, a U.S. cap-and-trade market could have raised $846 billion by 2020. We could have used this revenue to protect consumers, invest in clean energy technology, and move toward energy independence. Instead, the allowances in a U.S. cap-and-trade will be given away to polluters for free. DeFazio proposed an amendment to fix this short fall, as well as other failing in the bill but, unfortunately they were left out of the legislation.
DeFazio instead favors a regulatory approach similar to the Clean Water Act and the Clean Air Act. Under DeFazio's plan, the US would set a strong cap, inventory pollution sources, issue permits, and fine polluters who don't meet their targets. The Clean Water Act and the Clean Air Act are two of the most successful environmental laws in history. In fact, under court order, the Environmental Protection Agency (EPA) has begun the process to regulate green house gas emissions under the Clean Air Act. Remarkably, the Markey-Waxman bill specifically prohibits the EPA from going forward with those regulations.
Finally, it is essential to evaluate any legislative proposal by its economic effects on the Pacific Northwest. Unfortunately, this bill disadvantages the Pacific Northwest and unfairly punishes our region's low carbon emissions footprint. The Pacific Northwest is blessed with low cost zero emission hydroelectric generation. To my dismay, a provision was added just days before the vote that would redirect the carbon allocations from the Pacific Northwest to the dirty coal burning Midwest states.
"A regulatory program would not require Congressional approval meaning we would begin to reduce emissions immediately, no Wall Street speculators and hedgers, no carbon market or new derivatives market, no giveaways to polluters, no complex and unverifiable international offsets,' and no uncertainty about meaningful emission reductions," DeFazio said. "I am deeply saddened that this approach was not considered and instead, the House has voted to create the next financial instrument of mass destruction, a trillion dollar carbon trading bubble for Wall Street."