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Cataloguing the Errors in "The Story of Cap and Trade"
Eric De Place, 3 Dec 09

Exactly what's wrong with the web video sensation.

There's a viral Web video making the rounds. I don't like it. (For context, read my first post on this subject: "A Story of Ignorance About Cap and Trade.") Today, I'm going to catalogue its errors.

You can find the transcript here (pdf), though just reading the transcript doesn't give you the full picture of the snark conveyed by the animated cartoons that accompany Annie Leonard's delivery in the video. Here's the video:

Now, let's take an inventory of all the errors. Get comfy, it's gonna take a while.

"Okay, meet the guys at the heart of this so-called solution. They include the guys from Enron who designed energy trading, and the Wall Street financiers like Goldman Sachs who gave gave us the subprime mortgage crisis."

False. For decades environmental activists, progressives, and scientists have labored against overwhelming odds to enact a cap and trade program. In no sense are "these guys" from Enron and Wall Street at the heart of the solution. They are not now and they never have been.

But I've got to hand it to her: this insult really stung. All these years that tens of thousands of folks like me have worked long hours at low pay (or no pay) to hash out a workable and effective climate policy and it turns out that our purported allies like Leonard would rather paint us as duplicitious bankers in pin-striped suits. (That's not an exaggeration, by the way: that's how the animated cartoon depicts cap and trade proponents throughout the video.)

"Their job is to develop brand new markets. They stake their claims and then when everyone and their grandmother wants in, they make off with huge amounts of money as the market becomes a giant bubble and then bursts."

Odd. Uh, what? This doesn't really have to do with cap and trade so I should probably leave it alone, but it's perplexing that this is what she thinks markets do. But I want clarification from the bien-pensants to my left: are progressives now anti-market in all circumstances? Do the recent bubbles mean that we're now supposed to be, in principle, opposed to stocks, commodities, etc? Are we supposed to hate the acid rain cap-and-trade programs too?

"...they’ve got a new idea for a market – trading carbon pollution."

False on two counts. It's not a new idea. Brokers have participated in cap and trade markets since the 1990s and in carbon markets for about a decade. There have been no instances of gaming or market manipulation.

What they trade is not carbon pollution -- sounds nasty, right? -- but a limited right (an "allowance" or "permit") to emit carbon pollution.

"They’re about to develop a new $3 trillion bubble..."

Deception. A trading market is not a bubble. There are trading markets for US Treasuries, soybean futures, municipal bonds, and stocks in Coca-Cola to name just a very few things that are traded. (Oh, and carbon permits, I almost forgot.) None of these things are bubbles.

" are we gonna reduce carbon 80% and not go back to living like Little House on the Prairie? Well, these Cap and Trade guys are saying that a new carbon stock market is the best way to get it done."

False. These "Cap and Trade guys" (that's me and the banksters, I guess), are saying -- as we have been saying for years -- that the best way is to put a cap on carbon. I work on climate policy full time and I have literally never heard anyone say that "a new carbon stock market" is the best way. I've never heard anything like it, in fact.

"...these guys take their fee as they broker this multi-trillion dollar carbon racket, I mean market."

Classy. Not that this kind of thing merits a response, but its worth pointing out that carbon trading brokers reduce costs. That means they save money for consumers (and businesses) and help the whole program function more smoothly. Buyers and sellers of carbon permits (or anything else for that matter) don't have to use a broker; people use brokers because it's cheaper and easier too -- and, yes, brokers take fees for their services.

"A lot of environmental groups that I respect do too. They know it’s not a perfect solution and don’t love the idea of turning our planet’s future over to these guys..."

False. Cap and trade does not "turn our planet's future over to these guys" (meaning the Wall Street guys). The most elemental fact about cap and trade is that carbon trading is absolutely unrelated to the program's environmental integrity. Even if some bad guys made money on trading, the program would still reduce emissions. The trading doesn't affect the cap. At all. Not even a little.

Under cap and trade, our planet's future remains where it is now: in our hands. It's up to governments to set firm legal limits -- cap, in other words -- on climate pollution. Trading carbon permits doesn't change that.

"...even the economists who invented the cap and trade system to deal with simpler problems like fertilizer pollution and sulfur dioxide, say cap and trade will never work for climate change."

False. They do not say that it will "never" work for climate change. (Go ahead and read the lengthy footnote provided for this claim in the transcript.) They are skeptical, to be sure, but largely because they are concerned about enforcement of a global program. Of course, it's unlikely that we'll ever have, or even want, a global program. We'll have national or regional programs that are loosely coordinated.

"When it comes to any kind of financial scam, like subprime mortgages or Bernie Madoff’s pyramid scheme, the devil is always in the details. And there are a lot of devils in the details of the cap and trade proposals on the table."

Deception. I don't even know what this is supposed to be about other than fear-mongering. Bernie Madoff! Ooga-booga! What on earth do "financial scams" have to do with cap and trade? (Hint: we never find out.)

"Devil number one is known as Free Permits, which is why some people call this system Cap and Giveaway.

False. Free permits are not a feature of cap and trade, but rather of cap and trade done poorly. There's a simple solution: auction or sell the permits. The major US cap-and-trade bills take a complicated hybrid approach, auctioning some, giving some away, and reserving the value of others for public benefits.

"In this scheme, industrial polluters will get the vast majority of these valuable permits for free. Free! The more they’ve been polluting, the more they’ll get."

Confusion. Free allocation of permits does not imply that the allocation occurs on the basis of historical pollution. There are plenty of other principled ways to give away permits, some of which will be undertaken by the climate bills in Congress.

"In Europe where they tried a Cap and Giveaway system, the value of the permits bounced around like crazy..."

Confusion. It is more or less common knowledge in climate policy circles that the reason that the value of permits in Europe bounced around initially had little to do with the fact that permits were given away for free. It was because too many permits were distributed at the outset, a problem that has since been corrected. 

" costs jumped for consumers..."

Confusion. Increased energy costs have nothing whatsoever to do with the method of allocating permits. Any program that restricts carbon -- taxes, cap and trade, or regulation -- will increase costs.

"Carbon emissions actually went up!"

False. Carbon emissions went down.

"MIT economists say the same thing would likely happen here in the US."

Cherry-picking. She doesn't mention the legions of economists who support cap and trade.

"Instead of just giving permits away to polluters, we could sell them and use the money to:

  • build a clean energy economy
  • or give citizens a dividend to help pay for higher fuel prices while we transition to that clean energy economy
  • or share it with those who are most harmed by climate change. Some people call this paying our ecological debt"

Deception. The implication here is that existing cap-and-trade proposals won't do these things. In fact, they will -- at least partially.

"Did you know that in the next century, because of the changing climate, whole island nations could end up underwater and the UN says 9 out of 10 African farmers could lose their ability to grow food. Wouldn’t a real solution benefit these people instead of just polluters?"

Odd. Is this even relevant? Or is it just a sneaky innuendo that a cap on carbon would not benefit the African farmers (and others in the Third World) whose livelihoods are threatened by climate change?

In fact, the best thing we can do is put the brakes on climate-changing emissions post haste. Then we should figure out how to help people adapt to the changes that are already inevitable. Luckily, cap and trade provides an excellent framework to do both of these things. That's what the coming summit in Copenhagen is all about.  

"..operators of a polluting factory can claim they were planning to expand 200% but reduced the plans to expand only 100%. For that meaningless claim, they get offset permits – permits that they can sell to someone else to make more pollution!"

Deception. She selectively cites a few instances of nutty-sounding abuses in one particular carbon offsets program and then conflates them with offsets generally. (Dave Roberts has a nice treatment of this in his post on the video.) But this one is a bridge too far. The cap-and-trade proposals in Congress would not allow this kind of thing. In fact, they go to great lengths to specify exacting standards for offsets -- and this kind of thing is wildly out of bounds.

I'm not a fan of offsets. They may turn out to be a good thing, but they do worry me a lot. Still, they are a problem for any carbon policy. They will plague carbon taxes, regulation,  or voluntary action just as they do cap and trade. So if you're worried about offsets, as I am, the logical thing to do is to try to reduce their role and tighten the standards used to certify them.

"We’re not even close to a global agreement on a carbon cap to begin with..."

Deception. Europe has a cap on carbon and the United States is very close to having one (and Canada will follow the US's lead). So that will cover all of the world's largest contributers to the problem of climate change. Many other nations, including some of the big dynamic developing countries, have said they will consider a carbon cap if the rich countries lead. Forging a global agreement on a carbon cap is what the big summit in Copenhagen is about.

"...we’re putting the cart before the horse and rushing off to trade schemes and offsets."

False. Cap and trade puts things in the right order. To wit, it puts a cap on carbon emissions -- something that no other carbon policy does. Other policies, like carbon taxes, are more concerned with setting a price on carbon put are perfectly happy to let the market determine how much carbon is emitted. (Also, what does it mean to "trade schemes"?)

"We don’t need to let these guys design the solution..."

Deception. "These guys" (the Wall Street guys, according to her video), did not design the solution. Cap and trade was pioneered by the US Environmental Protection Agency where it proved to be remarkably successful. It's since been rolled out successfully for numerous air pollution programs, a carbon cap-and-trade system in Europe (successfully) and a carbon cap-and-trade system in the northeast US (also successfully).

Go EPA go! Cap that carbon!

Confusion. Letting the EPA cap carbon should be a last resort. Enacting a cap based on regulatory fiat is almost sure to be the more expensive and unfair way to do it. Command and control regulation would create arbitrary winners and losers, raise prices for consumers, and lack mechanisms to address equity concerns.

Unless, that is, the EPA did what it's good at doing: enact a cap-and-trade program. Now that's something I could support.

"...a U.S. cap and trade law proposed in 2009 guts the Clean Air Act..."

False. The cap-and-trade laws in Congress do not "gut" the Clean Air Act. (Interestly, this claim is actually not cited in the transcript; or rather, there's a citation but it is supporting an unrelated claim in the next paragraph.) It is possible that US federal law will reserve carbon reduction for new comprehensive energy and climate laws -- the laws that include cap and trade -- but the EPA will retain all of its authority to do everything that it has been doing since its inception. The only thing the EPA might lose -- and I say "might" -- is its ability to manage carbon policy, an ability that it has had for less than a year.

"...cap and trade makes citizens think everything will be okay if we just drive a little less, change our light bulbs and let these guys do the rest."

Deception. And a classy one at that. It's true that cap and trade takes a comprehensive approach to climate change, rather than relying on small-bore individual actions that have, to date, proved totally inadequate to addressing climate change. That's a good thing. But to be successful, cap and trade will likely need the support of dozens or hundred of complementary policies -- the very sorts of things that are included in the current legislation in Congress.

Moreover, cap and trade does nothing to allay anyone's concerns about adapting to the climate changes that are already inevitable. It may, however, provide some much-need funding to address these problems.

"These cap and trade proposals are mostly about protecting business as usual."

False. Cap and trade is about fundamentally changing the current energy economy away from fossil fuels and toward clean energy, efficiency, and conservation. There's no other policy that's so far-reaching in its scope, especially when one considers the other important components in the energy and climate bills in Congress.

"Right now, the US subsidizes fossil fuels at more than twice the rate of renewables. What? We shouldn’t be subsidizing fossil fuels at all!"

Deception. Cap and trade would, in effect, put a price on fossil fuels, thereby reducing their net subsidies. It also provides a revenue stream that can be directed toward subsidizing renewable energy.

"I know we’d all love to sacrifice nothing, save the planet and get rich doing it."

"We can’t solve it with the mindset – their mindset..."

Classy. And this is how the piece wraps up, with what passes among progressives for name-calling and taunts. Needless to say, this stuff has pretty much nothing at all to do with cap and trade. There are no real solutions offered in the video, nor anything other than bromides that we can't "get rich" saving the planet.


For a more credible assessment of cap and trade, let me suggest Sightline's Cap and Trade 101: A Climate Policy Primer. For more on the bills in Congress, please see Alan's excellent post on the Waxman-Markey bill, which passed the House last summer, and my roughed-in notes on the Clean Energy Jobs Act that's now in the Senate.

This piece originally appeared on The Sightline Institute's Daily Score Blog

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I appreciate the blow by blow criticism. Now I'd like to know how it really works. Is there some place with a credible assessment of the system?

Posted by: Neal Gorenflo on 3 Dec 09

The facts are on your side, Eric. But the "subprime carbon" argument is easy to grasp, and while Annie Leonard isn't the first person to level the charge (as you noted here), her video makes the notion that much easier to pass on to others.

I think cap-and-trade supporters need to fight fire with fire on this, and pronto, while people are still making up their minds and learning about cap-and-trade. Start perhaps by creating your own video - call it A Story of Ignorance About Cap and Trade, as you have already done. Intercut clips from the original with your point-by-point rebuttal. Put it up on YouTube as a response to the original, then cross-post to other sites and blogs to get the word out.

Otherwise, cap-and-trade is going to be hit hard by a one-two combination mental punch: guilt by association with "banker-gangsters"; and people's natural tendency to reject ideas they doubt or don't understand.

Posted by: Aaron Keating on 3 Dec 09

It is very very disappointing that this is the sequel that Annie chose to get out following her outstanding "Story of Stuff."

Hell, I prefer a carbon tax to cap and trade too. But this is a horrible sequel to "Story of Stuff." It's just a horrible choice. Even if Annie were correct that carbon trading is so awful the better Story of Stuff follow-up would have been a film that explains climate change and greenhouse gases in her simple, accessible style.

It's very odd that Annie would choose to skip the basic primer and jump right ahead to a critique of one particular solution to the problem. Instead of bringing people together around a set of problems like she did with "Story of Stuff," she's chosen a subject that divides the environmental community at a time when we could really use a lot more unity.

We really need someone like Annie helping to explain to the half of the American public who don't care about climate change why they should. Instead, here she is getting the half of the public that does want to do something about climate change to fight with each other. Stupid. Just stupid.

Posted by: Aaron on 3 Dec 09

The video is a well done piece of PR, which I agree isn't really trying to give an unbiased appraisal of carbon cap and trade, but don't you think that there does exist a risk of the kind of scheming she fears taking place? Cap and trade doesn't *have* to be broken, but it certainly *could* be implemented poorly, in a way that doesn't really help anything, but does potentially enrich the marketeers, and no offense, but the marketeers have proven to be frighteningly effective at getting what they want out of congress over the last 18 months. The three main points she makes, about giving away (instead of auctioning off) the initial quotas, about the potential abuse of offsets, and about distraction/complacency do seem to me like the main things to be wary of in approaching the problem.

Posted by: Zane Selvans on 3 Dec 09

Well you've certainly reduced Annie Leonard's view to a pile of rubble with your silver theory hammer. Back in the real world you may be interested to look at the slides from a presentation (PDF) given on the 13th November 2009 by Dr Geoff Bertram from the Institute of Policy Studies, Victoria University of Wellington entitled "How not to design an Emissions Trading Scheme: Lessons from New Zealand". This shows what happens when economic theory gets put into practice by politicians. Those same politicians will be at Copenhagen claiming that New Zealand has the world's first all sectors, all gasses emissions trading scheme.

The previous centre left government (Labour) introduced the trading scheme after a carbon tax was howled down by the farming community (49% of NZ emissions come from agriculture). The new centre right government (National) has amended the ETS and it is this new version that Dr Bertram analyses. The Sustainability Council estimates that the scheme will deliver $NZ100 billion in subsidies to large polluters over its 80 year "transitional" period.

Perhaps Ms Leonard's misgivings are not completely unfounded after all?

Posted by: Pete on 3 Dec 09

To understand this debate, we need to understand what Annie Leonard was truly trying to accomplish with this. She said something vague about EPA regulation, but really didn't go into enough depth for me to understand her true goals, other than killing the only current politically viable carbon reduction strategy (though I guess she would argue cap and trade would actually only speed up global warming).

Posted by: Jensen Gelfond on 4 Dec 09

This New Orleanian shares the opinion of many people in areas around the world which have been devastated by climate change: we need a real solution, and it can't be premised on the same market-based solutions that created the problem in the first place. Go Annie Leonard for standing up to speak the truth once again, saying that we cannot tolerate problems posing as solutions just because they are politically expedient. We have been told time and again, on so many issues, that 'this is the best we can expect.' But cap and trade is not, not by a long shot. That many of the big environmental groups have sold out on the issue is no argument of the rightness of the misguided policy.

Posted by: Beverly Bell on 4 Dec 09

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