Stop Arguing Carbon Tax VS Cap-and-Trade: Mandates Work!

Ten years ago, I would not have said this, because I was convinced that it would be cap-and-trade that would switch us to a renewable future.

I was one of those arguing with reluctant Democrats who were convinced that cap-and-trade was “just a giveaway to polluters” and of course Republicans sneered that carbon taxes were “the equivalent of the medieval “penance.”

Sure, Poor old Senator Bingaman was constantly recycling his proposed nationwide Renewable Energy Standard (RES) through every new congress, to absolutely no effect, but I dismissed them as boring and narrow.

In my case, it was the bold climate plan by Ed Markey and Henry Waxman, a comprehensive and beautifully designed cap-and-trade plan, the American Clean Energy and Security Act (ACES) that I was convinced was going to usher in a golden age of clean energy to solve the climate crisis.

But most Democratic voters were suspicious of the concept of trading pollution allowances, seeing it as payments to pollute and no amount of explaining by any supporters was coming close to creating the slightest enthusiasm.

Despite its bipartisan-ly advantage of being the same kind of “free market” solution that had worked under former Republican president HW Bush to cut acid rain, Senate Republicans wouldn’t even consider it anyway.

In 2009, Speaker Nancy Pelosi expertly corralled enough Democratic votes in the then-majority House, but ACES died in that Senate committee.

Led by Senator Inhofe (“global warming is a hoax”), the entire Republican Environment & Public Works Committee members literally walked out of the committee meeting to prevent ACES from even being voted on. The bill never even made it out of committee for a Senate floor vote.

From 2006 on, when Democrats had retaken the Senate, variants of other cap-and-trade bills were also floated and the 40 Republican minority filibustered them – prevented them from coming to an up or down vote. Even two that they themselves had proposed, in the case of Senators John McCain and Lindsey Graham, and Senators Lieberman and Warner. The Republican bills relied on nuclear power and carbon capture & storage, while the Democrats’ had policy that incentivized solar and wind.

Case study: Total failure of carbon tax and cap-and-trade

I recently moved to a country with cap-and-trade and what amounts to a carbon tax on gasoline, and have become completely disillusioned about the merits of both policies.

Here in New Zealand, various taxes on gasoline make it about about $9 a gallon. Some of these taxes support road maintenance and are based on vehicle weight – sensibly, since heavier vehicles destroy road quality fastest.

So, everyone drives an EV here, right? Wrong.

Even with $9 gasoline, there is no shortage of SUVs here, or UTEs as they are called here: utility vehicles. We’re not talking farmers, but just suburban yuppies, the same as in the US. If high prices for fossil fuels are supposed to work to make people switch to efficient cars, it’s failed here.

A carbon tax is based on the idea that people will modify their use of fossil fuels if they cost more. So a carbon tax suggests complete faith that people will change their behavior with a nudge from a “market-based” mechanism.

But it turns out that people are actually not all that rational.

Like the proverbial fish in boiling water, people here seem to have gradually adjusted to the high cost of fossil fuels – not by reducing their use of fossil fuels – but by cutting down on other essentials. And the minimum wage is high, at $15 an hour. (Maybe it was raised so people could keep driving their UTEs to work)

New Zealand has a cap and trade plan and its current carbon price is $12 a ton. Yet it has actually lowered its percentage of clean energy over the last decade.

A country that was at 80% renewables (counting hydro) under Helen Clark’s Green Party leadership through 2008, had then planned for 90% by adding wind power.

But under the current National government, a rightwing party, renewable energy has actually dropped to 75%.

Despite being in the ideal condition for wind – the “roaring fourties” that whip utility-quality wind power around the south pole, the Green Party wind plan has been dropped. There is virtually no utility-scale solar. Instead, encouraged by the current leadership, new natural gas plants have been built, and the coasts have been opened up for more exploration.

So neither a cap and trade plan nor what amounts to a carbon tax has brought any benefit in New Zealand.

So it is with a decidedly jaded ear that I hear the argument still raging on. Will a carbon tax work? Is cap & trade better or worse? How does cap and trade poll? Might Republicans be more open to the idea of a carbon tax? Or a cap and trade plan? Won’t a carbon tax just hurt the poor? These arguments have not gone anywhere in ten years.

Action, not words:

By contrast, without engaging in endless arguments to win over voter buy-in, renewable energy mandates have simply been enacted in more and more states by each state’s Public Utility Commission (PUC). Utilities are regulated by states. States can simply mandate that utilities procure a higher percentage of renewables.

Most states have commissioners elected by voters, typically during midterms, or appointed by Governors (you can look up your state here).  And state legislatures can make renewable mandates for their utilities.

As Nevada solar customers learned the hard way recently, selecting your local state legislatures, governors and commissioners is one very important reason to vote every two years, rather than only in presidential elections!

Case study of the effectiveness of mandates: California 

In 2002, California adopted a Renewable Portfolio Standard (RPS) that mandated that its utilities get 20% of all their electricity from new renewable sources by 2017.

But in 2003, that deadline was scooted up to 2010, giving the renewable industry and the utilities just seven years! For a state of over 30 million at that time, and the sixth-largest economy in the world – and a nearly non-existant solar industry in 2003 – this was amazingly ambitious.

Even now, a large scale solar project at this scale can take up to five years: two years to permit, a year to finance, and up to two years to build. So a seven year turnaround was tight.

Hydropower couldn’t count, nor could nuclear, nor rooftop solar installed by utility customers. A lenience clause was inserted for the first deadline, allowing them until 2013 to meet the first target without penalty, as long as subsequent targets were met on time. Soon contracts were flying for solar farms of 100 MW and up to almost 600 MW.

solar roof in california

Ramping up fast, California utilities made it to 20% renewable by 2013, and have since been  sailing comfortably above the required RPS. By 2014, they had exceeded the 2015 target of 25% renewable, and as of 2016, they have already contracted for more than the 33% target for 2020, up to 43% renewable. (Utilities plan to get a little extra, in case a developer fails to perform. In that case, that contract is cancelled and a new one is signed with another developer)

From a nearly non-existent solar sector in 2003 when the legislation was enacted (wind had a bit of a head start), this led California to become the biggest renewable market in the US. By 2015, utilities got enough offers to meet the 33% renewable mandate of 2020 three times over. If it was feasible, they could have replaced literally all the electricity on the California grid and supplied 100% of their load from renewables!

That’s how you create a new clean energy market!

At this rate, there is no doubt that California is going to be 33% renewable by 2020. That is like running its entire $2 trillion dollar economy on 100% renewable energy from January through April every year.

And last year, the legislature raised the goal. By 2030, California must be 50% renewable. (That is the equivalent of running California’s entire $2 trillion dollar economy on renewable energy for half of every year.)  Oh, and – that other dirty 50%?

California does not count hydro as a renewable, but x% of the remaining 50% is hydro. That will vary of course with drought, but it’s not nothing.

So I was wrong. The boring, simple, direct RPS mandates are actually the most effective way to ramp up renewables fast. A recent analysis has confirmed the effectiveness of state level mandates on utilities.

Image credits: via FlickR under CC license

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