Obama’s climate plan is another half-baked carbon trading scheme

The US Clean Power Plan puts a national limit on greenhouse gas emissions for the first time. Despite a few critics, environmentalists have on the whole reacted positively. Yet, as societies around the world are already struggling with the effects of climate change, is Obama’s plan ambitious enough? As he acknowledged himself, “there is such a thing as being too late when it comes to climate change”. We suggest precisely that: his plan is too little, given that it has arrived so late.

The Clean Power Plan aims for a reduction in greenhouse gas emissions associated with coal, oil, and gas-fired power plants by 32% below 2005 levels by 2030. It focuses on the electricity sector, which is a good thing. Electricity generation from fossil fuels is the largest single industrial source of CO₂ emissions and 31% of the US total.

The plan gives US states a flexible deadline of September 2016 to submit plans for emissions reduction. They must comply by 2022. States have a few different policy options:

• Set a standard for power plants
• Energy efficiency measures
• Increased gas and/or renewable energy production
• Carbon taxation
• Emissions trading among power plants owned by the same operator
• Emissions trading between power companies and across state lines

Yet, if they do not draw up a plan for reducing emissions, the EPA will impose emissions trading by default.

As with any climate policy, the ambition of an instrument must be judged in terms of the detail and much of that will depend on how the states react. At this point, we take issue with two aspects of the scheme: first, the ambition of the emissions target and industrial coverage; and second, the potential loophole that emissions trading will create.

Lack of ambition

Obama is right to start with the emissions-intensive electricity sector. However, we should remember that energy exports, transport, agriculture, mining and industrial emissions are outside the scope of the scheme.

This is a common problem in climate policy. All too often, major “national” economic drivers of greenhouse emissions do not fall into the scope of federal climate policy. For instance in Australia, the booming energy export market has contributed to a major increase in global greenhouse emissions, but only the “fugitive” emissions associated with mining were regulated under the former carbon trading scheme.

Then there is the 2005 baseline the US has chosen, while the Kyoto Protocol established a baseline of 1990. Why? Because from 2005 on the US has experienced a shale gas “revolution”, which crowded dirty coal out of the energy market and reduced emissions.

While the Clean Power Plan is clearly a step in the right direction, it is a case of too little given the world’s largest economy is acting so late. We need much more ambitious action from the US and other like nations, if we want to have a realistic chance of staying within the globally agreed 2°C, or better 1.5°C of “safe” global warming.

Carbon trading - a potential loophole

The Clean Power Plan is likely to become a patchwork of emissions trading schemes, something not emphasised in the initial proposals. However, the EPA’s January proposal and the final rule single out emissions trading as a preferred policy option.

If a state does not deliver a plan for emissions reduction, then a federal cap-and-trade program becomes the default policy. States are also able to link to existing state-level emissions trading programs, the California cap-and-trade scheme and the Regional Greenhouse Gas Initiative. How this is managed has been a subject of debate, particularly regarding carbon offsets.

Thankfully, the use of “carbon offset” credits from sectors outside the electricity sector for compliance purposes is not likely to be possible. The use of carbon offsets would not qualify under the EPA’s definition of the “best system of emissions reduction” for purposes of the Clean Air Act section 111(d) (see Section V pp. 517-520 of the rule). States which include trading schemes like the California cap-and-trade scheme which relies on forest carbon offsets to a significant degree will have to demonstrate that emissions reductions have occurred in the power sector.

Some states and carbon trading advocates have been unhappy that carbon offsets cannot be used. It is for the best they have not been successful in the call for “flexibility” through offsetting. The introduction of carbon-offset credits in the Clean Power Plan would have made it similar to the Australian Direct Action Plan. In the Australian scheme, the “safeguard mechanism” to keep emissions to a minimum seems likely to be turned effectively into a baseline-and-credit carbon trading scheme. This means any kind of “cap” the safeguard mechanism could impose on the most heavy emitters will be undermined.

While the US Clean Power Plan is an improvement on the Australian situation, we remain concerned about the direction of US climate policy, particularly the likelihood a jumble of emissions trading schemes will be created. In our recent published research, we find carbon trading lacking on a number of counts. There have been numerous problems with carbon trading, including ineffectiveness, weak regulation and implementation, instances of fraud, little or no emissions reduction and major legitimacy issues for governments and the private sector.

The Clean Power Plan design makes a complex set of carbon trading arrangements likely, which may in turn replicate the problems of existing carbon trading schemes across the world. Given the increasingly urgent timeline within which we need to act to radically reduce emissions, the incorporation of carbon trading as an option in the Clean Power Plan is half-baked.

Steffen Böhm has received funding from: British Academy, East of England Co-operative Society, Green Light Trust, Swedish Energy Agency and the ESRC, though he writes in a personal capacity.

Rebecca Pearse is employed on research projects funded by the Australian Research Council and has in the past received funding from UN Women and Friend of the Earth International. She writes in a personal capacity.