ACES in the Hole

The cap-and-dividend proposal detailed by Barnes and McKibben is both visionary and progressive (in both social and economic senses); further, it promises accountability and transparency in its implementation. Not so—at least not yet—the American Clean Energy and Security Act of 2009 (ACES), currently being reshaped in the Senate. While ACES’s goals are solid, its compromises and complexities risk making it an energy-bill version of inside-the-Beltway business-as-usual—with potentially disastrous consequences for all. To transform ACES for the better, engaged citizens must first understand its essence and then push to make it stronger.

The comprehensive Citizens Guide to Climate Policy, written by two Middlebury College undergraduates,1 is designed to help. As documented there, ACES is built around four sections (‘titles’ in legislative language):

  • An energy title that creates a renewable energy standard.
  • An energy efficiency title that promotes efficiency across all sectors of the economy.
  • A global warming title that establishes a cap-and-trade system to reduce greenhouse gas emissions.
  • A transition title that promotes green jobs and protects American consumers and industries during the transition to a clean energy economy.

All told, ACES sets the aggressive target of 83% emissions reductions (compared to 2005) by 2050 and a modest, but acceptable, target of 17% by 2020. With a permit system, it places an economy-wide cap on emissions; to minimize costs, it gives polluters the right to trade these permits. The act sets a federal renewable electricity and efficiency standard and prioritizes investments in ‘smart grid’ and other necessary technologies.

How does ACES fall short? First, there is the question of equity. Economic theory, going as far back as Coase,2 shows that the initial distribution of ‘right to pollute’ allowances will have no effect on the final outcome. In theory, all possible allocations will lead to the same pollution level and will be equally cost effective. However, the principle that 100% of allowances will be auctioned, embraced by Barnes,3 President Obama, and many others, is designed to follow the sensible idea that the polluter pays. Coupled with a dividend or a comparable tax rebate, revenues from allowance auctions would help citizens adjust to higher energy prices.

ACES goes the other direction. While 15% of allowances are reserved for low-income rebates, the remaining allocations go elsewhere:

  • 36% to local electricity and natural gas distribution companies
  • 25% to fossil-fuel companies and energy-intensive industries
  • 14% to invest in clean energy and energy efficiency
  • 7% to invest in international adaptation, reduced deforestation, and international clean technology transfer.

It is important to note that each of these allocations has merit, and many yield outcomes that can help consumers and the poor.4 Nevertheless, according to the Congressional Budget Office,5 roughly 40% of allowance revenue under ACES would go to households in the top income quintile, while cap-and-dividend assures that each income quintile receives 20%.6

Then there is the matter of the two billion tons of annual offsets (split domestically and internationally), which allow companies to reduce pollution elsewhere rather than reduce their own emissions. Experience from the Kyoto accord, particularly in China, shows that monitoring and enforcement of such offsets are extremely weak. The worst-case scenario is truly awful: American production and consumption habits remain relatively dependent on fossil fuels, and the intended clean-energy offsets are no more than phantoms.

As this issue goes to press, evidence suggests that Barbara Boxer, John Kerry, and other leaders will be true to the ACES framework. The best way to strengthen this bill lies in the joint campaign of the youth-led coalition at the forefront of the growing climate movement, including Energy Action, 1Sky, and Focus the Nation.

As these groups lobby for the strongest possible legislation, there is evidence that public sentiment is in their favor. A recent poll found that 57% of respondents voiced support for the proposed changes to U.S. energy policy being developed by Congress and the Obama Administration, while 29% voiced opposition;7 another found that 71% of respondents favor ACES, and 67% believe Congress is either doing the right amount or should be doing more to address global warming.8

There is, of course, no single climate solution. If elected leaders in the U.S. pass strong legislation and if global climate negotiations in Copenhagen are fruitful, 2010 could augur the beginning of a promising new decade. To succeed, national and global agreements must reflect the principles of cap-and-dividend—vision, progressiveness, and clarity.