George HW Bush signing Clean Air Act legislation including cap-and-trade in 1990
Last Thursday night news broke of the impending announcement of a national cap-and-trade program for carbon in China, as part of a U.S.-China joint climate announcement. This market-based approach, pioneered in the U.S. with the sulfur dioxide trading program, has clearly come to be seen as an essential policy tool to combat climate change, increasingly embraced by countries, policymakers, and global business leaders of all political persuasions.
The 1990 Clean Air Act Amendments that established the Acid Rain program to limit emissions of sulfur dioxide (SO2) and nitrogen oxides was a milestone for market-based environmental policies. It led to the creation of the SO2 trading program, which has helped cut those emissions at a lower cost than many had envisioned at the start of the program. The experience with this program also provides critical lessons on the importance of good policy design that can help inform future policies. (For example, the need for updating emissions caps to reflect the latest science and declining technology costs.)
Since then, cap-and-trade systems have been successfully established in Europe (the EU ETS), California (via AB32), and the nine Northeast RGGI states, among other places. Many other places, including the Canadian province of British Columbia, have a carbon tax or plan to implement one…
Starting in 2013, China began to pilot carbon cap-and-trade programs at the sub-national level. The pilot programs now extend to six cities (Beijing, Chongqing, Hangzhou, Shanghai, Shenzhen, and Tianjin) and two provinces (Guangdong and Hubei). The experiment has had some encouraging results, and (together with lessons from the EU ETS, California, RGGI, and other carbon trading regimes) provide the real-world experience needed to design a national system to limit emissions in a cost-effective way. China’s INDC announced earlier this year signaled the country’s intention to use carbon pricing to help meet its goal of peaking CO2 emissions by 2030, if not earlier…
Last week was a momentous one for climate action, book-ended by the Pope’s address to Congress and the joint climate announcement from Presidents Obama and Xi. The economist in me cannot help but wonder: If China can do it, why not the U.S.? It’s time for a national price on carbon in the country that invented the concept.
You needn’t be a cynic to understand why the United States will not keep its fair share of the bargain struck between Presidents Obama and Xi. Congress must be part of the equation funding efforts of this size. Between Flat Earth Republicans and Blue Dog Democrats, nothing will be accomplished. That’s just a realistic view of what our national-level politicians have become.
China’s pilot programs have moved forward. Just as their experiments with individual cities becoming Free Trade Zones worked out, other cities are already in line waiting not-very-patiently to acquire the benefits of progressive reforms.
While this system can sort about half the polluting problems of excess carbon, the last-mile question also needs to be answered, as well. China needs to replace coal home fires for heating and cooking with natural gas. That process began a few years ago; but, in many ways, it is more demanding because it requires upgraded infrastructure — nationwide.
Nevertheless, both are on the way. Which is about two orders of magnitude more than we can say about the dungheap of backwardness that stretches from SCOTUS to Congress.