California Defects from US on CO2, Joins EU

One thing I didn’t expect when UK Prime Minister Tony Blair visited Long Beach, was for the Governor of California to launch an assault on the powers of the U.S. Congress. I guess after decades of federal encroachment on State’s Rights, I never anticipated a real rebellion from a Republican Governor using environmentalism to undermine DC’s monopoly on international relations. That’s what we got yesterday:

“California will not wait for our federal government to take strong action on global warming,” said Gov. Schwarzenegger. “Today, we are taking an unprecedented step by signing an agreement between California and the United Kingdom.” LBreport

U.S. Const. art. I, § 10: No state shall enter into any treaty, alliance, or confederation… No state shall, without the consent of Congress, lay any duty of tonnage, keep troops, or ships of war in time of peace, enter into any agreement or compact with another state…

While political scientists mutter about the dubious constitutionality of an agreement between a US state and a foreign nation, economists have every reason to break out the bubbly: The announced agreement commits California and the UK to emissions reductions within a common carbon-credit trading market.For more about the Blair/Schwarzenegger press conference at the Port of Long Beach, read the Blair and Schwarzenegger Sign Global Warming Pact by dwcal or The argument against carbon emissions trading by PsiFighter37, the local write-up by the Long Beach Report, (if you must) Google News.

Emissions trading is a free-market strategy for pollution reduction which has been advocated in economics classrooms around the world for decades. The general model requires that the government issue permits to pollute, which are legally transferable, and cap total emissions by limiting the number of permits in circulation. Firms which reduce their production of pollutants can sell their permits to other firms, which could then pollute more. The government could then restrict supply of pollution permits by having them expire, deflation (the pollution allowed by each permit decreases over time) or by buying them on the open market. Environmental organizations (notably in the Great Lakes area) have intervened in emission trading regimes by buying pollution credits and refusing to exercise them.

The emission trading model has been implemented in the European Union, Latin America, India and, to a limited extent, the United States. The Acid Rain Program of the 1990 Clean Air Act uses a credit trading to combat sulfur dioxide emissions. In 1997, Illinois introduced the Emissions Reduction Market System for volatile organic compounds and there is an emerging CO2 emission market in the Northeast. The Kyoto Protocol uses a similar system, setting caps and allowing emission credit trading between member states.

In order to be effective, emissions trading requires strict compliance enforcement and a real commitment by the governing regime to reduce pollution caps. Of course, any emission credit regime – no matter how effective – can only influence sources of pollution which are included.

There are a number of criticisms of pollution markets. Among these is that they can give the illusion of progress, they may be subject to politically-motivated exemptions and waivers, and they may not be comprehensive enough to achieve meaningful reductions. For example, President Bush’s Clean Air Interstate Rule (CAIR), a emission credit scheme for power plants in 22 states, can justly be accused of rewarding companies for doing what they have to do to stay in business.

The CAIR approach aims to reduce nitrogen oxide and sulfur dioxide emissions by 70 percent by 2025…

Given that our nation’s electricity infrastructure is decaying – many plants are +50 years old – industry can comply with CAIR simply by replacing their oldest plants. In fact, conversion from coal to natural gas alone would result in a CAIR credit surplus which could be used to keep older plant online longer! (As we know from the LNG arguments, California is already prepared to fire up dozens of natural gas electricity generators… when we find the gas.) The Administration’s commitment to enforcment is also suspect, in my humble opinion.Thankfully the Long Beach Agreement targets a much more difficult source of CO2 emissions: transportation.

A main target of the agreement between Britain and California is the carbon from cars, trucks and other modes of transportation. Transport accounts for an estimated 41 per cent of California’s greenhouse gas emissions and 28 per cent of Britain’s.

This suggests the California model of emission credits will deviate substantially from most implementations, which only target large industrial polluters, by directly targeting energy consumers. For once, commuters will both feel the pressure to reduce CO2 emissions, not just industry. The bad news is, you’ll probably have to buy your CO2 credits at the gas pump.As for the Constitution?

Don’t worry about California: The federal government has over-ruled every environmental policy of consequence ever passed by the State of California.