Arguments against cap-and-trade -- legislation designed to reduce greenhouse gas emissions -- generally boil down to a few key points:
- It won’t work.
- It will drive up power prices.
- It will hurt the economy.
- It will hurt our global competitiveness.
- It won’t help the environment.
“It’s embarrassing because the same debates occurred with acid rain,” says Dr. Richard Sandor, CEO of Environmental Financial Products. “We got rid of acid rain in the U.S.” via a cap-and-trade program he says saved $123 billion in reduced health care costs associated with lung cancer since the late 1980s.
Sandor, who has been called “the father of financial futures” and is the author of Good Derivatives, is steadfast in his belief that financial innovation can be a force for good in the world.
“My goal is to take any kind of financial institution or tool, apply it to a social or environmental objection and create incentives to do the right thing," he says. "Whether that’s dealing with acid rain, climate change, water scarcity, biodiversity and even things like high rates of crime or other social objections.”
Employing cap-and-trade policies is a "no brainer," Sandor adds, noting that while related legislation might be dead in Congress, it’s alive and well at the state level, and internationally:
- California started a cap-and-trade program in 2012 and just this week signed an accord with Oregon and Washington to extend elements of the program across the three states and into Canada’s British Columbia. (An accord to create a similar initiative between six Midwestern States and Canada’s Manitoba province was signed in 2007 but has not been implemented.)
- Since 2009, 10 states on the East Coast have been participating in the Regional Greenhouse Gas Initiative (RGGI) with a goal of reducing power plant emissions by 10% by 2018.
- 27 European Countries participate in the EU’s Emission Trading Scheme, which was designed to meet commitments to the Kyoto Protocol and applies to all large industrial facilities, including those electric plants, energy facilities and producers of iron, steel, cement, glass, and paper.
- China is piloting seven different cap-and-trade programs that will cover around 7% of China’s total emissions, or roughly the total amount emitted by Germany each year, The Washington Post reports, citing Bloomberg New Energy Finance.
Like seat-belt laws, Sandor believes cap-and-trade policies are going to emerge via a “bottom-up approach” from the state level. “Financial inventive activity is inversely proportional to the distance from Washington D.C.,” he jokes. “It is a very bad mistake to think the policy or lack thereof in Washington D.C. is American policy. It’s just the Washington D.C. part of it that isn’t working.”
According to Sandor, Europe’s program has been very successful, having reduced emissions by 17% since 2008, or more than double the program’s stated goal. Of course, reduced economic activity in the EU since the crisis has been a big contributor but Sandor is firm in his belief that cap-and-trade is good public policy.
The key is to forget the science around global warming – “no scientist will say it’s 100% manmade,” he says -- but to view cap-and-trade as “insurance against doing something wrong.”
Sandor compares global warming to a six-shooter with one bullet: “Why take the risk?” he asks.