In real estate the three things we are told to look for are location, location, location. In tomorrow's climate bill to be released by Barbara Boxer and John Kerry look for what they are doing with allocation, allocation, and allocation. This is one of the most critical issues. In other words how many free allocations do industries receive. In particular coal-based utilities and petroleum refining. Coal received a better deal than refining in the Waxman-Markey bill passed by the House. This created a firm opposition by the refining industry.
It is not clear that Boxer and Kerry understand that some good old fashioned horse trading is necessary to obtain passage of the bill. The environmentalists do not as they are complaining about the free allowances given through the Wax man-Markey bill. If the Senate is truly interested in passing a bill, they will have to address the issue of reducing the immediate impact on industry by providing more free allowances.
Ironically, forests will be one of the next most important issues, although this is largely missed by the pundits and the press. The cost impact is a critical issue as I've mentioned in previous posts on this blog. One of the most critical issues is getting large volume, low cost credits into the cap and trade system in the first five to ten years. Credits from reduced deforestation and degradation (REDD) is the largest potential source of these credits--the "low hanging fruit." The Waxman-Markey bill permits international forest carbon credits into the system, but phases it out over five years. Investment needs 20 to 30 years or more. The most relevant carbon credit programs for forest credits the Voluntary Carbon Standard and the (California) Climate Action Registry require a minimum crediting period of 20 and 100 years respectively. Thus, the Waxman-Markey proposal would limit any private investment in forest carbon credits and instead pin hopes of REDD on a national transfer of money from the United States to Brazil and Indonesia among other countries who then in turn would set up a national system to reduce deforestation.
As years or a decade passes as the bureaucracy to implement these programs go forward, the trees will continue to go down. This will be the proverbial "Nero playing the violin while Rome is burning." Here again the environmentalist community wants take action that will ultimately not attract industry support. The environmentalists want to limit the involvement of private capital in the forests looking for a more nationalized approach.
Allocation and international forest credits could play a substantial role in reducing the opposition if not gaining the support of some of the companies in the electric power and oil refining industries. What again is lost is the need for "Evolution", not "Revolution." As a former student of ecology, complex adaptive systems whether economies, ecosystems, or our own bodies handle slow change better than rapid changes in the surrounding environment. Unfortunately, we may have not have the right political "climate" that includes people and ideology that reflects this understanding in either political party and in particular the parties working on the bills. Through bargaining as different Senators are driven by different interest groups something may come out of the "sausage grinder" that reflects the reality of what the economic systems needs to make a transition to a low-carbon economy. Perhaps dumb luck will deliver what rational debate may be lacking in this particular Congress.
