Cap and trade is not the answer: an open letter

31 January 2007

The Sierra Club is one of the few large environmental organizations that traditionally has been skeptical of pollution trading. That sound policy, we understand, is now under debate.

In addition to concerns outlined below, the proposed new trading policy which the Global Warming Committee is debating would conflict with a number of already established Club policies: the policy on polluter pays, the policy on environmental justice, the policy on community right-to-know, and the policy on corporate accountability issues.

The Sierra Club has played a critical role in the negotiations of a bill in California, AB 32, which set the most ambitious targets for greenhouse gas reductions in the country; the debate over pollution trading was a pivotal part of the measure. The outcome of that debate is clear: all feasible measures should be taken to reduce emissions prior to implementing any market mechanisms, and in the implementation of those measures environmental justice communities must be included in the decision making process and protected.

Because cap and trade programs enrich industry, industry wants to perpetuate the myth that cap and trade is the only way to reduce greenhouse gas emissions.

In reality, many things are being done to reduce greenhouse gases in the U.S. and so far, cap-and-trade has been among the least used mechanisms adopted to get the emissions reductions needed. And where it has been used, experience suggests it will fail to effectively achieve emission reductions.

For example, Oregon and California have been using feebates on power--programs that reduce the need for energy and reduce greenhouse gases-- to invest in energy efficiency programs for years. The City of Denver also debated what to do about greenhouse gas emissions, rejected carbon trading at the behest of community advocates, and instead instituted a carbon tax. (1)

Environmental justice impacts of trading can be severe

In Southern California, in one of the most regulated air basins in the country, a scheme was created to trade emissions from scrapped cars for marine terminal emissions. The marine terminals were granted permission to emit pollution that could have been reduced through regulation and instead old cars were scrapped to reduce emissions. This had the net effect of dramatically increasing emissions in already highly contaminated communities near the port. Furthermore, an examination of the car scrapping scheme found that the bodies of the cars were scrapped, but that the dirty engines were removed and placed back into service. Lawsuits by environmental justice groups ended the program.

Sulphur dioxide trading in the U.S., often touted as an unequivocal success and a model for carbon trading programs internationally, has had similar disproportionate impacts on poor communities and communities of color. It was their air quality that suffered in exchange for more "efficient" cuts in pollution elsewhere. Plants in Tennessee were allowed to spew tons more sulphur dioxide into the air than plants in the Northeast, choking the residents living near the plant with acid gases. Paint peeled off cars and local property values suffered as communities in the Northeast benefited.

Pollution trading results in less ambitious targets than straightforward regulation elsewhere

Furthermore, the achievement, modest though it was of SO2 trading, was small in absolute terms. The SO2 program is expected to cut SO2 emissions by only about 35 percent by its 20th anniversary in 2010. In contrast, Germany cut power plant emissions by 90 percent from the first proposal in 1992 to completion of its program in 1998-all without trading.

Even in the most highly regulated climates, trading schemes concentrate pollution in environmental justice communities. Once discovered, it is not government agencies that seek to correct the malfeasance, but environmental justice groups working within the court systems. The burden falls on those least able to bear it to correct the dangerous and destructive excesses of the pollution markets.

Carbon trading threatens to reverse decades of work fighting traditional pollutants

When a power plant in Southern California espoused a new technology that would reduce greenhouse gas emission by 25%, it was permitted by the local county and air district, and the governor touted it as a solution to global warming. Unfortunately, the new technology emits 30% more particulate matter than other natural gas fired plants, and environmental justice groups are suing to have the plant shut down.

he Center for Clean Air Policy did a study on how to reduce emissions from the cement industry and recommended burning tires as fuel instead of fossil fuels. The report did not address the concomitant rises in air toxics and criteria pollutants mentioned as being one of the tradeoffs. Yet the burning of tires and hazardous wastes in cement kilns has been opposed by environmental groups for a generation because of the increases in pollution that results. Unless challenged, such efforts to reduce greenhouse gases can now reverse decades of activism on reductions of traditional air pollution efforts.

Trading Programs Benefit Existing Polluters in the Developing World

In the developing world, carbon credits are being generated almost exclusively by local polluters, while communities preserving local forests or defending their lands against oil exploitation, mountaintop removal or coal-fired power plants receive no such credits for their efforts. It is big polluters, after all, who tend to be in the best position to hire carbon consultants, liaise with officials and pay money to get projects registered with the UN carbon market. Worldwide, many communities interviewed were shocked and dismayed to learn that their local corporate bad citizens were getting extra cash from the carbon market.

Trading provides no incentives for clean energy

By allowing the worst polluters to secure huge blocks of wealth, a grandfathered cap and trade carbon market is likely to encourage the status quo and block innovation rather than provide incentives for immediate investment in long-term structural change. No empirical evidence exists that current greenhouse gas trading programs are functioning as transitional solutions toward a carbon-free future. In fact, all of the available evidence suggests the contrary. Under the EU ETS (European Union Emissions Trading Scheme), some of the worst greenhouse offenders, like German power utilities, have garnered hundreds of millions of dollars in windfall profits for pursuing business as usual, while ordinary citizens suffer higher electricity prices and renewable energy technologies stay on the shelf. Recent reports from the EU ETS indicate that they have achieved very few reductions. By now, many big businesses in Europe are calling for the kind of structure and certainty which regulatory programs provide and which cap and trade programs have so far shown no signs of providing. It should also be noted, that the EU ETS is NOT a cap-and-trade scheme as it allows for an expansion of the emissions limit through the purchase of -entirely non-verifiable - carbon credits.

Rather than giving environmentally superior technologies such as solar and wind a leg up in the global market, emissions trading may actually discourage the long-term investment aimed at broad structural change that nearly all sides agree must be started immediately. Granting trading allowances to fossil fuel plants actually acts as an additional subsidy to those plants, making renewables, who do not receive the same subsidies, non-competitive in the market.

Cap and trade programs may also provide added subsidies to toxic incinerators, which may qualify for credits under "waste to energy" schemes. The largest known source of dioxin air emissions in the early 1990s was a Columbus, Ohio trash incinerator. Now closed, it continues to profit from selling credits under its former "right to pollute." A 2004 article notes: "The trash-burning power plant here was shut down in 1995 - but it recently earned $3.8 million."

The time and expense to set up the system is burdensome and not equivalent to the climate crisis

Preventing catastrophic climate change requires an ambitious approach - one that can achieve a wholesale shift away from dependence on fossil fuels. Scientists agree that the flow of coal, oil and gas from below ground into the air, oceans, and biosphere must be halted soon. Most remaining fossil fuels must be left in the ground. As biologist Tim Flannery explains, "There is so much carbon buried in the world's coal seams [alone] that, should it find its way back to the surface, it would make the planet hostile to life as we know it." Preventing that from happening cannot be achieved without large structural change in the way we produce and use energy - changes that must start now if we are to avoid catastrophic results. Structural change in energy production and use requires investments in renewable energy, shifts in subsidies, demand side management of energy, the use of alternative fuels for vehicles, and other elements of a sound energy policy. Cap and trade, with its narrow focus on numerical targets and lack of understanding of how social and technological shifts are achieved, is not an effective way of achieving the changes required by global warming.

Cap-and-trade systems are devilishly complex and will take years to develop and implement. Key issues must be addressed intellectually and resolved politically; the proper level of the cap, timing, allowance allocations, certification procedures, standards for use of offsets, penalties, regional conflicts, the inevitable requests for exceptions by affected parties and a myriad other complex issues must all be resolved before cap-and-trade systems can be implemented. During this time, polluters will continue to emit carbon with no cost consequences. Yet we are running out of time: We need a political solution that will move the United States and the rest of the world down a road, quickly and effectively. Cap and trade is not that road.

Perverse Incentives are Benefiting the Polluters to Continue with Business as Usual

he protracted negotiations necessary to implement a cap-and-trade system will provide constant opportunities for the fossil fuel industry and other invested parties to shape a system that maximizes their financial self-interests as opposed to an economically efficient system that maximizes societal well-being.

If allowances are granted based on some type of baseline reflecting past pollution (which has been the practice with NOx and SO2trading programs, the Kyoto Protocol and the EU ETS), rather than being auctioned, polluters will have perverse incentives to maximize emissions before the cap-and-trade system goes into effect in order to "earn" those pollution rights. (The voluntary cap-and-trade system currently operating has already been criticized for questionable credits that have produced huge profits but little actual reductions. See Outsize Profits, and Questions, in Effort to Cut Warming Gases, New York Times, Dec. 21, 2006.)

he same type of perverse incentives are also pushing HCFC manufacturers to produce more ozone-destroying and global warming chemicals in order to profit from their destruction. Similar incentives are being offered to coal-fired power companies in the South: what was once viewed as a liability, flyash from burning coal, is now an asset, under the carbon market: flyash bricks qualify for carbon credits under a World Bank scheme and the sale of carbon credits has doubled the profits of HCFC factories in India.

Regressive impacts of cap and trade are substantial

Because cap-and-trade relies on market participants to determine a fair price for carbon allowances on an ongoing basis, it could easily devolve into a self-perpetuating province of lawyers, economists, lobbyists and other market participants bent on maximizing their profits on each cap-and-trade transaction. The dollars that will be funneled into making the market work could be better spent reducing the regressivity of the needed emissions reductions, protecting poorer households and/or helping consumers use less energy. In sum, by allowing the worst polluters to secure huge blocks of wealth (aka pollution rights) - and buy still more rights from abroad - carbon trading encourages the status quo and blocks innovation. In addition, the measurements of emissions and carbon 'offsets' that are needed can't be made, therefore rendering global enforcement impossible.

We believe that the Sierra Club's previous policy of opposition to pollution trading was a sound one. We believe that the Sierra Club should stand with the communities most affected by pollution trading and fight to implement its sound, effective energy policy while maintaining its opposition to pollution trading.


Daphne Wysham, Sustainable Energy & Economy Network Co-director, fellow, Institute for Policy Studies, Sierra Club member, USA
Tom Goldtooth, Director, Indigenous Environmental Network, USA
Dine' Citizens Against Ruining Our Environment, Colorado, USA
Twa-le Abrahamson, S.H.A.W.L. (Sovereignty, Health, Air, Water, Land), Wellpinit, WA, USA
Michael Marriott, Director, Nuclear Information and Resources Center, USA
Jane Williams, Executive Director, California Communities Against Toxics
Dave Robinson, Executive Director, Pax Christi USA: National Catholic Peace Movement
Gar Lipow on behalf of The Olympia Movement for Justice & Peace, USA
Anne Petermann, Orin Langelle, Co-Directors, Global Justice Ecology Project, Vermont, USA
Ted Glick, Co-founder, Climate Crisis Committee, USA
Soumitra Ghosh, National Forum of Forest People and Forest Workers, India
Brid Brennan, Transnational Institute, Amsterdam, The Netherlands
Corporate Europe Observatory, Amsterdam, The Netherlands
Jutta Kill, FERN, EU
Tamra Gilbertson, Carbon Trade Watch, Spain
Patrick Bond, Director, Centre for Civil Society, University of KwaZulu-Natal, Durban, South Africa
Corporate Watch, Oxford, UK
Larry Lohmann, The Corner House, UK
Wally Menne, Timberwatch, South Africa
Dr. Helen N. Mendoza, Trustee, SOLJUSPAX, Philippines
Scottish Education and Action for Development, Scotland, UK
Preben Maegaard, Executive Director, Nordic Folkecenter for Renewable Energy, Denmark

Sierra Club members:

Michael Gregory, Advisor, Sierra Club National Toxics Committee, member, Conservation Governance Committee (2001-2006), USA
David Wells, Former Sierra Club Board of Directors, USA
Vivian Newman, Vice-Chair, Sierra Club National Marine Wildlife and Habitat Committee; 2003 recipient of John Muir Award
Bernie MacDonald, Sierra Club Toxics Committee, USA
Ruth Caplan, Sierra Club member
Michael Endicott, Sierra Club member
David Cobb, Sierra Club Challenging Corporate Power Task Force
Judith Johnsrud, PhD, Pennsylvania Chapter of Sierra Club, Energy Committee Co-Chair, North East Regional Committee, PA Delegate
David E. Ortman, Sierra Club member
Jan Kidwell, Sierra Club member, North Hollywood, CA

CC: Sierra Club board, Carl Pope


1. City Approves 'Carbon Tax' in Effort to Reduce Gas Emissions by Katie Kelley New York Times, November 16, 2006