I was in Washington DC last week and the sense of excitement amongst the environmental community is palpable – not only does the country have an iconic new leader but he has put climate change and energy at the top of his agenda. The optimism this has created is infectious.
Obama’s [second ever policy statement](http://uk.youtube.com/watch?v=hvG2XptIEJk “”) laid out a very clear plan of action. His administration will use investment in a low carbon economy as a way of combating recession. State funds (around $15 bn per annum) will be invested in reducing demand for energy and cleaning it up; and a federal cap and trade system will be introduced to redirect private capital. The targets: return to 1990 levels by 2020 and cut by 80% by 2050 – though this could become even more ambitious, thanks to a key change Waxman replacing Dingell) in the influential Energy Committee of the House of Representatives.
There is no doubt that America is back in the climate protection game. And, as the original architects of emissions trading, they will no doubt observe some of the mistakes made in Europe and do things slightly differently.
Some thoughts on things they could do better:
1. Start with a clear path in mind – it is the sum of emissions over time that increases the risk of climate change so the trajectory towards zero emissions is as important as the end target.
2. Turn that path into annual emissions targets – make sure targets are minima (ie they can be tightened but not loosened), last for at least twenty years and start lower than existing emissions.
3. Base decisions about targets on hard data about the past, not projections about the future which introduce unnecessary uncertainty and environmental risk into the policy (when optimistic forecasts are not forthcoming).
4. Cover as much of the economy as possible but think about sectors carefully – start with the sectors not exposed to international competition and where costs can be more easily born. Ability to pay is more important than abatement potential in any given sector since reductions can be bought wherever they are cheapest. Transport fuels and electricity are key sectors.
5. When handing out permits make full use of auctioning to decide who gets what – don’t get dragged into painful negotiations with industry about ‘grandfathering’ or ‘benchmarking’ for free handouts – let them decide how many permits they think they need.
6. Use auction proceeds to protect low income households from rising energy bills (by weatherising their homes) and give them access to public transport.
7. If you decide to introduce safety valves to mitigate any potential price spikes, such as ‘offsetting’ or borrowing from future periods, or price caps (please don’t do all three!) then make sure there are appropriate triggers and limits on how much they can be used (they should not be the first actions taken by participants but be genuinely used to mitigate unacceptably high prices).
8. Explain to civil society what is happening, engage them in the debate and make sure people are empowered to take action that goes further than the cap (ie encourage them to cancel emissions permits).