James Hansen: The People vs. Cap‐and‐Tax

The People vs. Cap‐and‐Tax

by James Hansen

The public is largely unaware of a momentous battle about to be fought in Washington. The stakes are enormous. Yet the public has not been well informed.

Ignorance of the matter derives in part from the fact that the conflict was initiated via the highly charged issue of climate change. Climate is complex. People have different opinions about the extent to which humans are causing climate change. Fundamental belief systems are involved and discussion can be emotional.

Yet the core issue can be defined independent of climate. It concerns how society can phase out its addictive use of fossil fuels and move on, in the most economically efficient and equitable way, to a clean energy future. Conservatives, independents and liberals should be united in this fight.

Washington could define a path that would lead the world toward a clean energy future. And, incidentally, it would solve the climate problem – without requiring anyone to agree that there even is a climate problem.

Yet Washington appears intent on choosing a path defined by corporate greed. Unless the public gets engaged, the present Administration may jam down the public’s throat just such an approach, which, it can be shown, is not a solution at all.

The frustrating thing to me is my inability to communicate these alternatives to the public. This feeling is consuming, because I believe with all my mind and heart that the well‐being of my children and grandchildren (and yours) depends upon whether the public becomes informed and interested. So far, it isn’t.

I had an opportunity on a recent David Letterman Show (http://www.youtube.com/watch?v=KiJJgC7B_KY), where I said that, for the sake of the people and the planet, the public must understand the difference between “cap‐and‐trade” and “fee‐and‐dividend.” Of course, I could not continue
with that topic there. But it is the heart of the matter. So how to proceed?

I decided to write an op‐ed for the New York Times. I got city‐slickered by the editors, as I will relate here. Perhaps this story can help people understand – it is not necessary to be a physicist or economist to  understand the basic issues – it is mostly common sense.

My op‐ed, which I submitted to the Times in early December, just prior to the UN climate meeting in Copenhagen, excoriated “cap‐and‐trade‐with‐offsets.” As I will explain, cap‐and trade with offsets is the approach taken in the Waxman‐Markey bill that narrowly passed the House of Representatives last June and the Kerry‐Boxer bill that is currently languishing in the Senate.

The four legislators whose names adorn those bills have been stalwart environmentalists for their entire long and honorable careers. Yet cap‐and‐trade, which is ostensibly designed to reduce carbon dioxide emissions and preserve global climate, has been a proven loser in Europe. And the cap‐and‐trade bills, which also have the support of the White House and its environmentalist allies, are even worse.

Cap‐and‐trade‐with‐offsets would benefit a handful of wealthy people, while consigning our children to a downhill slide toward a lower standard of living – on a planet whose wondrous life forms are being decimated. So how can it be the basis of legislation being pushed by the Democratic Administration in both the House and Senate?

Easy. The proposed bills in Congress are loaded with goodies for special financial and corporate interests. These bills would cheat the American public – again. Cap‐and‐trade was designed in part by Wall Street, which is eager to exploit a trading market expected to grow to two trillion dollars. The revolving door between Washington and Wall Street helped bring the scheme about.

My op‐ed [http://www.nytimes.com/2009/12/07/opinion/07hansen.html is the published version; http://www.columbia.edu/~jeh1/mailings/2009/20091207_SackGoldmanSachs.pdf is a saltier version] proposed an alternative approach, fee‐and‐dividend, designed to benefit the public rather than Wall Street. A carbon fee would be collected from the fossil fuel companies on the first sale of oil, gas and coal at the mine, wellhead or port of entry. One hundred percent of the collected fee would be given to the public monthly, deposited electronically in people’s bank accounts or debit cards, an equal amount to each household.

I titled my op‐ed “Sack Goldman Sachs’ Cap‐and‐Trade.” But editors can distort articles with titles of their choosing – and I know The Times tends to favor mainstream environmentalist ideology. So I asked the editors if they would retain my title. They refused to tell me. For good reason. If I had known their plans, I would have withdrawn the op‐ed.

Their published title: “Cap and Fade.” Not one person has offered a sensible explanation of that title. Worse, the editors added a subtitle indicating that “fee‐and‐dividend” was a tax, implying that cap‐and‐trade was not a tax. This is a case of calling black white and white black.

Cap‐and‐trade is a hidden tax. An accurate name would be cap‐and‐tax, because cap‐and‐trade increases the cost of energy for the public, as utilities and other industries purchase the right to pollute with one hand, adding it to fuel prices, while with the other hand they take back most of the permit revenues from the government. Costs and profits of the trading infrastructure are also added to the public’s energy bill.

Fee‐and‐dividend, in contrast, is a non‐tax. The fee collected at the first sale of oil, gas and coal in the country does increase the price of fossil fuel energy. But 100% of the fee is distributed monthly to the public as electronic deposits to the bank account or debit card of all legal residents, with half shares for children, up to two children per family.

The dividend keeps families whole while providing an economic stimulus to boot. By the time the fee reaches $115 per ton of carbon dioxide (equivalent to $1 per gallon of gasoline) the dividend will be $2,000‐$3,000 per legal resident per year ‐‐ $6000‐$9,000 for a family with two or more children.

People who keep their carbon footprint smaller than average will make money. The fee will rise gradually so people have a chance to choose more efficient vehicles, insulate their homes, and so on. The dividend will help people afford these investments. Jobs will be created as society retools the economy from high‐carbon to low.

Perhaps coincidentally, the Times published alongside my op‐ed an article by their columnist Paul Krugman (http://www.nytimes.com/2009/12/07/opinion/07krugman.html) extolling the merits of cap‐and‐trade. Krugman asserted that cap‐and‐trade provided the basis for a successful international agreement at Copenhagen on climate.

This one‐two punch, evisceration of my article via a nonsensical title and an opposing piece (http://krugman.blogs.nytimes.com/2009/12/07/unhelpful‐hansen/) by Nobel Prize winning Krugman, was not enough. By the time readers were ready for their second cup of coffee, at 10:45 a.m., an article “Unhelpful Hansen” appeared on Krugman’s heavily trafficked blog.

Krugman is one of my favorite columnists. I am amazed at his productivity, and I agree with most of his opinions. I am not suggesting that he was given prior knowledge of my piece by Times editors – I assume that he just works fast. My hope is that he is open to persuasion. Our aims are similar, and this matter is so important that it deserves careful reanalysis.

I also think the public can distinguish the forest from the trees. This topic is not rocket science. It is mostly a matter of common sense. And, contrary to Krugman’s insinuation, most economists are in closer agreement with my perspective than with his.

First we must recognize one basic fact. Then I will describe the three main issues on which Krugman and I disagree. Then you can make up your own mind.

Basic fact. As long as fossil fuels are the cheapest form of energy their use will continue and even increase.

Consider the Kyoto Protocol, which was negotiated at a prior UN climate meeting in 1997. National emissions of signatory countries were capped at some agreed levels. Nations evaded these limits by purchasing “offsets” – putative but often illusory reduction in greenhouse gas emissions from developing countries. Offsets destroy the effectiveness of the agreement, because the scientific requirement for stabilizing climate is that the fossil fuel emissions are phased down rapidly. And some nations just ignored the limits, because there was no realistic way to enforce them. However, the fundamental problem was that “Kyoto” did not increase the price of fossil fuels relative to non‐carbon energies.

The handful of nations that claimed to have reduced their carbon emissions were joshing their citizens and everybody else. They were just pretending to be “green.” Manufacture of products based heavily on fossil fuels simply moved to developing countries, which had no cap.

Then the products were flown to the developed countries, while burning aircraft fuel that is untaxed because of a 1940s agreement to support the fledgling airline industry.

Prior to “Kyoto” global fossil fuel emissions were increasing 1.5% per year. Afterwards, they increased 3% per year. Kyoto may not have caused the increase (although shifting production to developing countries, often by coal‐fired inefficient industries, with shipping to developed countries, did not help), but it certainly did not stop it.

Now let’s address the three main arguments of Krugman, common arguments wielded by proponents of cap‐and‐trade.

Krugman Argument #1. Cap‐and‐trade is the only way to get an effective agreement rapidly.
That is a myth. In fact, every cap‐and‐trade regime has taken many years to hammer out. Kyoto negotiations dragged on a decade and were not completed. Individual countries had to be bribed to participate, yet some still would not. And the result was not successful, as we have seen.

Proposed cap‐and‐trade within the United States would be even more complex than “Kyoto.”

The Waxman‐Markey and Boxer‐Kerry cap‐and‐trade bills in Congress are larded with 2,000 pages of give‐aways to special interests, soaking the public who must pay higher energy prices. Fee‐and‐dividend, in contrast, is defined by a single number: the fee (tax) rate that the fossil fuel companies must hand over at the first sale of oil, gas or coal. All the government must do is divide this collected revenue by the number of legal residents and punch a button monthly to deliver the dividend to the public.

What is the chance that a United States cap‐and‐trade law could be a precursor for a global agreement? Zero. There is no chance that China will accept a cap. Nor should they. They are still in the early phase of their economic development.

But would China be willing to place a carbon fee on their fossil fuels? Yes, for many reasons.

First, China wants to avoid, or at least minimize, the problems of fossil fuel addiction that plague the United States, such as the need for military protection of global supply lines. Second, China would be hit hardest by climate change, with several hundred million people living close to sea level and a still‐enormous agrarian population. Third, air and water pollution from fossil fuels are a huge problem in China.

China is taking the right steps. They are investing heavily in energy efficiency, renewable energy, and nuclear power, threatening to take over technical and economic leadership as the United States continues to dawdle. The Chinese government knows that replacement of fossil fuels with energy efficiency, renewable energies, and non‐carbon energies requires a price signal (in addition to other more‐targeted policies and investments).

Compare the difficulty of negotiating national carbon fee (tax) rates with the difficulty of convincing China that they should have Waxman‐Markey‐like cap‐and‐trade. Because of our historical energy profligacy, versus China’s energy penury, a U.S. cap — even expressed as a percentage reduction — has no moral standing in China. On the other hand, the Chinese leadership appears to be smart enough to realize that a rising carbon price is just what their country needs as the underpinning to policies aimed at a clean energy future.

International agreement requires principally that the United States and China agree to apply such internal fees across the board on fossil fuels at the mine or port of entry. Agreement on such action is in the best interests of both nations, making it far easier to reach than agreements on caps.

With the United States and China acting in concert on a carbon fee, Europe, Japan and other nations would surely follow. Import duties based on standard amounts of fossil fuels used in production could be applied to products from countries that did not have a carbon fee, removing any competitive disadvantage from the fee and providing strong incentive for participation in the carbon fee.

Krugman Argument #2. Cap‐and‐trade and fee‐and‐dividend are really equivalent.

Krugman says that the fee‐and‐dividend I propose is “essentially equivalent” to cap‐and‐trade. Here I may not have been clear. I do not dispute the economic theory that a cap and a fee are, in principle, equivalent. But cap‐and‐trade’s complexity allows special interests to take over, killing its effectiveness.

The devil is in the implementations, as I discuss in my book “Storms of My Grandchildren.” I believe lay people can appreciate the differences. Cap‐and‐trade’s complexity provides a breeding ground for special interests. A fee at the mine, wellhead or port of entry, with distribution of proceeds to the public, has a great advantage in simplicity. Let me note here its superiority in transparency and fairness.

One can appreciate the difference in transparency by comparing the 2,000‐page Waxman‐Markey cap‐and‐trade bill with the simplicity of a single fee (tax) rate on fossil fuels. With fee-and‐dividend we know who gets the money – equal amounts to all legal residents. But try reading the Waxman‐Markey 2,000‐page bill to figure out who would get the money! Why do those special interests deserve it anyhow?

Regarding fairness, I should note that there is a variant of fee‐and‐dividend preferred by Al Gore. He would use the money collected by the fee to reduce payroll taxes, rather than give U.S. residents a dividend. It seems to me that a payroll tax deduction fails the fairness test, because half of adults are not on payrolls, being either retired or out of work involuntarily.

However, some economists also prefer a payroll tax deduction. Their argument is that reducing taxes on employment creates jobs and stimulates the economy. It seems to me that dividends do the same, but I suppose that using half of the collected fee to reduce payroll taxes would be an acceptable compromise. However, it would be important to be certain that the payroll tax deduction is real and matches the fee collection. With a dividend it is easier to be sure that the government is coughing up the full amount.

Krugman Argument #3. Wall Street will not be involved in carbon trading

Krugman says that my suggestion that carbon trading will be an open invitation to Wall Street to again pillage the financial system “is bizarre.” What is bizarre, in my opinion, is his implicit presumption that government regulators can outwit Wall Street executives.

Congress can write a cap‐and‐trade bill that tries to exclude Wall Street. But to think that Wall Street will not get involved in carbon profits, directly or indirectly, is naïve. This is a free country. Wall Street banks can buy the companies most affected by carbon price.

Notice what happened after we bailed out the big banks? They decided the chump‐change in loans to home‐owners wasn’t worth their trouble. Instead they went to trading – in the stock market – making billions. Their secretive trading units are good – very good – there is a reason that they get big bonuses.

Wall Street and the big banks took us to the cleaners once – shame on them. If we allow Congress to pass cap‐and‐trade, letting the banks do it to us again – shame on us.

Trading schemes make sense only when they provide added value. Carbon trading provides mostly added cost. What we need is a transparent, honest approach that benefits the public.

The Fundamental Requirement

We can cure our fossil fuel addiction and in the process reduce emissions that cause climate change. It requires that we take actions for the public interest, not for special interests.

What we need is an approach that addresses the fundamental fact that keeps us addicted to fossil fuels: they are the cheapest form of energy, provided their prices do not have to include the damage they do to human health, the environment, and the future of our children.

For the sake of the people, especially young people, there should be a rising price on carbon emissions. The price should rise at a known economically sensible rate, so that businesses have time to plan their investments accordingly. The money collected should be put in the hands of the public, so they are able to make the purchases necessary to reduce their carbon footprint.

The money collected should not be used by Congress to invest in energy R&D. It has been shown time and again that Congress does not invest efficiently, and certainly not compared to the private sector. Private sector investments will be made if a rising price of carbon emissions is legislated through a carbon fee that makes the rising price explicit. The government already has resources to support research – it should not steal fee‐and‐dividend money from the public.

Contrary to claims of mainstream environmental groups and others politically invested in cap-and‐trade, the legislative train has not left the station. There is time to negotiate and pass a simple transparent bill that is in the interest of the public. It should be a bi‐partisan bill that can be supported by conservatives.

Congress is accustomed to working with special interests. There is a revolving door between Congress and lobbyists. Ex‐members know the Washington ropes. The lobbyists wrote most of the pages in the 2,000‐page bills in Congress.

We, the public, cannot allow politics‐as‐usual to steamroll this topic. It is too important for the health of our economy, our children, and the other life on the planet. Fortunately, there are members of Congress who are beginning to understand the problem and move in the direction to address it.

Congressman Larson’s bill, with a rising carbon fee, addresses half of the task. The rate at which the fee rises in this bill is perhaps too slow, but the important point is to provide the business community and the public some certainty that carbon prices will rise so they can make decisions and investments accordingly.

Senator Cantwell’s cap‐and‐dividend bill also addresses half of the solution – distributing 100% of the proceeds to the public as a dividend. However, it is just as important to dispense with the “cap” approach, still present in the Cantwell bill, as it is with the “trade” aspect.

A cap is more complex than a fee (dollars per ton of CO2, applied uniformly at the source), so a cap is more subject to jerry‐rigging by special interests. But the fundamental reasons to remain dead‐set against the cap approach are these:

(1) Caps inherently cause prices to fluctuate wildly. Even if legislators attempt to outsmart the market by building in limits on the fluctuations, there is still uncertainty in the impact on energy prices. Business people need to have confidence about how prices will change in the future.

Ditto, the public. If they expect prices to be fluctuating they are not as likely to make the lifestyle decisions that are needed to move us toward the cleaner future beyond fossil fuels.

(2) A cap‐and‐dividend approach is not a route to a global agreement. There is no way that developing countries such as China can accept a cap, given their state of development. The United States should be a global leader. The way to do that is to demonstrate an understanding of the global problem and provide a leadership example in solving it.

Postscript

One of the economists I consult with suggested alternative ways to address Krugman’s arguments. These suggestions are so extensive that I cannot incorporate them as if they were my own – but they provide additional insight. So I edited them a bit and put on my web site at http://www.columbia.edu/~jeh1/mailings/2010/20100112_PeoplePostscript.pdf. This discussion refers to two of arguments listed above, and to an addition argument (Cap‐and‐trade worked for acid rain, so it will work for climate change).

Letter

The letter delivered to the chairperson of the Carbon Trading Summit is at http://www.columbia.edu/~jeh1/mailings/2010/20100112_PeopleLetter.pdf

Link to pdf file of above article: http://www.columbia.edu/~jeh1/mailings/2010/20100112_PeopleVersusCap.pdf

James Hansen on why he’s disappointed that we did not show more leadership at the Copenhagen, “Cap and Fade,” Climategate, and more

James Hansen on why he’s disappointed that we did not show more leadership at the Copenhagen summit, “Cap and Fade,” Climategate, and more


Democracy Now, December 22, 2009

We speak with the nation’s leading climate scientist, James Hansen. He wasn’t at the Copenhagen climate summit and explains why he thinks it’s ultimately better for the planet that the talks collapsed. We also speak with with Dr. Hansen about his new book, Storms of My Grandchildren: The Truth about the Coming Climate Catastrophe and Our Last Chance to Save Humanity, and much more. [includes rush transcript]

AMY GOODMAN: We are just back from Copenhagen. Even as global criticism of the proceedings and final outcome of the two-week climate summit in Copenhagen continues to mount, the United Nations is trying to put a positive spin on the non-binding Copenhagen Accord. Speaking to reporters Monday, UN Secretary-General Ban Ki-moon insisted the accord was “quite a significant achievement.”

SECRETARY-GENERAL BAN KI-MOON: While I’m satisfied that we sealed a deal, I’m aware that the outcome of the Copenhagen conference, including the Copenhagen Accord, did not go as far as many would have hoped. Nonetheless, they represent a beginning, an essential beginning. We have taken an important step in the right direction.

AMY GOODMAN: Today I’m joined by the scientist who first convinced the world to take notice of the looming problem of global warming back in the 1980s. Yes, I’m talking about the nation’s leading climate scientist, James Hansen.

But the outspoken director of the NASA Goddard Institute for Space Studies wasn’t at Copenhagen. He decided to sit out the climate conference, saying it would be better for the planet if the summit ended in collapse.

James Hansen also teaches at the Department of Earth and Environmental Sciences at Columbia University. He’s just out with his first book; it’s called Storms of My Grandchildren: The Truth [about] the Coming Climate Catastrophe and Our Last Chance to Save Humanity..

Welcome to Democracy Now!

JAMES HANSEN: Thanks for having me.

AMY GOODMAN: Dr. Hansen, start off with why you weren’t at Copenhagen. I mean, this is your thing. It was the global warming summit of summits.

JAMES HANSEN: Well, they were talking about having a cap-and-trade-with-offsets agreement, which is analogous to the Kyoto Protocol, which was disastrous. Before the Kyoto Protocol, global emissions of carbon dioxide were going up one-and-a-half percent per year. After the accord, they went up three percent per year. That approach simply won’t work.

And I’m actually quite pleased with what happened at Copenhagen, because now we have basically a blank slate. We have China and the United States talking to each other, and it’s absolutely essential. Those are the two big players that have to come to an agreement. But it has to be an honest agreement, one which addresses the basic problem. And that is that fossil fuels are the cheapest source of energy on the planet. And unless we address that and put a price on the emissions, we can’t solve the problem.

AMY GOODMAN: I wanted to go for a minute to a quote of Paul Krugman. Paul Krugman is the New York Times op-ed columnist. You had written a very interesting piece in the New York Times called “Cap and Fade.” The Nobel Prize-winning economist Paul Krugman said about your December 7th op-ed—his response was called “Unhelpful Hansen.” And he said, “James Hansen is a great climate scientist. He was the first to warn about the climate crisis; I take what he says about coal, in particular, very seriously.

“Unfortunately, while I defer to him on all matters climate, today’s op-ed article suggests [that] he really hasn’t made any effort to understand the economics of emissions control. And that’s not a small matter, because he’s now engaged in a misguided crusade against cap and trade, which is—let’s face it—the only form of action against greenhouse gas emissions we have any chance of taking before catastrophe becomes inevitable.”

Your response?

JAMES HANSEN: That’s not right. In fact, I’ve talked with many economists, and the majority of them agree that the cap and trade with offsets is not the way to address the problem. You have to put an honest price on carbon, which is going to have to gradually rise over time.

But what you need to do—and many people call that a tax, but in fact the way that it should be done is to give all of the money that’s collected in a fee, that should be across the board on oil, gas and coal, collect that money at the mine or at the port of entry from the fossil fuel companies, and then distribute that to the public on a per capita basis to legal residents of the country. Then the person that does—that has less than average carbon emissions would actually make money from the process, and it would stimulate the economy. It would give the public the funds that they need in order to invest in low-carbon technologies. The next time they buy a vehicle, they should get a low-emission one. They should insulate their homes. Such actions. And those people who do that will come out ahead. That’s—the economists agree that that’s the way you should address the problem, with a price on carbon. Otherwise, the emissions will just continue to go up.

AMY GOODMAN: Explain exactly what’s meant by “cap and trade.”

JAMES HANSEN: Cap and trade, they attempt to put a cap on different sources of carbon dioxide emissions. They say there’s a limit on how much a given industry in a country can emit. But the problem is that the emissions just go someplace else. That’s what happened after Kyoto, and that’s what would happen again, if—as long as fossil fuels are the cheapest energy, they will be burned someplace. You know, the Europeans thought they actually reduced their emissions after Kyoto, but what happened was the products that had been made in their countries began to be made in other countries, which were burning the cheapest form of fossil fuel, so the total emissions actually increased.

AMY GOODMAN: Let me play an excerpt of what the Australian scientist Tim Flannery says. He was speaking on Democracy Now! earlier this year in defense of cap and trade.

TIM FLANNERY: Look, cap and trade, by itself, is not enough, but it is essential in terms of these international negotiations. And one way of showing that is to look at the alternatives. Just say the US went with a carbon tax. That would leave the President in a position where he’d be going to Copenhagen and saying, “Look, we’ve got a carbon tax, but we’ve got no idea really what it’s going to do in terms of our emissions profile.” So, countries would just say, “Well, what are you actually pledging to? What are you—how are you going to deal with your emissions?” You know, the only method, really, to allow countries to see transparently what other countries intend to do and then share the burden equally is through a cap-and-trade system. So it’s not enough to deal with emissions overall, but it is an essential prerequisite for any global deal on climate change.

AMY GOODMAN: The Australian scientist Tim Flannery. Dr. Hansen?

JAMES HANSEN: Well, I guess I would turn Krugman’s comment around and say Tim is a great biologist, but he hasn’t looked at the data on emissions and the effect of a cap with offsets. In fact, it does not decrease emissions. And that’s one reason, in my book, I say that I’m going to update the graphs every month and every year, just showing what’s really happening, because, in fact, you have to actually decrease the emissions.

And the only way that will happen is if the price of the fossil fuels is gradually rising so that the alternatives—energy efficiency, renewable energies, nuclear power, the things that can compete with fossil fuels—begin to be cost-competitive. That’s the only way it will work.

AMY GOODMAN: Well, let’s go back for a minute and talk about what we are actually facing. I mean, it’s amazing to come back from Copenhagen after two weeks there, where the entire discussion was about global warming, back to the US media, where there is almost no mention. It’s more the politics of what did it mean for President Obama to swoop in, did he save the talks, did he collapse the talks, whatever. But actually, what the stakes are. You begin your book, Storms of My Grandchildren, by talking about a tipping point. What do you mean by that, Dr. Hansen?

JAMES HANSEN: Well, there are tipping points in the climate system, where we can push the system beyond a point where the dynamics begins to take over. For example, in the case of an ice sheet, once it begins to disintegrate and slide into the ocean, you’ve passed the point where you can stop it. So that’s what we have to avoid.

Another tipping point is in the survival of species. As we begin to put pressure on species and move the climate zone so that some of the species can’t survive because they can only live within certain climate parameters, because species depend upon each other, you can drive an ecosystem such that when some species go extinct, then the entire ecosystem will collapse. So you don’t want to push the system that far.

And these tipping points are not hypothetical. We know from the earth’s history that these have happened in the past, especially when we’ve had large global warmings. We’ve driven more than half the species on the planet to extinction. And then, over hundreds of thousands and millions of years, new species come into being. But for any time scale that we can imagine, we would be leaving a much more desolate planet for our children and grandchildren and future generations. So we don’t want to pass those tipping points.

AMY GOODMAN: And how do you know that we are headed in that direction?

JAMES HANSEN: Yeah.

AMY GOODMAN: What, in your work, has told to this?

JAMES HANSEN: Well, in the case, say, of the ice sheets and sea level, we see. We began in 2002 to get this spectacular data from the gravity satellite, which measures the gravitational field of the earth with such a high precision that you can get the mass of the Greenland ice sheet and the Antarctic ice sheets. And what we see is that in 2002 to 2005, we were losing mass from Greenland at a rate of about 150 cubic kilometers per year. Well, now that’s doubled to about 300 cubic kilometers per year. And likewise, the mass loss from Antarctica has also doubled over that time period.

So we can see that we’re moving toward a tipping point where those ice sheets will begin to disintegrate more rapidly, and sea level will go up. And that’s one of the bases, and others, for saying that a safe level of carbon dioxide is actually less than what we have now. It’s—

AMY GOODMAN: Which is?

JAMES HANSEN: What we have now is 387 parts per million. But we’re going to have to bring that down to 350 parts per million or less. And that’s still possible, provided we phase out coal emissions over the next few decades. That’s possible. We would also have to prohibit unconventional fossil fuels like tar sands and oil shale.

But if you look at what governments are doing, the reason that you know that the kind of accords they’re talking about are not going to work is because, look at what they’re actually doing. The United States had just agreed to have a pipeline from the tar sands in Canada to the United States.

AMY GOODMAN: In Alberta.

JAMES HANSEN: Yeah, so they’re planning on actually burning those tar sands, which we can’t do.

AMY GOODMAN: Explain how that works. What are the tar sands? I mean, this was a major issue in Copenhagen, and we played a number of pieces, especially indigenous people, for example, marching on the Canadian embassy—

JAMES HANSEN: Yeah.

AMY GOODMAN: —to try to stop the drilling.

JAMES HANSEN: They’re among the dirtiest fossil fuels on the planet. There’s oil mixed in the ground with the sand. You have to cook that material to get oil to drip out of it. That takes a lot of energy to cook it. And then you end up with oil, which also has carbon. Then you burn the oil, and you get more carbon. So it’s much more carbon-intensive than oil itself.

AMY GOODMAN: We get more oil from Canada than anywhere else in the world, is that right?

JAMES HANSEN: I’m not sure about that, but the plan is, in the long run. There’s much more there in tar sands than even in Saudi Arabia.

So the point is, we’re going to have to move to the energy system beyond fossil fuels. We need to drive the economic system so that we move to a clean energy future. And there are many other advantages in doing that: cleaning up the atmosphere, cleaning up the ocean. You get—the mercury and arsenic and all these pollutants are coming from fossil fuels. So we need to get off this fossil fuel addiction. And the way you do that is to put a gradually rising price on the carbon emissions.

AMY GOODMAN: How many times have you been arrested protesting now the issue of coal and mountaintop removal?

JAMES HANSEN: A couple of times in West Virginia, with regard to the mountaintop removal, and in Boston, where we were sleeping out on the Boston Commons. But, yeah, trying to draw—

AMY GOODMAN: So, how did you go from being the head of the NASA Goddard Institute for Space Studies to getting arrested for these protests?

JAMES HANSEN: Well, these protests are what we call civil resistance, in the same way that Gandhi did. We’re trying to draw attention to the injustice, because this is really analogous. This is a moral issue, analogous to that faced by Lincoln with slavery or by Churchill with Nazism, because what we have here is a tremendous case of intergenerational injustice, because we are causing the problem, but our children and grandchildren are going to suffer the consequences.

And our parents didn’t know that they were causing a problem for future generations, but we do. The science has become very clear. And we’re going to have to move to a clean energy future. And we could do that. And there would be many other advantages of doing it. Why don’t we do it? Because of the special interests and because of the role of money in Washington.

AMY GOODMAN: Now, you don’t just protest outside of, you know, these companies that do mountaintop removal; you were protesting outside the Natural Resources Defense Council, the NRDC.

JAMES HANSEN: Yeah. They and some other environmental organizations have become too much of the Washington scene, and they’re trying to work on the terms that Washington now works on, in which the lobbyists are driving the legislation. We have to get the legislation designed in the public’s interest, not in the interests of the people who have the money to influence the process.

AMY GOODMAN: We’re going to break and then come back. Our guest today is James Hansen. Storms of My [Grandchildren]: The Truth [about] the Coming Climate Catastrophe and Our Last Chance to Save Humanity is his first book. He’s the director of the NASA Goddard Institute for Space Studies, teaches at Columbia University. He’s been arrested protesting coal mining and didn’t go to Copenhagen, because he wanted those talks to collapse, felt they wouldn’t save the planet. This is Democracy Now! Back in a minute.
 [break]  

AMY GOODMAN: Our guest is Jim Hansen. Storms of My Grandchildren is his new book, The Truth about the Coming Climate Catastrophe and Our Last Chance to Save Humanity.

I wanted to play for you, Dr. Hansen, the comment of the Prime Minister of Nepal. Days before the climate talks began in Copenhagen, cabinet ministers from Nepal held a cabinet meeting on Mount Everest, at the base, to send a message on the impact of global warming on the Himalayas. I spoke to the Nepalese Prime Minister in Copenhagen.

PRIME MINISTER MADHAV KUMAR NEPAL: Global warming has its impact on the top of the mountain. And the snows are melting. Glaciers, many of the glaciers, Himalaya glaciers, has evaporated, has disappeared. Many glacial lakes are emerging, and many of the glacial lakes are the [inaudible]. So we have seen many landslides there and no regular land or rainfall there. Droughts and all these problems relating to the health of the people has been seen. And we have seen power plants that is damaging many of the villages. The natural calamities has been seen. And the impact on the mountainous region is much more in the downstream, where 1.3 billion of the population live in India, in Bangladesh. So the problem of Nepal is not only the problem of Nepal’s people, rather the problem of at least 1.3 billion of population.

AMY GOODMAN: That’s the Nepali Prime Minister Nepal. That is his name. Your response to that, Dr. Jim Hansen?

JAMES HANSEN: Well, yeah, we see the climate changes. It’s at the top of the mountains. The glaciers all around the world are melting. And those glaciers are actually very important, because they provide fresh water for the major rivers of the world. During the dry season, the rivers, such as the Brahmaputra and the Ganges Rivers, more than half the water in the river is from melting glaciers. So once those glaciers are gone, it’s a real problem.

But the problems are also occurring at the other end of the rivers. The coastline of Bangladesh, for example, is going to be moving inward, and you’re going to have hundreds of millions of people who will be refugees. So it’s especially these poor nations around the world that will suffer from climate change.

AMY GOODMAN: Last week I also caught up with the President of the Maldives, Mohamed Nasheed. Now, this is a low-lying island, the Maldives, at the frontline of climate change. And I asked him what a three degree Celsius rise in temperature, because the IFCCC, the climate change conference—apparently there was this document that we exposed on Democracy Now! with the French news organization Mediapart, saying that their plans, what they were putting forward, wouldn’t actually increase the temperature by two degrees Celsius, but actually by three degrees. And I asked the Maldivian President Mohamed Nasheed to describe what that would mean for his country.

PRESIDENT MOHAMED NASHEED: That would mean that we won’t be around. That would mean the death of us. And that’s really not acceptable for us. We cannot survive with that kind of temperature rise. 

AMY GOODMAN: For people who don’t understand climate change, which is probably most people in the United States, why wouldn’t you be around? What would happen?  

PRESIDENT MOHAMED NASHEED: Sea levels would rise. We are just 1.5 meters above the water. And if we have sea levels rising to seventy, eighty centimeters, that’s going to eat up most of our country. So we won’t be around.  

AMY GOODMAN: Are you making preparations for a mass population removal to dry land?  

PRESIDENT MOHAMED NASHEED: Well, you know, we’ve been there in the middle of the Indian Ocean for the last 10,000 years, and we have a written history that goes back 2,000 years. I can move, but where would all the butterflies go, all the sounds go, all the culture go, all the color go? I don’t think it really is a feasible option to move. It’s going to be almost impossible for us to convince our people to move.

AMY GOODMAN: That is the Maldivian President Mohamed Nasheed.

JAMES HANSEN: Yeah, yeah. That’s exactly the problem. And that’s what was happening in Copenhagen. The wealthy countries are trying to basically buy off these countries that will, in effect, disappear. It doesn’t make sense. I mean, and the danger is that these countries will see this money—that’s why the United States offered to promote $100 billion per year, which is imaginary money, because I don’t think that’s going to happen. The United States’ share of that, based on our contribution to the carbon in the atmosphere, would be 27 percent, $27 billion per year. Do you think that our Congress is going to vote $27 billion per year to give these poor countries? It’s not going to happen. What we—but that’s the danger, that these poor countries will say, “Gee, that’s a lot of money. Maybe we can get that.” What we actually have to do is solve the problem, not pay people off. And that requires reducing the carbon emissions.

AMY GOODMAN: Let me ask you about the East Anglia controversy, the University of East Anglia, that the climate deniers, the climate change deniers, are using. Explain what happened, actually, the discussion between the scientists, what is being called Climategate, in emails that hackers got a hold of, and how it’s being used.

JAMES HANSEN: Yeah, well, obviously, this discussion between some of the climate scientists revealed frustrations that they have with the contrarians who continually will nitpick about “Is the station data good?” or “Is that one not?” And what they should have done is release their full data immediately, because there’s no question about the actual climate change. And by having—by this attempt to not be completely open, they opened themselves up to criticism.

But, in fact, the climate record is not debated, and it’s not debatable. If they give all the data, then they give the opportunity to somebody else to show, “Oh, it’s really not warming.” But, of course, they can’t show that, because the evidence is all over the place that the climate really is changing.

But unfortunately, this episode has been very confusing to the public, so now there are many in the United States, especially, who are skeptical about whether the climate change is real. So it’s been a public relations disaster, but it doesn’t change the science one iota. In fact, the science has become clearer and clearer over the last several years.

AMY GOODMAN: Can you talk about where the United States is versus Europe? I talked to people throughout Europe in Copenhagen. I mean, thousands of people came out. Whether you wanted those talks to collapse or not, the level of networking and of groups all over the world was truly remarkable that took place there largely outside of the Bella Center—

JAMES HANSEN: Yeah.

AMY GOODMAN: —but also inside, because in the last few days, civil society was really kept out of those talks. But they said the United States is years behind in just the discourse, because we are at the point of—

JAMES HANSEN: Yeah.

AMY GOODMAN: —if you even have a discussion in the US media, it’s about whether global warming exists.

JAMES HANSEN: Yeah.

AMY GOODMAN: Whereas in Europe, it’s about—the debates are about, well, what do we do?

JAMES HANSEN: Yeah.

AMY GOODMAN: I mean, carbon sequestration? Should there be cap and trade? What are the alternatives? That’s where the debates lie there. Here, we’re way behind.

JAMES HANSEN: Yeah, and for a very good reason: because of the effectiveness of the industries that don’t want to see change. They have had an enormous impact on the public’s perception of the issue.

AMY GOODMAN: Where do you see that with scientists, for example? We just did that piece on healthcare, the amount of money they’re pouring in lobbying on healthcare. What is it in—on global warming legislation that didn’t pass the Senate, $300,000 a day from coal, oil, gas?

JAMES HANSEN: Well, yeah, there are more than two-and-a-half thousand energy lobbyists in Washington, so that’s more than four per congressperson. And that’s—unfortunately, the public just doesn’t have that kind of representation. And it’s also a fact that the industry influences the media, so that you always see this presented as if it’s an either—there’s one side and there’s another side, as if they were equal. But, in fact, the science has become crystal clear. And we have the most authoritative scientific body in the world in the National Academy of Sciences. So all the President would need to do if he wants to make this issue clear to the public is ask the Academy to give him a clear report on this subject, and the answer would be very clear.

AMY GOODMAN: The effect of the EPA now announcing that carbon, methane, that they are threats to public health? Can the EPA just start regulating regardless of Congress passing legislation?

JAMES HANSEN: Well, they can. But then, when we have a new election and a different party comes to power, that their ability to do that might be changed. And so, that’s why it’s preferable to have laws written by Congress and signed by the President. But in the absence of that, EPA can get us moving in the right direction. And they are beginning to do that, for example, in vehicle efficiencies.

AMY GOODMAN: Talk about the level of suppression of science in the United States. You personally experienced it. There was this exposé in the Times where you first were talking to Andrew Revkin and explaining what was happening under the Bush administration, and even before that, the suppression of your work when you testified before Congress to, what, Senator Al Gore at the time.

JAMES HANSEN: Yeah. There are two major problems. One is that the public affairs offices of the science agencies are headed by political appointees, and they tend to try to control the information that goes from the science agencies to the public, if it is a politically sensitive topic. In many topics, maybe 99 percent, there’s no interference. But when it becomes a sensitive issue, as it was with global warming, there is that tendency.

So the solution to that would be to have professionals, career civil servants, head the public affairs offices. Otherwise, they are offices of propaganda. And it still—it doesn’t matter which, whether it’s Democrats or Republicans; as soon as there’s an election, a change of the party in power, they replace the heads of these offices. So they’re still offices of propaganda, in my opinion.

The other thing is, is if a government scientist testifies to Congress, he has to first show his testimony to the White House. Doesn’t make sense. Why should Congress not get the best opinion of the scientists? This is a power which is just taken by the executive branch, and the Congress has not objected to it. Again, it doesn’t make sense, because the scientific—the scientists are paid by the public, so they shouldn’t be under the control of the White House. They should be free to give the best scientific advice they can.

AMY GOODMAN: You had a young man, twenty-four years old, named George Deutsch, put in charge of you as the top scientist over at NASA Goddard Institute for Space Studies under the Bush administration. It turned out he hadn’t graduated from college, whatever. He was determining who you got to talk to in the media, what information you were putting out? He was—

JAMES HANSEN: Well, that’s the way the story came out in the New York Times. And it sounded as if this low-level person was responsible for the censorship. He was reporting to the highest level at NASA headquarters, the head of the public affairs offices. So, in fact, this was the problem I just described. It’s the fact that the administration in power feels that it gets to control the information that goes to the public. It doesn’t make sense in a democracy. A democracy doesn’t work right if the public cannot be honestly informed.

AMY GOODMAN: Do you feel your work is being suppressed now? You still work with NASA.

JAMES HANSEN: No, I don’t feel that it’s being suppressed now. But the fundamental problem has not been solved, in that the heads of these offices are still political appointees. But I’ve been—ever since this issue became open during the Bush administration, I’ve been allowed to say what I want, because I think the bad publicity of any censorship is not worth it, so they’re not trying to control what I say.

AMY GOODMAN: You were reporting to the top people. It was not only the top people controlling what you had to say. You were meeting with Dick Cheney, the Vice President, you were meeting with Colin Powell, to warn them about global warming. What was their response?

JAMES HANSEN: Well, yeah, I had the opportunity at the beginning of the Bush administration to speak to the energy climate task force, which was headed by Vice President Cheney and which had six cabinet members plus the EPA administrator and the national security adviser on it. But what I learned was—and we, I think, gave them a clear story about the dangers in continuing greenhouse gas emissions, but the decisions on what the policies were made were made a couple of weeks before they listened to the science stories, as I discuss in one of the chapters in my book. So the policies were based on other considerations rather than the scientific information.

AMY GOODMAN: Finally, what do you think needs to happen right now?

JAMES HANSEN: Yeah, what needs to happen right now—we have this great opportunity this spring, I would say, to have discussions in the House and Senate about what really needs to be done to solve this problem. And it’s not cap and trade with offsets. We can prove that that’s completely ineffectual. What we have to do is put a price on carbon, and the money that’s collected needs to be given to the public, not used for boondoggles, like Congress is taking—plans to take the money from cap and trade that’s collected in selling the permits to pollute and to use that money for things like clean coal or to give the money back to the polluters. That won’t solve the problem. We have to give the money to the public.

AMY GOODMAN: Do you see the Obama administration in any way going in this direction?

JAMES HANSEN: I think it’s possible. There were a couple of encouraging things in Copenhagen. For one thing, Al Gore made a clear statement that a carbon price is a better solution than cap and trade. And John Kerry also indicated that he had an open mind on that question. So that’s why I say the discussions in the next few months are very important, because the way the United States goes is going to determine the way the world goes, I think.

AMY GOODMAN: I want to thank you very much for being with us. Dr. James Hansen is our guest. He is author of Storms of My Grandchildren: The Truth about the Coming Climate Catastrophe and Our Last Chance to Save Humanity and one of the world’s leading climatologists.

Link:  http://www.democracynow.org/2009/12/22/leading_climate_scientist_james_hansen_on

Ex-Fed chief Paul Volcker's 'telling' words on derivatives industry -- says derivatives belong in hedge funds, not banks

Dear Readers,

You might be tempted to ask me what the article below has to do with the environment.  Well, it has everything to do with it.  So long as capital is displaced to financial entities instead of to long-term investments (preferably green investments, going forward), we are not going to see any change for the better.  So long as these "creative" financiers are on top of the cash, even now thinking of ways to divvy up the spoils of cap and trade with exotic derivatives, unregulated, we are all going to be in a heap of trouble.  Obama seems to have sidelined Volcker -- a big mistake.  He has only a short window during which he can effect change, and it is closing fast.  At this rate, he will be a one-term president and the Republicans and their War on Science will prevail.  Write to Obama and tell him, please.

Ex-Fed chief Paul Volcker's 'telling' words on derivatives industry

Paul Volcker, the chairman of President Obama's Economic Recovery Advisory Board, stunned a business conference in Sussex yesterday, saying there is "little evidence innovation in financial markets has had a visible effect on the productivities of the economy"

by Louise Armitstead, The Telegraph, December 8, 2009

The former US Federal Reserve chairman told an audience that included some of the world's most senior financiers that their industry's "single most important" contribution in the last 25 years has been automatic telling machines, which he said had at least proved "useful."

Echoing FSA chairman Lord Turner's comments that banks are "socially useless," Mr Volcker told delegates who had been discussing how to rebuild the financial system to "wake up." He said credit default swaps and collateralised debt obligations had taken the economy "right to the brink of disaster" and added that the economy had grown at "greater rates of speed" during the 1960s without such products.

When one stunned audience member suggested that Mr Volcker did not really mean bond markets and securitisations had contributed "nothing at all," he replied: "You can innovate as much as you like, but do it within a structure that doesn't put the whole economy at risk."

He said he agreed with George Soros, the billionaire investor, who said investment banks must stick to serving clients and "proprietary trading should be pushed out of investment banks and to hedge funds where they belong."

Mr Volcker argued that banks did have a vital role to play as holders of deposits and providers of credit. This importance meant it was correct that they should be "regulated on one side and protected on the other." He said riskier financial activities should be limited to hedge funds to whom society could say: "If you fail, fail. I'm not going to help you. Your stock is gone, creditors are at risk, but no one else is affected." 

Link:  http://www.telegraph.co.uk/finance/economics/6764177/Ex-Fed-chief-Paul-Volckers-telling-words-on-derivatives-industry.html

Head of California’s Cap and Trade Offsets Program: Cap and Trade Won’t Work for Climate, It’s a Scam

Guest Post: Head of California’s Cap and Trade Offsets Program: Cap and Trade Won’t Work for Climate, It’s a Scam

from the Naked Capitalism blog, December 8, 2009

Paul Krugman argues that cap and trade worked to reduce sulfur dioxide and stop acid rain, and so it will work to reduce CO2.

However, two EPA lawyers with more than 40 years of cumulative experience – including the guy who has been head of California’s cap and trade offset programs for more than 20 years – say that sulfur dioxide was different, and that cap and trade for climate is a scam which only benefits the financial players.
Specifically, they point out that:

• Cap and trade was tried in Europe, but ended up raising energy prices, creating volatility, produced few greenhouse gas reductions, but made billions for the financial players

• Even the guy who invented the cap and trade concept doesn’t think it will work in regards to climate change (see this and this)

• Carbon offsets – which are part of the cap and trade plan – increase pollution

• One reason that offsets lead to more pollution is that investors fight to keep toxic chemicals legal, so they can make more money off of trading the offsets

• Like subprime mortgages and other creative financial instruments which brought us the economic crisis, carbon offsets lack integrity and don’t work (see this)

Watch the video.

Link:  http://www.nakedcapitalism.com/2009/12/guest-post-head-of-californias-cap-and-trade-offsets-program-cap-and-trade-wont-work-its-a-scam.html

Naked Capitalism blog: Woman Who Invented Credit Default Swaps is One of the Key Architects of Carbon Derivatives, Which Would Be at the Very CENTER of Cap and Trade

Guest Post: Woman Who Invented Credit Default Swaps is One of the Key Architects of Carbon Derivatives, Which Would Be at the Very CENTER of Cap and Trade

[Readers, this post is from the Naked Capitalism blog -- the best, tell-it-like-it-is, no-bullshit, financial blog on the net -- I read it almost every day.]

by Naked Capitalism, December 8, 2009

As I have previously shown, speculative derivatives (especially credit default swaps or “CDS”) are a primary cause of the economic crisis. They were largely responsible for bringing down Bear Stearns, AIG (and see this), WaMu and other mammoth corporations.
According to top experts, risky derivatives were not only largely responsible for bringing down the American (and world) economy, but they still pose a substantial systemic risk:

• A Nobel prize-winning economist (George Akerlof) predicted in 1993 that CDS would cause the next meltdown

• Warren Buffett called them “weapons of mass destruction” in 2003

• Warren Buffett’s sidekick Charles T. Munger, has called the CDS prohibition the best solution, and said “it isn’t as though the economic world didn’t function quite well without it, and it isn’t as though what has happened has been so wonderfully desirable that we should logically want more of it”

• Former Federal Reserve Chairman Alan Greenspan – after being one of their biggest cheerleaders – now says CDS are dangerous

• Former SEC chairman Christopher Cox said “The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis”

• Newsweek called CDS “The Monster that Ate Wall Street”

• President Obama said in a June 17 speech on his plans for finance industry regulatory reform that credit swaps and other derivatives “have threatened the entire financial system”

• George Soros says the market is still unsafe, and that credit- default swaps are “toxic” and “a very dangerous derivative” because it’s easier and potentially more profitable for investors to bet against companies using them than through so-called short sales.

• U.S. Congresswoman Maxine Waters introduced a bill in July that tried to ban credit-default swaps because she said they permitted speculation responsible for bringing the financial system to its knees.

• Nobel prize-winning economist Myron Scholes – who developed much of the pricing structure used in CDS – said that over-the-counter CDS are so dangerous that they should be “blown up or burned”, and we should start fresh

• A leading credit default swap expert (Satyajit Das) says that the new credit default swap regulations not only won’t help stabilize the economy, they might actually help to destabilize it.

• Senator Cantwell says that the new derivatives legislation is weaker than current regulation

Round Two: Carbon Derivatives
Now, Bloomberg notes that the carbon trading scheme will be largely centered around derivatives:

The banks are preparing to do with carbon what they’ve done before: design and market derivatives contracts that will help client companies hedge their price risk over the long term. They’re also ready to sell carbon-related financial products to outside investors.
[Blythe] Masters says banks must be allowed to lead the way if a mandatory carbon-trading system is going to help save the planet at the lowest possible cost. And derivatives related to carbon must be part of the mix, she says. Derivatives are securities whose value is derived from the value of an underlying commodity — in this case, CO2 and other greenhouse gases…

Who is Blythe Masters?
She is the JP Morgan employee who invented credit default swaps, and is now heading JPM’s carbon trading efforts. As Bloomberg notes (this and all remaining quotes are from the above-linked Bloomberg article):

Masters, 40, oversees the New York bank’s environmental businesses as the firm’s global head of commodities…
As a young London banker in the early 1990s, Masters was part of JPMorgan’s team developing ideas for transferring risk to third parties. She went on to manage credit risk for JPMorgan’s investment bank.
Among the credit derivatives that grew from the bank’s early efforts was the credit-default swap.

Some in congress are fighting against carbon derivatives:

“People are going to be cutting up carbon futures, and we’ll be in trouble,” says Maria Cantwell, a Democratic senator from Washington state. “You can’t stay ahead of the next tool they’re going to create.”
Cantwell, 51, proposed in November that U.S. state governments be given the right to ban unregulated financial products. “The derivatives market has done so much damage to our economy and is nothing more than a very-high-stakes casino — except that casinos have to abide by regulations,” she wrote in a press release…

However, Congress may cave in to industry pressure to let carbon derivatives trade over-the-counter:

The House cap-and-trade bill bans OTC derivatives, requiring that all carbon trading be done on exchanges…The bankers say such a ban would be a mistake…The banks and companies may get their way on carbon derivatives in separate legislation now being worked out in Congress…

Financial experts are also opposed to cap and trade:

Even George Soros, the billionaire hedge fund operator, says money managers would find ways to manipulate cap-and-trade markets. “The system can be gamed,” Soros, 79, remarked at a London School of Economics seminar in July. “That’s why financial types like me like it — because there are financial opportunities”…
Hedge fund manager Michael Masters, founder of Masters Capital Management LLC, based in St. Croix, U.S. Virgin Islands [and unrelated to Blythe Masters] says speculators will end up controlling U.S. carbon prices, and their participation could trigger the same type of boom-and-bust cycles that have buffeted other commodities…
The hedge fund manager says that banks will attempt to inflate the carbon market by recruiting investors from hedge funds and pension funds.
“Wall Street is going to sell it as an investment product to people that have nothing to do with carbon,” he says. “Then suddenly investment managers are dominating the asset class, and nothing is related to actual supply and demand. We have seen this movie before.”

Indeed, as I have previously pointed out, many environmentalists are opposed to cap and trade as well. For example:

Michelle Chan, a senior policy analyst in San Francisco for Friends of the Earth, isn’t convinced.
“Should we really create a new $2 trillion market when we haven’t yet finished the job of revamping and testing new financial regulation?” she asks. Chan says that, given their recent history, the banks’ ability to turn climate change into a new commodities market should be curbed…
“What we have just been woken up to in the credit crisis — to a jarring and shocking degree — is what happens in the real world,” she says…
Friends of the Earth’s Chan is working hard to prevent the banks from adding carbon to their repertoire. She titled a March FOE report “Subprime Carbon?” In testimony on Capitol Hill, she warned, “Wall Street won’t just be brokering in plain carbon derivatives — they’ll get creative.”

How the Movie Ends
Yes, they’ll get “creative”, and we have seen this movie before …an inadequately-regulated carbon derivatives boom will destabilize the economy and lead to another crash.
I have previously pointed out that CDS sellers – like the big sellers of other financial products – know that the government will bail them out if CDS crash again. So they have strong incentives to sell them and to recreate huge levels of leverage. Indeed, the same dynamic that led to the S&L crisis also led to last year’s CDS crisis, and will lead to the next crisis as well. So – while CDS might be a particularly dangerous type of “weapon of mass destruction” (in Warren Buffet’s words), the new carbon derivatives may very well become the new form of looting on the public’s dime. If the government allows massive carbon derivatives trading with as little oversight as over the CDS market, taxpayers will end up spending many trillions bailing out the giant banks and propping up the economy when the carbon market bubble bursts.

And as I have previously pointed out: (1) the giant banks will make a killing on carbon trading, (2) while the leading scientist crusading against global warming says it won’t work, and (3) there is a very high probability of massive fraud and insider trading in the carbon trading markets.

More on this topic (What's this?)

The Real Reason the Big Boys Don't Want Credit Default Swaps to Be Regulated (George Washington's Blog, 10/9/09)

Here’s Why It’s Time to Ban Credit Default Swaps (Money Morning, 7/15/09)

Here’s Why It’s Time to Ban Credit Default Swaps (Contrarian Profits, 7/15/09)

Read more on Credit Default Swap (CDS) at Wikinvest

James Hansen: Sack Goldman Sachs' Cap-and-Trade

From Jim Hansen, December 7, 2009:

I published an op-ed in today's New York Times (http://www.nytimes.com/2009/12/07/opinion/07hansen.html) on the deadly cap-and-trade fiasco that conniving governments are attempting to foist on us to the detriment of our children and grandchildren. Their scheme, hatched in collaboration with Wall Street big banks, is a reprise of the Kyoto Protocol.  Global emissions after Kyoto actually increased more rapidly (in real terms, percentage terms, and exponential rate of growth) than before.  Even those few countries that reduced their emissions (and few did after "offsets" are eliminated) did so by exporting their emissions (and jobs) to developing countries (to make products exported to the developed countries). 

As I explain in my book "Storms of My Grandchildren" (published this week, see http://www.stormsofmygrandchildren.com/Staging/index.html) what is planned for Copenhagen is a selling of Indulgences, as in the Middle Ages when the Catholic Church sold forgiveness of sins. The Bishops were very happy (lots of moulah) and the sinners were happy (they could still go to heaven).  The developed country sinners in Copenhagen will be paying moulah via "offsets" (many imaginary or unverifiable) and "adaptation" funds and the developing countries will be looking to collect as many billions as possible.  Can't blame them for that, but it is plain as day that the global emissions are not going to take the rapid downward track that the science demands. 

It is easy to show from the geophysical facts, as I do in the book, that the purported goals for emissions reductions cannot be met if coal use is not phased out and if unconventional fossil fuels are not prohibited. I hope that everybody noticed the recent quiet agreement with Canada for a pipeline to carry oil from tar sands to the United States.

I had written a longer saltier version of the big bank heist titled Sack Goldman Sachs Cap-and-Trade. (Didn't we just get taken to the cleaners by them once -- will the public forgive the same mistake twice?).

If you don't mind a little sarcasm, there is additional information in the saltier discussion find below and at http://www.columbia.edu/~jeh1/mailings/2009/20091207_SackGoldmanSachs.pdf

Jim

Sack Goldman Sachs' Cap-and-Trade

by James Hansen

            The revolving door between Washington and Wall Street has produced a new scheme to fleece the public. “Cap-and-trade” is the heart of the Obama Administration’s plan to slow global warming and reduce our dependence on fossil fuels. Permits to emit a “capped” amount of carbon dioxide will be traded on Wall Street by big-time players like Goldman Sachs.
            Cap-and-trade was anointed hero status for helping reduce pollution from power plants, specifically acid rain from the sulfur in coal. Seldom have accolades been less deserved. Indeed, this “success” story is a case of calling black white.
            Here, in essence, is how it worked. Congress passed a law, Title IV of the Clean Air Act, capping sulfur emissions from power plants at 50% of 1990 amounts. Utilities reducing emissions more than half could sell excess reductions to other utilities, which then did not need to reduce pollution. Physical changes were simple. Many power plants switched to low-sulfur Wyoming coal and a few installed scrubbers. Sulfur emissions were reduced almost 50% in 20 years. Great success? Hardly.
            First, it was like a smoker going from two-packs-a-day to one-pack-a-day. Such a cap imposed by law is a floor, as well as a cap. Physicians for Social Responsibility reported on 18 November 2009 that continuing coal emissions are significant contributing factors in four of the five leading causes of mortality in the United States – and the mercury, arsenic and other coal pollutants also cause birth defects, asthma and other ailments. The economic value to the public of further emission reductions exceed the cost by a factor of 25, but so far the floor has prevented greater reduction.
            What is needed is not a cap/floor, but a system designed to wind down the pollution in accord with the public good, not the polluters’ profits. Before defining such a system, let me expose the second, even bigger, whopper in the cap-and-trade gimmick. It is the “horse-trading” that polluters demand before they will allow Congress to pass a cap. Yes, I am sorry to say, in America today, with the role of money in government and a revolving door between Congress and lobbyists, polluters sit astride Congress with such brazen “authority.”
            The horse-trade demanded by polluters before accepting the Clean Air Act was that old power plants be “grandfathered,” avoiding many pollution regulations. These old plants would soon be retired anyway. Wink. Two-thirds of today’s coal-fired power plants were constructed before 1970. Utilities find it highly profitable to keep patching up these old polluting cash cows. Meanwhile, public health continues to suffer.
            These basic problems, the floor on pollution and horse-trading, recur, in spades, in the cap-and-trade scheme hatched by big banks and Washington to slow carbon dioxide emissions and reduce fossil fuel use.
            Cap-and-trade sets a nominal emissions cap by auctioning permits to pollute. This cap is a floor – if emissions went below the cap, permit price would collapse leaving no incentive for further emissions reduction.
        Moreover, the cap is a faux cap, a fiction. The real cap is higher, because of “offsets” – alternatives to emission reductions, such as tree planting on degraded land, avoided deforestation in Brazil, or investments in developing countries. Caps are raised by the offset amount, but offsets are often imaginary or unverifiable. Avoided deforestation, for example, does not reduce demand for lumber or food growing area, so deforestation moves elsewhere. Also, offsets encourage developing countries to retain pollution, so they will have offsets to sell.
         Horse-trading further mars the outcome. House and Senate energy bills legislate continued coal use, making it implausible that carbon dioxide emissions will decline sharply. Copenhagen discussions also are headed down the cap-with-offsets, horse-trading path, even though this approach can never achieve the sharp emission reductions that science demands.
        Let’s define a feasible approach. A successful approach must recognize a fundamental truth: as long as fossil fuels are the cheapest energy, their use will continue and even increase. Fossil fuels are cheapest because they are not required to pay for their damage to human health and the environment or for climate impacts on current and future generations.
         “Fee-and-dividend” is a simple solution. A gradually rising carbon fee is collected at the mine or port of entry for each fossil fuel (coal, oil and gas). The fee is uniform, a single number, in dollars per ton of carbon dioxide in the fuel. The public does not directly pay any fee, but the price of goods will rise in proportion to how much fossil fuel is used in their production.
        One hundred percent of the fee should be distributed to the public. Prudent people will use their dividend wisely, adjusting their life style, choice of vehicle, and so on. Those who do better than average will receive more in the dividend than they pay in added costs.
        For example, if the fee were set now at $115 per ton of carbon dioxide it would add one dollar per gallon to the price of gasoline and 8 cents per kilowatt-hour to the price of electricity. Given the amount of oil, gas and coal used in the United States in 2007, that carbon fee yields $670 billion dollars per year. The resulting dividend for each adult legal resident is about $3000 per year or $250 per month. A family with two or more children would receive almost $9,000 per year. The dividend would be sent electronically to bank accounts or added to debit cards.
        In reality, the fee probably will be introduced gradually over several years, to minimize waste of infrastructure. By the time the carbon fee reaches $115 per ton utilities are expected to have altered fuel choices, reducing the impact on electric rates to 5-6 cents per kilowatt-hour – and the annual per capita dividend may be only $2,000-$2,500. But given that about 60 percent of the public will receive more in dividend than they pay via increased energy prices, the public is likely to support continued increase of the carbon fee.
        As the fee rises, tipping points will be reached at which various carbon-free energies and carbon-saving technologies are cheaper than fossil fuels plus their fee. As time goes on, fossil fuel use will collapse, remaining coal supplies will be left in the ground, and we will arrive at our clean energy future – free at last from our fossil fuel addiction.
        Economists agree that fee-and-dividend is more efficient and less costly than cap-and-trade. But many economists prefer that proceeds be used to reduce taxes that cause economic inefficiency rather than pay dividends. Their usual suggestion is to reduce payroll taxes, which are regressive.
        A problem with reducing payroll taxes is that half of the people are not on payrolls – being either retired or involuntarily unemployed. Thus a dividend is fairer. As a compromise, I suggest that half the carbon fee be given to legal residents as a monthly dividend, and half used to reduce payroll taxes.
        Need more insight into cap-and-trade? Consider this perverse effect on altruistic actions. Say you decide to buy a high-efficiency little car. That reduces your emissions, but not your country’s or the world’s. Instead it allows somebody else to buy a bigger SUV. Emissions are set by the cap/floor, not by your actions.
        In contrast, fee-and-dividend has no floor, so every action to reduce emissions helps. Indeed, your action may spur your neighbor to do the same. Such snowballing effects can occur with fee-and-dividend, speeding us toward a pollution-free world.
        More convincing needed? Note that the skilled, secretive trading unit of Goldman Sachs is poised to make billions of dollars off cap-and-trade. Banks and other private equity firms already have more than 100 representatives working the issue. The carbon market is expected to be worth more than a trillion dollars. Wall Street wants the market to be loosely regulated, open to speculators, and to include over-the-counter derivatives. Pretty good chance for that, given the Washington-Wall Street revolving door. 
        Where will the banks’ profits come from? All costs of the pollution trading system are extracted from the public, via increased energy prices.  And there is no dividend to the public.
        In contrast, fee-and-dividend only requires the government to divide the collected fee by the number of legal residents. The entire collected fee goes to the public. Goldman Sachs does not get one thin dime.

James Hansen: Never-Give-Up Fighting Spirit -- Lessons From a Grandchild

Never-Give-Up Fighting Spirit: Lessons From a Grandchild

by James Hansen, November 30, 2009

This note and an opinion piece submitted to The Observer in answer to the question:
Is There Any Real Hope of Cutting Global Carbon Emissions? are available at:

http://www.columbia.edu/~jeh1/mailings/2009/20091130_FightingSpirit.pdf

My opinion piece was published in The Observer on 29 November 2009, but with the wording of the question slightly altered.

Such negative questions and attitudes are increasing. How refreshing, on cold, windy Thanksgiving Plus One Day, which we spend with our children and grandchildren, when I went outside to shoot baskets with 5-year-old Connor. Connor is very bright, but needs work on his hand-to-eye coordination. I set the basket at a convenient height for him, but his first several shots banged off the backboard off-target. Then he said, very brightly and bravely, “I don’t quit, because I have never-give-up fighting spirit.” It seems his karate lessons are paying off.

Some adults need Connor’s help. A Scientific American article by Michael Lemonick, “Beyond the Tipping Point,” described our 2008 paper “Target Atmospheric CO2: Where Should Humanity Aim?” Lemonick concluded with the almost-obligatory “fair and balanced” opinion, delivered by Steve Schneider. In response to our conclusion that we must get atmospheric CO2 to peak during the next few decades, and then decline back to 350 ppm or less, Schneider opines “It has no chance in hell. None. Zero. The best we can do is to overshoot, reach 450 or 550 parts per million, then come back as quickly as possible on the back end.”

Everyone knows we are overshooting. The 2009 CO2 global mean is 387 ppm, and it is increasing 2 ppm per year. In our “Target” paper we showed that, if coal emissions were phased down linearly to zero in 2030 and emissions from unconventional fossil fuels were prohibited, peak CO2 could be kept at about 425 ppm – or even lower if a rising carbon price made it uneconomic to go after every last drop of oil. But Hillary Clinton recently signed an agreement with Canada for a pipeline to carry tar sands oil to the United States. Australia is massively expanding coal export facilities. Coal-fired power plants are being built worldwide. Unless the public get involved, young people especially, CO2 of 450 ppm or higher may become unavoidable.

What would make Schneider’s “450 or 550” ppm unavoidable is a defeatist attitude. Humanity does have a free will. We do not have to accept the inevitability of extracting and burning all of the most miserably polluting fossil fuels on the planet. What we need mostly is some gumption, some never-give-up fighting spirit. I am sending to Steve, a friend of almost 40 years, the addresses of some karate schools located conveniently.

Cavalier “450 or 550” also warrants comment. Coming back to 350 ppm or less from a temporary peak of 425-450 ppm is something that would be feasible this century, mainly via “natural” actions such as improved forestry and agricultural practices. 550 ppm is a whole different cup of tea, guaranteeing a chaotic situation with climate system amplifying feedbacks and dynamics out of humanity’s control.

The most foolish no-fighting-spirit statement, made by scores of people, is this: “we have already passed the tipping point, it is too late.” They act as if a commitment to a meter of sea level rise is no different than a commitment to several tens of meters. Or, if a million species become committed to extinction, should we throw in the towel on the other nine million? What would the plan be then – escape to Mars? As I make clear in “Storms of My Grandchildren,” anybody who thinks we can transplant even one butterfly species to  another planet has some loose screws. We must take care of the planet we have – easily the most remarkable one in the known universe.

Let’s say we have passed a tipping point – say current atmospheric composition is enough to cause a large eventual sea level rise. What do we do? Wring our hands? What we must do is restore the planet’s energy balance, or make it slightly negative. That does not guarantee that heat already added to the ocean will not further erode ice shelves and cause sea level rise. But it gives us a fighting chance to minimize that problem. Of course, it would help if we knew the current planetary energy balance accurately, and the climate forcings –  that’s the subject in chapter 4 of “Storms.”

Any Hope of Cutting Global Carbon Emissions?

Absolutely. It is possible – if we give politicians a cold hard slap in the face. The fraudulence of the Copenhagen approach – “goals” for emission reductions, “offsets” that render even iron-clad goals almost meaningless, an ineffectual “cap-and-trade” mechanism – must be exposed. We must rebel against such politics-as-usual.

Science reveals that climate is close to tipping points. It is a dead certainty that continued high emissions will create a chaotic dynamic situation for young people, with deteriorating climate conditions out of their control, as described in my book "Storms of My Grandchildren."

Science also reveals what is needed to stabilize atmospheric composition and climate.

Geophysical data on the carbon amounts in oil, gas and coal show that the problem is solvable, if we phase out global coal emissions within 20 years and prohibit emissions from unconventional fossil fuels such as tar sands and oil shale.

Such constraints on fossil fuels would cause carbon dioxide emissions to decline 60 percent by mid-century, or even more if policies make it uneconomic to go after every last drop of oil. Improved forestry and  agricultural practices could then bring atmospheric carbon dioxide back to 350 ppm (parts per million) or less, as required for a stable climate.

Governments going to Copenhagen claim to have such goals for 2050, which they will achieve with the “cap-and-trade” mechanism. They are lying through their teeth. Unless they order Russia to leave its gas in the ground and Saudi Arabia to leave its oil in the ground (which nobody has proposed), they must phase out coal and prohibit unconventional fossil fuels.

Instead, the United States signed an agreement with Canada for a pipeline to carry oil squeezed from tar sands. Australia is building port facilities for large increases in coal export. Coal-to-oil factories are being built. Coal-fired power plants are being constructed worldwide. Governments are stating emission goals that they know are lies – or, if we want to be generous, they do not understand the geophysics and are kidding themselves.

Is it feasible to phase out coal and avoid use of unconventional fossil fuels? Yes, but only if governments face up to the truth: as long as fossil fuels are the cheapest energy, their use will continue and even increase on a global basis. Fossil fuels are cheapest because they are not made to pay for their effects on human health, the environment, and future climate.

Governments must place a uniform rising price on carbon, collected at the fossil fuel source – the mine or port of entry. The fee should be given to the public in toto, as a uniform dividend, payroll tax deduction, or both. Such a tax is progressive – the dividend exceeds added energy costs for 60% of the public. Fee-and-dividend stimulates the economy, providing the public the means to adjust lifestyles and energy infrastructure.

Fee-and-dividend can begin with the countries now considering cap-and-trade. Other countries will either agree to a carbon fee or have duties placed on their products that are made with fossil fuels. As the carbon price rises, most coal, tar sands and oil shale will be left in the ground. The market place will determine the roles of energy efficiency, renewable energy, and nuclear power in our clean energy future.

Cap-and-trade with offsets, in contrast, is astoundingly ineffective. Global emissions rose rapidly in response to the Kyoto Protocol, as expected, because fossil fuels remained the cheapest energy. Cap-and-trade is an inefficient compromise, paying off numerous special interests. It must be replaced with an honest approach, raising the price of carbon emissions, and leaving the dirtiest fossil fuels in the ground.

Are we going to stand up and give global politicians a hard slap in the face, to make them face the truth? It will take a lot of us – probably in the streets. Or are we going to let them continue to kid themselves and us, and cheat our children and grandchildren?

Intergenerational inequity is a moral issue. Just as when Abraham Lincoln faced slavery and when Winston Churchill faced Nazism, the time for compromises and half-measures is over.

Can we find a leader who understands the core issue, and will lead?

Link to pdf file:  http://www.columbia.edu/~jeh1/mailings/2009/20091130_FightingSpirit.pdf