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Shellenberger: 'This is the end of cap-and-trade for a long time'

Michael_Headshot_2008.Small.jpgMichael Shellenberger, co-founder of the Breakthrough Institute and one half of the heterodox environmental duo of Nordhaus and Shellenberger, has been predicting the political failure of cap-and-trade for some time now. In the past day or so, he's been proved right. Shellenberger has long believed that the political realities of the issue demand, at least in the short term, a focus on innovation rather than regulation and pricing. I spoke to him this afternoon about what went wrong, and what comes next.

Ezra Klein: It looks like a carbon-pricing bill is pretty much dead. What happened?

Michael Shellenberger: I think the attacks from the greens on the White House and the White House’s response all miss the point. There was no amount of speechifying or arm twisting Obama could have done that would’ve changed that vote significantly. And vice versa, the green groups hired some of the best advertisers and lobbyists and spent $100 million. They didn’t do a bad job. They had arguably the best mobilization environmental groups have ever done in the history of the environmental movement. It was the proposal itself that was impossible for this Congress, and any Congress in recent memory, to pass.

EK: Is there any near-term hope for the politics to change? Any reason to think that a future Congress will view this differently?

MS: I think that this is the end of cap-and-trade for a long time. It’s the fourth time it’s failed since 2003. We did a vote count in 2008, where we interviewed green lobbyists about their vote count. We got to about 35. When [Harry] Reid said they couldn’t get to 60, he was putting the best face on it. So I don’t think cap-and-trade is coming back for the next decade.

EK: So then, what next?

MS: I think that some time needs to pass for Democrats and liberals and greens to assess what happened and start coming to terms with the political, economic and technological realities that are the driving force behind the serial political failures of cap-and-trade. Our view is you need a price on carbon, but that it’s going to start very low. No one will impose or sustain a high price on carbon as long as the gap between fossil fuels and clean energy remains so wide. So we need to be moving to a framework where at the center is technological innovation to close the gap between fossil fuels and clean energy. That might need to be funded with a small tax on carbon. But the center is the technological innovation.

EK: And to distinguish that from cap-and-trade, the idea here isn’t really that you’re pricing carbon, but that you’re funding research into alternatives.

MS: In the early years, that’s its primary purpose. If the price is set up right and it rises at a predictable rate, that does send a forward price signal which could start to affect investment decisions. But we’re suggesting, at least at the start, a much lower carbon price that would have a much lower cost to the economy. A cost of $5 a ton is $30 billion a year. That’s far below estimates of cap-and-trade. What conservatives and Republicans might find appealing is that this would be focused on technology innovation. If you have a broad portfolio able to invest in everything from solar to nuclear, you should be able to appeal to some of them.

EK: And why put any faith in this? Why should we believe it’ll work?

MS: This isn’t something we think can succeed right away. Cap-and-trade had 15 years behind it. This has many fewer people behind it, and has had much less time in the argument. But there was no certainty cap-and-trade could reduce emissions. Every proposal before Congress had a thousand loopholes and offsets and safety valves that undermined the cap. Our view is that a technology-centered framework doesn’t guarantee anything, but it does get us closer to actually achieving the technology innovation required to make low-carbon technologies much cheaper.

And that’s not just renewables, but also things like second-generation nuclear reactors. We’re not going to do anything of consequence on reducing emissions without closing the price and technology gap between clean energy and fossil fuels, and we’re not going to make serious headway on technology innovation unless we fund innovation directly, in the same way we did around personal computers, the Internet, pharmaceuticals and agriculture. The history of tech innovation in the U.S. is really a history of military procurement, R&D funding, science and engineering education, and demonstration projects.

EK: And how would this work, in practice? Won’t it just end up subsidizing a lot of waste?

MS: We get asked how this is any different than just spending on subsidies. Our view is that indefinite subsidies are not the right way to go. That’s why I think military procurement is the way to go. It would mean we rationalize the whole innovation framework around price reductions.

Defense spends $80 billion a year on R&D. Is some of it wasted? Of course. Thomas Watson said, “If you want success, increase your failure rate.” Venture capitalists are excited if one in 10 of their investments succeeds. There will be failure, and some amount of that failure is part of the innovation. But at the pace we’re going now, we’re not going to get the innovation we need. We’re missing a demanding customer, which is what the Pentagon has been. You can point to waste there, but also amazing innovations in communications and rocketry. We look at Google and Apple and think the federal government had nothing to do with them, but without federal investment in computers there would be no Apple and without DARPA there would be no Google.

By Ezra Klein  |  July 23, 2010; 5:00 PM ET
Categories:  Climate Change , Interviews  
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Next: Reconciliation


Here's a thought:

What about the Cantwell-Collins CLEAR Act passing in the next congress? It already has a little bipartisan support and a large portion of the income from it would go towards research in renewables.

Posted by: ThePedro | July 23, 2010 5:42 PM | Report abuse

Remember who proposed federal funding for R&D to squeeze oil from shale rock mined the U.S?

Posted by: tuber | July 23, 2010 6:13 PM | Report abuse

When states or the federal government set up funds with some far reaching goal, it typically ends in scandal and failure.

We can't R&D our way through climate change through a single fund. Ugghhhh.

Posted by: laser83 | July 23, 2010 6:30 PM | Report abuse

R&D will not solve the climate change problem. There isn't enough time.

Substituting known alternatives (conservation, wind, solar, biofuels, nuclear, etc.) for fossil fuels in an expeditious manner is our only hope.

Posted by: pwkennedy | July 23, 2010 7:06 PM | Report abuse

Have Graham, Snowe, Collins, Gregg, LeMieux and any other Republican who has ever supported a carbon cap write a bill and offer it as an ammendment. They can even wait until after the Arizona primary. Give them carte blanche to do whatever it is they want, assuming it hits the 17/80% goals.

Republicans whine about how they are shut out of everything, and how they’re “willing to work with the Democrats”. Now’s their chance. They wouldn't even need to work Democrats, just themselves. If they're unwilling to do this despite having a “blank sheet of paper” for an issue that they supposedly care about, then use this reluctance to bludgeon them politically.

Posted by: cce1976 | July 23, 2010 11:14 PM | Report abuse

I can see the role of the Federal government to fund and demonstrate truly disruptive technical change, such as semiconductors, aerospace, and the internet.

But rapid, relentless incremental innovation such as that described by Moore's Law is best done in the private sector with very clear goals and metrics. Everyone in the high technology market understands the implications of metrics like the size of chips, or the number of transistors on a chip, chip yield, bytes/$, etc. etc. Or think about digital camera technology- everyone talks pixels, and pixels/$, etc. Look where they've come in 10 short years.

In biotech, you have the same: the speed of fermentation/cell culture, efficiency of recovering your product.

In both cases, the technologies were piloted by Federally funded research, but the remarkable drive down the performance-price curve is all private.

What would be helpful are similar metrics of price-performance in energy technologies, KWH/$, CO2e/KWH, $/CO2e.

Military procurement can pull these technologies, your guest says... but I just can't see the Pentagon gunning for better PV and wind, e.g., that would spawn innovation in the private sector.

Too bad we can't kill people with solar energy.

Posted by: Lonepine | July 23, 2010 11:18 PM | Report abuse

@ThePedro- just read about the CLEAR act- thanks for posting!

Question: what about imports? Lots of coal fired power plants supply electricity to those Chinese factories that make iPhones and flat screen TVs that we buy.

Won't this just shoo what's left of mfg in the US oversees?

Posted by: Lonepine | July 23, 2010 11:23 PM | Report abuse

Cap and Trade was never the best way to handle the problem of Global Warming. A straight-up tax on carbon is the simplest approach, but has not been pursued because tax increases are banned by Republicans. However, what about the idea of a tax swap? A carbon tax could be passed with all revenues going to reduce social security and medicare taxes. This revenue neutral tax would give a big boost to job growth (employment is no longer taxed), while raising the price of dirty energy to transform our economy for the future. It is a win-win for our economy and the American people. This is the idea that has a chance of working politically and should be the new goal of the environmental movement.

Posted by: bvillepo | July 24, 2010 10:51 AM | Report abuse

Where Are The Jobs: The Untold Story Behind The Jobless Recovery?

Increasingly newspaper headlines across America are asking this question.

Almost 18 months ago the $862 billion stimulus bill was passed by congress. The Obama administration claims that 3.5 million jobs have either been created or saved. Yet today we remain at 9.5 percent unemployment-15 million people counting those who can only find part-time work- and the Department of Labor's DLS indicates that there are six job seekers for every available job and 46 percent of those unemployed have been for more than six months – both all time highs. Just this week new unemployment claims were 464,000. To date it has truly been a jobless recovery!

I believe the US economy has 'absorbed' the current underemployment level through innovation, re-structuring and productivity gains. With 70 million baby-boomers yet to retire the workforce is at its performance peak to have accomplished this. In my view these 15 million jobs are structurally gone!

But there is a more important issue facing future job seekers and the US economy that could significantly worsen your employability opportunities.

“The skills gap is one of the most pressing issues facing America’s workforce. Whether the baby boomers choose to retire at the projected rate or not, both situations will require a significant re-skilling of the workforce. The learning profession must take action on the skills gap in order to ensure the readiness and competitiveness of its workforce. Frank has carefully researched the skills gap in his new book. It’s an important read for a greater understanding of the issue and what we need to do about it.”
—Tony Bingham, President & CEO, American Society of Training and Development

America's Global Skills Gap

Many American companies find themselves ill-equipped to grow because of a lack of skilled workers according to a 2005 report by the National Association of Manufactures “The Growing Skills Gap.” And the skills gap is also not just a large manufacturing company problem. A 2002 US Chamber of Commerce report, Keeping Competitive, indicates that 73 percent of surveyed small companies with less than 50 employees are experiencing “severe” or “very severe” problems in hiring qualified workers and that 40 percent of all job applicants had “poor or no employment skills.” The US Conference Board, American Society of Training and Development (ASTD), the Society of Human Resource Management (SHRM) and the National Center on Employment and the Economy (NCEE), among others, have documented a widening global skills gap over the past 25 years.

In the near future skills defined as critical thinking, creative problem solving, communication and collaboration (the four Cs) will become even more important to organizations according to a new survey conducted by American Management Association (AMA) issued in April 2010

Posted by: docleibold | July 24, 2010 11:14 AM | Report abuse

I've spent 50 years working as an eclectic entrepreneur, starting with $500. Out of fourty-two enterprises, many of which were sold short, just four have produced long term profit growth.

Starting within these enterprises, about 30 dedicated managers have become millionaires. We've enjoyed collegial teamwork throughout our careers and network extensively to this day.

I advocate rigorous analysis of cause and effect, an effort that requires 10 to 15 extra hours of research into underlying data and trends, each week. My research is pragmatic and operational, not thematic and superficial, as is Katrina's.

I think the 1980's national economic strategy of shifting the American economy from manufacturing to services (ala Ted Kennedy and Tip O'Neill) was a fatal mistake, exposing us to stratgic control of production, product development, and branding being offshored.

This offshoring is now irreversible without a major national commitment to onshore, capital intensive, manufacturing industry in America, based on highly compensated American skilled labor. The skills race is being lost to the "Asian Tigers", who can land products in the US at 40% below our domestic manufacturing cost.

Americans now buy these Asian produced, low-cost products at Walmart, which has been the salvation of our middle classes standard of living.

Katrina, as a beneficiary of substantial inherited wealth, has never faced the challenge of creating wealth in a competitive global market. She is willing dissipate her remaining resources over several generations. And she wants the country to follow her personal preferences. In contrast, most Americans want to see a path to increasing their family and the nations resources, by earning it the hard way, 80 hour weeks and value added entrepreneurism, among their granchildren, if not with the present generation.

Katrina, the beneficiary of inherited surplus, wants to redistribute thse assets to all, regardless of merit, and regardless of value added to our country,

Posted by: Multikultur | July 24, 2010 1:24 PM | Report abuse

There are two possible responses to the "news" that there's "no hope" for any strong climate legislation.

1. Oh well, it was a nice planet while it lasted.

2. Filibuster reform, now.

I have a daughter. Guess which one I prefer?

Posted by: homunq | July 24, 2010 5:52 PM | Report abuse

"What failed at Copenhagen was not just the summit. A notion of establishing the UN as a sort of world government through
the use of climate politics --has also failed."
(Die Welt -german news paper -Refering to EU President)

Man made global warming and CO2 trading, the ultimate pyramid selling scheme. Good it failed.

Posted by: deridemender | July 25, 2010 9:25 AM | Report abuse

Creating an ideology pegged to carbon dioxide is a dangerous nonsense…
CO2 emissions make absolutely no difference one way or another…

Every scientist knows this, but it did not pay to say so…

Many scientists are now searching for a way to back out quietly from promoting warming fears, without having their professional careers ruined.

Posted by: deridemender | July 25, 2010 9:35 AM | Report abuse

Well, I just can't tell.

Is this accurate reporting of an interview or the group fabrication of 100s of journolist prigs?

I guess there is just no way of knowing.

Posted by: TECWRITE | July 25, 2010 10:12 AM | Report abuse

This is all very bad news for Al Gore. He was hoping to earn hundreds of millions of dollars from this AGW scam. Now how will he pay for his new mansion in Santa Barbara?

Posted by: JBaustian | July 26, 2010 8:16 AM | Report abuse

This is all very bad news for Al Gore. He was hoping to earn hundreds of millions of dollars from this AGW scam. Now how will he pay for his new mansion in Santa Barbara?

Posted by: JBaustian | July 26, 2010 8:17 AM | Report abuse

The Cantwell-Collins approach is simple, transparent, direct, bipartisian, and potentially very effective in ways cap and trade could never achieve. Can Republicans show some leadership and get this done? Secondly, why is there no tax incentive in any bill for consumers of fossil fuel generated electric power to switch to renewable energy sourced power?

Posted by: halsey49 | July 26, 2010 11:19 AM | Report abuse

Anytime you start talking new taxes and cap and trade is no exception, people will revolt because utimately "average people" get caught with the burden of paying those taxes!! If you tax businesses with a "new" tax like "Cap and Trade", who pays the price in the final analysis? That's right the consumer!!! Average people(low and middle class) and even most businesses are going to struggle with such bogus legislation, especially in light of an economy that is in the grips of the worst economy since the "Great Depression"...Yes I think "Climate Change" legislation is doomed and for good damn reasons!!!

Posted by: sarasota1 | July 26, 2010 1:53 PM | Report abuse

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