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Robert J. Shapiro
Chairman, U.S. Climate Task Force

Robert J. Shapiro

Robert Shapiro, Under Secretary of Commerce in the Clinton administration, is chairman of the U.S. Climate Task Force and Sonecon, an economic advisory group. ALL POSTS

Fraud and abuse likely

In a perfect world, one greenhouse gas emitter paying someone else to reduce their emissions would be equivalent to the first emitter taking comparable steps. In the world that people actually inhabit, such offsets under a cap-and-trade system open many doors to fraud and abuse, which almost certainly would undermine efforts to address the risks of climate change.

How precisely could anyone verify, for example, that funds from an American utility or energy producer would actually be used to conserve tropical forests, and in ways that wouldn't have happened anyway? How do we assure ourselves that third world governments will actually use support from, say, BP or American Power to build more climate-friendly facilities in the Mideast or Asia?

The answer is, we cannot do so -- and given that, there would be little to stop the fraud and abuse. Moreover, both sides of the trade could have strong incentives to carry out such frauds -- the U.S. GHG emitter could secure permits to pollute for less than the domestic market, and the foreign government or company could receive payments for climate-friendly actions they don't actually undertake (or undertake at a lower level than promised).

It's instructive to recall that one reason why Congress refused to approve the Kyoto Protocols was the estimates that the use of such offsets would transfer up to $40 billion per year to Russia, much of it from the United States. Is there anyone that believes that the profoundly corrupt Putin government, and its successors, would suddenly play honestly by international rules when tens of billions of dollars -- hard currency, yet -- are at stake. At a minimum, we should try to contain such problems -- though it won't solve them -- by restricting offsets to domestic transactions.

The proposal, however, speaks more generally to a cardinal weakness of cap-and-trade systems -- their extraordinary complexity and opacity which can facilitate such abuse. By contrast, a carbon-based tax approach is much simpler and transparent, and consequently much easier to monitor and enforce. Under such a system, domestic offsets could be permitted -- but only if they actually involve the point of these systems -- actual reductions in emissions, and not nebulous actions that might somehow indirectly ameliorate climate change.

By Robert J. Shapiro  |  October 21, 2009; 7:19 AM ET Save & Share:  Send E-mail   Facebook   Twitter   Digg   StumbleUpon   Technorati  
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I think cap-and-trade is a basically goofy idea. It seems to me like we should help industry by providing a tax credit if they keep the jobs here. If, instead, they are required to pay a tax, they'll just take the jobs offshore. Companies stay in high-cost places like France that have used cap and trade because the French government actively helps them to sell their output. Seldom does anyone here at the national level go out of their way to help an American company sell things just because it's an American company, even though other countries do it all the time. If this is being done, it never gets in the news media; such people should be heroes if they help an American company employing American workers and the media should laud their accomplishment.

Posted by: ripvanwinkleincollege | October 25, 2009 10:51 PM
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Both Mr. O'Keefe and Mr. Shapiro are very persuasive that cap and trade is too difficult to administer successfully on a widespread basis. It was probably not necessary to bring in the bogeyman of the financial debacle, though. A major problem with your preferred policy will be the word "tax" used in front of the American people. You might consider sweetening the deal--rather than reduce the payroll taxes, reduce the taxes that voters pay.

Posted by: themominator | October 25, 2009 10:32 AM
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No carbon offsets can be generated in Russia under the Kyoto Protocol.

Offsets can be created under the Protocol in only two ways: 1) from developing countries under the clean development mechanism and 2) from developed countries in transition (ie, Eastern Europe) under joint implementation. Developed countries (like Russia) can trade with each other, but these are not offsets. These are similar to two different power plants in the US trading between themselves.

Posted by: sarahjheidema | October 24, 2009 6:23 PM
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