What Does the “Carbon Plan” Entail?

by / 11 Comments / 296 View / June 2, 2014

In early February this year, scores of protesters, all bundled up in sweaters and thermal hats, gathered outdoors in Oakland, California to contest the Keystone XL Pipeline: a supranational gas pipeline pursued by the Obama Administration.  This movement, inspired by the terror of escalating carbon emissions, is accompanied by hundreds of similar protests throughout the country. And while the Obama Administration, amid stalling a final decision, continues to favor building the Keystone XL Pipeline, those who engaged in the impassioned, environment-concerned protests nationwide may have received a breakthrough. Debatably.

Colloquially referred to as the “Carbon Plan,” the Obama Administration has proposed a daring goal: cutting carbon pollution from major power plants by 30 percent by 2030.  This is a revisit to the cap-and-trade stratagem pursued (but abandoned early) in 2009.  A subsidy-heavy approach, cap-and-trade is a scheme that incentivizes states to independently meet a ceiling of monthly emissions by using cleaner technologies.  If states do not meet their goal, they would have to pay to buy “credits” to warrant the release of extra emissions.  Reviled by some critics who argue that this policy is some sadistic game of free market capitalism where pollution is the good demanded on the market, the cap-and-trade policy has had a disagreeable past, especially with the Republican party.  Yet the cap-and-trade policy proves to have certain advantages: specifically, companies being dis-incentivized to pursue markets that release tons of pollution.

Comparably, coal emission protesters such as those of the Keystone XL Pipeline may show reasonable skepticism towards this policy. The United States has failed to meet the goals set decades ago by the Clean Water Act and Clean Air Act.  The Obama Administration (and the national government) is notorious for hyperbolic word-play and twisted, propagandist optimism regarding future environmental plans. But history aside, the “Carbon Plan” may prove to have some details worth addressing.

The “Carbon Plan” isn’t just, as widely assumed, a plan regarding major power plants.  It sets incentives for states to enact protocols that mandate safer technology.  This seemingly long-term approach may be an answer to the environmental problems of the modern day, but namely coal-heavy states object to this federal pursuit.  For them, a direct tax on coal companies based on their carbon footprint would be a more effective way to reduce the negative externalities of coal emission.  Kansas, Missouri, West Virginia, and others directed their own environmental agencies to create independent plans; the fact that these measures were enacted before the specifics of Obama’s carbon plan demonstrate a real distrust of federal government. If anything, it can be safely concluded that there exists a nation-wide distrust of federal components regarding coal regulations.

Cap-and-trade, however, seems to be contradictory to the Obama Administration’s praise of “small business” and “the middle class.”  Apart from political critics that would assail the Obama Administration for abandoning this goal throughout its entire policy apparatus, a political observer may easily find cap-and-trade to be antithetical to small businesses.  Since emission caps operate lower than a company’s optimal profit level, businesses have the incentive to purchase more permits.  But since capital is needed to purchase expensive permits, only larger businesses are able to exist comfortably in a cap-and-trade environment.  Not only does this shut out smaller businesses, but, in the long run, supports the growth of larger, mega-coal companies.  Creating oligopolies would only bastardize the cap-and-trade program because companies with less competition would be able to use excess profit to purchase more permits and release more pollution.  If anything, the cap-and-trade policy proves questionable in its contradictory nature relative to the Obama Administration’s other inspirational goals.

Whether a proponent or protester of Keystone XL, a coal company proprietor, or an advocate of less “big business,” one should honor the environmental concern shared by the federal government. But the solidarity ends fast; cap-and-trade policies may not only be inefficient comparatively to proportional carbon tax, but also may hurt the future goals in the long run by circulating power only through a few super-charged businesses. And the plumes of thick, black smoke rise into the air, we ought to realize: we do not have all of eternity to muse over the carbon problem as the ozone layer slowly chips away.

Peer Reviewed by Jim Huang of Yale University
Works Consulted

Davenport, Coral. “Unveiling New Carbon Plan, E.P.A. Focuses on Flexibility.” The New York Times. The New York Times, 02 June 2014. Web. 02 June 2014.
Grady, Barbara. “Experts Debate Economic Side Effects of California’s Cap and Trade Program.” Earth Island. N.p., 16 Nov. 2012. Web.
Grady, Barbara. “Group Gathered in Oakland to Protest Keystone XL Pipeline.” Oakland Local. N.p., 4 Feb. 2014. Web. 02 June 2014.
Revkin, Andrew C. “Updates on America’s Persistent Air and Water Pollution Challenges.” Dot Earth Updates on Americas Persistent Air and Water Pollution Challenges Comments. NYTimes, 23 Oct. 2013. Web. 02 June 2014.
Silverstein, Ken. “Industry’s Choice: Help Shape Or Be Shaped By Obama’s Carbon Plan.” Forbes. Forbes Maga
  • Josh Buckley

    Aside from the cluttered syntax, dense language, and obvious reverence for Economics 101, the most questionable aspect about this article is the whole premise that small businesses would be shut out. How many coal companies are small business? I personally have not heard of a mom and pop coal power plant, and it would be a definite improvement if this article included statistics on small power plants and how they would be affected. Especially in utilities, where a large amount of money is needed to start a firm (or, as you should be familiar with, the barriers to enter are quite high) large firms have a definitive advantage, making small power plants increasingly unlikely. Additionally, the view that the “mega-coal companies” (because those apparently don’t exist yet) would worsen pollution is predicated on the assumption that there would be no changes or adjustments to the policy if it doesn’t work. I’d like to hear your thoughts on these issues.

    • Mathew Pregasen

      Thank you firstly for reading and commenting on this article. There are actually a considerable number of smaller coal companies. Source: http://www.reuters.com/article/2011/09/21/markets-stocks-smallmid-idUSS1E78K21520110921

      Aside from that, if anything, this policy would raise entry costs into the market. That is still antithetical to President Obama’s initial stress on the middle class. The implication further here is that once the coal industry grows more monopolistic, coal companies would have a higher margin of profit, thereby allowing them to purchase more permits which would hurt the intended goal of the policy.

      • Josh Buckley

        Clearly our definitions of “small” differ considerably. I hope you understand that a “small or midcap coal company” is not the same thing as a small business. In fact, I went through the time to look up each of the “small” business mentioned in the article (the fact that they are all publicly traded on either the NYSE or S&P is a pretty big hint that these are major companies).

        Alpha Natural Resources is and 8 billion dollar company with over 14,000 employees and the second largest US coal producer
        [http://www.archcoal.com/]

        Walter Energy (oddly enough, labeled a “another major coal producer”) has a yearly revenue of over 2.6 billion dollars and 4,400 employees. They also specifically stated that the EPA regulations you reference would not impact them significantly
        [http://www.reuters.com/article/2011/09/21/markets-stocks-smallmid-idUSS1E78K21520110921]
        [http://en.wikipedia.org/wiki/Walter_Energy]
        [http://www.steelguru.com/international_news/Walter_Energy_Issues_Statement_on_EPA_CO2_Rule/340747.html]

        Patriot Coal, the smallest of the bunch, still employes 3,500 people, which is far greater than the maximum of 50 that usually characterizes a small business
        [http://en.wikipedia.org/wiki/Patriot_Coal]

        So, no, I don’t think that many middle class people will be hurt because they can’t enter the market as coal producers. Were there firms lining up to enter the market that now can’t because of the EPA regulations?

        Basically, this argument does not even come close to applying to the current situation.

        • Mathew Pregasen

          Hi again –

          I appreciate the statistics. If anything – the new policies just allow big business to get bigger. And furthermore, they remain antithetical to small businesses. A lot of coal companies are pretty big – but they started once as a small business. With entry costs this high, it is impossible for new companies to grow to the size of the ones of the current market. Outside of that, I appreciate your effort in doing further research.

  • jeff_shark

    In academia, reputable articles go through a peer review process and are subject to significant scrutiny. This article makes abundantly clear that in the pseudo-academic world of The Undergraduate Times, no such standard exists. Although this article is “peer reviewed,” it is riddled with assumptions, many of which are cornerstones of the key theses of the article. I urge the editors of this publication to fact check articles instead of just putting so-called research on the conveyor belt of mediocrity.

    The most major flaw lies here:

    “Since emission caps operate lower than a company’s optimal profit level, businesses have the incentive to purchase more permits. But since capital is needed to purchase expensive permits, only larger businesses are able to exist comfortably in a cap-and-trade environment.”

    This extremely important claim is not supported by cited statistics. It very well might be true, but this article doesn’t prove it, nor does it pay respects to its very persuasive and very widely cited counterarguments. Many argue that since caps are made with large companies in mind, small businesses will have the opportunity to generate significant revenue by selling their excess pollution. This source of cash will contribute to these businesses’ abilities to grow, and they’ll be encouraged to do so in a green way. Moreover, many of today’s energy related small-businesses are not going to be the small businesses of tomorrow. Alternative energy companies stand to gain from cap and trade, but this article makes no mention of that.

    The second crucial assumption is that a Carbon Tax is the better option. This is an incredibly controversial claim. Experts who know much more about environmental economics than Mr. Pregasen have extremely varied opinions on this issue (http://e360.yale.edu/feature/putting_a_price_on_carbon_an_emissions_cap_or_a_tax/2148/).

    It is dishonest and unprofessional to completely neglect a side of a debate and act like the other side has been well developed. I urge the Undergraduate Times to better its standards.

    • jeff_shark

      The yale link has an extra parenthese. Delete it in the URL.

    • idiotgetoff

      1. the article never argues a carbon tax is better, just that the policies are somewhat hypocritical. if anything it doesnt take a stance. also fuck off you dont have anything nice to say but attack the writer. asshole.

      2. of course emossions caps operate lower than a companys optimal profit level – else this new plan would not do anything if it didnt force them to cut back on production for the purpose of emissions.

      You are a troll and an idiot – you even admit most of these claims are backed up. the reason there is not statistics cause it is intuitive. Also – this article doesnt take a side of a debate. if you really thing you are so a know it all publish a fucking article yourself.

      • jeff_shark

        Woah there buddy. This was meant to be a comment to improve the publication, not a personal attack. That said, my critiques are all still valid. Nothing you said was right.

        1. There are multiple points in the article where the author indicates his preference for the carbon tax.

        ” But the solidarity ends fast; cap-and-trade policies may not only be inefficient comparatively to proportional carbon tax, but also may hurt the future goals in the long run by circulating power only through a few super-charged businesses.”

        And

        “This seemingly long-term approach may be an answer to the environmental problems of the modern day, but namely coal-heavy states object to this federal pursuit. For them, a direct tax on coal companies based on their carbon footprint would be a more effective way to reduce the negative externalities of coal emission.”

        2. I think the more intuitive aspect of cap and trade, given that policy makers are (a) lobbied and (b) not ready to crush the economy in one foul swoop, is that caps will be high enough that large businesses may have to cut emissions, but they’ll still be able to operate pretty normally. On the other hand, since small businesses emit considerably less than large businesses, they’ll have to cut considerably less, or they might even emit under the cap and sell their excess pollution. So the idea that the plan would force small businesses to cut back does need to be substantiated by something, otherwise it just hangs lose without answering back some of the argument’s most important critiques. The idea that alternative energy start ups/small businesses, which will blossom in the near future, would stand to gain is also unaddressed. This is one of cap and trade advocates’ favorite points, but the article makes no mention of it. Truthfully, the article assumes that small businesses would have to shut down. There could definitely be more effort applied to actually demonstrating that that is the case.

        3. I don’t admit most of the claims are backed up. I admit that they might be true, and that they ought to be backed up. Else the article isn’t credible.

        4. The article takes a blatant anti-cap and trade side. Not sure you read the article. Love u

        • SebastiandeArmas

          You are wrong. Your arguments are so blended together. Boo you.

          • jeff_shark

            1. You never demonstrate that anything I said is wrong.

            2. The main thesis of my comment is that there are crucial hanging claims and I put forth two examples. If the arguments seem blended to you it’s because there’s only one argument.

  • GreggoryJames

    I love coal. it good for my fires. Jeff_shark – funny name. ha –