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Cap and Trade Is Dead. Now What?

Putting a price tag on pollution isn't solving our climate-change woes. It's time to invest our muscle—and money—in breakthrough innovation.


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Putting a price tag on pollution isn't solving our climate-change woes. It's time to invest our muscle—and money—in breakthrough innovation.

It wasn’t supposed to end like this. The U.N. climate-change summit in Copenhagen last December was meant to be a culmination, the moment when the nations of the world put the planet on the path to a sustainable, low-carbon future. That was the message being put forth by activists, scientists, and world leaders alike, and, as the environment writer for Time, it was the message I conveyed to readers over and over again. “Climate change is by far the most important and fundamental issue affecting all of our lives,” the U.N. secretary general Ban Ki-moon told me in an interview shortly before he left for the summit. And Copenhagen was where the solution would finally begin.

Yet as dazed diplomats, environmentalists, and journalists staggered out of the prison of Copenhagen’s Bella Center on the afternoon of December 19, 2009, after the last of several all-night negotiating sessions, a climate-change solution—salvation, really—never seemed further off. The gridlocked and overcrowded discussions were saved from total collapse only by the last-minute intervention of Barack Obama, but what was left—the Copenhagen Accord—fell short of nearly everyone’s lowest expectations. Shell-shocked environmentalists were left to wonder who had killed Copenhagen just when victory seemed closest.

There was no shortage of potential culprits. The United States, which has never even ratified the Kyoto Protocol, still hasn’t come up with a meaningful national climate-and-energy strategy—making it pretty hard for us to lead the world in climate-change policy. Fast-growing China is now the planet’s biggest carbon emitter, yet it continues to insist on being treated like a developing nation at U.N. talks and has a systemic aversion to transparency. You could blame the Danes: They botched the execution of the summit, leaving thousands freezing for hours in the Copenhagen cold because of logistical snafus. Or maybe it’s the fault of the U.N. system for requiring that more than 190 countries—from titanic Russia to tiny Tuvalu—reach consensus to get anything done. Imagine your family’s most dysfunctional Thanksgiving dinner, only you’re trying to stuff another 30,000 people into your house, the food is worse than usual, and you’re supposed to save the planet by the end of dessert. That was Copenhagen.

But here’s the truth: Copenhagen failed, just like carbon cap-and-trade finally failed in the United States this year, because it had to. The idea—that in order to respond to our very real climate and energy challenges, we should set a pollution limit and then ratchet that limit down to a politically determined safe level—was always doomed. It was doomed because when carbon caps meet economic growth, the caps lose—whether in the heartland of America or in the megacities of the developing world. It was doomed because, despite what advocates like former vice president Al Gore have said, we don’t have all the energy technology today that we need to decarbonize the global economy. We’re not even close. As Ted Nordhaus, a co-founder of the centrist energy think tank Breakthrough Institute, said in a recent speech, Copenhagen marked “the end of the idea that the central obstacles that we face in addressing this issue are political, not economic and technological.” It marked an end to the idea that climate change was a problem that could be solved. There is no saving the planet, only managing it.

That’s hard for environmentalists to hear—and hard for me to write after all the ink I’ve spilled on the subject. But it’s where we find ourselves, thanks to our dependence on one thing: energy. The global energy system is unfathomably large. According to the International Energy Agency, as a planet we consumed the energy equivalent of 12.27 billion metric tons of oil in 2008. That’s about how much energy 11,600 nuclear plants would produce in a year. Most of that energy comes from fossil fuels—oil, natural gas, and coal—along with chunks of nuclear, hydro, and some biomass. Zero-carbon renewables like wind and solar make up just 0.7 percent of energy production. And that’s just today. At the current rate, the IEA estimates that global energy demand could jump to more than 18 billion metric tons of oil equivalent per year by 2035. At our current levels of clean-tech development, renewables will make up a bigger percentage, but it will still be less than 3 percent of the total global energy supply.

Nearly all of that increased energy demand will come from new places—the developing world and especially white-hot China, which doubled the amount of energy it consumed between 2000 and 2009—it now leads the world. And that amount could grow another 75 percent by 2035. Improvements in energy efficiency or slower economic growth might reduce the number, but there’s no doubting that China and the rest of the world will need much, much more power over the coming decades. “This is the global picture,” says Armond Cohen, the executive director of the Clean Air Task Force. “And it’s the folks who are energy poor who will keep that demand going.”

There is no saving the planet, only managing it. That’s hard for environmentalists to hear


The real climate question, then, is how we ensure that as much of that energy as possible comes from low- to zero-carbon sources. The cap-and-trade model held that the way to get there was to put a price on fossil fuels in order to make renewables more attractive in the market. Renewables have advantages aside from the climate—cleanliness, freedom from the grid, energy security—but right now they cost significantly more than fossil fuels in most places. The U.S. Energy Information Administration estimates that wind power is still 50 percent more expensive than coal or natural gas, while solar power costs two to five times more. Such renewables are also intermittent, which means we either need to develop some form of energy storage for when the wind doesn’t blow and the sun doesn’t shine or build backup natural-gas generators, adding additional costs. If the world really tried to cap carbon, it would ultimately mean paying more for energy.

We’re constantly being told that energy is too cheap; that’s why we waste so much of it in the United States. But that’s only true for us. It doesn’t apply on a global level. There are approximately 1.5 billion people around the world who lack access to electricity, almost all of them in Africa or Asia. And the underlying reason is that it costs too much and they’re too poor. Fossil fuels are already too expensive—even without carbon pricing—and renewables even more costly. That, more than anything else, explains why developing countries will not accept climate policies that raise energy costs and crimp economic growth. As the Indian prime minister Manmohan Singh said at Copenhagen, “Developing countries cannot and will not compromise on development.” It’s not that Singh and other leaders in the developing world doubt climate change—they know their countries will be on its front lines. They just have more pressing concerns.

Roger Pielke Jr., has a name for this: the iron law of climate policy. Pielke, a professor of environmental studies at the University of Colorado and the author of the new book The Climate Fix: What Scientists and Politicians Won’t Tell You About Global Warming, which advocates energy innovation, writes that when climate policy is seen to get in the way of development and economic growth, climate policy loses. That’s clearly the case for developing nations. But it’s almost always true for rich countries as well. With a Democratic president and Congress, cap-and-trade had its best ever chance to pass here in 2010. It failed in part because of concerns over costs. And even when countries do adopt a carbon cap, they tend to either ignore it or cheat when the limit really starts to bite. Canada ratified the Kyoto Protocol, yet both Liberal and Conservative governments did little to follow through, and the country’s emissions have grown, not fallen, as its oil industry has boomed. In the ultra-green European Union, the pace of decarbonization hasn’t increased much under the Kyoto Protocol, while the French president Nicolas Sarkozy withdrew a proposed carbon tax in the spring of 2010 because industry in France—not exactly a nation known for embracing red-meat capitalism—rebelled at paying the cost.

So where does that leave us? “There is no way either in this country or internationally you’re going to come close to meeting an 80 percent reduction [in carbon emissions] unless you have an immense breakthrough,” Microsoft’s Bill Gates told The New York Times last year.

That’s where energy research and innovation come in. We need to put in the money and the time to develop significantly better and cheaper forms of green energy, first in the lab and then in the real world. Just as American scientists created the atomic bomb, pioneered the space program, and launched the information and biotechnology revolutions, they can create the energy solutions needed for the future. We just have to give them a chance—which we haven’t yet. Here’s an astonishing statistic: Since the beginning of the 1980s—around the time climate change began to become a concern—federal investment in energy research and development has generally shrunk. Temporary stimulus spending aside, the U.S. government spends less than $5 billion a year on energy research and development, compared with more than $30 billion for health research and more than $80 billion on military R&D. Other governments aren’t much better, and private companies don’t pick up the slack: The energy industry invests less than 1 percent of its revenues in research, compared with 15 to 20 percent in industries like semiconductors or pharmaceuticals. For all the noise about fighting climate change, we’ve failed for years to take what should have been the logical first step.

Focusing on innovation over regulation might also help bridge the deep partisan divide that has grown over climate change.


But in the wake of cap-and-trade’s failure, diverse voices are speaking out in favor of an innovation-centered approach to energy and climate. Secretary of Energy Steven Chu—a Nobel Prize–winning physicist—has used stimulus funding to pump up basic R&D. This spring, Gates and several other tech tycoons formed the American Energy Innovation Council, which called for tripling U.S. energy R&D and creating a national energy-strategy board. Focusing on innovation over regulation might also help bridge the deep partisan divide that has grown over climate change.

This fall, the Breakthrough Institute, along with representatives from the left-leaning Brookings Institution and the right-leaning American Enterprise Institute, came out with a paper called “Post-Partisan Power” urging the government to spend up to $25 billion a year on energy innovation, divided among education, basic research, and even the military, which is both a locus for research (it did help invent the internet) and a major potential customer for clean technology. Finding the money will be a bigger challenge, but one option could be a very small carbon tax—perhaps as little as $5 a metric ton—specifically designed to raise revenue for research, just as the federal gas tax goes to building and maintaining highways.

Of course, at a time when climate-science denial seems to have become a badge of honor in the Republican Party—which also wants to take a guillotine to government spending—perhaps this approach is doomed to failure, too. But eventually, hopefully, our collective national fever will break, and when it does, we need to be ready with the right energy policy: one that can appeal to more than just a narrow band of bright greens. Amplified energy research won’t be the whole show. Efficiency standards, smarter cities, and perhaps eventually carbon standards—we’ll need a royal flush of policies to stand a chance. But it has to begin with innovation, not regulation.

Will this be enough? Here’s the truth: We don’t know. No one can predict how research and innovation will lead to the decarbonization of the global economy, or if it will at all. No one knows how we’ll live on a planet with 9 billion people, striving and using and moving and exhaling. The truth is that while we know the world will get warmer in the decades ahead, it’s far less clear how much warmer—and what effect that will have on the planet, and on us. We’ll need billions for climate adaptation as well, in rich countries and in poor ones, precisely because we’ll need to be as ready as we can for a shifting threat. As the veteran New York Times environmental writer Andrew Revkin put it recently, “Humanity has its foot on the gas with an unmapped curve ahead. We could scrape the guardrail or fly off the edge.”

But here’s what we do know: The old dream didn’t work. I saw it die in the frigid December air of Copenhagen, and it’s not coming back. The writer and environmental activist Bill McKibben has a saying: “You can’t negotiate with the planet.” He’s right, but it turns out you can’t negotiate with the human desire for growth and development either—not in any political system on this planet. We need policies that provide us with the energy for both—or we may end up with neither.

illustration by Jon Han

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