The Story of Cap and Trade

I posted a long comment (comment #4) on this article on triplepundit.com, so I thought I would re-use it here, with a little editing.

The article linked to above was a critique of Annie Leonard’s new video “The Story of Cap and Trade” which is a very harsh criticism of carbon “cap and trade” - it basically suggests that it would all be too corrupt and useless to be worth it. This particular market mechanism is seen by many as a way of getting the “free” market to take action to avoid the worst of the problems that climate change will bring.

Annie was responsible for the wildly successful viral video “The Story of Stuff” which held our ever increasing consumer society up to the light for examination – consumerism was found seriously wanting (wordplay intended!).

I am a great fan of "The Story of Stuff" and have linked to it several times here to enhance a point I was making. The film was clear and made extremely good points. It deservedly became very popular.
I did not like the "Story of Cap and Trade", although Annie is still loveable in it. It seemed as if Annie was letting an ideology blind her to the potentially overwhelming usefulness of the concept - the baby was thrown out with the bathwater - worse, she constantly suggested that either there was no baby or it would grow up to be an evil adult.

Her point about how the virtually unregulated simple market has forced us towards our current dire predicament is, of course, accurate. She goes from this point, in a pseudo-logical fashion, rather like this: markets have brought us to this point - this point is bad - therefore any further market based solution will also be bad - therefore she must then exploit the credibility and warm fuzzy feelings that people remember from "Story of Stuff" to show them that market based "cap and trade" will inevitably be a bad thing.

The problem with markets (up to date) is that their bottom line only contains measurements of money in versus money out and unfortunately the processes that make the money do not take "externalities" into account such as carbon emissions, volume of waste generated, general non-sustainable damage to the environment, reduction in bio-diversity, public health, social well being etc. etc.

The damage that economic activity/growth inflicts on these "externalities" can be (if we're lucky) controlled and moderated by legislation and voluntary codes of practice but the problems are systemic and huge and legislation is a very slow and blunt weapon - sadly, the legislators also tend to be high up members of the same society, with the same set of values, that created the situation in the first place by not valuing the environment or social values enough. Expecting them to lift themselves up by their own bootstraps (by re-evaluating everything that is familiar and comfortable to them) is optimistic to say the least.

Concerted campaigning and citizen action can generate enough pressure to compel some companies to adopt a greener, more sustainable, outlook but it's not enough. The company that continues to maintain a cavalier approach will mostly tend to be more profitable; that is the problem with markets-to-date. Putting the full costs, financial, environmental and social onto the accountants' bottom line will have an extremely powerful, almost automatic, effect that will drive companies and economies to "do the right thing" because, if they don't, they will become less profitable or go out of business altogether.

Markets have historically been bad for sustainable ways. Putting a cost/value on carbon emissions (and all the other externalities too - but that's for later...) that will direct greedy people to be keen to take the green option - purely to save money - will be a great start - it may just solve the whole shooting match.

Annie's basic premise is to suggest that any market will end up being totally corrupt. Well, it's up to us to keep them straight - she can't just point to teething problems or far-fetched theoretical dangers to reject the whole idea. The bad possibilities she enumerates are there because we have had a whole generation of enthusiastic "yuppies", with their selfish short term outlook, driving the market mechanisms to Madoff like breaking points. It was in their financial (short to medium term) interests to do so! Change the financial interests of people like that - make it (not) so!

Monetise the externalities - put considerate, wise, prudent, sensible environmentally and socially sound economic drivers onto the bottom line and watch society transform itself far faster and more efficiently than even the most draconian legislation could do. Watch people's personalities and the world zeitgeist change too.

Nothing big ever worked right first time - it will take a lot of effort, tuning and tweaking and monitoring to hack it into shape but imagining that markets, that were predisposed to generate corrupt selfish greedy types, who don't care about anything apart from their own "bottom line", must always do that is truly throwing the fantastic baby out with the murky water.

A market which uses full cost (or ecological or environmental) accounting would be transformative and constructive, not destructive. It all depends what you measure when you tot up the bottom line. Make the bad guys, environmentally and socially, less profitable. Make the good guys more profitable. Make it so!