Environment & Energy

Open Letter on Credits for ‘Voluntary’ Greenhouse Gas Reductions

Published January 1, 2003

October 2, 2002

The Honorable George W. Bush
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President:

Congratulations on your administration’s tour de force performance at the Sustainable Development Summit in Johannesburg. We applaud your successful efforts to keep the Kyoto Protocol off the agenda and focus discussion on the true prerequisites of human welfare and environmental improvement: property rights, the rule of law, and the wealth creation such institutions foster and sustain.

We are concerned, however, that the Administration’s plan to award regulatory credits for “voluntary” greenhouse gas (GHG) reductions will strengthen pro-Kyoto forces here at home– interests adverse to your supply-side economic and energy policies. Transferable GHG credits will:

(a) create the institutional framework for a future Kyoto-style emissions cap-and-trade program, and

(b) grow the “greenhouse lobby” of Enron-like companies seeking to profit from energy rationing schemes.

We appreciate your efforts to replace Kyoto’s mandatory, anti-growth, emission tonnage targets with voluntary, growth-friendly, emission intensity targets. However, we believe supply-side reforms such as accelerated depreciation are a better way to speed up capital turnover and emissions intensity reduction.

Here are nine key reasons why the Administration should rethink this plan:

Transferable GHG credits will mobilize lobbying for energy rationing and cap-and-trade schemes. Credits do not attain full market value unless a GHG cap and energy rationing are imposed. In effect, credits are Kyoto stock that bears dividends if, but only if, Kyoto or equivalent regulation is adopted.

Although touted as “voluntary” and “win-win,” transferable credits create a coercive system in which one company’s gain is another’s loss. For every company that gains a credit in the pre-regulatory period, there must be another that loses a credit in the mandatory period (or else the emissions “cap” will be broken). Consequently, companies that do not “volunteer” will be penalized–forced in the mandatory period to make deeper emission reductions than the cap itself would require, or pay higher credit prices than would otherwise prevail.

Transferable credits will stack the political decks against your pro-growth economic and energy policies. Since the scheme penalizes non-participants, many businesses will “volunteer” just to avoid getting shoved to the shallow end of the credit pool later on. Many companies will end up holding energy rationing coupons that mature only under Kyoto or comparable regulation.

Transferable credits will penalize small business. Participants gain at the expense of non-participants. Small businesses will not participate, because they cannot afford to hire carbon accountants and engineers.

Transferable credits are a brainchild of the Green Left. During the 105th and 106th Congresses, Environmental Defense, the Pew Center on Global Climate Change, the Clinton-Gore administration, and Senators Chafee and Lieberman devised and marketed transferable credits to build a pro-Kyoto business clientele.

Transferable credits empower politicians to pick economic winners and losers. Consider Sen. James Jeffords’ “Clean Power Act,” which would impose Kyoto-like CO2 controls on power plants. Up to 99 percent of the CO2 credits would go to persons and entities that produce little or no electric power.

Transferable credits increase the risk of future Enron-type scandals. Firms might “earn” credits by not producing things, outsourcing production, shifting facilities overseas, or “avoiding” hypothetical future emissions. A market in such dubious assets will be fertile soil for creative accounting.

Transferable credits will thwart your efforts to replace Kyoto’s mandatory tonnage targets with a voluntary intensity goal. A carbon intensity goal offers no alternative to Kyoto if it is coupled with a crediting scheme that fuels pro-Kyoto lobbying.

Removing tax barriers to capital investment is a better way to reach the goal. Accelerated depreciation would speed up capital turnover, carbon intensity reduction, and economic growth–all without picking winners and losers, setting the stage for CO2 regulation, or encouraging Enron-like asset manipulation. Accelerated depreciation is a true “no regrets” policy.

In conclusion, transferable GHG credits imperil your efforts to stimulate growth and secure affordable energy for the American people. We encourage you instead to promote tax reforms that reduce carbon intensity while strengthening the economy. We are eager to help you develop initiatives to advance those objectives.

Sincerely,

Fred L. Smith Jr.
President, Competitive Enterprise Institute

Marlo Lewis Jr.
Senior Fellow, Competitive Enterprise Institute

Paul Beckner
President, Citizens for a Sound Economy

John Berthoud
President, National Taxpayers Union

L. Patricia Callahan
President, American Association of Small Property Owners

David Keene
President, American Conservative Union

Kevin L. Kearns
President, U.S. Business and Industry Council

Karen Kerrigan
Chairman, Small Business Survival Committee

James Martin
President, 60 Plus Association

Grover Norquist
President, Americans for Tax Reform

Duane Parde
Executive Director, American Legislative Exchange Council