Conservatives, Environmentalists Found Common Ground In Cap And Trade

Ambassador C. Boyden Gray, former White House counsel to George H.W. Bush, assisted in the development of the cap-and-trade system. He talks to Robert Siegel about how the system evolved over time.

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ROBERT SIEGEL, BYLINE: Now more about the history of cap and trade and how conservatives and environmentalists came together to establish that approach to reducing emissions. To tell us that story, joining us is C. Boyden Gray who assist in the formulation of the policy during the administration of President George H. W. Bush. He was later U.S. ambassador to the European Union. Ambassador Gray, welcome to the program.

C. BOYDEN GRAY: Thank you very much.

SIEGEL: I gather you were a lawyer in the Reagan White House back in the 1980s when you first started talking about what we now call Cap and Trade. Take us back to that time - what was the idea?

GRAY: Well, it's not a new idea, it's been kicking around economic circles for decades probably. So it was something that had been well ventilated academically and in a sense all I did was take some suggestions and ask the Environmental Defense Fund if they would draft a model training system for the acid rain program for the 1990 Clean Air Act amendments.

SIEGEL: Well, when you pitched this idea to people in the Reagan administration - or later the first Bush administration - how did you - what was your, as they say, what was your elevator speech about it? How did you describe what it was that you were pitching?

GRAY: Well, the command and control, pipe-by-pipe regulation, top-down was tremendously inefficient, often missed the point, provided no flexibility and no choice. And that market incentive system that would give, you know, polluters or anybody else subject to regulation more flexibility in meeting the standards, that would be a big plus. And you would get more environmental protection at lower costs, which is exactly what happened. It actually happened to a greater degree than we expected. It was a great success.

SIEGEL: What you were actually doing was creating in a market for the right to make emissions. And if you were very efficient in doing it, you'd profited from that.

GRAY: That's correct. If you could do it cheaper than your neighbor and sell him your excess protection, that was to the good of both sides.

SIEGEL: So while it's market economics, it's a created government synthetic market that you're - you'd be working with.

GRAY: That's correct. The government sets up the ground rules and then the players who are subject to the regime act as though it's a market like any other market.

SIEGEL: This was something that was developed for a Republican administration. You're a Republican. How did this go from being a Republican idea to being almost a litmus test - if you're for Cap and Trade, you're banned from certain, you know, talk radio shows?

GRAY: Well, I think what happened is the Obama administration, when it came, anticipated generating very, very large revenues by doing something that had not been done to auction off the original allowance levels. And it was not a, I think, smart thing to do politically. It was unnecessary from an environmental point of view. And the money was going to be spent, no one really knew how. And that's what caused the thing to collapse.

SIEGEL: But you're saying the difference was the Cap and Trade system as you helped devised it and as the Environmental Defense Fund shared in it, it wasn't a government moneymaker, you're saying.

GRAY: That's right.

SIEGEL: The government was the referee of the system, but not a paid player.

GRAY: That's correct.

SIEGEL: The New York Times story about this this morning cited Mitt Romney, as governor of Massachusetts, as somebody who helped put together the Northeastern emissions trading system, Cap and Trade. No longer a supporter of it. Is it an idea that if you took away the revenue side you think that today's Republican Party could come back and embrace what after all, one of its own market-based ideas?

GRAY: Well, I'd like to think so, but I'm not sure. It may be too late to correct the misconstruction of how this could work. But I kind of hope not. And I think if they don't mandate an auction, I think you'll see a small Cap and Trade - don't call them that because that may have a bad connotation, but you'll see small markets appear.

SIEGEL: Are you cheered that your baby may be coming back to life here?

GRAY: Yeah. I do think that this is not a bad way to go. It could revive more interest in using market incentives for environmental goals.

SIEGEL: C. Boyden Gray.

GRAY: My pleasure.

SIEGEL: Ambassador Gray helped develop the idea of what we now call Cap and Trade during the administration of President George H. W. Bush.

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