Blue sky thinking

Peter Barnes’ Sky Trust would make companies pay for permission to pollute – and then give the money back to us.

Janet Paskin| Jan/Feb 2008 issue
In 1985, Peter Barnes dreamed up a unique way to change the world. He started a long-distance telephone service that pledged to donate a fraction of revenues to progressive non-profits. Quirky, yes, but also highly effective. Over the last two decades, Working Assets has donated more than $50 million to non-profits like Greenpeace and Planned Parenthood.
Now Barnes, who retired from the phone company in 1995, has set his sights on the problem of climate change, with an equally revolutionary idea for solving it. “The Sky Trust,” as Barnes calls it, is a twist on carbon cap-and-trade policies, which seek to limit pollution by issuing emissions permits to polluters. But in Barnes’ model, the permits are auctioned off—and the money is returned to citizens.
Barnes wrote a book about the idea (Who Owns The Sky?), but it was published in 2001, when the world’s attention was focused on the September 11 attacks against the U.S. “People just weren’t that interested in this then,” he says. “Other things were more pressing.”
That’s no longer the case. The devastation caused by Hurricane Katrina focused attention on the connection between rising ocean temperatures and the severity of hurricanes; former U.S. Vice-President Al Gore first won an Academy Award for his documentary, An Inconvenient Truth, then shared the Nobel Peace Prize with the Intergovernmental Panel on Climate Change. There’s a bill on the Senate floor to establish a cap-and-trade policy, and all the leading Democratic presidential candidates support stricter efforts. On the global stage, the European Union is rethinking its
cap-and-trade policies, which were too weak to be effective in their initial incarnation. And the Kyoto Protocol is scheduled to expire in 2012, inviting a push for increased international measures.
There’s plenty of momentum, says Peter Dorman, an environmental economist at Evergreen State College in Washington state on the U.S. West Coast. “Some kind of permit system is becoming close to policy. It’s being recognized that it’s not enough to promote positive alternatives; there has to be some way to reduce carbon emissions.” Cap-and-trade policies use the markets to regulate carbon emissions: Polluters need permits, but the permits can be traded, or sold. High demand for the permits drives up the price, and high prices encourage companies to decrease their need for permits over the long term.
The big questions revolve around allocation. How are the permits distributed, and to whom? Energy companies often argue that permits should be given away to companies and sectors that have polluted in the past, to keep prices down. Evidence from the European Union suggests that’s a recipe for disaster, says Jörg Haas, head of Ecology and Sustainable Development at the Heinrich Böll Foundation in Berlin, Germany. The EU gave permits away to its historical polluters, but electricity prices have climbed, utility companies have notched record-high profits and emission levels have risen.
The problem is this: If the principle of cap-and-trade is to regulate carbon emissions through the market, giving permits away distorts that market almost as badly as doing nothing toward regulation at all. Permits have value, even if the government doesn’t charge for them. Barnes uses the following analogy in his PowerPoint presentation “A Citizen’s Guide To Carbon Capping”: If the government gave all the World Series tickets to Exxon free, would Exxon let people into the stadium at no charge, or sell tickets at the market price? Give emissions permits to companies, and they’ll either sell them or raise their prices—which is what happened in Europe. “Even if you adopt a pure, liberal, free-market perspective, giving away permits for free is not a good idea,” says Haas.
The alternative—and a fundamental tenet of Barnes’ Sky Trust—is to auction the permits to the highest bidder. As fewer permits are issued each year, the price of permits will rise steeply. Within a few years, the auctions could generate as much as $500 billion annually, says Dorman. That cost will get passed along, of course, and ultimately the consumer will end up paying more for just about everything. Voters don’t like to pay higher prices, which makes legislation like this a hard sell.
But the Sky Trust solves the problem by taking the proceeds from the auction and, basically, cutting everyone a check. And not a small check either. In Barnes’ model, every American would receive a monthly dividend as large as $150—or more than $7,000 a year for a family of four.
That could go a long way toward offsetting the impact of higher prices. “We’re ultimately paying the higher price of using the atmosphere,” he says. “But if we didn’t have a Sky Trust, we’d still end up paying it, and we’d just be poorer.”
Though nothing as ambitious has been implemented, there is some precedent for the Sky Trust model. Barnes patterned the idea after the Alaska Permanent Fund, which used state oil revenues to build an investment trust to fund schools, highways and other infrastructure. The Fund issues an annual dividend to shareholders, a.k.a. Alaskans. Land-grant colleges and university systems also turn a public resource (land) into a common asset (schools).
And some say a U.S. Sky Trust isn’t ambitious enough. “The sky is a global asset,” says Robert Costanza, director of the Gund Institute for Ecological Economics at the University of Vermont in that U.S. state. “So ultimately, we need global scale.”
In Costanza’s vision, emissions caps are set and permits auctioned internationally; the money goes into a trust used partly to support alternative energy resources, with the rest going back to citizens.
And while it may seem impossible that world leaders in the political arena could agree on such sweeping international regulation, Costanza says, “We have to put it out there. There is an openness to think about what we really need. Here’s something that would get the job done, so let’s think about what it would take.”


Janet Paskin is a financial journalist based in New York.
 

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