As the old saying goes, a butterfly flapping its wings in China can lead to a hurricane in America. Well, what would you say if something small happening in a US state had the potential to overturn the very ‘engine’ the modern world was built on? A recent article in the Mercury News advocating a bill that could profoundly influence global efforts to cap greenhouse gasses, by Ray Lane, a venture capitalist with Silicon Valley’s Kleiner Perkins, suggests exactly that.
Using the government’s brilliant strategy adopted in the 1980’s to fight the acid rain problem as an example, i.e. introducing a cap and trade regime in sulfur emissions, the author argues that the same thing can be done today for greenhouse gases. Silicon Beat writes that “[i]f California passes the Pavley-Nunez Global Warming Solutions Act (AB32), Lane argues a series of dominos will fall — leading to a solution for the planet. The key to it all is the free-market component”.
For the entire article, please visit Mercury News. The op-ed piece was co-authored by Rod A. Beckstrom, who is CEO of Carbon Investmetns in Palo Alto. It is interesting to see how prominent a position an established VC General Partner (e.g. Ray Lane of Kleiner Perkins) is taking on the environmental side of the equation. I am not complaining since honest evangelists are most welcome. Until recently, most VCs involved in the clean-tech sector were small and relatively inexperienced ones. The big guys have entered the field with much more experience and knowledge, but they are still missing track record in the sector.
Here are some excerpts from the article:
Regarding the Cap and Trade mechanism:
Dudek proposed a system which “capped” the industry-wide level of sulfur dioxide emissions and then reduced emissions by 50 percent from 1980 levels in 10 years. Companies that could not achieve those aggressive goals could “trade” — buying an equal amount of reductions from a company that reduced more than required.
This simple “cap and trade” solution allowed markets to find the most entrepreneurial, efficient solutions for cleaning up acid rain. It worked beyond anyone’s wildest dreams. Unlike government subsidies or regulations, the cap and trade solution created an open market.
Regarding the 4 dominoes that may lead to a global domino-effect?:
As the nation’s leading environmental innovation state, California needs to approve AB 32, which would cap emissions across key sectors of the economy. If state regulators add flexibility for emitters in implementing a cap, a market can emerge.
As this domino falls, it will put pressure on the federal government to act. The United States needs to approve the bipartisan McCain-Lieberman Climate Stewardship Act or some other legislation that achieves the goals of capping emissions and putting markets to work.
This will push the third domino — China — to fall. Largely because of Dudek’s work, China has gone the way of cap and trade, coupling emissions trading with its sulfur dioxide cap as its national acid rain control policy. Environmental innovation in California will spur China in the same direction.
When the China domino falls, it will trigger India and the rest of the major developing countries, the last remaining domino, to join the global market. At that point, binding pollution limits will finally be in force in all major markets, and greenhouse gas emissions can begin to drop.
But the chain reaction will not start until the first domino — California — falls. It literally means the world.