Washington, D.C. set on cap-and-trade program – PWP customers, this will cost you

Both the State of California and the U.S. Government are intent on reducing greenhouse gas emissions through regulatory programs.

One of the schemes devised to lower greenhouse gas emissions is a cap-and-trade program that would give credits to those who have less greenhouse gas impact and allow those with a higher impact to purchase those “credits”, essentially buying the ability to create greenhouse gas.

In Washington, D.C., legislators and administration experts all promote the plan and expect it will be implemented without much opposition. On my recent trip to Washington, D.C., I heard Barbara Boxer, Dianne Feinstein and Obama’s chief environmental cabinet member, Nancy Sutley all endorse cap-and-trade as a major policy initiative.

As an implementing strategy for AB 32 which requires reduction in greenhouse gas emissions, California is moving forward with a cap-and-trade program of its own.

Cap-and-trade schemes are intended to disincentivize production of greenhouse gas by making it financially advantageous to have a lower greenhouse gas impact. In theory, that sounds reasonable, though in practice we’ve seen that other “pollution credit” schemes don’t impact emissions so much as they create a market for the credits.

In Pasadena’s case, we don’t have much of a manufacturing industry left, but we do have an electric utility that relies heavily on power generated by a coal plant in Utah. Pasadena has long term, take-or-pay contracts which require our electric company to purchase the power from the Intermountain Power Project (IPP). So, essentially, until Pasadena can implement its plan to repower using less impactful means, we’ll be paying higher electric bills. And, that additional money will be going to others who already have less of an impact on the environment and no motivation to improve their emissions. The plan as proposed now will simply transfer money from those who have an impact to those who do not.

Don’t think for a minute that I don’t agree that reducing greenhouse gas is essential. Our species needs to reverse the negative impact we are having on the planet, period. I’m just not sure a scheme that allows a polluter to purchase the ability to pollute from a non-polluter (or not-so-polluting-polluter) is going to do anything more than create  market for credits and open the door to possible gaming of the system.  Remember Enron capitalizing on the energy markets opened as a result of regulatory schemes by the State of California?

Maybe there is an alternative, or more accurately, an adjustment to the program that can really have a positive impact on greenhouse gas emissions.

What if the state or feds were to instutute a program that requires a large portion of payments by polluters be reinvested in reducing greenhouse gas? If a polluter is penalized, couldn’t payments be used to reduce greenhouse gas? Maybe money paid into the cap-and-trade program could be pooled and returned to polluters to help them reduce their impact on the environment.

And, if California and the U.S. Government implement a program, will we have two layers of payments, or will the federal program supersede the state’s scheme so California utilities and businesses aren’t further put at a disadvantage.

And we still have to decide how we deal with our water crisis.

Paul

A friend sent me this link

I’d never heard of CEOs for Cities, but they are claiming urban America will lead the recovery.

http://www.ceosforcities.org//membership

From the web site:

CEOs for Cities was founded on the understanding that cross-sector, cross-issue partnerships are critical to the success of cities. We also understand that there are no “best practice” solutions that work for all cities. That’s why we provide urban leaders with a research-driven framework that gives them a lens through which they can develop responses to the unique challenges and opportunities their city faces.

Not necessarily a surprising premise. I’m interested to see who is numbered among the membership.

Paul

Just found this online, Moody’s chief economist predicts ARRA will work

http://www.economy.com/mark-zandi/documents/Economic_Stimulus_House_Plan_012109.pdf

Mark Zandi of Moody’s wrote the whitepaper on the American Recovery and Reinvestment Act in January. His conclusions: it will work, but it will take more money and more stimulus to avoid sinking into a full-fledged depression.

Interesting reading. The background information makes it clear things are very distressed on all fronts.

Paul

Even from the heart of the financial meltdown, a plea for small business relief

An op-ed from today’s LA Times reminds us that small business people throughout the country are hurting:

Postcards From the Recession

In New York, a second, silent 9/11

There are no collapsing towers or jets screaming overhead, but, storefront by storefront, the economic crisis is ripping holes in the city.

By Tom Engelhardt
March 22, 2009

One in an occasional series.

A block from my Manhattan apartment, on a still largely mom-and-pop, relatively low-slung stretch of Broadway, two spanking new apartment towers sprouted just as the good times were ending. A massive ground-floor window on one of them displays a message advertising retail space in white letters against a bright red background: “Locate yourself at the center of the fastest expanding portion of the affluent Upper West Side.”

Successive windows assure potential renters that this retail space (10,586 square feet available! 110 feet of frontage! 30-foot ceilings! Multiple configurations possible!) is conveniently located only “steps from the 96th Street subway station, servicing 11 million riders annually.”

Bailout money flooding Wall Street banks isn’t helping, even 75 blocks uptown.

I am reminded of Larry Summers warning us not to be impatient, the recovery will come. Relief funds will free up credit, but will it be in time to save our independent small businesses? Especially the retailers who can’t withstand long downturns and unyielding landlords.

Maybe it’s time to consider relief that directly reduces costs for small business? Would that be in keeping with the Reinvestment part of the ARRA?

Paul

There’s nothing really to say, is there?

Most amazing is that the AIG execs can’t really understand why everyone else is so angry.

As the New York Times related it all:

A.I.G. Planning Huge Bonuses After $170 Billion Bailout

By EDMUND L. ANDREWS and PETER BAKER

Published: March 14, 2009

WASHINGTON — The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

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YM Yik/European Pressphoto Agency

Edward M. Liddy, the government-appointed chairman of A.I.G., argued that some bonuses were needed to keep the most skilled executives.

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

People get angry, really angry and Congress reacts:

House Approves 90% Tax on Bonuses After Bailouts

Stephen Crowley/The New York Times

House Financial Services Committee members met in the Capitol Thursday to discuss taxing bonuses at some firms.

By CARL HULSE and DAVID M. HERSZENHORN

Published: March 19, 2009

WASHINGTON — The House overwhelmingly approved on Thursday a near total tax on bonuses paid this year to employees of the American International Group and other firms that have accepted large amounts of federal bailout funds, rattling Wall Street as lawmakers rushed to respond to populist anger.

Despite questions about the legality of the retroactive 90 percent levy, Democrats and some Republicans said the tax on bonuses for traders, executives and bankers earning more than $250,000 was the quickest way to show angry Americans that Congress intended to recoup the extra dollars. Even backers of the measure noted it was an extraordinary step.

Sometimes the blame is fairly placed:

Hired to Salvage A.I.G., Liddy Becomes a Target

By GRAHAM BOWLEY and CARL HULSE

Published: March 18, 2009

When the government made its stunning takeover of American International Group in September, it turned to Edward M. Liddy, a hard-charging insurance executive, to salvage the enterprise that had become a symbol of all that was broken in the American financial system.

Pablo Martinez Monsivais/Associated Press

Edward Liddy, chairman and chief executive of the American International Group, arriving to testify before the House capital markets subcommittee.

Todd Heisler/The New York Times

Before he testified in the House on Wednesday, Edward M. Liddy, the chief executive of A.I.G., talked with protesters. More Photos >

Now, in the minds of many, Mr. Liddy has become the personification of A.I.G.’s disaster.

On Wednesday, Mr. Liddy, 63, the man who was tapped for his behind-the-scenes financial savvy found himself at the center of public wrath of the President Obama, the Congress, and the American public, after revelations that he had approved the payout of lucrative bonuses to the very employees thought to have driven A.I.G. to its knees.

I honestly wonder if the Liddys of the world really just don’t see what everyone else can so readily understand: that just sitting at a desk all day, maybe lunching with your pals, and squandering billions does not make one deserving of merit pay or bonuses of any size. BUT, while we don’t see the logic, it’s simply the way they’ve been doing business for the past decade or so. Business as usual calls for huge bonuses, regardless of performance (apparently, anyway).

If the AIG execs quit, who will miss them and where would they go?

And now, even more problematic, it seems the whole AIG bailout is being questioned by those who supposedly had the most to benefit.

Goldman Insists It Would Have Lost Little if A.I.G. Had Failed

By PETER EDMONSTON

Published: March 20, 2009

Hoping to reduce a swirl of speculation over its role in the bailout of the American International Group, Goldman Sachs reiterated Friday that its direct losses would have been minimal if A.I.G. had failed.

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Goldman Sachs, via Bloomberg News

David A. Viniar, Goldman Sachs’s chief financial officer.

Goldman also described how, as early as July 2007, it began to have “collateral disputes” with A.I.G. as the companies disagreed on the value of the mortgage-backed securities that were the basis of multibillion-dollar contracts between them.

David A. Viniar, Goldman’s chief financial officer, walked reporters through a thicket of numbers Friday in a conference call that the company held to “clarify certain misperceptions” about its positions with A.I.G.

While Mr. Viniar acknowledged that Goldman’s relationship with A.I.G. raised what he called a complex set of issues, he was adamant that, because of the collateral Goldman held and hedging trades with third parties, it would not have been damaged directly if A.I.G. had been allowed to collapse.

Nothing really to say. Nothing at all.

Though, according to the NY Times some people are making an effort to take their outrage to the front yards of A.I.G. execs.

Drive-By A.I.G. Protest on Fairfield’s Elite Streets

By MANNY FERNANDEZ

Published: March 21, 2009

FAIRFIELD, Conn. — The bus pulled to a stop, and a pastor whose sister-in-law was facing foreclosure, a laid-off steelworker with a wife and five children, and a few of their colleagues nervously stepped out, like sightseers in some exotic land.

The exotic land was a residential neighborhood here in one of the wealthiest places in America, Fairfield County, where, at the end of a cul-de-sac a short walk away, an A.I.G. executive lived. The pastor, the steelworker and about 40 others slowly made their way up the street, past the house with the four-car garage, as an international press corps numbering about 50 chronicled every step.

The pastor, Mary Huguley, and the steelworker, Mark Dziubek, wanted to knock on the door belonging to the A.I.G. executive, Douglas L. Poling, and deliver a letter.

They got as far as the edge of the driveway.

And the final word, from some cartoonists courtesy of the Orange County Register. I especially like AIG on his face and the steaming pile resulting from the bullish market. http://www.ocregister.com/photos/span-2341582/pid2341583

Paul

Just back from Washington, D.C. and it’s not good news

I was part of a delegation of Los Angeles area business and political leaders who traveled to D.C. last week to meet with congressional and administration aides and their bosses.

It was a fascinating trip, and a sobering one, too.

Fascinating:

Hearing Barbara Boxer tell two hundred people that, if the stimulus doesn’t work, the federal government will try something else until they hit on what does work. Hearing Dianne Feinstein talking over breakfast about the culture of combativeness that seems the norm in Washington. Then hearing her discuss incentivizing a green economy to the benefit of California; ensuring that stimulus funds help small business locally; and how Congress wants to help working people keep their homes and jobs.

Sobering: Hearing Lawrence (he prefers Larry) Summers, the head of President Obama’s National Economic Council, tells us the recession is grim, very grim, and that stimulus efforts will work, but not immediately. Summers is very smart, focused on the problem but clearly not sure what will actually work. Restoring confidence is key, in his mind. He is optimistic that consumer spending rose, even if only by modest amounts, in January and February.

Having breakfast with a Commerce Department staffer from Detroit who relayed story after story of how dismal the economy, job prospects, consumer confidence and general outlook are in his hometown.  It is not good anywhere, but we are relatively well off in Pasadena, if you use Detroit as a measurement standard.

Being invited by Congressman Adam Schiff to sit in on a Subcommittee on Financial Services and General Government hearing with testimony by Securities and Exchange Commission Chair Mary Schapiro who talked about changes she’s instituting to ensure honesty and openness on Wall Street and how, over the past several years, the agency failed to protect the consumer by favoring Wall Street gamers.

Heartening: Congressman Schiff taking me aside to ask what is happening in Pasadena. He wanted to know if what he’s being told by the administration and those testifying before Congress is accurate. When I told him business people are scared and that commercial loans are difficult to find, let alone attain, he was very concerned and said that is not what banking executives have said at hearings on Capitol Hill. I do appreciate that our local Congressman wants to know what is happening back home.

Disappointing: No Obama sightings, but the weather was comfortable and Washington D.C. is a fascinating city (at least for a couple of days).

Even more disappointing: Parochialism is more pronounced across state lines than across party lines.

More details when I have had time to absorb everything I heard and have more time to post.

Paul

An alternative view of environmental stewardship and development

This is interesting, a different take in yesterday’s LA Times from Edward L. Glaeser.

Opinion

California’s green meanies

By putting up barriers to new development in the state, environmentalists push homes to areas that are far less environmentally friendly.

By Edward L. Glaeser
March 4, 2009

California environmentalists are tireless in their efforts to stop new development. But for the good of the planet, maybe they should lighten up. Indeed, the best thing that environmentalists can do to fight global warming is to encourage new construction in the state, especially in the areas with the most temperate climates.

California’s metropolitan areas are, by far, the greenest in the country. Matthew Kahn, an environmental economist at UCLA, and I have estimated the carbon emissions associated with a new household in different parts of the country. Our estimates hold constant family size and income, and include driving emissions, public transport, home heating and electricity. We’ve found that the four greenest metropolitan areas in the United States are San Francisco, San Jose, San Diego and Los Angeles.

Why is California so green? The use of clean energy and efficient appliances deserves some credit, but the biggest factor is climate.

The state’s weather is just better than that of the rest of the United States. As I write these words, my New England home is emitting an awful lot of carbon just to get itself to 60 degrees. An average Boston home emits more than twice as much carbon, because of home heating, as a home in San Jose.

Humid Houston leads the country in days when the temperature rises above 90 degrees, but since the last census, that area’s population has increased by more than 900,000, which is greater than the growth of Los Angeles, San Diego, San Francisco and San Jose put together. Our estimate is that a typical Houston household uses almost four times more electricity than a comparable household in San Francisco.

Much of America struggles with cold winters and hot summers. Making such difficult climates comfortable for humans requires a lot of energy. By contrast, much of coastal California is pretty pleasant year-round, requiring far less energy. The natural implication is that to reduce carbon emissions, more Americans should live in temperate California.

He’s arguing to use land use and zoning regulations in ways that have impacts on energy usage and climate change on a global scale.

Isn’t that what AB 32 and SB 375 are intended to promote?

Paul

OMG! U2-2?

As the LA Times reports, everybody suffers:

Boom gives way to bust in Ireland’s oversold economy

Email Picture

Associated Press

Plans to build the U2 Tower in Dublin have been shelved as a result of a souring economy in Ireland and internationally.

When even U2 sees the plug pulled on a real estate project, you know things are bad.

By Henry Chu
March 4, 2009

Reporting from Dublin, Ireland — Bono wants to save the world. But can the U2 front man save his homeland?

Not long ago, the relentlessly philanthropic rock star, his band and a team of property developers looked at Dublin’s dilapidated docklands and envisioned a tower that would rise like an exclamation mark punctuating the Irish capital’s rejuvenation. The U2 Tower would be Ireland’s tallest building, complete with luxury apartments and a recording studio for Bono and the boys.

Wow!

Paul

From bad to worse

The stock market slammed us again yesterday and the world markets are following today.

From the LA Times:

Shell-shocked investors flee stocks

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Justin Lane / EPA

Traders work on the floor of the New York Stock Exchange at the end of the trading day.

The Dow falls almost 300 points to close below 7,000 for the first time since 1997.

By Martin Zimmerman
March 3, 2009

As stock prices tumble to fresh lows, investment strategy is coming down to this: How much pain can you stand?

Some investors reached that threshold Monday, when the Dow Jones industrial average fell almost 300 points in a global sell-off and closed below 7,000 for the first time since May 1997.

World markets slide again amid financial fears

From the Associated Press

4:28 AM PST, March 3, 2009

LONDON — World stock markets fell further Tuesday as investors continued to fret about the global financial sector after American International Group Inc. reported the biggest quarterly loss in corporate history, and HSBC Holdings PLC slashed its dividend and revealed it needed to raise nearly $18 billion from shareholders.

The FTSE 100 index of leading British shares fell below the 3,600 mark for the first time since the start of the Iraq war in 2003. By mid-morning London time, it was down 44.17 points, or 1.2 percent, at 3,581.66.

Car sales plummeted in February.

Automakers report steep February sales declines

GM said its U.S. sales were down 53% for the month, with 127,296 cars and light trucks sold.

Email Picture

GM, Ford, Chrysler and Toyota all see sales slip at least 40%. Economic worries keep buyers away from dealerships, despite record incentive offers.

By Ken Bensinger
3:53 PM PST, March 3, 2009

After more than a year of sliding sales, February provided a glimpse of even worse times to come as General Motors Corp., Ford Motor Co., Toyota Motor Corp. and Chrysler all reported declines of at least 40% in the U.S. market.

Despite record incentives from automakers, worsening economic conditions kept dealerships quiet and consumers in their older cars, making last month the worst February since 1967, according to GM. Overall industry sales declined 41%, according to Autodata Corp., with just 688,909 vehicles sold.

There’s even been talk of the “d” word, though not with a capital “d”.

Paul 

Important piece of Pasadena at risk

Across the country, newspapers are facing financial disaster. Their traditional business model isn’t working any longer, plain and simple. Not enough people are reading newspapers, so not enough ad dollars are buying space in those papers.  As a result, papers across the country are closing down, laying off staff and shrinking coverage in the face of declining revenues and decreasing ad sales.

The LA Times’ David Lazarus did a nice job of explaining the challenges and making some suggestions of of how newspapers can raise revenue from non-traditional sources here: http://www.latimes.com/business/la-fi-lazarus1-2009mar01,0,7704632,full.column

I was in a meeting yesterday with an exec from the Los Angeles News Group (that’s the company that owns our own local daily newspaper, the Star-News). He said, newspaper industry trends are leading to the inescapable conclusion that every metropolitan area will only be able to support one daily newspaper.

That’s more than a little scary to hear from an industry insider.  If he’s right, in ten years the Los Angeles area could be served by one paper: likely the LA Times (though he didn’t say that).

What that would mean for Pasadena (and the San Gabriel Valley) would be the loss of our local daily newspaper, that Pasadena Star-News (and its sisters to the east and west).  For Pasadena, that would be a tremendous loss.

I do know and understand that many times, often times, and for some almost every time, picking up the Star-News is infuriating. As someone who’s been on the receiving end (from time to time) of editorial positions and experienced inaccurate reporting, I completely understand the frustration our local paper can generate.

That being said, even at its most infuriating, the Pasadena Star-News is a very important stitch in the fabric of Pasadena. The coverage of local news and events is critically important to our community identity. The newspaper gives us an opportunity for community dialogue and a shared knowledge of our local city.

Of course coverage could be better, but that can be said of any news organization. Absolutely the editorial pages can be frustrating. And yes, there is always room for improvement. (Even the newshounds at the Star-News would admit that, I think.) But what would we be without the local daily newspaper?

The weekly newspapers serve a purpose, but they do not provide daily coverage. Our online news service, Pasadena NOW, has a limited ability to cover news and is still building its audience and refining its own business model.

I’d suggest that our local daily newspaper, and those weeklies and the online news outlet, too, are the ultimate local business. The Star-News may be owned by a company outside Pasadena, but it’s a uniquely Pasadena institution and something that is important to our identity. It is deserving of our support.

I get the two local newspapers at home, the Star-News and the LA Times. I’m happy I can access New York Times and Times of London stories online, as well as the hometown paper where I grew up and a few others.  They’re all valuable, and probably would be worth paying for.  (Read Lazarus’s column above.)

I also think, despite how angry we may get at the editorial content, or the stories the Star-News misses, we need to support the paper. Suporting our local economy, our local businesses and preserving our local identity also involves supporting and preserving our local daily, weekly and online news services. Without them, we wouldn’t be the same city.

Paul