the whistleblower tips she furnished them about bank money laundering and environmental corruption seemed to have fallen on tin ears.
“Years ago, I was depressed I’d made bad decisions, which led to one disastrous deal and my companies unraveling,” Sholtz said over lunch at a location that she asked go undisclosed, fearing former associates she claimed have threatened her. “I’ve never said anything about this whole experience until now. The only reason I’m speaking is because I’m tired of the misperceptions.”
BOUND TO HAPPEN
If two Republican congressmen skeptical about President Obama’s carbon-cutting blueprint have their way, Sholtz’s story may yet capture national attention. This spring, Congressman Joe Barton (R-Texas) the ranking member of the House’s powerful Energy and Commerce Committee, and Congressman Greg Walden (R-Oregon), ranking member of the House’s Oversight and Investigations Subcommittee, demanded the U.S. Environmental Protection Agency provide a welter of information about Sholtz to them, based partly on the Pasadena Weekly’s coverage. “We believe this case has great relevance in the context of the pending legislation on climate change,” Barton and Walden wrote in a May statement. In it, they cited doubts that federal authorities have the money and legal punch to adequately police a national greenhouse gas market.
All the same, those doubts may be road tested. An Obama-backed bill requiring industry and public utilities nationwide to buy and sell federally auctioned permits to discharge carbon dioxide and other greenhouse gases under a so-called “cap-and-trade” regimen narrowly passed the House in June. Formally titled The American Clean Energy and Security Act of 2009, the legislation, which includes numerous new energy efficiency standards and initiatives, represents the most seminal change in U.S. environmental policy since passage of 1970s Clean Air Act. The thirteen hundred-page bill, co-written by House Democrats Henry Waxman (California) and Edward Markey (Massachusetts), next goes to the Senate. The overriding objective is to reduce U.S. greenhouse gases from 2005 baseline levels so that by 2020 aggregate levels are down seventeen percent and by 2050 they have shrunk a colossal eighty-three percent. (Global warming is caused by the atmospheric buildup of carbon dioxide and other gases that reflect some of the Earth’s heat back towards the planet instead of dispersing it into space. Many scientists contend the phenomenon is imperiling the Arctic, biodiversity, food production, and weather patterns.)
Hopeful as the White House is about cap-and-trade as a lever to reign in heat-trapping emissions, even enthusiasts acknowledge that the intricacies are jaw-dropping, if not for the sheer mechanics of it, then for the geographic lines, industrial sectors and differing populations it will transect. Roughly six billion tons of emissions could be traded yearly at first, estimated David Kreutzer, an economist at the conservative Heritage Foundation in Washington, D.C. Entities discharging more than twenty-five thousand tons of greenhouse gases annually—non-nuclear power makers, oil refiners, natural gas producers, coal-fired steel plants, among others—will participate.
Detractors believe with the money at stake, white collar cheating is practically inevitable. Between now and 2035, greenhouse gas permits may reach $5.7 trillion in value, Kreutzer said. Some investment houses are already gearing up to act as trade middlemen. Oddly, the watchdog angle was barely touched on during congressional deliberations. Attention mainly focused on provisions allowing companies to soften emission damage offsite, even overseas, if it is cheaper, and the initial giveaway of eighty-five percent of credits to carbon-dependent businesses and regions facing sharply higher energy prices. As the bill stands, market oversight will be spread out among the Federal Energy Regulatory Commission, the EPA, and several unspecified agencies. “Most of the people I talk to think [the market] will be set up for fraud,” said policy analyst Joel Kotkin. “There’s scamming and then there’s scamming.”
Simultaneously, seven Western states and parts of western Canada are considering launching their own regional cap-and-trade under a Schwarzenegger administration plan. It is aimed at rolling back carbon dioxide emissions to 1990 levels by 2020. The Western Climate Initiative may be dissolved or modified if a national market is approved. Until then, West Coast officials are studying how to ward off cheaters in areas such as insider trading, excessive speculation, and market manipulation. Sometimes, however, the threat hides in the open.
ANOTHER DIRECTION
L.A.’s implacable smog problem stood to make Sholtz rich, and maybe more influential. A dark haired woman with wide-set eyes and a slight Midwestern twang, she grew up the brainy daughter of an aeronautical engineer. Schooled in Minnesota and elsewhere, Sholtz said her aptitude in math and science won her countless honors and early interest from NASA. It was a job offer teaching economics at Caltech that pulled her from Washington University in St. Louis, where she was in a doctoral program, to Southern California. Her timing was superb.
The Cold War had just ended and California’s recession was buzz-sawing thousands of blue collar jobs. Bigwigs then were not debating carbon footprints. They were grouching about regulatory overkill in the fight against chronic smog. Legislators, lobbyists and boosters, convinced that costly rules were suffocating manufacturers, saw their chance to emasculate the AQMD’s power. To neutralize the threat, the air district offered something chancy.
The AQMD has not invented the concept of injecting market principles to detoxify the environment and allow industry leeway in deciding how and when to run its smokestacks, towers, generators, and other machinery cleaner and greener. It originated with academics decades earlier, and then was embraced by the first Bush Administration to address acid rain, a harmful, sulfur dioxide-laced mist emitted from Midwestern power plants that drifted over Northeastern states and into parts of Canada. Most consider the congressionally adopted program a success. Whether the same system will translate for a prodigiously larger, national greenhouse gas market is anyone’s guess.
It is for this reason that L.A.’s experience is instructive. Instead of continuing to rely on fine print dictates to regulate individual machinery at power stations, oil refineries, cement companies, defense plants, and other manufacturers, as smog officials had done for decades, the AQMD in 1994 gambled on economics. Some tactic was needed to chop emissions by seventy percent to meet national clean air standards. Environmental groups fretted that cap-and-trade here was a recipe for stalling progress, but regulatory chic was in trader’s garb. The spectacle of L.A.’s notorious air pollution being traded like a blue chip stock sounded exotic and the world press flocked to the district’s eco-conscious Diamond Bar headquarters to hear the details.
GREEN FAIRYTALE
Under the now fifteen year old market, 332 of the area’s heaviest polluters are allotted credits based on their aggregate emissions of two harmful chemicals: oxides of nitrogen and sulfur. These credits, calculated from baseline production levels, essentially are permits to pollute by the pound. If an entity reduces more of its discharges than required under its cap set by regulators—usually by installing high tech, gunk-trapping equipment—it can sell the differential between what it is allowed to emit and what it actually released into the skies, or expects to, to others in the form of credits. (A company can choose not to trade, just as long as its emissions fall below its limits.) Every year, firms’ emission allotments shrink by a certain percentage so pollution dips regionally. Each credit is assigned a period for its one year use, the date it was issued and one of two geographic zones it can be used in.
To date, there have been 5,170 trades worth $980 million in the “Regional Clean Air Incentives Market” (RECLAIM). District officials argue that it is has achieved its goals, shrinking nitrogen oxides seventy-three percent and sulfur oxides fifty-nine percent. Trades are made company to company, or through broker-type middlemen. Here is where symmetry enters. During the RECLAIM design phase, the district solicited technical expertise from lawyers, academics, and others, bidding out consulting contracts to some of them. The Pacific Stock Exchange and Caltech received work performing market analyses, with Sholtz one piece of their brainpower. It was there she hobnobbed with AQMD staff and there she
