pageok
pageok
pageok
Cap-and-Trade in Drag:

Even those who support the idea of a cap-and-trade approach to climate change think the Waxman-Markey bill, aka the American Clean Energy and Security Act of 2009, is a mess. Writing in today's WSJ, environmental law professors Richard Stewart and David Schoenbrod, argue against the bill:

Waxman-Markey is largely top-down regulation dressed in cap-and-trade clothing. It purports to set a cap on greenhouse gases, but the cap is so loose in the early years that through the use of cheap offsets the U.S. need not significantly reduce its fossil-fuel emissions until about 2025. Then the bill would require a nosedive in fossil-fuel emissions. This balloon mortgage pledge of big cuts later is unlikely to be kept.

The top-down directives come in three forms. First, electric utilities, auto makers and states get free allowances on the condition that they comply with regulations requiring coal sequestration, alternative energy sources, energy conservation, advanced auto technology and more. Second, many other provisions of the 1,428 page bill mandate outright regulation on subjects ranging from how electricity is generated to off-road vehicles and household lighting. Third, still other provisions provide subsidies for government-chosen technology "winners" such as alternate energy sources, plug-in vehicles and weatherization of old buildings.

Former Senator Tim Wirth, who sought to negotiate an international climate change agreement in the Clinton Administration, agrees that the bill is "out of control."

The WSJ reported earlier this month that the two economists credited with inventing the idea of a cap-and-trade pollution control regime, Thomas Crocker and John Dales, doubt its ability to control carbon emissions.

Mr. Crocker and other pioneers of the concept are doubtful about its chances of success. They aren't abandoning efforts to curb emissions. But they are tiptoeing away from an idea they devised decades ago, doubting it can work on the grand scale now envisioned. . . .

Mr. Crocker sees two modern-day problems in using a cap-and-trade system to address the global greenhouse-gas issue. The first is that carbon emissions are a global problem with myriad sources. Cap-and-trade, he says, is better suited for discrete, local pollution problems. "It is not clear to me how you would enforce a permit system internationally," he says. "There are no institutions right now that have that power." . . .

The other problem, Mr. Crocker says, is that quantifying the economic damage of climate change -- from floods to failing crops -- is fraught with uncertainty. One estimate puts it at anywhere between 5% and 20% of global gross domestic product. Without knowing how costly climate change is, nobody knows how tight a grip to put on emissions.

In this case, he says Washington needs to come up with an approach that will be flexible and easy to adjust over a long stretch of time as more becomes known about damages from greenhouse-gas emissions. Mr. Crocker says cap-and-trade is better suited for problems where the damages are clear -- like acid rain in the 1990s -- and a hard limit is needed quickly.

"Once a cap is in place," he warns, "it is very difficult to adjust." For example, buyers of emissions permits would see their value reduced if the government decided in the future to loosen the caps.

Dales, who died in 2007, also expressed skepticism on the utility of cap-and-trade for carbon emissions, as has David Montgomery, who is generally credited with helping to develop Dales' and Crocker's ideas.

Some cap-and-trade proponents remain undaunted, and seem surprised that the legislative effort to design a carbon cap-and-trade regime has produced such an unwieldy monstrosity of legislation. They shouldn't be. As I've argued before, the inherent complexity of a universal cap-and-trade scheme is an invitation to legislative meddling and special interest pleading. We rarely get "clean" legislation in Washington, but the more complex a legislative idea is, the more grime and grit it will collect, inducing unforeseen complications and undermining transparency.

There is a better way -- not perfect, but better. Rather than impose a carbon cap, which would require the government to develop complex rules for measuring and transacting credits, offsets, etc. -- Congress should adopt a broad-based tax on carbon, offset by reductions in other corporate and income taxes. Combined with policy measures designed to accelerate innovation in the energy sector, such as the replacement of traditional subsidies with prizes, a carbon tax would set the United States on a course of reducing its greenhouse-forcing emissions without spawning a new regulatory behemoth.

Abdul Abulbul Amir (mail):

Congress should adopt a broad-based tax on carbon, offset by reductions in other corporate and income taxes.


What planet are you living on? Temporary reductions in existing taxes is the politically preferred way to introduce a new tax and increase the overall tax bite. Now eliminating some existing taxes for a carbon tax may make some sense. OTOH, a switch from low cost carbon based energy to high cost wind or solar means a net lower standard of living for the country as a whole.
8.24.2009 10:15am
Bart (mail):
Jonathan:

You are simply offering a variation on a flawed theme. The purposes of cap and tax and a straight carbon tax are both to increase the cost of the fossil fuel energy that our entire economy depends upon. Even if you could convince our present leftist government to fully offset the carbon tax increase by lowering taxes elsewhere, you still have enormous dislocation costs as the economy adjusts to this artificial change.

And for what? The so called scientific consensus that CO2 rather than the sun has been driving atmospheric temperature change has been collapsing about as rapidly as the temperatures over the past three years of the current solar minimum.
8.24.2009 10:17am
George Smith:
I hear China and India are ready to sign on............
8.24.2009 10:47am
Mike& (mail) (www):
Goldman Sachs lobbied heavily in favor of the cap-and-trade bill, and the current proposal would make Goldman tens-of-billions. ("Banks like Goldman Sachs and Credit Suisse have formed New York climate desks ahead of U.S. regulations, in part because the country could be a big buyer of global credits if world carbon markets eventually link up.")
8.24.2009 10:50am
ed maisch (mail):
"Congress should adopt a broad-based tax on carbon, offset by reductions in other corporate and income taxes. Combined with policy measures designed to accelerate innovation in the energy sector, such as the replacement of traditional subsidies with prizes, a carbon tax would set the United States on a course of reducing its greenhouse-forcing emissions without spawning a new regulatory behemoth."

People accuse me of being innocent. Federal government anything that I am familiar with will become, is becoming, or has become, a regulatory behemoth. Regulation of garage sales over lead in printers ink anyone?
Beyond that, I was under the impression that this was a lawyer's blog. How can any lawyer not be familiar with what happens when you get a law interpreted by the federal courts?
8.24.2009 10:57am
troll_dc2 (mail):
What is the possibility that, if the Administration were to propose a carbon tax in lieu of cap and trade, the Republicans would fight it to the death on the ground that it is a tax increase even if there were reductions in other taxes?
8.24.2009 10:59am
Daniel San:
The notion of a carbon tax seems simpler, cleaner, and more flexible than cap-and-trade. But it does not seem at all simple and clean. Hundreds of pages of legislation must be devoted to questions like, "what is an original source of carbon?" or "at what stages of production and use do we impose the tax?" Are credits available for which forms of mitigation or sequestration? If the tax applies to gas, do I get credit if I install a scrubber on my car? If the tax applies to coal, do I get a credit if I install a scrubber on my power plant? Do different forms of production of carbon get different treatment? Which are the preferred uses and users and how are we going to give them goodies?

The only obvious advantage I see is the flexibility. Once carbon credits are sold, there is an injustice in changing the rules, even if adjustment is badly needed. With a tax, no one has bought and paid for a stake in a particular arrangement (except in the sense that interest groups buy a stake in any legislation).
8.24.2009 11:28am
Mark Buehner (mail):
How about instead of putting a bullet in the back of our economies head in order to (as everyone agrees) make a basically symbolic gesture towards AGW, we instead grow our economy over the next century and thereby have the resources to deal with rising ocean levels and changing agricultural zones?

Why isn't anyone talking seriously about mitigation? Its a legitimate alternative.
8.24.2009 12:42pm
Ken Arromdee:
What is the possibility that, if the Administration were to propose a carbon tax in lieu of cap and trade, the Republicans would fight it to the death on the ground that it is a tax increase even if there were reductions in other taxes?

What is the possibility that it would actually be accompanied by reductions in other taxes, and stay that way?

It's easy to, after a bill has gone 90% of the way towards law (or even a few years after it's become law) to suddenly repeal the reduction and keep the increase. There's no way to force anyone to a promise that the reduction will stick around.
8.24.2009 12:57pm
Guest12345:
If one is going to insist on cap-and-trade then there really needs to be a tight relationship between the trading and the industries that emit CO2.

To begin with the regulators should make a quarterly best guess at the necessary carbon emissions needed to keep the economy going while stimulating process improvements to cut down on emissions. Then the only people who should be able to buy the carbon credits are emitters of carbon. No one else should be allowed to purchase. Finally the credits should expire on a fairly rapid basis with fines assessed for any credits you hold to expiration.

At least you need something like that if your goal is healthy industrial base and reduced emissions.

On the other hand if your goal is to transfer money from the energy, manufacturing and food production industries to the finance industry, then the current proposals are probably fine.
8.24.2009 2:48pm
Brian K (mail):
What is the possibility that, if the Administration were to propose a carbon tax in lieu of cap and trade, the Republicans would fight it to the death on the ground that it is a tax increase even if there were reductions in other taxes?

Exactly. Anyone who thinks that republicans will let a new tax pass is more naive than yglesias is accused of being.
8.24.2009 3:29pm
The Original TS (mail):
There is a better way -- not perfect, but better. Rather than impose a carbon cap, . . . -- Congress should adopt a broad-based tax on carbon, offset by reductions in other corporate and income taxes. Combined with policy measures designed to accelerate innovation in the energy sector, such as the replacement of traditional subsidies with prizes, a carbon tax would set the United States on a course of reducing its greenhouse-forcing emissions without spawning a new regulatory behemoth.

There is a much better. simpler market-based way that would please (most) conservatives and (most) liberals alike. I am consistently surprised that it doesn't get more attention.

Impose an import quota on fossil fuels.

Effectively, this will de-couple the U.S. price of fossil fuels from the world price. There are many advantages to this, which I won't detail here as this post is too long already. But the bottom line is that imposing an import quota on fossil fuels at, say, the 2012 import level, will ensure that all future economic growth would not be dependent on imported fossil fuels. This would both move America strongly toward energy independence and dramatically decrease American carbon emmissions as new alternative energy sources come on-line and as new technologies aimed at energy efficiency are adopted.
8.24.2009 4:52pm
illram:
What I am wondering is how any federal program is going to deal with the myriad of already existing programs out there. CARB's program is underway, the EPA's will be underway soon, and you have the WCI, CCX, and a host of other states and non-profit organizations hosting their own individual cap and trade programs (or variations thereof). If and when a federal system gets put in place, how will it deal with all these other programs? Even the EPA's own website basically says "we have no idea what's going on but we are continuing with our own program anyway."
8.24.2009 5:00pm
Crunchy Frog:

Why isn't anyone talking seriously about mitigation? Its a legitimate alternative.

Plus, it has the added bonus of not having to be implemented until it's been proven necessary.

Every time there's a bad heat wave in say, Chicago, 30,000 seniors die of heat related complications because they're afraid their electric bills will go too high if they turn on the A/C. Same with hypothermia in the winter.

My question to all the cap/tax folks out there - do you really want to make energy more expensive? How many more old folks have to drop dead before you realize it's not such a swell idea?

Then again, I suppose it would make Obama's death panels unnecessary...
8.24.2009 5:09pm
PeteP:
Even if you're foolish enough to fall for the 'anthropogenic global warming' myth, to think that the climate of the planet will be influenced by sending more money to Washington or the UN buggers belief.
8.24.2009 5:20pm
Brian K (mail):
Every time there's a bad heat wave in say, Chicago, 30,000 seniors die of heat related complications because they're afraid their electric bills will go too high if they turn on the A/C. Same with hypothermia in the winter.

really? you sure about that? we had an awfully cold winter this year in chicago...i sure don't remember hundreds of thousands of dead people. i gather from most of your posts that you don't have a strong grasp on reality.
8.24.2009 5:22pm
JMA (mail):
I'm afraid a quota on fossil fuel imports won't do much for carbon emissions in a situation where coal is still the best way to produce baseload energy for our electrical grid and the Eastern US has enough coal reserves to get us through to whenever Christ comes back, or the cows come home, or both.

Imposing a limit on energy imports could even cause a shift away from arguably cleaner forms of energy (natural gas, for example, used for power production in markets that do not support the capital expense of coal generation, or that experience wide variations in load and require large changes in the amount of power online on short notice) (do we even import natural gas?) toward coal as energy suppliers strive to find ways to supply energy we have to have without buying it from outside the country.
8.24.2009 5:25pm
wfjag:

Anyone who thinks that republicans will let a new tax pass is more naive than . . .

Let's see -- the Democrats have about a 50 vote majority in the House, a 60 (filibuster proof majority of) US Senators, and the President is a Democrat. It's a bit disingenuous to blame the tax and trade scam -- in lieu of a carbon tax or a value added tax -- as a way of taxing the middle class and poor while maintaining plausible deniability, on the Republicans. If the bait and switch program passed by the House, euphemistically called "Cap and Trade", fails to pass the Senate, that will be because a significant number of Democrats in the Senate either realize that it's a horrible bill (whether you believe in AGW or not, since it probably won't reduce CO2 emissions, but, will hurt the US economy and be a tremendous drag on job creation) and/or realize that voting for it could easily spell defeat in 2010 or 2012.

Meanwhile, the latest deficit figures make it look like the Obama Administration (with great assistance of the Democrat Party majorities in both chambers of Congress) will create a larger deficit in its first year than the Bush 43 Administration created in its first 7 years, and will create a larger deficit in its first 4 years than the first 43 US Presidents and their corresponding Congresses. This creates a problem for those in power. They can: (1) run up deficits, the borrowing for which will bankrupt the next couple of generations of US citizens -- something a majority of current voters seem to now realize, which spells election defeat if attempted; (2) raise taxes directly -- via a Carbon Tax, a VAT or other tax on the middle and lower socio-economic classes, which will likely have the same result for those in power that "read my lips, no new taxes" had for Bush 41; (3) scrap all the programs and projects that will result in the deficits -- thoroughly aliening the party members who believe in those programs and projects, and who also volunteer their time, donate regularly, watch polls, campaign for candidates, man phone banks, and do all the tasks essential for election but which no campaign can afford to pay someone to do, so that enthusiastic volunteers are needed, and without whose volunteer services candidates are defeated; or (4) let the current version of cap and trade die in the Senate and then blame Republicans for obstructing progress and endangering the world -- and hope that no one figures out that none of the models on which the AGW predictions are based provide accurate predictions or that developing economies like China, India, and Mexico, to name a few, are now the chief CO2 emission sources (collectively, and in the future, individually), and show no inclination to reduce their emissions -- so that even if the US actually reduced CO2 emissions under the current cap and trade bill, those reductions would be irrelevant.

Of the available courses of action, I'd recommend letting the bill die and blaming the Republicans. There will be some people who will believe it, and not doing something generally P.O.s fewer people than doing something that either raises their taxes and/or lowers their standard of living.
8.24.2009 6:26pm
The Original TS (mail):
I'm afraid a quota on fossil fuel imports won't do much for carbon emissions in a situation where coal is still the best way to produce baseload energy for our electrical grid

First, in the U.S., transportation accounts for about a third of carbon emissions. The U.S. imports about 60% of the oil it uses. 70% of oil used in the U.S. is used for transportation. So imported oil is a large component of U.S. carbon emissions.

Second, the biggest single obstacle to developing alternative energy is that investing in it does not make a lick of economic sense. If it did, people would, and we would have it.

The reason it doesn't make any economic sense is that developing it is capital intensive and there is no guarantee that there will be a market for it once the capital investment is made. Because both domestic demand and supply are much more predictable than international demand and supply, domestic oil prices will be much, much less volatile, thus encouraging the necessary investment.

Second, an import cap would require no regulatory infrastructure at all. The market would determine the appropriate balance between new energy sources and conservation.

The larger, and more fundamental point is that an oil import cap would move the U.S. firmly in the direction of sustainability and energy independence. The inevitable decline in carbon emmissions would almost be a bonus.
8.24.2009 6:27pm
Careless:

Even if you're foolish enough to fall for the 'anthropogenic global warming' myth, to think that the climate of the planet will be influenced by sending more money to Washington or the UN buggers belief.

If anyone else was wondering (as I was) how many hits Google has for "buggers belief" the answer is 2200, 1 70th as common as the common phrase. But I like the new expression
8.24.2009 9:15pm
John Moore (www):

The reason it doesn't make any economic sense is that developing it is capital intensive and there is no guarantee that there will be a market for it once the capital investment is made. Because both domestic demand and supply are much more predictable than international demand and supply, domestic oil prices will be much, much less volatile, thus encouraging the necessary investment.

The reason it doesn't make economic sense is because, even with restrictions on foreign fuel, most alternative means are way too expensive, and will stay that way.

I've been tracking solar systems because they might be a deal given the ridiculously huge government subsidies (here in AZ, a $50,000 solar system will actually cost you $15,000). Even with that huge subsidy the systems aren't economical, and you know, we do have quite a bit of sunlight here.

I need to get a bumper sticker that say "Nuclear energy IS alternative energy"
8.25.2009 1:30am
The Original TS (mail):
Probably no one will read this but I'll post it anyway for completeness.

The reason it doesn't make economic sense is because, even with restrictions on foreign fuel, most alternative means are way too expensive, and will stay that way.

Yes and no. The "electricity market" is different than the "transportation market." The major point of the electric car is to link the two. But, as other commentators have pointed out, a true electric car does nothing to limit carbon emissions. The electricity to charge them up comes from power plants that are largely run on either coal or natural gas. In fact, most analysts think that electric cars would actually generate more carbon emissions because their net efficiency, due to production inefficiencies and tranmission losses, would be lower than that attainable by gas-powered cars.

Electric cars are about gas prices (and shortages), not carbon emissions. An electric car is, in effect, a coal powered car.

There are lots of technologies, however, that could come on-line if the price were right. Look at the Los Alamos "Green Freedom" system, for example. This technology will actually produce gasoline from the air.

Green Freedom

Two problems: Setting up a plant like this would cost a couple of billion dollars and the fuel it produces becomes economically competetive with gas at about $4.60/gallon. It is quite likely that the cost of this fuel would follow the usual technology curve and go down once plants like this start operating. But no one is going to take the leap and make the investment until they are sure there will be a market for it.

I need to get a bumper sticker that say "Nuclear energy IS alternative energy"

That's the second problem. This system needs to be driven by something and the best candidate is a nuclear power. plant.

The whole point of an import cap is to decouple world and domestic prices for oil. By guaranteeing that we will not have "enough" oil, we guarantee that there will be a market for these technologies. All we need to do is "tweak" the supply the market will sort out the details. This is a far more elegant and efficient idea than a series of government mandates that, if history is any guide, are likely to do far more harm than good, see "ethanol."
8.25.2009 12:41pm
SallyVCrockett (mail) (www):
Bravo and Amen!
8.25.2009 1:48pm
Mac (mail):
Recently Obama said that we need Cap and Trade so that C02 will "stop polluting our water and contaminating our air". (It might have been the other way around.)

I say we do not spend one red cent on anything promoted by someone with this level of abject, total and complete scientific ignorance.
8.25.2009 7:36pm
Mac (mail):
John Moore,

I just found out, fairly recently, that those lovely 300+ acres of solar panels put in by APS in the desert to satisfy the Government, uses vast quantities of water.

Now SRP (inside joke) may not think so, but water is our scarcest resource.

So, next time you think solar in the desert is a solution, at least during the day when the sun is shining, figure out exactly where the water is going to come from to wash them once a week.
8.25.2009 7:40pm
John Moore (www):
Mac,
Those panels are also paid for by those of us who are APS customers due to a special charge added to all residential bills.
8.25.2009 10:59pm
Mac (mail):
Yeah, John, lovely, huh?

One billion dollars to construct and they will provide energy for all of 77,000 homes. That is IF we don't run out of water to clean them.

How much is that per house anyway?

I think, but don't know for sure, we could have built a nuclear power plant for roughly the same price.

I know SRP thinks it has the right to all water north of Phoenix, but those of us north of Phoenix are pushing back. If we win, what then?
8.26.2009 12:58am

Post as: [Register] [Log In]

Account:
Password:
Remember info?

If you have a comment about spelling, typos, or format errors, please e-mail the poster directly rather than posting a comment.

Comment Policy: We reserve the right to edit or delete comments, and in extreme cases to ban commenters, at our discretion. Comments must be relevant and civil (and, especially, free of name-calling). We think of comment threads like dinner parties at our homes. If you make the party unpleasant for us or for others, we'd rather you went elsewhere. We're happy to see a wide range of viewpoints, but we want all of them to be expressed as politely as possible.

We realize that such a comment policy can never be evenly enforced, because we can't possibly monitor every comment equally well. Hundreds of comments are posted every day here, and we don't read them all. Those we read, we read with different degrees of attention, and in different moods. We try to be fair, but we make no promises.

And remember, it's a big Internet. If you think we were mistaken in removing your post (or, in extreme cases, in removing you) -- or if you prefer a more free-for-all approach -- there are surely plenty of ways you can still get your views out.