A Cap and Trade Review

by Brad Peck

There have been a slew of editorials and op-eds against Lieberman-Warner, including pieces by George Will, Robert Samuelson, and The Wall Street Journal, which argue the bill would be a huge revenue grab for the government, a bureaucratic nightmare, harmful to the economy, non-transparent, and wouldn’t achieve would it sets out to do.  As the debate heats up this week, let's have a look at what others are saying:

From the Wall Street Journal's "Cap and Spend":

As the Senate opens debate on its mammoth carbon regulation program this week, the phrase of the hour is "cap and trade." This sounds innocuous enough. But anyone who looks at the legislative details will quickly see that a better description is cap and spend. This is easily the largest income redistribution scheme since the income tax.
...
Ms. Boxer expects to scoop up auction revenues of some $3.32 trillion by 2050. Yes, that's trillion. Her friends in Congress are already salivating over this new pot of gold. The way Congress works, the most vicious floor fights won't be over whether this is a useful tax to create, but over who gets what portion of the spoils. In a conference call with reporters last Thursday, Massachusetts Senator John Kerry explained that he was disturbed by the effects of global warming on "crustaceans" and so would be pursuing changes to ensure that New England lobsters benefit from some of the loot.

On to Robert J. Samuelson, "Just Call It 'Cap-and-Tax'":

The chief political virtue of cap-and-trade -- a complex scheme to reduce greenhouse gases -- is its complexity. This allows its environmental supporters to shape public perceptions in essentially deceptive ways. Cap-and-trade would act as a tax, but it's not described as a tax. It would regulate economic activity, but it's promoted as a "free market" mechanism. Finally, it would trigger a tidal wave of influence-peddling, as lobbyists scrambled to exploit the system for different industries and localities. This would undermine whatever abstract advantages the system has.
...
Reviewing five economic models, the Environmental Defense Fund asserts that the cuts can be achieved "without significant adverse consequences to the economy." Fuel prices would rise, but because people would use less energy, the impact on household budgets would be modest.

This is mostly make-believe. If we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions. If coal is reduced, then conservation or non-fossil-fuel sources will take its place. But in the real world, if coal-fired power plants are canceled (as many were last year), wind or nuclear won't automatically substitute. If the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences.

Closing with George Will, "Carbon's Power Brokers":

An unprecedentedly radical government grab for control of the American economy will be debated this week when the Senate considers saving the planet by means of a cap-and-trade system to ration carbon emissions.
...
Speaking of endless troubles, "cap-and-trade" comes cloaked in reassuring rhetoric about the government merely creating a market, but government actually would create a scarcity so that government could sell what it had made scarce.
...
If carbon emissions are the planetary menace that the political class suddenly says they are, why not a straightforward tax on fossil fuels based on each fuel's carbon content? This would have none of the enormous administrative costs of the baroque cap-and-trade regime. And a carbon tax would avoid the uncertainties inseparable from cap-and-trade's government allocation of emission permits sector by sector, industry by industry. So a carbon tax would be a clear and candid incentive to adopt energy-saving and carbon-minimizing technologies. That is the problem.

A carbon tax would be too clear and candid for political comfort. It would clearly be what cap-and-trade deviously is, a tax, but one with a known cost. Therefore, taxpayers would demand a commensurate reduction of other taxes. Cap-and-trade -- government auctioning permits for businesses to continue to do business -- is a huge tax hidden in a bureaucratic labyrinth of opaque permit transactions.

Comments

[richard schumacher]

George Will's analysis is on target. A much better solution than cap-and-trade would be a tax on the fossil carbon content of all fuels. A tax of $35 per ton would be easy to implement and would immediately make all non-fossil energy sources cheaper than coal and oil. The Chamber should get out in front of the debate and advocate for a sensible fossil carbon tax.