The huge mistake of Cap-and-Trade

It is no surprise that the current US climate bill (Waxman-Markey) making its way through the senate has problems. Big problems. For starters it doesn’t mandate the deep cuts the latest science say are needed to avoid the devastating effects of global warming, and its is a massively complex which will ensure that it will be full of loopholes and require large amounts of government bureaucracy. Not to mention the multitude of problems that the reliance on offsets will create.

But there is a case to be made that we should pass the best bill we can pass today (and Waxman-Markey is likely the best we can to today) and work to improve it later.

But this may be dangerous. A bad bill could create a strong backlash against climate policy, and since many people have a hard time distinguishing between policy and science this backlash could further reduce the acceptance of climate science amongst the general public.

The issue is which path probabilistically yields the best long range outcome. Yes, there are risks with each further delay, but a broken bill is likely as bad as a delay or worse. Now that Copenhagen is not a big deal anymore, there’s no real rush to produce a bill in the US. Let’s drop Waxman-Markey and its variants, and take our time to try to come up with something that works.

A better solution (described in the above video as carbon fees with rebates) would be a simple revenue neutral carbon tax. This could even be expanded internationally with each government collecting a carbon tax and re-distributing the revenue as it wishes. They could return the money to taxpayers, spend it on infrastructure, or simply add it to general government revenue.

The bottom line is that it would avoid the complexities of setting carbon caps for both developed nations and developing nations (currently a major stumbling block), prevent most loopholes and limit the amount of new bureaucracy needed (governments already have tax collecting apparatuses in place).

The major problem is that taxes (even revenue neutral ones) have become a bad word in politics, and are considered by many to be political suicide. Also it may be a long while before the odds of passing a climate bill in the US are as good as they are right now.

I honestly cannot say what course of action I prefer.

4 thoughts on “The huge mistake of Cap-and-Trade

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  1. I really think charges that it is open to abuse are overblown. I’m not worried about public backlash because it goes into effect slowly, so there is plenty of time to see problems as they develop and fix them in future rounds of legislation. Passing the legislation, besides going some of the way toward solving the problem, has the following effects: 1) It gives businesses a reason to make investement decisions that will make them less carbon intensive. 2) By making carbon pollution less profitable and mitigating solutions more profitable, it over time weakens the lobbies that will fight against future legislation and strengthens the ones that will fight for it.

  2. I hope you are right, but in my experience legislation only becomes more complex over time, which increases the likelihood for problems.

    Though I agree with point 1 (although I think a carbon tax would do this better), but point 2 assumes that this bill will be effective, which is something I question.

  3. Nothing will pass. Nothing. Cap and trade is dead. AGW is dying.

    As Obama’s mentor is wont to say, “The chickensssss … are comin’ home … to roosssst.”

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