I support reducing carbon emissions to mitigate global climate change and improve the overall air quality in order to reduce the adverse health effects brought on by pollution (According to the American Lung Association “over 186 million Americans live in counties where air pollution endangers their lives. This includes over 40 million people in counties where the air failed every test.”) And yet, Obama’s plan to reduce emissions via cap and trade seems doomed from the start because Congress is seemingly doing their best to write the legislation in a way that guarantees that it will be overly complex, bring in little revenue, suppress the very incentives at the heart of its purpose and foster massive corruption.
Before I climb too high upon my soapbox, let me explain what cap and trade is for those of you who are only tangentially aware. Under a cap and trade system, businesses will need permits to emit carbon into the air. The number of permits each business gets will be capped at a specific level calculated to reduce total emissions. Many businesses will be able to alter their systems faster than others and reduce their emissions enough so that they will have left over permits. These businesses will then be rewarded for their progress because they will be allowed to sell the excess permits to businesses whose legacy systems cannot be updated as quickly. This would ostensibly make sure that cuts in emissions happen at a lower cost and at a more efficient rate than if the cuts were simply across the board.
This system is certainly more complex than a, probably more efficient, tax on carbon production but it could work. For example, according to the EPA, the Acid Rain Program, a cap and trade system developed to reduce sulfur dioxide (SO2) and nitrogen oxides (NOx) has reduced power plant emission by “over 40 percent nationwide and reduced acid deposition in the East by 35 percent.” And a 2003 Office of Management and Budget study found that the “Acid Rain Program delivered annual benefits exceeding costs by more than 40 to 1, accounting for the largest quantified human health benefits of any federal regulatory program in the last 10 years.”
So a cap and trade system can work, which makes it all the more fortunate that this one will not, at least not as the House Energy and Commerce Committee is currently drafting it. According to the Financial Times, in an attempt to bring in conservative Democrats “particularly from the coal and manufacturing-intensive states, such as Rich Boucher of Virginia, John Dingell of Michigan and Gene Green of Houston, the US oil capital” the bill has been significantly weakened. As such, the only thing reduced will be its efficacy.
The main crux of the issue is that the new bill would give away 85 percent of the permits—so much for auctioning off permits and bringing in massive revenue, eh? Also according to the Financial Times,” the House proposes to reward favorites, such as regulated utilities, and punish villains, notably the oil companies.” This will inevitably promote corruption as it perpetuates a struggle between businesses by distorting the natural advantages of others in order to offset the costs for those businesses which do most of the polluting. Whenever allowances are made in an uneven manner it automatically distorts the markets, reduces transparency and will promote corruption because instead of spending money on fixing their systems, these companies will spend their money on lobbyists in hope of continuing the market distortions in their favor. Every company should have to operate under the same regulatory conditions, that way the only benefits one company has over another comes from the inherent better quality of their business model and system, as opposed to one manufactured by the government. When businesses are treated unequally, this spawns massive lobbying efforts as the losers fight to equalize the playing field and the winners fight to maintain their artificial advantage.
A possible alternative that would avoid all of these complexities, opaqueness and corruption would be a simple carbon tax. The benefits of such a system are pretty stark: It would lend predictability to energy prices, promote transparency, limit the role of special interests, reduce emissions in every sector as opposed to the ones selected by Congress, provide a higher and steadier stream of revenue, and it could be implemented at a much faster rate to meet the urgency of climate change.
And finally, as a consumer, I appreciate Congress’ desire to reduce the changes’ impact on my personal bank account, but if they are truly trying to “nudge” the people and the industry into changing our habits by asking us to pay for the social costs of our consumption than shielding consumers from these new higher costs is counterproductive to the overall goal. If the government can make the case that this program would benefit the nation, my family and my future health than I would be more than willing to pay the short term high costs of reducing carbon emissions. And no, I am not rich, but I am willing to do my part to sacrifice for my nation and my family. Remember, as JFK said, “Ask not what your country can do for you but what you can do for your country.” I for one am asking, are you?