The last word: US climate bill – Cap-and-trade catastrophe
The Waxman-Markey bill is no more than a carbon tax, and a poor one at that, argues Jon Entine
September 2009
by Jon Entine
It’s tempting to invoke the Al Gore Rule – citing weather anecdotes, such as Hurricane Katrina, as proof of long-term trends. We’ve just shivered through what the venerable New York Times called “The Summer That Isn’t”. Temperatures from Boston to Buenos Aires Aires hit century lows. Even climatologist Michael Mann, famed for his “hockey stick” graphs showing sharp rises in temperatures in recent history, now writes that global temperatures will continue to decline for at least another decade.
But tackling climate change through a coordinated energy policy remains vital, especially because China and India, and other developing countries, are certain to resist any international carbon policy that would restrict their growth. Even if predictions by the same scientists who mis-predicted the current cooling trend are exaggerated, taking no action could prove catastrophic. We need to buy insurance. But what kind?
The American Clean Energy and Security Act is a farce. The cap-and-trade slop now before the US Senate known as the Waxman-Markey bill requires the wholesale remaking of the entire energy sector over the next four decades, at huge expense, and with a guarantee, sadly, that it will not fulfil its central goal of significantly reducing greenhouse gas emissions.
Kenneth Green of the American Enterprise Institute is hardly alone when he calls the House-passed version “little more than a special-interest pork-fest.” It’s got far right conservatives in a frenzy and many far left advocacy groups, including Greenpeace USA, Friends of the Earth, and Public Citizen, have turned against it.
The key loophole is the “offsets,” the tradable financial instruments designed to represent efforts to cut global carbon emissions, such as planting more trees in China and India. Here’s where the promoted virtue of emissions trading – supporters tout it as a market-based system requiring minimal bureaucracy that competitively prices carbon pollution – goes off track. To prevent China, India and other fast developing countries midway through their messy industrial revolutions from gaming the system by, say, including in the programme investments in pollution technology or reforestation projects that would have been undertaken regardless, the bill would create a huge bureaucracy drawing on a dozen US government agencies, with overlapping responsibilities.
To compound the problem, Barack Obama, rather than jockeying carbon policy, is barely holding on to its tail. He abandoned his campaign pledge to auction of 100% of the emission permits, which his own budget director testified before Congress was absolutely necessary or otherwise cap-and-trade “would represent the largest corporate welfare programme … in the history of the United States”.
Can we say “capitulation”? Under the House version, 85% of carbon credits would be distributed for free over the next decade to favoured constituencies in the steel, agriculture and utility industries, gutting any near-term constraints on carbon output. That goes a long way toward explaining the support for the bill by Duke Energy, Dow Chemical, General Electric and other corporations poised to make like bandits trading emissions and by universities and alternative energy developers that are getting their slice of the pork pie.
But as late night TV hucksters of useless kitchen gadgets like to say, “Wait, there’s more”. To keep this monster (1,400 pages and counting) in play on the left, liberals in Congress are matching corporate largess dollar for dollar, handing out exemptions to impacted groups, from universities to alternative energy developers.
Plain and simple, Waxman-Markey is a carbon tax, poorly executed and with few of its virtues. The free permits provide a windfall for stockholders and favoured “progressives” without restraining energy prices, which would go up, substantially, especially hitting lower income Americans. It deprives the government of revenue – an estimated $720bn over 10 years – that in these difficult economic times could be used in all kinds of creative ways, from reducing taxes to funding healthcare reform.
According to the non-partisan Energy Information Agency, it would not reduce US dependence on foreign oil. According to the Environmental Protection Agency, it would do nothing to reduce global temperatures. Adding insult, the EIA and the General Accounting Office conclude it would shrink economic growth and speed the export of jobs to China and India.
No wonder many key participants in this debate have turned decisively against Waxman-Markey – notably James Hansen, the Nasa scientist who first drew the public’s attention to global warming, and who now supports the less bureaucratic carbon tax. Senate energy heavyweight Maria Cantwell, a Washington Democrat, is plotting a palace coup with renegade Democrats who are unwilling to vote for the permit giveaway.
Although Mr Climate Change himself, Al Gore, argues that we indeed need to hold our collective noses, his former policy adviser and co-founder of the US Climate Task Force, Harvard lecturer Elaine Kamarck, wants to return to Gore’s original carbon tax tied to a payroll tax cut. It could be phased so businesses and consumers would know exactly how much the carbon in their energy would cost. The tax is backed by principled conservatives and corporations, including ExxonMobil and FedEx, that yearn for cost certainty and are understandably fearful of the volatility inherent in the emissions trading scheme that has Wall Street and its coterie of former subprime mortgage debt traders salivating with anticipation.
We should express some sympathy here for the congressmen Henry Waxman and Edward Markey who have struggled to keep a comprehensive plan alive in the face of the $80m estimated to have been spent by lobbyists since spring. But good intentions are not enough. As it stands now, their bill is a carbon tax without its comparative virtues and simplicity.
Admittedly, no tax, even one designed to be revenue-neutral, is an easy sell. Although clearly a tax is a better idea, it’s not at all clear that it is politically feasible. To quote a fundraising email by MoveOn.org, which supports the current bill: “If Republicans convince voters that clean energy legislation amounts to a new tax, Obama’s plan is toast.”
But as each day passes, Waxman-Markey shows signs of turning crispy on its own. Congress may be just weary enough from years of climate change hysteria that it will do anything, even something really stupid, like passing a cap-and-trade bill that is a gigantic, expensive role of the dice. But that’s not insurance; that’s gambling.
We are at a juncture. Corporate and environmental interests are roughly aligned. The failure of the cap-and-trade sausage – a real possibility and, sadly to say, a desirable outcome – could provide, for a brief political moment, a rare opportunity to design a bipartisan carbon tax.
Jon Entine is a visiting fellow at the American Enterprise Institute in Washington DC and founder of ESG Metrics, a sustainability, management and media consultancy.