Climate Change Baptist & Bootlegger Coalition Tells Congress Today They Want Free Money

Ronald Bailey | January 15, 2009

As economist Bruce Yandle explained more than 25 years ago, sometimes Baptists and bootleggers find it their mutual interests to cooperate in advocating regulations, e.g., Blue Laws banning the sale of liquor on Sundays. Baptists want to outlaw booze because its from the devil and promotes sinful activities. Bootleggers favor them too because they cut out their legal competitors and enhance their profits.

The U.S. Climate Action Partnership (USCAP) is just such a Baptist and bootlegger coalition and its representatives are going up to Capitol Hill today to testify in favor of a cap-and-trade proposal to lower greenhouse gas emissions. Its 31 members include such leading producers and users of energy (bootleggers) as General Motors, Duke Energy, ConocoPhillips, Ford, General Electric PG&E Corporation, and Shell. The Baptists in the coalition include the Natural Resources Defense Council, the Pew Center for Global Climate Change, and the World Resources Institute. Both sides claim that they want to do something about the pressing issue of man-made global warming. To that end, they are promoting a cap-and-trade system:

In a cap-and-trade system, one allowance would be created for each ton of GHG emissions allowed under the declining economy-wide emission reduction targets (the “cap”). Emitters would be required to turn in one allowance for each ton of GHG they emit. Those emitters who can reduce their emissions at the lowest cost would have to buy fewer allowances and may have extra allowances to sell to remaining emitters for whom purchasing allowances is their most cost-effective way of meeting their compliance obligation. This allows the economy-wide emission reduction target to be achieved at the lowest possible cost.

It's pretty clear what's in it for the environmental lobbyists--if the system works, the U.S. will progressively emit ever lower amounts of greenhouse gases like the carbon dioxide produced by burning fossil fuels. But what's in it for the users and producers of energy? One benign interpretation is that they are just bowing to the inevitable and want a predictable, stable regulatory regime so that they can get on with their long-range energy and technology planning. Hmmm. Perhaps. But just in case that's not enough, there's a big sweetener. 

As USCAP acknowledges:

Emission allowances in an economy-wide cap-and-trade system will represent trillions of dollars in value over the life of the program.

So how to divvy up these trillions of dollars? Well, USCAP wants to give away a sizeable portion for free:

USCAP recommends that a significant portion of allowances should be initially distributed free to capped entities and economic sectors particularly disadvantaged by the secondary price effects of a cap and that free distribution of allowances be phased out over time.

Make no mistake, issuing emissions allowances is like coining money. Handing them out to companies for free is adding directly to their bottom lines. How this would work was explained in a 2007 Congressional Budget Office report. It's a bit lengthy but well worth reading:

A common misconception is that freely distributing emission allowances to producers would prevent consumer prices from rising as a result of the cap. Although  producers would not bear out-of-pocket costs for allowances they were given, using those allowances would create an "opportunity cost" for them because it would mean forgoing the income that they could earn by selling the allowances. Producers would pass that opportunity cost on to their customers in the same way that they would pass along actual expenses. That result was borne out in the cap-and-trade programs for sulfur dioxide in the United States and for CO2 in Europe, where consumer prices rose even though producers were given allowances for free.

Thus, giving away allowances could yield windfall profits for the producers that received them by effectively transferring income from consumers to firms' owners andshareholders. The study of the hypothetical 23 percent cut in CO2 emissions concluded, for example, that if all of the allowances were distributed for free to producers in the oil, natural gas, and coal sectors, stock values would double for oil and gas producers and increase more than sevenfold for coal producers, compared with projected values in the absence of a cap.

Stock prices doubling? Seven-fold? What climate bootlegger could resist? And consumers will just love higher utility and gas prices! 

I suspect that the USCAP Baptists have agreed to this because they see it as a bribe to get the bootleggers on board with carbon rationing.

Interestingly, President-elect Barack Obama has proposed that all of the emissions permits would be auctioned off. It would function like a variable carbon tax, which would mean no profits for bootleggers. Ah, such charming political naivete! 

Go here for my analysis of carbon cap-and-trade vs. carbon taxes. Hint: If we must ration carbon, carbon taxes are better, especially if they are used to offset and lower income and payroll taxes. 

Comments

|1.15.09 @ 10:42AM|#

McCain would have given them away...

tarran|1.15.09 @ 10:45AM|#

In other words this is a barrier to entry that will help keep upstart new companies from entering the market.

|1.15.09 @ 10:54AM|#

tarran: Very very insightful.

Fluffy|1.15.09 @ 10:57AM|#

I have no objection at all to the handout of carbon allowance coupons, if every citizen is given an identical allowance.

Anything else would be a shocking violation of the principle of equality before the law.

What is being proposed is no less than the creation of a carbon aristocracy, where favored citizens will be handed free assets by the government, while other citizens will have to pay for those same assets. It's really nothing more and nothing less than granting the nobility the right to hunt in the king's forest, while hanging a peasant if he catches a rabbit. The fact that we don't employ titles to do this is an absolute irrelevancy.

|1.15.09 @ 10:58AM|#

In other words this is a barrier to entry that will help keep upstart new companies from entering the market.

Bingo. Regulations always help large corporations with large legal staffs. Also, holding large portions of allowances gives them a de facto power to control who gets allowances by choosing who to sell to.

|1.15.09 @ 11:02AM|#

All this over some whacked idea (that no legitimate person of science can disagree with!!! And if you can find one, they are in the pocket of big something) that carbon dioxide will kill us all, or at least the polar bears. The world is on crack.

|1.15.09 @ 11:03AM|#

I have no objection at all to the handout of carbon allowance coupons, if every citizen is given an identical allowance.

I like it. Ain't Gonna Happen, but I like it.

Seward|1.15.09 @ 11:03AM|#

Episiarch,

Well, regulatory mandates probably always do - you must use this technology X, etc. I think regulatory goals with a fine for not meeting them may do so somewhat less - at least that is my conclusion after reading, etc. what others have said about them. Set the goal and let the market actors meet it how they see fit.

adrian|1.15.09 @ 11:06AM|#

Reminds me of the Phlogiston tax of the 1600's. The world was saved once, we can do it again.

|1.15.09 @ 11:13AM|#

Ya think these folks are gonna climb aboard the Cap and Trade ship?

To keep pace with the country's economic growth, ­China's local governments, utilities, and entrepreneurs are building, on average, one coal-fired power plant per week. The power plants emit a steady stream of soot, sulfur dioxide, and other toxic pollutants into the air; they also spew out millions of tons of carbon dioxide.

There's 3 billion energy poor people who would like cheap electricity. Making it more expensive in the US will not change that fact.

Fluffy|1.15.09 @ 11:19AM|#

I like it. Ain't Gonna Happen, but I like it.

Probably not.

But when people are out there offering solutions that violate basic principles of liberty and equality, we have to offer an alternative solution that does not violate those principles.

Even if our alternative solution is doomed to never be enacted, its mere presence as a possibility makes it more difficult for these outrages to be visited upon us.

We have to make the perfect be the enemy of the good for someone else for a change. Even if you think global warming is a hoax, it would probably be beneficial to have a ready quiver of global warming "solutions" that don't violate peoples' rights or at least violate them less than the proposals that are already out there. You can deploy "good" proposals as a way to undermine "bad" proposals and sow discord among the advocates of carbon policy.

|1.15.09 @ 11:23AM|#

I'm always sort of amused that people are so shocked (SHOCKED!) that big business supports stifling regulation.

It's just old-fashioned monopoly cartelization in a pretty new dress, and it always has been.

|1.15.09 @ 11:26AM|#

But at this point, what's another trillion in corporate handouts and inflationary pressure?

Its For The Children, right?

Well, it'll be for the children to pay the bill, anyway.

Seer|1.15.09 @ 11:32AM|#

It's for the children. It's just when those children grow up into adults, they're fucked.

TallDave|1.15.09 @ 11:38AM|#

Why not just legalize armed robbery for certain groups in financial trouble? That would cut out the gov't middlemen.

TallDave|1.15.09 @ 11:41AM|#

to testify in favor of a cap-and-trade proposal to lower greenhouse gas emissions.

The best part of this is that since nothing short of nuclear war will slow emissions growth in China, India, and Africa we're making our economy worse for no reason.

Zubon|1.15.09 @ 11:50AM|#

If every citizen gets carbon permits, and you plan to sell yours, remember: save enough to exhale. If you like jogging or other aerobic exercise, keep extra. It would suck to reach Thanksgiving and realize that you were out for the year.

|1.15.09 @ 11:54AM|#

Joss Whedon is looking more prescient than ever.

I'm going to start learning Chinese, not sure which dialect, just so I can be ready for when we fuck ourselves one time too many and we welcome our new almond-eyed ovelords.

閉嘴。容我們發財。・闭嘴。容我们发财

|1.15.09 @ 11:56AM|#

I thought Obama et al. favored entrepreneurship and disfavored creating barriers to entry. Also, doesn't this type of thing just increase the power of large corporations and their influence on government? I thought increasing corporate power was supposed to be bad. Or is that only when the other guy is in power?

|1.15.09 @ 11:57AM|#

We have to make the perfect be the enemy of the good for someone else for a change. Even if you think global warming is a hoax, it would probably be beneficial to have a ready quiver of global warming "solutions" that don't violate peoples' rights or at least violate them less than the proposals that are already out there. You can deploy "good" proposals as a way to undermine "bad" proposals and sow discord among the advocates of carbon policy.

Good thinking. It is indeeed wise to learn from one's enemies.

|1.15.09 @ 12:16PM|#

If you have spent any time in China (or India) one thing should be perfectly clear:

ALL of the oil and ALL of the coal is coming out of the ground.

DADIODADDY|1.15.09 @ 12:28PM|#

I wanted to go to the meeting but it was to friggin cold out...BTW, was in Shanghai last January when their coal piles froze and stranded 1/2 milliion peopel in the train strain at the start of Golden Week

Lefiti|1.15.09 @ 1:08PM|#

Baptists want to outlaw booze because its from the devil and promotes sinful activities. Bootleggers favor them too because they cut out their legal competitors and enhance their profits...

Market fundamentlist zealots want booze outlawed so they have something to whine about and a reason to solicit more donations from their halfwit followers.

Kolohe|1.15.09 @ 1:08PM|#

I have no objection at all to the handout of carbon allowance coupons, if every citizen is given an identical allowance.

Anything else would be a shocking violation of the principle of equality before the law.

Putting aside the Native Americans (the 7th cav certainly did), was the issuing of land grants in the west to anyone who would use it in a certain way rather than an equal amount to every citizen a similar violation? Just playing devil's advocate here. (And I'm just talking about homesteaders; the land grants to the railroads were definitely of a different sort, but perhaps more analogous to the current situation)

|1.15.09 @ 1:41PM|#

The fundamental problem with using a property system to control CO2 emissions is that the property i.e. the biosphere that removes the CO2 from the atmosphere, extends over multiple political jurisdictions. The best analogy would be a water source that divides two countries. One country can create a water distribution scheme but there is no guarantee that the other country will create a coordinated system.

This creates a classic tragedy of the commons. People who cheat on emissions gain an economic advantage. Unless we're willing to go to war over carbon emissions it is unlikely that we'll see any benefit.

Having said that, auctioning off the emission rights or even giving them away to each citizen, would be the best way to do it. No private entity should ever be granted such a boon.

I suspect the environmental baptist are using the give away as a bribe to big business to get them on board.

Fluffy|1.15.09 @ 1:54PM|#

Putting aside the Native Americans (the 7th cav certainly did), was the issuing of land grants in the west to anyone who would use it in a certain way rather than an equal amount to every citizen a similar violation? Just playing devil's advocate here.

No, because anyone could sign up for them.

Under this system, if you already issue large amounts of CO2, they'll hand you free credits, and everyone else gets zip.

Lefiti|1.15.09 @ 2:12PM|#

I hate entrepreneurs and start-ups. The government should do something about all these morons trying to create new industries. I know! Let's create a regulatory and tax structure that makes it unprofitable to produce anything in quantities less than severeal million at a time. Then we can subsidize the big corporations, while simultaneously bitching about the evils of capitalism.

I hate corporations, and I hate small business, and I hate self-employed people. But I love the government. Government Rocks.

|1.15.09 @ 2:15PM|#

Market fundament[a]list zealots want booze outlawed so they have something to whine about and a reason to solicit more donations from their halfwit followers.

I knew he was joking all along!

I mean, NOBODY can be THAT obtuse . . . Right??

|1.15.09 @ 2:27PM|#

I'd favor a mild emissions tax combined with deregulation of the nuclear power industry.

|1.15.09 @ 2:32PM|#

We have to make the perfect be the enemy of the good for someone else for a change. Even if you think global warming is a hoax, it would probably be beneficial to have a ready quiver of global warming "solutions" that don't violate peoples' rights or at least violate them less than the proposals that are already out there.

The problem is that your argument stems from the Precautionary Principle, a logical fallacy. Focusing efforts and resources on a supposed problem that cannot be determined with precision is wasteful and foolhardy. The reason is being pushed so much in the media and politics is because there is a great potential for rent-seekers.


You can deploy "good" proposals as a way to undermine "bad" proposals and sow discord among the advocates of carbon policy.

How would one recognize the good proposals from the bad? Because unless there is an objectively obtained benchmark, the "good" or "bad" proposals will be chosen according to how strong their advocates sell them, and not by their potential returns (i.e. effectiveness.)

Planning to control how climate is to behave is like trying to control Evolution or the Market - the forces at play are far stronger
than the best minds you can throw at them.

|1.15.09 @ 2:40PM|#

I'd favor a mild emissions tax combined with deregulation of the nuclear power industry.

Taxing emissions opens the door to manipulation of standards as a rent-seeking tool for the State. Who's supposed to measure the "emissions"? Which instruments? Which resolution? What's the benchmark? Who will set the protocols? Will the tax collector believe your numbers? Would you believe theirs? How much will it cost you to monitor your emissions (if you possess a factory or business)? Will you have to submit some sort of proof that your factory is not a CO2 emitter, and under what criteria? Will you have to pay for such certification, or what happens if you are NOT certified (for whatever reason)? Will you still have to pay taxes on emissions you do not create?

Enviro-whackos and State-worshipers (and your run of the mill Freedom-haters) do not think about these things because they are callous and evil - really, I cannot see other reasons, it is not difficult to figure out the consequences of stupid policies, so ignoring them can only stem from pure callousness and pure evil.

TofuSushi|1.15.09 @ 2:55PM|#

Go ahead and laugh as the polar icecaps and glaciers melt.

TallDave|1.15.09 @ 3:13PM|#

Go ahead and laugh as the polar icecaps and glaciers melt.

Sea ice is at a 30-year high.

A.G. Pym|1.15.09 @ 3:24PM|#

If you're truly committed to assuring that your (very) personal emissions are carbon neutral, to help us save Our Precious Mother Earth, you should be first in line to purchase a "Fart Offset":

http://goodideasgonebad.net/?page_id=22

TofuSushi|1.15.09 @ 3:32PM|#

Sea ice is at a 30-year high.

Oh yea? Well, the last period of global flooding was way over 30 years ago. Just keep laughing when waterworld becomes reality.

|1.15.09 @ 3:45PM|#

Oh yea? Well, the last period of global flooding was way over 30 years ago. Just keep laughing when waterworld becomes reality.

I'll be laughing all the way to my hi-speed catamaran...

TofuSushi|1.15.09 @ 3:49PM|#

Well yea? I will be laughing harder AT you!

|1.15.09 @ 3:51PM|#

Go ahead and laugh as the polar icecaps and glaciers melt.

Don't mind if I do.

TofuSushi|1.15.09 @ 3:56PM|#

R C,

Are you going to laugh at drowning polar bears too? Bet you aren't Mr. Toughgai.

|1.15.09 @ 4:14PM|#

Don't give me that polar bear bullshit. They are godless killing machines and deserve whatever fate they meet.

TofuSushi|1.15.09 @ 4:14PM|#

I hope they meat you soon phalkor!

Fluffy|1.15.09 @ 4:17PM|#

How would one recognize the good proposals from the bad?

Um, the same way we tell if any other proposal is good or bad - by judging how much it impacts liberty and equality.

A proposal that advocated limiting carbon dioxide emissions by prohibiting black people from employing combustion would be worse than a proposal that advocated limiting carbon dioxide emissions by imposing a tax on all fuels. This would be true whether or not you think global warming is real, and whether or not you think either policy would actually be effective in addressing the putative problem.

You're hung up on two issues that I'm not discussing - whether it can be proven that global warming is real, and whether it can be proven that we can do anything to combat it one way or the other. Independent of both of those issues, a proposed policy that would hand certain citizens billions of dollars worth of negotiable instruments [emissions credits] and hand other citizens nothing, is a bad policy.

TofuSushi|1.15.09 @ 4:20PM|#

I saw something the other day about there being no such thing as clean coal.

Has any body else?

|1.15.09 @ 7:35PM|#

Um, the same way we tell if any other proposal is good or bad - by judging how much it impacts liberty and equality.

That leaves the same problem: What is "good" and what is "bad". You seem to leave that to how much impact on freedom each entails, but that is like choosing the lesser of two evils - which means, choosing evil the same. Or to say it with an analogy, a rape where the victim is not killed must be "better" than a rape where the victim is killed, but that does not make the former "good" compared to the later; they are BOTH equally evil, i.e. bad.