Cap and Trade: The Politics Goes in Before the Market Goes On

Brian Doherty | April 24, 2009

Some breakfast legislative sausage, via Rep. Henry Waxman's office and the proposed cap-and-trade carbon reduction scheme, and the Washington Examiner:

In exchange for votes to pass a controversial global warming package, Democratic leaders are offering some lawmakers generous emission “allowances” to protect their districts from the economic pain of pollution restrictions.

Rep. Gene Green, D-Texas, represents a district with several oil refineries, a huge source of greenhouse gas emissions. He also serves on the House Energy and Commerce Committee, which must approve the global warming plan backed by President Barack Obama.

Green says Rep. Henry Waxman, D-Calif., who heads the panel, is trying to entice him into voting for the bill by giving some refineries favorable treatment in the administration’s “cap and trade” system...“We’ve been talking,” Green said, referring to a meeting he had with Waxman on Tuesday night. “To put together a bill that passes, they have to get our votes, and I’m not going to vote for a bill without refinery allowances.”

Rep. Joe Barton, R-Texas, the top Republican on the energy panel, said Waxman and others are also dangling allowances for steel and coal-fired power plants to give political cover to Democrats whose districts rely on these companies.....

Waxman told The Examiner he was not trading votes for allowances.

“That is what the Republicans are saying, but that is not accurate,” he said. The bill left out specifics on allowances “in order to be able to have discussions on how best to ease the transition for various geographical regions and ratepayers.”

“I will politely disagree,” said energy committee member John Shimkus, R-Ill., who insisted Waxman “is calling members into his office to try to get their vote, and that will be based on the credits they are offering.”

I wrote about how politics inevitably precedes markets in pollution allowance trading way back in 1996. Ron Bailey has been on the contemporary cap-and-trade debate for us at Reason magazine and Reason Online like iron oxide on steel, and just a few weeks ago explained why it promises to be the biggest corporate welfare of all time.

Comments

|4.24.09 @ 9:11AM|#

Frontloading the Fail.

|4.24.09 @ 9:17AM|#

Horsetrading in Washington? I'm shocked!

|4.24.09 @ 9:29AM|#

Someone please investigate how Waxman is treating PUBLIC utilities. Start with Los Angeles DWP, the dirtiest producer in California. How much you wanna bet they'll get concessions vs. their private sector competitors?

tarran|4.24.09 @ 9:51AM|#

The prisoner's dilemna in action.

If the Republicans stick to their guns and refuse to cooperate, the EPA nuke the U.S. economy, and the Democrats will be blamed.

But, if one or two republican vote with the Democrats, then the EPA will no longer be allowed to lay waste to the U.S. hurting the Republicans' chances overall. But, whichever Republican cooperates can get exemptions that will save his district from being hit too hard, thereby securing his reelection.

Thus, the Republican who caves is better off than if none of the cave at all, while the ones who don't cave are left worse off if two or more cave.

|4.24.09 @ 10:28AM|#

It must really be a crisis if they're willing to let everyone off the hook in exchange for promises of exemption.

As Instapundit says: "I'll believe it's a crisis when the people who tell me it's a crisis start acting like it's a crisis."

@tarran: damn straight.

|4.24.09 @ 10:34AM|#

tarran @ 9:51

Don't be so sure that caving would secure reelection.

Cap and trade will cause skyrocketing energy costs. There will be across the board price hikes not only in our electric bills but in all of our goods and services. The entire US economy will be effected, even if individual recipients receive allowances. The goods I purchase are not limited to those manufactured in my own region-- heck, most of our food is transported from other parts of the country.

When we start to weep and moan about the stupidity of imposing cap and trade on a country already in deep recession, voters aren't going to care which representatives managed to bargain for allowances. Today's sell-out is tomorrow's attack ad.

Atlas|4.24.09 @ 10:54AM|#

Oh well. Who is John Galt?

Michael Kochin|4.24.09 @ 11:38AM|#

Auctioning off of utility assets has begun. And how big is the pay-to-play?

See our piece from March:
http://mskochin.blogspot.com/2009/03/obamas-green-offensive-against.html

|4.24.09 @ 12:27PM|#

In exchange for votes to pass a controversial global warming package, Democratic leaders are offering some lawmakers generous emission "allowances" to protect their districts from the economic pain of pollution restrictions.

Hey, it's just like the EU! How's that going lately, anyway?

Paul|4.24.09 @ 12:44PM|#

"When buying and selling are controlled by legislation, the first things to be bought and sold are legislators" -- P.J. O'ROURKE

|4.24.09 @ 12:47PM|#

Cap and trade?

More like kneecap and trade. It's a green protection racket- take care of me and you get a waiver, an " allowance". Otherwise, pay through the nose.

One recalls Martin Cruz Smith's comment that government is the biggest Mafia of all.

|4.24.09 @ 1:13PM|#

Hey, it's just like the EU! How's that going lately, anyway?

Never mind, I found out.

14 Aug 2008: "

|4.24.09 @ 1:23PM|#

Goddamitt, I really should learn how to type someday. Try again:

Hey, it's just like the EU! How's that going lately, anyway?

Never mind, I found out.

14 Aug 2008: "The price of European Union Allowances (EUAs) has fallen sharply in the past month as oil prices have stabilised, dropping from a high of €29.33 (£23.37) at the start of July to a low on 4 August of €21.21 (£16.90). But according to IDEAcarbon, this low price is now at odds with the fundamental drivers in the market and the price should soon climb again."

5 Dec 2008: "As carbon hits 21 month low, analysts insist market is 'undervalued'"


20 Jan 2009: "Updated: Sell-off forces EU carbon to record lows"

And finally...

13 April 2009: "A recent UK report suggested that carbon credits need to trade at eight times their current price in order to have any real effect."

Chad|4.24.09 @ 1:43PM|#

obladioblada | April 24, 2009, 10:34am | #

Cap and trade will cause skyrocketing energy costs.

If by "skyrocket" you mean "increase 20% or so", then you are right.

Of course, the prices really wouldn't be increasing. Rather, they would be including some of the hidden costs that we have been keeping off the books.

|4.24.09 @ 2:02PM|#

On Earth Day my local NPR station replayed an Intelligence Squared debate from January 13th on the motion "Major Reductions in Carbon Emissions Are Not Worth the Money."

At the start, the audience poll showed 16% for, 49% against, and 35% undecided. At the end, the numbers were 42%, 48%, and 10%.

In other words, when exposed to a fair debate on the issue, almost all the undecideds voted against major expenditures on carbon reduction, bringing the likely liberal-leaning assembly close to a tie.

The standing presumptions in government and media that We Must Do Something about climate change and Everybody Knows It is terribly mistaken. These stories get sadder and sadder with each subsequent iteration.

Ebeneezer Scrooge|4.24.09 @ 2:27PM|#

Yeah. And they haven't even done anything yet.

Chad|4.24.09 @ 2:41PM|#

In other words, when exposed to a fair debate on the issue, almost all the undecideds voted against major expenditures on carbon reduction, bringing the likely liberal-leaning assembly close to a tie.

Fair. Therein lies the problem. A fair debate would have been 97 vs 3, not 3v3. Guess how many people would have been swayed by watching three people barely getting in a word edge-wise? It's funny that I was able to guess 2/3 of the denialist without even looking. It's not hard because NPR has to draw from such a small number of credible people. On the other hand, I had no idea who would be on the other side, precisely because NPR had hundreds to choose from.

|4.24.09 @ 2:53PM|#

Chad,

Since the debate motion was not about science, but about economics, I don't see where you get your 97 to 3 ratio.

Just as you think, properly, that people who debate climate change science should be discounted if they are not scientists, surely people who debate climate change economics should be discounted if they are not economists.

A sample of how economists would side on such a debate can be found in the Wikipedia article on Nicholas Stern...

The Stern Review was criticized by some fellow economists, including Partha Dasgupta, David Maddison, Robert Mendelsohn, William Nordhaus, Richard Tol, Hal Varian, Martin Weitzman, and Gary Yohe, but supported by Kenneth Arrow, James Mirrlees, Amartya Sen, Joseph Stiglitz and Robert M. Solow.

That's 8 to 5 likely for the motion.

EscapedWestOfTheBigMuddy|4.24.09 @ 3:08PM|#

In other words, when exposed to a fair debate on the issue, almost all the undecideds voted against major expenditures on carbon reduction, bringing the likely liberal-leaning assembly close to a tie.

Fair. Therein lies the problem. A fair debate would have been 97 vs 3, not 3v3. Guess how many people would have been swayed by watching three people barely getting in a word edge-wise? [...]

By way of preface, my positions on "Global Climate Change" are:
* It is clear that significant moves are afoot
* It is very likely that they are significantly driven my human activity
* It is very likely that there will be significant global economic effect within fifty to one hundred years
* It is not at all clear what the best policy is now (attempt mitigation or not, if so how)

That laid out, this claim is simply dumb.

The fact support your side or they don't or they are muddled and unclear. Three articulate, passionate people are enough to present one side of the argument for good or for ill.

The number of people who support a particular scientific position is not a trivial matter to be blithely dismissed, but it matters much more asymptotically than it does in the midst of a heated debate.

Now, climatology is not my field, and I don't following it closely (not enough time around doing neutrinos, 'ya know), but last time I looked (circa 3 years ago) the pro-anthropogenic climate change side had a big, impressive pile of observation and calculations and predictions. But their arguments for demanding strong human action now rested on a small number of arguments, and a couple of those had really worrisome and persistent problems. Worse, many of the strongest proponents were unwilling to address or even acknowledge these problems in the peer reviewed literature (and yes, I read it, and yes I'm able to follow it).

Have these been shored up? Do we, for instance have an internally consistent procedure for selecting proxy data-sets and normalizations that allows the generation of long baseline historical records? Does this procedure---importantly---generate a null result when fed null input? If so does it still generate a "hockey stick" on the real data? From "everywhere", or just one geographical location? That simply wasn't the case as recently as 2005.

|4.24.09 @ 5:00PM|#

So this proves, once and for all, that this is NOT an environmental issue, but a political one, right?

"We know you've got heavy polluters in your district, the ones we need to stop from killing us all. We're putting this legislation together to make them NOT kill us all, but since we need your vote, we're going to exempt them from the need to not kill us all. The environment destroyers can keep on doing what they're doing as long as you vote for this?

What the hell? Is it not patently obvious?

Chad|4.26.09 @ 3:35PM|#

MikeP | April 24, 2009, 2:53pm | #

That's 8 to 5 likely for the motion.

Mike, if we had to use only the opinions of economists, we would have to discount the entire panel.

But economists really can't help us either, because their favorite tool, cost-benefit analysis, breaks down when used over long time frames, because the assumptions (particularly, the discount rate) completely dominate the output of the model. Essentially, your conclusion boils down to whether you believe or decendants will be super-rich people that we shouldn't really give a rat's butt about, or not.

I guess we better have priests and philosophers decide. They are more suited to the task than economists.

And note: I believe all 13 of your economists support a price on carbon. They are only quibbling about the correct price.

engineer|4.26.09 @ 5:43PM|#

"Essentially, your conclusion boils down to whether you believe or decendants will be super-rich people that we shouldn't really give a rat's butt about, or not.

I guess we better have priests and philosophers decide. They are more suited to the task than economists."

Could someone please interpret this for me? My computer's bs translator is busted.

|4.26.09 @ 6:01PM|#

Essentially, your conclusion boils down to whether you believe or decendants will be super-rich people that we shouldn't really give a rat's butt about, or not.

Not quite. The conclusion boils down to whether you believe we are being better stewards of our descendants' future -- or, more importantly, the developing world's descendants' future -- by giving them a richer world or a cooler world.

I believe all 13 of your economists support a price on carbon. They are only quibbling about the correct price.

But that is exactly the difference between "major reductions" and not as major reductions. In particular, pricing carbon by targeting a maximum temperature or a maximum CO2 concentration simply costs a lot more than it benefits. Better to target the maximum benefit at the minimum cost and let the temperature and CO2 fall where they may.

Chad|4.26.09 @ 10:04PM|#

Not quite. The conclusion boils down to whether you believe we are being better stewards of our descendants' future -- or, more importantly, the developing world's descendants' future -- by giving them a richer world or a cooler world.

That would be true under ANY discount rate, which you clearly mis-understand. The notion you just suggested has no bearing on inter-generational transfers. The problem with the high discount rates of 4-5% that your "side" tries to use is that benefits (and costs) 100 years from now are accounted 100-200 fold less than benefits or costs today. Therefore, ANY plan that has more costs than benefits now, and more benefits than costs later, is doomed to fail the analysis. If you assume 2-3%, the conclusion flips on its head. If you assume zero percent, its in a different universe. The whole exercise becomes pointless because the assumptions dominate the data. Even without the discount rate issue, such analyses are borderline absurd. They are so incredibly sensistive to the estimates that we have to make concerning population, economic, and technological growth rates, extrapolated a hundred times over, that you may as well be performing voodoo. And it gets even worse. Most analysis just plain ignore anything that is "hard to quantify" like species loss.

Solving this problem will require about 2% of world gdp, or one year's worth of economic growth. Is it worth slowing down by a whopping 12 months in order to ensure that we avoid apocalypic scenarios, strongly mitigate the damage of the much more likely "simply bad" scenarios, prevent our oceans from turning into acid baths, prevent a significant fraction of the species on earth from dying, protect our coastlines and coastal cities, and as an added bonus wind up with cleaner air and water?

The answer is self-evident, honestly.

engineer|4.27.09 @ 12:35AM|#

"Solving this problem will require about 2% of world gdp, or one year's worth of economic growth. Is it worth slowing down by a whopping 12 months"

So did you pull that figure out of your own colon, or did somebody else pull it out of theirs and hand it to you?

engineer|4.27.09 @ 12:40AM|#

"The answer is self-evident, honestly."

So, wait, it's "honest" to take the rosiest possible projection of the costs of your proposals, compare it to the bleakest possible alternative, and then say that that's your audience's choice?
Remember, I'm not one of the people who claims that there is no AGW, or that government shouldn't take actions (such as a carbon tax), to combat the pollution that causes it. But your analysis falls well short of any reasonable standard of honesty.

|4.27.09 @ 3:10AM|#

Solving this problem will require about 2% of world gdp, or one year's worth of economic growth.

Perhaps you could share the secret of whatever magic you have in mind. Stern himself runs around telling everybody that it will take 1% of world GDP per year forever to mitigate damaging climate change. If we could solve it with 0.2% per year over a decade and be done with it, you wouldn't find too many opponents.

Chad|4.27.09 @ 7:43AM|#

So did you pull that figure out of your own colon, or did somebody else pull it out of theirs and hand it to you?

When I said it will cost about 2% of GDP, I mean every year. Of course, it isn't quite like that, as the costs of most plans would be higher now and become less as time goes on due to the inevitiable increase in prices for fossil fuels, but 2% is pretty much the upper bound for what anyone is predicting for costs. This number is very reasonable. We spend about 5-6% of our incomes on primary energy, and pay another 4-5% of our incomes for energy costs that are embedded in our goods and services. A 20% increase in energy prices would come out to about 2% of our incomes.

Now note that a permanent expenditure of 2% of our income has the same impact financially as skipping one year of 2% growth. It's simply not a big deal economically and we can easily afford it.