George Will Discusses the Public Choice Horror that Is the Climate Security Act

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Washington Post columnist George Will makes some insightful comments on the America's Climate Security Act which will be debated this week in the Senate:

An unprecedentedly radical government grab for control of the American economy will be debated this week when the Senate considers saving the planet by means of a cap-and-trade system to ration carbon emissions. The plan is co-authored (with John Warner) by Joe Lieberman, an ardent supporter of John McCain, who supports Lieberman's legislation and recently spoke about "the central facts of rising temperatures, rising waters and all the endless troubles that global warming will bring."

Speaking of endless troubles, "cap-and-trade" comes cloaked in reassuring rhetoric about the government merely creating a market, but government actually would create a scarcity so that government could sell what it had made scarce. The Wall Street Journal underestimates cap-and-trade's perniciousness when it says the scheme would create a new right ("allowances") to produce carbon dioxide and would put a price on the right. Actually, because freedom is the silence of the law, that right has always existed in the absence of prohibitions. With cap-and-trade, government would create a right for itself-- an extraordinarily lucrative right to ration Americans' exercise of their traditional rights.

Businesses with unused emission allowances could sell their surpluses to businesses that exceed their allowances. The more expensive and constraining the allowances, the more money government would gain.

If carbon emissions are the planetary menace that the political class suddenly says they are, why not a straightforward tax on fossil fuels based on each fuel's carbon content? This would have none of the enormous administrative costs of the baroque cap-and-trade regime. And a carbon tax would avoid the uncertainties inseparable from cap-and-trade's government allocation of emission permits sector by sector, industry by industry. So a carbon tax would be a clear and candid incentive to adopt energy-saving and carbon-minimizing technologies. That is the problem.

A carbon tax would be too clear and candid for political comfort. It would clearly be what cap-and-trade deviously is, a tax, but one with a known cost. Therefore, taxpayers would demand a commensurate reduction of other taxes. Cap-and-trade -- government auctioning permits for businesses to continue to do business -- is a huge tax hidden in a bureaucratic labyrinth of opaque permit transactions.

My discussion of carbon taxes versus carbon markets here. Whole Will column here.

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  1. Point of interest:

    My brother in law, while working on his MBA from Carnegie Mellon, had the idea of a private company that trades in pollution credits.

    He started a small company that was quickly shut down by regulators. But I suppose that it’s a-OK now that the government wants to get into the biz.

    Anyone know what Australia’s like around Jan 21, 2009?

  2. Normally Geroge Will is quite brilliant, but I think he overstates the “perniciousness”, as he puts it, of the cap-and-trade approach.

    The strength of market systems is their ability to collect and aggregate accurate information about the material desires of many assorted actors. Cap-and-trade has the advantage of using this feature of markets to allow businesses to trade carbon credits as needed, thereby more efficiently determining the most efficient distribution of carbon credits.

    He’s right that the scarcity is artificial, but it is not determined primarily with profit in mind, but rather as a component of some policy goal. Things would have to get pretty badly corrupt for the system to be perverted into a straight cash-cow for the government.

  3. Things would have to get pretty badly corrupt for the system to be perverted into a straight cash-cow for the government.

    So what’s the spread? 5 years? Because it will happen.

  4. So now we are going to have the carbon police?

    Does methane have carbon? I just wonder if dairy farmers are going to have to put some kind of measuring device on assholes of their cows to makes sure said farmer isn’t cheating on his carbon emissions.

  5. So what’s the spread? 5 years? Because it will happen.

    Ten, if we’re super extra careful. But that’s kind of my point: systems are inevitably corrupted, but until they are, they are kinda useful. Let’s not shit on the car’s engine *before* it breaks.

    And hey, there aren’t exactly a ton of capital flight regulations left, so if things get too hot for the corps., they’ll just flee to greener pastures like any well-behaved market actor should.

  6. America: 2050, where nobody will be allowed to do anything at any time for any reason.

  7. “A carbon tax would be too clear and candid for political comfort. It would clearly be what cap-and-trade deviously is, a tax, but one with a known cost. Therefore, taxpayers would demand a commensurate reduction of other taxes.”

    And since a straightforward carbon tax would be more visible with a specifically indentifiable cost, the taxpayers might also be more inclined to start asking what specific quantifiable benefit from reducing carbon that they will be getting in exchange for their money.

    The proponents of government mandating carbon reductions by either a straight tax or a cap and trade scheme cannot empirically quantify any benefit whatsoever to doing so in order to do any valid sort of cost-benefit analysis.

  8. So what’s the spread? 5 years?

    No way, it will be too close to election season, 2012.

    I’m putting my money on full cash cow, 2010.

    One positive side effect: a new viable form of protest will emerge, where picketers can fart, open-assed, at politicians and chant “suck my carbon.”

  9. I can imagine it now — companies shutting down because it’s more profitable to produce nothing and sell carbon tickets than it is to continue business as usual. Ah, the smell of freedom.

  10. You know what I think is hilarious? We’re in an era of record carbon prices, and the first thing politicians can think of is taxing the hell out of carbon sources. When Joe Sixpack has to trade in his pickup truck for a Vespa, it won’t be the planet warming up, it will be his temper. That will of course reflect eventually in his voting habits.

  11. I wonder, do Vespas have trailer hitches?

  12. “cloaked in reassuring rhetoric about the government merely creating a market, but government actually would create a scarcity”

    Ahem… that’s what a market is, a system to allocate a limited (scarce) commodity efficiently. If there isn’t scarcity, then the the price is free, and by definition, no market. You use the word “rationing” like it’s something only government does. But anything that has a price, including gas, food, and health care, is rationed by definition. Only the people that can and choose to afford it, get some.

    And that’s the point of emissions trading. There is no scarcity of CO2 emissions: everyone blasts out as much as they want at no cost. Now we can revisit the same tired arguments about whether “the science is uncertain,” but if you think society should reduce its CO2 emissions, then we’re talking about yes, scarcity, and yes, rationing, and how we can do that efficiently (well-regulated markets).

    Source: Economics 101

  13. If we use the European experience with the carbon market as a guide, then this will just be another way for Congress and the Energy department to coddle favored industries.

    The EU’s system ended up with national governments over stating their caps to make sure that their industries never felt the bite.

    I expect in the US case it will be favored large industries being able to get exceptions and small businesses having to play by the rules since they don’t have the juice.

  14. “You know what I think is hilarious? We’re in an era of record carbon prices, and the first thing politicians can think of is taxing the hell out of carbon sources.”

    Yes it is amusing that right on the heels of the Democrat Congress hauling the “big oil” executives up to Washington for show-trial hearings to demonstrate their “concern” about gas prices that they are sponsoring legislation to drive those prices even higher.

  15. Ten, if we’re super extra careful. But that’s kind of my point: systems are inevitably corrupted, but until they are, they are kinda useful.

    The magnitude of the effect of greenhouse gas mitigation schemes will have to last through this century and beyond, rising the whole time. Furthermore, environmental economic models show that waiting ten years to start such schemes has virtually no effect a century hence. Therefore, having the scheme last only for the first ten years is less than worthless.

  16. I shouldn’t have attributed George Will’s economic mis-understanding directly to Ronald: my apologies.

  17. Does methane have carbon? I just wonder if dairy farmers are going to have to put some kind of measuring device on assholes of their cows to makes sure said farmer isn’t cheating on his carbon emissions.

    Troy, you may be trying to be humorous, but methane is a much stronger greenhouse gas than CO2.

    I’m sure in a couple of years, the Greens will want us to reduce the amount of cows.

  18. Yes it is amusing that right on the heels of the Democrat Congress hauling the “big oil” executives up to Washington for show-trial hearings to demonstrate their “concern” about gas prices that they are sponsoring legislation to drive those prices even higher.

    I’m not sure “amusing” is exactly the right word, but yes, I’ve noticed this as well. You’d think the democrats would be cheering at high oil prices, but instead they’re grandstanding (surprise!)

  19. I shouldn’t have attributed George Will’s economic mis-understanding directly to Ronald: my apologies.

    Are you sure that George Will was not simply attempting to educate his readers the same way you just educated us?

    People hear “new market” and they think “that’s good” — they don’t think “new scarcity”.

  20. Taktix? | June 2, 2008, 10:14am | #
    Point of interest:

    My brother in law, while working on his MBA from Carnegie Mellon, had the idea of a private company that trades in pollution credits.

    He started a small company that was quickly shut down by regulators. But I suppose that it’s a-OK now that the government wants to get into the biz.

    There is a private, voluntary carbon exchange: The Chicago Climate Exchange. Been running since 2003.

  21. “So what’s the spread? 5 years?”

    Oh, no — zero years is the obvious right answer. The corruption will be built in from the start. The current discussion is for some combination of free permits for existing emitters and permit auctions. The political fight over the spoils (e.g. who gets the free permits) is ALREADY intense:

    http://money.cnn.com/2008/05/14/news/economy/climate_change_bill.fortune/?postversion=2008051507

  22. There is a private, voluntary carbon exchange: The Chicago Climate Exchange. Been running since 2003.

    Sorry, should have pointed out that this happened in the mid-to-early 80’s.

  23. I’m sure in a couple of years, the Greens will want us to reduce the amount of cows.

    Sweet! I’m all for a PETA v. Greenpeace free-for-all!

  24. “Ahem… that’s what a market is, a system to allocate a limited (scarce) commodity efficiently. If there isn’t scarcity, then the the price is free, and by definition, no market. You use the word “rationing” like it’s something only government does. But anything that has a price, including gas, food, and health care, is rationed by definition.”

    I would say market is a word that describes the aggregate result of many people engagning in freedom of contract. Physical products and commodities do get rationed by default and that is part of the market.

    Government forcing a scarcity on something that wasn’t scare at all absent it’s interference is not a market.

  25. I’m sure in a couple of years, the Greens will want us to reduce the amount of cows.

    As long as I get to eat the surplus, with teriyaki sauce, it’s all good.

    Government forcing a scarcity on something that wasn’t scare at all absent it’s interference is not a market.

    It is if the operation of the distribution of that scarcity operates according to free agents contracting for those resources amongst each other. Then, um, it’s called a market, as you yourself pointed out.

    Where the scarcity comes from matters not one whit to what the identity of the entity designed to distribute it is.

  26. ya gotta see this. guaranteed worth your time and it’s on topic.

    http://www.foxnews.com/story/0,2933,361403,00.html

  27. “It is if the operation of the distribution of that scarcity operates according to free agents contracting for those resources amongst each other. Then, um, it’s called a market, as you yourself pointed out.”

    No it isn’t. Markets are a description of the aggregate result of transactions freely entered into. It is not simply a means to allocate resources. The “freely entered into” part is an integral part of the defintion. There are other mechanisms whereby resources simply get allocated that are non-market in nature.

    Physical products will get allocated one way or another – whether it’s by a market or something else. Neither government nor any other party can completely create something out of nothing.

    Any carbon “market” is based on an atificial scarity contrived by government – not a natural physical scacity and no party would be “freely” engaging in it. They would be doing so only because government had imposed carbon limits on them.

  28. I’m sure in a couple of years, the Greens will want us to reduce the amount of cows. [J sub D emphasis]

    Will want to? Where the hell have you been?

  29. Government forcing a scarcity on something that wasn’t scare at all absent it’s interference is not a market.

    See the psychoactive drug market for an example of how this can work out to the detriment of society.

  30. My understanding of an “effective” cap-and-trade system is that the permits/ allowances, once they have initially been distributed, belong to the private corporations (and their pollution-belching smokestacks), and the proceeds of subsequent transactions are retained by them. This more closely aligns the costs and incentives.

    If the government retains ownership, that’s bad.
    Very bad. And in that case, I would share Will’s fears.

  31. ya gotta see this. guaranteed worth your time and it’s on topic.

    Just when you think the Apocolyptics can’t get any more strained in their ad-hom rhetoric against unbelievers….

    That’s usually interpreted as a sign of a weakness in a proponent’s position, but not in cases involving the climate, strangely. That just means they really care.

  32. Methane combustion results in carbon dioxide (and water.) Even if we ran our cars on cow farts, the hippies would still complain.

    Ever had a tofu hot dog? Vile.

  33. “I’m sure in a couple of years, the Greens will want us to reduce the amount of cows”

    Yeah and to take the place of beef in our diet – I just heard that there’s an article in Time about cooking and eating insects.

    Swap cattle for cockroaches.

    Yum yum.

  34. Sounds like “Carbon-Backed Securities” to me.

  35. Government forcing a scarcity on something that wasn’t scare at all absent it’s interference is not a market.

    Is anyone really surprised? The FCC did this with the broadcasting industry decades ago…

  36. “[O]bserve that in all the propaganda of the ecologists-amidst all their appeals to nature and pleas for “harmony with nature”-there is no discussion of man’s needs and the requirements of his survival. Man is treated as if he were an unnatural phenomenon. Man cannot survive in the kind of state of nature that the ecologists envision-i.e., on the level of sea urchins or polar bears. . . .

    In order to survive, man has to discover and produce everything he needs, which means that he has to alter his background and adapt it to his needs. Nature has not equipped him for adapting himself to his background in the manner of animals. From the most primitive cultures to the most advanced civilizations, man has had to manufacture things; his well-being depends on his success at production. The lowest human tribe cannot survive without that alleged source of pollution: fire. It is not merely symbolic that fire was the property of the gods which Prometheus brought to man. The ecologists are the new vultures swarming to extinguish that fire.”

    [Ayn Rand (1971), “The Anti-Industrial Revolution,” Return of the Primitive, 277.]

    ’nuff said.

    (Mike Church read this this morning on his show.

    In related Rand news, rumor has it Angelina Jolie and Brad Pitt are producing and will both be starring in the film version of Atlas Shrugged. Hopefully, that will help to advance the cause Nick speaks of:

    “We are in the beginning of a libertarian moment,” said Nick Gillespie, editor of Reason, the libertarian monthly….)

  37. Why is all the focus on dealing with the problem on reducing carbon emissions?

    Has everyone forgotten the TTAPS study?

  38. As someone who’s read the monstrosity (ech), I can say that except for the state governments given about 20% of the annual allowances, private enterprises are expected to have all allowances.

    The really puzzling bit is that while people can trade and sell these at their whim, the bill explicitly says “an emission allowance shall not be a property right”.

    Any idea what that means?

  39. Has everyone forgotten the TTAPS study?

    Are you suggesting we deal with the potential problem of global warming by having a nuclear war?

  40. More like thermonuclear detonations at a test site somewhere.

  41. Any idea what that means?

    Sounds like: “You can trade them all you want, but if we want to end the program at any time, we can take them away.”

  42. unusually witty of you guys to put this right below a post about the paranoid style in american politics

  43. More like thermonuclear detonations at a test site somewhere.

    If it comes to that, we’re much better off putting alumina chaff in low earth orbit or putting sulfur in jet fuel. Much better control.

  44. What about an orbital shade? We could cast Europe in darkness for a few decades and shut them the fuck up.

  45. Europeans are cheese eating surrender monkeys and they want us to live in grass huts and ride high speed trains everywhere, hurr hurr!!

  46. Funny how he never references his recent column where he said global warming is all a big hoax. He doesn’t have any credibility here, and precious little relevance.

  47. Oh, so now someone has to accept the complete global warming story in order to make any comment on the ramifications of policy designed to address it?

    I trust that you apply the same logic to those who criticize the handling of the Iraq War, but who believe there was insufficient cause to start it in the first place.

  48. I’ve got a plan to stop global warming! Every weekend I’ll buy a bag of charcoal briquets… and bury them! If everyone would just start sequestering carbon, we can be in another ice age before you know it! Buy a safe and lock up your carbon, make sure it doesn’t touch the atmosphere!

    And after the carbon, we can start working on the the worst greenhouse gas around, dihydrogen monoxide!

  49. I’m just a caveman, but I do know this: natural markets, Good. government-fabricated markets, Bad.

  50. @MikeP: No, but if somebody shows complete ignorance of a subject in April, I’m dubious about their opinions in June. Unless they got really smart in the meantime.

  51. DannyK,

    So you don’t think someone’s opinions of markets or politics can have a seat at the public policy table even if he doesn’t support the reason that public policy is being marshaled?

    I do not believe that liberal immigration poses a serious problem. Do I not get to debate immigration law?

  52. I like McKittrick’s idea of a temperature-indexed carbon tax that turns into a tax credit when the planet goes through its next cooling phase. AGW believers should like this too b/c it makes carbon more expensive as temperatures rise, as they claim will continue happening.

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