"It is a steel fist of regulation covered by a velvet glove of emission trading."


Last week, House Energy and Commerce Committee chair Henry Waxman (D-Calif.) introduced the Democrats' Rube Goldbergian climate change cap-and-trade bill. On Sunday, (in a surprising front page article), the New York Times revealed why the denizens of Capitol Hill like cap-and-trade over other possible methods for reducing climate-warming greenhouse gas emissions:

And how did it come to eclipse the idea of simply slapping a tax on energy consumption that befouls the public square or leaves the nation hostage to foreign oil producers?

The answer is not to be found in the study of economics or environmental science, but in the realm where most policy debates are ultimately settled: politics.

Basically, cap-and-trade enables Congressoids to hand out favors (tax breaks and free permits) to corporations and thus garner campaign contributions. The Times continues: 

In 1971, W. David Montgomery, a Harvard graduate student in economics, fleshed out the idea of emissions trading in his doctoral thesis and has spent much of the last three decades trying to figure out how the marketplace can deal with environmental problems that are caused by relatively few actors but have consequences felt globally.

He supported the acid rain trading program, but said it was based on "unique historical and economic circumstances" that did not apply to the much more difficult problem of carbon dioxide emissions.

Mr. Montgomery, now a vice president at Charles River Associates International, a consulting firm, said Mr. Waxman's proposal would ultimately act like a tax on carbon-producing industries, disguised by a complex cap-and-trade system.

"It is a steel fist of regulation covered by a velvet glove of emission trading," Mr. Montgomery said. "Why not just impose a carbon tax?"

Good question.

Some of my thoughts on the merits of cap-and-trade versus a carbon tax can be found here