Congressional Cap-and-Trade Energy Mandates—All Cost, No Benefits

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Georgetown University public policy professor Ted Gayer has a nice article over at The American on how Congress' vast number of energy mandates makes its carbon rationing proposals (uh, I mean, cap-and-trade scheme) much more expensive for American consumers than it has to be. The kicker is that the mandates don't even provide any additional reductions in carbon emissions - they just increase the price people pay for energy. It's all cost and no benefits. As Gayer explains:

The advantage of a cap-and-trade system is that it sets a quota on emissions, but allows complete flexibility on how to achieve the quota. Polluting firms can choose between reducing production, shifting towards cleaner burning fuels, or investing in more fuel-efficient production technology. They can also opt to not reduce emissions, and instead pay other firms to reduce emissions for them (the "trading" component of cap-and-trade). In the end, the emissions goal is met at a minimum cost.

But that's too simple for Congress which must meddle with the tiniest details of how Americans will be using energy over the next 50 years. Gayer continues:

…the bill includes a renewable electricity mandate, which requires electricity utilities to substitute renewable energy (such as wind, solar, or geothermal energy) for energy derived from fossil fuels. Electric utilities would need to generate 6 percent of their electricity from renewable energy in 2012, ramping up to 20 percent by 2021. …

The electricity mandate undermines the cost-saving feature of a cap-and-trade program. Rather than allow the market the flexibility to find the cheapest sources of pollution reduction, the mandate prescribes where and how the reductions must occur. Any reductions achieved through the mandate will just be offset by fewer reductions in other sectors, resulting in no net reduction in emissions. Greenhouse gas emissions have the same effect on the climate whether they are emitted from electricity producers, manufacturing facilities, or automobiles, so the mandate achieves no additional environmental benefit. It is possible to set a mandate tight enough to achieve more reductions than is required by the cap-and-trade program. (This is not the case with the proposed mandates.) This indeed would achieve some additional environmental benefits, but would make the cap-and-trade program superfluous. What's more, the same benefits could be achieved at lower cost by eliminating the mandates and instead tightening the cap.

Some of my earlier reporting on how Congressional mandates will make its cap-and-trade scheme a quagmire of inefficiencies can be found here.

Whole depressingly accurate Gayer article here.