The Cap and Trade Scam
by Matt Stoller, Tue Apr 24, 2007 at 07:46:18 AM EDT
Alright, it's time to understand the global warming debate, and who's selling what. And basically, the state of the policy world is pretty bad. The urgency on the problem is high, and paradoxically, Bushnik's refusal to admit the problem exists has obscured the choices we'll have to make post-2009. But the choices exist, and all the major Presidential candidates are pushing policies that are not only ineffective, but subject to massive corporate corruption. Like with Iraq, it's time for us to engage. Thankfully all of them are bad on this, so I don't want to hear any secret agenda whining, though I do have an emerging secret agenda in favor of Chris Dodd, as you'll soon see.
Economist Robert Shapiro has a very important and readable paper on different ways to deal with the carbon problem. I've seen private polling on energy that shows overwhelming support, even in UAW-strong or coal mining regions, for reducing carbon output. The public believes that individuals and governments are best suited to deal with the problem. This means that in 2009, we're going to have to think about actually solving problems. There are two basic schemes proposed for this. One is a straightforward carbon tax, which will raise the price of carbon-intensive energy use. The upside to this is that it is simple to manage, handles volatility, can works globally, and can be administered using current taxation mechanisms. The downside is that there is no firm cap on carbon emissions. Al Gore has floated this idea by suggesting the reduction of payroll taxes offset by a carbon tax. Chris Dodd has also put this forward as his climate change plan.
The 'cap and trade' system is the other model, and the main sponsors are Joe Lieberman and John McCain. This system sets an overall cap on carbon emissions, creates a fixed set of carbon credits which add up to this cap level, and then allows companies to trade credits with each other. There really is no upside to this system, though proponents will argue that it does have a firm cap on carbon emissions. The downsides are that industries will cheat, price volatility will be really high, counties will cheat and the system privileges insiders:
By creating tradable financial assets worth tens of billions of dollars for governments to distribute among their industries and plants and then monitor, a global cap-and-trade program also introduces powerful incentives to cheat by corrupt and radical governments. Corrupt governments will almost certainly distribute permits in ways that favor their business supporters and understate their actual energy use and emissions.
As far as I know, Obama, Clinton, and Edwards are all in favor of cap and trade systems. Both systems can be used at the same time, and that's what a lot of experts recommend. It's time for us to engage in this critical debate, because the corporate elite is way beyond denying global warming, and is already planning how to steal the right to emit carbon from the rest of us. One of their most effective arguments is that previous cap and trade systems on specific types of pollutants have worked, which they have because you can substitute away from these pollutants if necessary. That's how we dealt with acid rain, for instance. These examples don't apply in the case of carbon. If you use energy in any concentrated form, you basically can't substitute away from carbon output. Taxes make sense for these kinds of common denominators.
Here's a simple way of understanding the climate debate. Being able to emit carbon is a public resource. A cap and trade system allows governments to allocate this resource, while a carbon tax forces everyone who uses carbon to pay the resource they are using.
Still, so far, every leading Democratic contender has bought 'the centrist' solution (Edwards has a better version of it). I think in the next poll I'm going to vote for Chris Dodd. He's the only one who actually has the courage and intelligence to deal with this problem.
Update [2007-4-24 12:26:48 by Matt Stoller]:: Europe has a carbon cap and trade system, and it's not working so well.
Given these numerous drawbacks, cap-and-trades principal justification appears to its political feasibility. Many environmental activists assume that a global cap-and-trade program is more achievable politically than global carbon taxes, because most of the world agreed to Kyoto and most people resist higher taxes. On close analysis, the Kyoto agreement is too weak to signify a meaningful consensus for an effective cap-and-trade system. As we will see, numerous analyses of Kyoto have found that it would have very little effect on climate change even over a 60-year period; and the first effort to apply it in an enforceable way, the European Emissions Trading Scheme, is expected to have virtually no effect on emissions.