Why Congress Likes Cap and Trade

The current Lieberman-Warner cap-and-trade bill would, even by alarmists admission, have an unmeasureably small impact on global temperatures.  Further, most economists (and I) have argued that a carbon tax is a much more efficient way of achieveing the same goals.

So why does Congress like cap-and-trade so much  (Capital Games and Gains via TJIC)

…Political leaders don’t want

1. an explicit tax with their name on it;
2. an efficient tax that hurts their supporters; and
3. an effective tax may not encourage the alternatives they support.

They prefer a hidden tax, which is why they are considering a cap-and-trade system of carbon allowances instead of a direct carbon tax.

They prefer a less efficient tax, which reduces the impact on the worst greenhouse gas emitters and spreads it around on others.

They prefer a less effective tax, which allows them to pick which alternatives to support and to pick which impacted Americans to compensate…

I used to think cap-and-trade was a good idea, because it is sort of elegant.  Determine how much emissions we want to allow, divvy it up into certificates, and let market forces distribute the certificates to those who can use the emissions most productively.  Environmentalists even have a productive, non-lobbying way to spend their money, buying up certificates and pulling them out of circulation.

And perhaps when focusing on a single source or industry, like SO2 from coal plants, that makes sense.  But CO2 is produced so many different ways, and the whole offset idea is so screwed up in its accounting, that it just is not really feasible.

In particular, there is nothing Congress loves so much as a hidden tax.  If people actually see a tax line on their bill, they might get mad at their Congressperson.  But if a company has to raise their prices to offset the cost of carbon allowances, well, Congress can just demagogue that this is just another evil corporation hosing the little guy.  They might even be able to use it in turn to get a reasonable profits board passed.

The only thing Congress like more than hidden taxes is earmarking, being able to hand out special favors to valued party supporters and campaign donors.  And boy oh boy does the current cap-and-trade proposal open up a whole new trough for pork (WSJ via Tom Nelson)

Sponsored by Joe Lieberman and John Warner, the bill would put a cap on carbon emissions that gets lowered every year. But to ease the pain and allow for economic adjustment, the bill would dole out "allowances" under the cap that would stand for the right to emit greenhouse gases. Senator Barbara Boxer has introduced a package of manager’s amendments that mandates total carbon reductions of 66% by 2050, while earmarking the allowances….

Ms. Boxer expects to scoop up auction revenues of some $3.32 trillion by 2050. Yes, that’s trillion. Her friends in Congress are already salivating over this new pot of gold. The way Congress works, the most vicious floor fights won’t be over whether this is a useful tax to create, but over who gets what portion of the spoils.