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.

  • Curt

    This is reminding me of the “Corporate Average Fuel Economy” (CAFE) standards enacted in the 1970s with the aim of reducing vehicle oil consumption. By virtually outlawing large cars like station wagons, it created the SUV market as a significant market segment. (Lots of people claim that it failed to stop the SUV market from growing, but virtually no one realizes the active role it played in expanding the market.)

    The political dynamic was the same as now — a tax would have been a lot more effective in achieving these goals, but politicians could not bear to create an explicit tax bill for consumers/voters.

    Interestingly, Europe, which has gotten better results in terms of keeping automative fuel consumption down with high taxes, is now proposing to repeat the American mistake of effectively banning large cars.

  • morganovich

    and, of course the other big discussion will be who gets the “allowances” that essentially amount to free carbon licenses. if history is any guide, they will go to big constituents like utilities, steel plants etc.

    oh, and wait for the folks who produce “carbon offsets” to get into the market. the loggers are dying to turn the trees they currently pay to replant (in order to have a business in the future) into a profit center where they get paid to offset carbon by doing something they were doing anyway.

  • There is no need for congress to pass any kind of tax including the crazy carbon tax as you suggest. Global warming or climate change does occur but because of the warming of the earth by the sun. It is crazy to think otherwise or to say man controls the climate more than the sun. Man also
    does not affect the weather as it is claimed by poeple who are wanting to change the way we live and turn us into a socialist country.
    Read the facts here: http://www.junkscience.com/Greenhouse/

  • There is no need for congress to pass any kind of tax including the crazy carbon tax as you suggest. Global warming or climate change does occur but because of the warming of the earth by the sun. It is crazy to think otherwise or to say man controls the climate more than the sun. Man also
    does not affect the weather as it is claimed by poeple who are wanting to change the way we live and turn us into a socialist country.
    Read the facts here: http://www.junkscience.com/Greenhouse/

  • “Carbon Credits” are a snake oil salesman’s dream!

    Former Vice President Al Gore has built a Green money-making machine capable of eventually generating billions of dollars for investors, including himself, but he set it up so that the average Joe can’t afford to play on Gore’s terms. And the US portion is headed up by a former Gore staffer and fund raiser who previously ran afoul of both the FEC and the DOJ, before Janet Reno jumped in and shut down an investigation during the Clinton years.

    So “carbon credits” and “global warming” go hand in hand. A means to an end. Its that simple greed and a loss of individual freedom.

    Gore pays for his extra-large carbon footprint through Generation Investment Management (GIM)http://www.generationim.com/ – and if you’re looking to go green, and have your wallet go along with Gore, think again – average people are too insignificant to play, but for $11,000 you can invest in the oil futures market and help drive up the price of oil artificially.
    http://storyreportscomments.blogspot.com/2008/05/covering-their-losses.html

    http://hotair.com/archives/2007/03/02/al-gores-inconvenient-truth/

    Carbon credits and “global warming” which is natural and not caused or controlled by man are a scam and a hoax that congress and the mass media are selling to the public. The public is buying it and thinking it is sonething that exists. If you tell the public a lie enough they start to believe it despite the real facts.

  • Mike

    Over 3 Trillion for Boxer BS. I assume that is money adjusted to current year dollars in the projection to 2050.

    3 trillion would buy in a much shorter period of time 750 or more nuclear power plants. I’m sure no one on Boxer’s team would like to compare these fresh apples to their rotten oranges…

  • jep, Kansas USA

    If carbon credits were good enough for Enron, they should be good enough for us. Imagine — I can move my factory to China and also get carbon credits to sell.