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Robert Samuelson

Cap-and-trade hot air masks punishing costs

WASHINGTON

We'll have to discard the adage "everyone talks about the weather but no one does anything about it." In this era of global warming, it is inoperative, because the whole point of controlling greenhouse gas emissions is to do something about the weather. This promises to be hard and perhaps futile, but there are good and bad ways of attempting it. One of the bad ways is cap-and-trade. Unfortunately, it's the darling of environmental groups and their political allies.

The chief political virtue of cap-and-trade — a complex scheme to reduce greenhouse gases — is its complexity. This allows its environmental supporters to shape public perceptions in essentially deceptive ways. Cap-and-trade would act as a tax, but it's not described as a tax. It would regulate economic activity, but it's promoted as a "free market" mechanism. Finally, it would trigger a tidal wave of influence-peddling, as lobbyists scrambled to exploit the system for different industries and localities. This would undermine whatever the system's abstract advantages.

The Senate is debating a cap-and-trade proposal, and although it's unlikely to pass, it will return because all the major presidential candidates support the concept. Cap-and-trade extends the long government tradition of proclaiming lofty goals that are impossible to achieve. We've had "wars" against poverty, cancer and drugs; but poverty, cancer and drugs remain.

Carbon-based fuels (oil, coal, natural gas) provide about 85 percent of U.S. energy needs and generate most greenhouse gases. So, the simplest way to stop these emissions is to outlaw them. Naturally, that's what cap-and-trade does. Companies could emit greenhouse gases only if they had annual "allowances" — quotas — issued by the government. The allowances would gradually decline. That's the "cap." Companies (utilities, oil refineries) that needed extra allowances could buy them from companies willing to sell. That's the "trade."

In one bill, the 2030 cap on greenhouse gases would be 35 percent below the 2005 level. By 2050, U.S. greenhouse gases would be rapidly vanishing. Even better, their disappearance would be allegedly painless. Reviewing five economic models, the Environmental Defense Fund asserts that the cuts can be achieved "without significant adverse consequences to the economy." Fuel prices would rise, but because people would use less energy, the impact on household budgets would be modest.

This is mostly make-believe. If we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions. If coal is reduced, then conservation or non-fossil-fuel sources will take its place. But in the real world, if coal-fired power plants are canceled (as many were last year), wind or nuclear won't automatically substitute. If the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil.

As emission cuts deepened, the danger of disruptions would mount. Population increases alone raise energy demand. From 2006 to 2030, the U.S. population will grow by 22 percent (to 366-million) and the number of housing units by 25 percent (to 141-million), projects the Energy Information Administration. The idea that higher fuel prices will be offset mostly by lower consumption is, at best, optimistic. The Congressional Budget Office has estimated that a 15 percent cut of emissions would raise average household energy costs by almost $1,300.

That's how cap-and-trade would tax most Americans. As "allowances" became scarcer, their price would rise, and the extra cost would be passed along to customers. Meanwhile, government would expand enormously. It could sell the allowances and spend the proceeds; or it could give them away, providing a windfall to recipients. The Senate proposal does both to the tune of about $1-trillion from 2012 to 2018. Beneficiaries would include farmers, Indian tribes, new technology companies, utilities and states.

Call this "environmental pork," and it would just be a start. The program's potential to confer subsidies and preferential treatment would stimulate a lobbying frenzy. Think today's farm programs — and multiply by 10.

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system would ultimately break down. It wouldn't permit satisfactory economic growth.

But if we're going to try to stimulate new technologies through price, let's do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade, but without the rigid emission limits. A tax is more visible and understandable. If environmentalists still prefer an allowance system, let's call it by its proper name: cap-and-tax.

© Washington Post Writers Group

Cap-and-trade hot air masks punishing costs 06/03/08 Cap-and-trade hot air masks punishing costs 06/03/08 [Last modified: Wednesday, June 4, 2008 10:07am]

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Robert Samuelson

Cap-and-trade hot air masks punishing costs

WASHINGTON

We'll have to discard the adage "everyone talks about the weather but no one does anything about it." In this era of global warming, it is inoperative, because the whole point of controlling greenhouse gas emissions is to do something about the weather. This promises to be hard and perhaps futile, but there are good and bad ways of attempting it. One of the bad ways is cap-and-trade. Unfortunately, it's the darling of environmental groups and their political allies.

The chief political virtue of cap-and-trade — a complex scheme to reduce greenhouse gases — is its complexity. This allows its environmental supporters to shape public perceptions in essentially deceptive ways. Cap-and-trade would act as a tax, but it's not described as a tax. It would regulate economic activity, but it's promoted as a "free market" mechanism. Finally, it would trigger a tidal wave of influence-peddling, as lobbyists scrambled to exploit the system for different industries and localities. This would undermine whatever the system's abstract advantages.

The Senate is debating a cap-and-trade proposal, and although it's unlikely to pass, it will return because all the major presidential candidates support the concept. Cap-and-trade extends the long government tradition of proclaiming lofty goals that are impossible to achieve. We've had "wars" against poverty, cancer and drugs; but poverty, cancer and drugs remain.

Carbon-based fuels (oil, coal, natural gas) provide about 85 percent of U.S. energy needs and generate most greenhouse gases. So, the simplest way to stop these emissions is to outlaw them. Naturally, that's what cap-and-trade does. Companies could emit greenhouse gases only if they had annual "allowances" — quotas — issued by the government. The allowances would gradually decline. That's the "cap." Companies (utilities, oil refineries) that needed extra allowances could buy them from companies willing to sell. That's the "trade."

In one bill, the 2030 cap on greenhouse gases would be 35 percent below the 2005 level. By 2050, U.S. greenhouse gases would be rapidly vanishing. Even better, their disappearance would be allegedly painless. Reviewing five economic models, the Environmental Defense Fund asserts that the cuts can be achieved "without significant adverse consequences to the economy." Fuel prices would rise, but because people would use less energy, the impact on household budgets would be modest.

This is mostly make-believe. If we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions. If coal is reduced, then conservation or non-fossil-fuel sources will take its place. But in the real world, if coal-fired power plants are canceled (as many were last year), wind or nuclear won't automatically substitute. If the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil.

As emission cuts deepened, the danger of disruptions would mount. Population increases alone raise energy demand. From 2006 to 2030, the U.S. population will grow by 22 percent (to 366-million) and the number of housing units by 25 percent (to 141-million), projects the Energy Information Administration. The idea that higher fuel prices will be offset mostly by lower consumption is, at best, optimistic. The Congressional Budget Office has estimated that a 15 percent cut of emissions would raise average household energy costs by almost $1,300.

That's how cap-and-trade would tax most Americans. As "allowances" became scarcer, their price would rise, and the extra cost would be passed along to customers. Meanwhile, government would expand enormously. It could sell the allowances and spend the proceeds; or it could give them away, providing a windfall to recipients. The Senate proposal does both to the tune of about $1-trillion from 2012 to 2018. Beneficiaries would include farmers, Indian tribes, new technology companies, utilities and states.

Call this "environmental pork," and it would just be a start. The program's potential to confer subsidies and preferential treatment would stimulate a lobbying frenzy. Think today's farm programs — and multiply by 10.

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system would ultimately break down. It wouldn't permit satisfactory economic growth.

But if we're going to try to stimulate new technologies through price, let's do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade, but without the rigid emission limits. A tax is more visible and understandable. If environmentalists still prefer an allowance system, let's call it by its proper name: cap-and-tax.

© Washington Post Writers Group

Cap-and-trade hot air masks punishing costs 06/03/08 Cap-and-trade hot air masks punishing costs 06/03/08 [Last modified: Wednesday, June 4, 2008 10:07am]

Copyright: For copyright information, please check with the distributor of this item, Washington Post Columnist.
    

Join the discussion: Click to view comments, add yours

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