05 June, 2009

I hate politics...

I've voiced my support for cap-and-trade in the past. But the bill currently pending in the House (Waxman-Markey) is utterly terrible. Here's why:

1) Giving away permits. If the government auctioned off the permits, this could be a huge source of revenue that could be used to lower taxes, build infrastructure, etc. Instead, they're giving nearly all of the permits away to the private sector. (Note that this doesn't affect the total reduction in emissions, just the distribution of the benefits.)

2) When is a cap not a cap? When it allows for carbon offsets. Bill Buiter has a great piece on this and I'll refer you to him. The jist is that offsets allow someone to create new permits for X tons of carbon if they can show that they are reducing carbon emissions by X. Of course the trick is that it's nearly impossible to show this. In practice someone can say "Well, I was going to burn down acres of forest, releasing X tons of carbon into the atmosphere, but now I won't do it!" This person can then sell the X tons worth of permits on the carbon market and make a healthy profit while increasing the total amount of emissions allowed, since of course they weren't really going to burn down that forest. Although we don't have hard evidence yet, this is what appears to be happening with the Clean Development Mechanism (the corresponding offset program for Kyoto countries).

There are plenty of other problems too, and Buiter lists several. In addition to these, many have argued that the cap is way too lenient. One might expect that this could be rectified later. But if offsets go in to the current bill, they're damn well never coming out of it.


Elliot said...

Yeah this is all depressing - and imagine what would have happened had staunch pro-c&t Waxman not wrestled that committee away.

I was just (as in a couple months ago) reading a Foreign Affairs article on the sort of "lessons learned" from the EU carbon trading mechanism, and CDM's were singled out as a particularly pernicious part of it - i'll try and dig that up.

And giving away permits serves no conceivable policy purpose other than appeasing special interests. The question is, could this congress pass anything better? If not, should we wait for one that will? I'm skeptical on that point.

spencer said...

That's a good question, and I don't know the answer. But it does seem like: if not now, when? I guess that's what's most depressing about it all. Democrats have the White House and a super-majority in the Senate and this is the best they can do? Are you kidding?

On giving away permits--it does seem calculated to make it more palatable to the business world. But let's watch the lobbying frenzy as firms try to get their hands on free permits. How much time and money will be wasted in this frenzy? Some would argue that companies will be willing to spend almost as much as the value of the permits themselves. I'm not sure if this is quite right, but it will be a large sum.