Cap-and-Trade: The debate matters

Op-Ed by Al Weed

Opinions Wanted! Click here to learn more

The Senate debate on the Lieberman-Warner bill to reduce carbon emissions was the first serious national recognition of the challenge of climate change. Al Gore’s Nobel Prize notwithstanding, until an effort to change our energy culture through public policy is made, the U.S. is not even in the game. It is a sad statement on the readiness of our political leadership that the debate so quickly collapsed.

Sure, this is a bad bill that would have led us down a dead end, delaying a useful national – and global – response for years. This is time we do not have. Some have said, however, that this debate could have been a dress rehearsal for serious legislation in the next Congress. Perhaps we can use elements of the shortened debate to shape truly effective public policy.

With one exception, the best answer to all the objections to cap-and-trade is “revenue neutral carbon fees.” That exception is that the amount of carbon emitted in the U.S. can be specifically quantified by the emission allowances envisioned in the bill. Carbon fees probably cannot be tuned so finely.

Corporate executives, academics, economists and investors all agree that carbon fees levied at the source – mine head for coal or well head/ port of entry for petroleum – will be a more effective and equitable way to reduce carbon emissions by raising the cost of all fossil based energy. It is only politicians, as recently remarked by George Will, who are afraid to have the inevitable rise in energy costs attributed to their taxes.

So, let’s use the debate to enlist public support for policies that will lower carbon emissions, provide long term investment security for renewable energy, and give the U.S. a political and moral basis on which to build a claim to leadership in the global-warming battle.

We’ve heard the arguments for cap-and trade: They are the only thing that is politically feasible; at least we are doing something; it worked with other airborne pollutants; and, they’re doing it in Europe. Carbon taxes are, well, taxes, aren’t they?

Suppose we look on carbon taxes not as taxes per se, but as tipping fees. That is, as the cost of disposing the waste generated from fossil based energy production. This carbon cost, as a greenhouse gas, we can no longer pass on to future generations.

So now, when objections to the provisions of cap-and-trade are raised, we can answer “carbon tipping fees.”

Cap and trade, so the debate goes, will create a big bureaucracy, with government trying to pick winners and losers. Carbon tipping fees will permeate throughout our entire economy, letting the free market determine the winners and losers.

The Lieberman-Warner Bill will cost an excessive amount, and result in severe harm to certain segments of society. Additionally, special interests will bring big bucks to bear on legislators to favor their supporters, either with loopholes or funding. Carbon tipping fees can be structured to be revenue neutral and fund transitory relief for the pain of high energy costs created for impacted groups, much as food stamps help folks get over high food prices. Rural dwellers, for example, with no mass transit to rely on, may need subsidies for a period of time.

Cap-and-trade, as a way to reduce carbon emissions, is extremely vulnerable to a down turn in energy costs. If oil prices drop to $40 a barrel, who cares that a carbon allowance costs $20 per ton? Think that can’t happen? What happens when Iraqi oil comes back online, and worldwide energy costs have created a demand dampening recession? Carbon tipping fees, however, can be structured to provide a steady increase in energy prices that will ensure a floor under costs that will make the long-term investments in renewable energy a gamble worth taking.

Cap-and-trade’s biggest weakness is that it fails to deal with the global problem of carbon emissions. Sure, some technical advice would have been provided in the Third World, but pollution from India and China will likely continue unabated as long as they have free access to world markets for their exports. Moreover, a serious decline in the use of fossil based fuel in the U.S. and Western Europe will only make coal and oil cheaper for other countries, leading to even more overall carbon emissions. A carbon tipping fee, however, can be added to every imported product based on its carbon component, ensuring that no industry selling to carbon controlling nations gets an advantage. The revenue from these tipping tariffs, if you will, can be used to provide catch up technology to other nations.

Be sure that there are and will be many other objections raised to the Lieberman-Warner Bill. As they come up, think “carbon tipping fees” and maybe in the next Congress we will see a willingness to embrace sensible legislation.

Al Weed is the chairman of Public Policy Virginia. His e-mail is [email protected].