One Last Thing on Cap and Trade

Mark Thoma posts a roundup of writing on cap and trade versus carbon taxes which includes a good primer on how the economics works and why the two plans are so similar. He also excerpts a rather cynical take, by Pete Davis, on the political reasons that cap and trade is preferred by politicians. Some of the calculations involved are no doubt correct, but I disagree with much of the piece. Like this, for starters:

I kid my friends that “I formulated three carbon taxes for Bob Dole back in the early 1980’s that are still in his filing cabinet.” I’d be very surprised if the former Senate Finance Chair really kept them, but the fact that they were formulated at all shows that Senate leaders, then as now, were fully aware of of the advantages of a carbon tax…

He goes on to argue that this demonstrates that, strategically, those weaselly politicians don’t like carbon taxes. I think it’s worth pointing out here that climate change science was considerably more debatable back in the early 1980s. I’m sure that if I handed a GOP Senator a seemingly random tax proposal today, he probably wouldn’t go rushing off the floor to introduce it.

Secondly, I think Davis badly reads the political environment when he writes:

Our political leaders will be watching the public and private reaction to this debate very carefully for signs of what changes they will need to make next year.The primary change will be to water the bill down. No one wants to take credit for raising gas prices by 53 cents and electricity prices by 44% by 2030 or to cut GDP by $2.8 trillion by 2050. The path to reduced greenhouse gas emissions in next year’s bill will be slower than that which is proposed now. …

The conventional wisdom among greens and political pundits is, I believe, that Lieberman-Warner represents a floor for future climate bills rather than a ceiling. That this is the case should be obvious for two reasons. First, every month that goes by the science becomes clearer and the tangible impacts of warming become more apparent to a public that’s warming to the idea of climate legislation. Second, Congress is almost certain to be more Democratic next year, and the White House will be more friendly to climate bills whoever the president is (but substantially more so if Obama is the victor). Both Hillary and Obama have proposed climate policies much better and tighter than L-W. And the principal sources of denialism and delay in Congress are currently on the GOP side of the aisle.

Democratic leaders are watching now to see how their opponents plan to fight, so that next year, they’re prepared to use their majority to effectively counter opposition en route to a truly good climate bill.


  1. Daniel Hall says:

    I’m sure that if I handed a GOP Senator a seemingly random tax cut proposal today, he probably would go rushing off the floor to introduce it.

    Democratic leaders are watching now to see how their opponents plan to fight, so that next year, they’re prepared to squabble endlessly over regional winners and losers, make a mess out of preemption, attempt to protect home state industries like coal and auto manufacturing, and generally prove that it is much harder to assemble a working coalition under single party control than most would think.


  2. ryan says:

    Ah, but you failed to take into account the fact that Obama is going to CHANGE WASHINGTON WITH CHANGE WE CAN BELIEVE IN YES WE CAN.

    Which, stupid as it may sound, I actually believe just a little bit.

  3. JV says:

    Dropped by the posters on Economist’s View after I tripped over it. Started my own blog on energy recently.

    I might disagree with your premise about global warming facts and how solid they are.

    But nonetheless, the US needs reliable energy supplies and control over the cost. Hopefully a move in the direction os sustainable sources coupled with significant conservation and changes in per capita energy consumption.

    An artificial carbon tax is not the way to fund a transition to newer energy supplies. Unless of course you trust the Congress and cash strapped states like California who are desperate for new revenue. I might disagree with that approach too.

    It will be interesting to watch what Obama does when he is elected and has to deal with the real oil issues and has the real US economy in his hands. It won’t be so easy then to offer glib political fixes with strange new taxes on the “bad guys” from Exxon and the like.

  4. Bernie says:

    How does the Cap & Trade reduce carbon emitions over time? Do the permits expire and need to be purchaced periodically or does the government buy some each year to reduce the ammount of permits available?

    Also please explain how to measure carbon emmissions for a Cap and Trade system. Could a company gain an advantage by using a catalist to emit CO or some other hazardous chemical instead of CO2. Would sequestering count as a carbon emmition?

    These CO2 reducing ideas sound great on paper, but the devil is in the details.

  5. ryan says:

    For the basics, wikipedia does a serviceable job explaining cap and trade.