The Cost of Waxman-Markey

So, everyone is turned on to the CBO costing of W-M, which is good. Two other points. First, as Brad Plumer notes, we have practically always overestimated the cost of environmental regulation in the past, primarily because we’ve underestimated the economy’s ability to adjust and innovate and so on.

Second, and I should have emphasized this originally, these net cost estimates do not include the benefits of slowing warming, which is of course the main goal of the bill. Now, critics might counter that W-M isn’t expected to have much of an effect on temperatures through 2050, but that outlook sort of assumes that American climate policy never changes beyond what’s in W-M, which is highly unlikely, and it ignores the effect an American climate law will have in Copenhagen and in negotiations with other emerging markets.


  1. Doug says:

    Nor does it include the benefits in graft from building in “free” permits or the job creation benefits from a needlessly complicated regime. All in all, I bet W-M more than pays for itself.

  2. ryan says:

    Sharp tongue for a Monday morning, Doug.

    One neat little economics truth: the final price and allocation of permits — that is, after trading — is independent of the initial allotment. So failure to auction all the permits is distributionally problematic, but it doesn’t effect the emissions reducing efficiency of the cap.

  3. Karen says:

    Doug’s tongue is right. A Federal Energy Regulatory Commission AND a Commodity Futures Trading Commission?

  4. Mike says:

    I think you could just as convincingly argue that the success of the developed world’s environmental policy is overestimated because the really dirty industry moved to China and India, taking the pollution with it. Globalization probably saved American rivers as much as the EPA.

    And isn’t a bit loopy to argue that W-M will be effective because whatever follows will be effective even if W-M is ineffective?

  5. Doug says:

    Ryan, you are W-M’s most persuasive advocate as far as I’m concerned and I can skeptically, reluctantly go along with your reasoning that first we need a carbon cap to improve. But I think a fair exchange would be to go along in favor of W-M’s passage while reserving some acerbity for the absurdity of the bill itself. Let it pass, by gosh, let it pass. But let it be mocked all the same.

    Granted the urgency of the bill and the rightness of an aye vote, can you allow that W-M exceeds every stereotype for how ridiculously congress legislates?

    My tongue usually gets dull by Tuesday morning.