Cap and Trade Charade

It might be possible to fashion a piece of legislation that will significantly reduce global carbon emissions just as it may be possible to build a space craft that will carry human beings to new star systems. But no one alive knows how to do either thing. The laws of physics make the latter very difficult to conceive of. The laws of politics make the former look almost as impossible.

Even if the developed world were to effectively reduce greenhouse gas emissions enough to make a difference, that would only result in the shifting of world economic production to places like China and India, and maybe Brazil. It would do no more than slow down the trajectory of modern economic development.

But the developed world is going to do no such thing. The United States may be about to institute a cap and trade policy which, if it works as planned, would make cheap sources of energy expensive and thus encourage the development of green technologies. This has been tried in the European Union on a big scale, and so far it has come a cropper. Technology Review has a fine piece on the European experience in its August 2009 issue. Unfortunately, it is not available online for free, so I had to resort to the crude business of actually buying the magazine. So that you may be spared that indignity, I will sum up the article.

Cap and Trade works by issuing credits to industries for the carbon they emit. In theory, the total number of credits will be low enough to force a reduction of emissions over the total economy. That's the cap part. Virtuous industries that adopt green technologies will have credits left over, which they can sell to firms that, for lack of virtue or some other reason, cannot cover their emissions with their allowance. That's the trade part. The trade system is intended, reasonably enough, to make the system flexible to adjust to economic realities.

What actually happened is that European governments caved in to pressure from their various constituencies (including powerful unions) and issued so many allowances that they exceeded the carbon that was actually produced. No net reduction in greenhouse gases was achieved. That is not to say that the policy did nothing.

Most EU states gave extra allowances to heavy industries such as cement and steel, because they didn't want to threaten the manufacturers' international competitiveness; by the same states gave relatively few allowances to producers of electricity.

The result was a system that favored heavy polluters (if you consider breathing out pollution), but hurt Europe's consumers by raising their electric bill. If the EU couldn't make the system work when economies were generally growing, there is much less chance it will work now that economic growth has stalled.

Congress could, of course, benefit from the example of Europe. What Congress is actually doing looks like exactly the same thing. My grad school buddy Steve Hayward has a piece co-written with Kenneth Green on the Waxman-Markey bill, at the American Enterprise Institute website.

Waxman-Markey is a bundle of contradictions. It seeks to make carbon energy more expensive but does not ask consumers to pay higher energy prices--at least for the first decade of its operation. Hence, Waxman-Markey allocates 85 percent of the emission rights it creates to existing emitters (coal-fired power plants, electric utilities, and manufacturers) for free, rather than auctioning the emissions permits, as President Obama and environmentalists have long advocated. It seeks a first in economic history: rationing without scarcity or price inflation. Thus, Waxman-Markey allows generous "offsets" so that carbon-based energy does not, in fact, become scarce. The bill does, however, contain a multitude of new regulations, product-efficiency mandates, and spending programs that will require extensive managerial attention from both the public and private sectors, though to much less effect than promised.

That sounds better than the European version, at least where consumers are concerned. Otherwise, it looks like the same bag. All the tough parts are pushed into the distant future. All that is achieved in the near term is an expansion of the bureaucracy and a series of market distortions.

If the means look limp, the aims of Waxman-Markey are breathtakingly ambitious. The bill aims to reduce U.S. CO2 emissions from about 6 billion tons (2005) to about 1 billion tons by 2050. The last time the U.S. produced CO2 at such a level was 1910. Since then, the population has more than tripled, and the economy is twenty five times larger. Hayward and Green point out that the Waxman-Markey goals would mean CO2 emissions of 2.4 tons per person in 2050. When did we last belch out carbon at that rate? 1875. To find such rates of emissions today, look to such advanced places as Grenada and Belize.

This is nonsense on green stilts. The aims of the legislation are untethered from reality, and its means have been demonstrated to be ineffective in achieving those ends. Such is one of the signature pieces of legislation in the current Congress.

Comments

[Brad Johnson]

And if global warming didn't exist, your arguments would be reasonable.

[KB]

Brad: A policy that cannot reasonably result in a decrease in green house emissions is not a reasonable policy precisely if global warming "exists" as you put it. "We have to do something" is no defense of something that is expensive and won't do any good.

[George Mason]

We just went through the coldest June on record. The objective data indicates that in this decade temperatures have been cooler than the previous decade. Yet the "True Believers" and those in the global warming business insist that the earth is still warming and the apocalypse is just around the corner. "We have only 96 months" (Thats 8 years if you have trouble with math).(Some of us remember Ted Danson telling us in about 1990 that we only had 10 years left).
The most telling evidence of the shaky ground that the global warmist stand on is their efforts to silence the skeptical, to the point of demanding prosecution (or is that persecution). The global cooling people ("The Coming Ice Age") back in the '70's never demanded that.

[KB]

George:

I understand the sea temperatures are unusually high this year. That, despite a ten year cooling period. So one has to be careful about these things. But I also know that cooler than average is always an aberration. Warmer than average is always a sign of long term trends.

[George Mason]

Well stated KB. The question is where in the ocean is it warmer? The whole global warming movement is based upon the anecdotal rather than on the scientific method.

[Erik]

KB:
Thanks for the pro bono abstracting of the article;-) To get a little utopian on you for a moment, what about the possibility of a *global* cap and trade policy? My guess is that the developing economies won't go along but what about a broader policy that would provide incentives to developing countries beyond cap and trade?
Erik

[KB]

You're welcome, Erik.

The problem with Utopian solutions is that they are Utopian. What incentives are you going to offer China and India that will make up for economic advance? And how will you pay for the incentives if you are hobbling your own economies with real cap and trade?

China is showing signs of subterranean demographic pressures right now. India is riven by large, sectarian parties that can't wait to try out a nuke on one of the other sects. So far, economic growth has kept the pressures manageable. There is a snowball's chance in Mumbai that either of those governments is going to reduce voluntarily reduce its rate of growth of greenhouse emissions.

[Erik]

KB:
So, should I be dusting off my Thomas More? ;-)
Deals have been made between countries far less stable than India (it is often overlooked that India is the world's largest democracy) and China is still a dictatorship, so the PRC leadership could implement a deal.
I guess I'm a glass half full guy on this issue.
Erik

[KB]

Erik: Thanks again for the comments. Optimism can be a virtue, but if your glass is half full, it would be good to check and see what it is full of. I'm genuinely sorry, that sounded a lot nastier than I meant it. I will let it stand for purposes of confession. Also, I flatter myself that it was clever. But your point deserves a response.

Nations that are stable demographically and socially can make hard choices, though they usually don't. Nations that are deeply riven by powerful tensions have a much more difficult time at that. I'm sorry, but no amount of optimism can convince me that India and China are going to hobble their economies to meet an abstract threat like global warming.

The Indian government is indeed a democracy, one that is responsive to voters with a lot of pent up demand for development. Economic growth is the one thing that is holding that nation together. The Chinese government is riding a tiger. It could indeed implement an agreement if it wanted. One cheer for totalitarianism. But the Communists always do whatever will keep their hold on power secure, regardless of the costs their own people have to pay. How likely is it that they will take a risk for the abstract interests of the world as a whole? I'm sorry, but pigs will evolve into avian predators before these two nations will institute significant caps on greenhouse emissions.

[Bonaventura]

Republicans in the Senate are the ones keeping Cap and Trade alive at this point (mostly, Lindsey Graham), and good for them. I know that in order for me to have a job and be a young prfoessional there must first be planet.As a young person, you already know that Social Security and Medicare will likely run out in 2037 and 2017 respectively, and therefore will not be available to you.SS won't run out. Someone with political courage will raise the retirement age or fix the indexing. Medicare pays too much for hospital services, something that the health reform tries to fix (by making prices visible, which will help private insurers as well).Besides that quibble, I'm looking forward to your assessment. Before you rock out on cap and trade though, it's important to note that economists favor the carbon tax approach (along with most liberals, which makes for strange bedfellows). Conservative economists know that taxing something means you do less of it while putting externalities back into the system all while not ******** up markets. Liberals just think cap and trade creates too many holes for big corporations to run around. GOPers think that the market will rush in to save the day w/ private innovation once CA has fallen into the ocean? I'm not sure what they think, but I'm looking forward to your assessment. Hopefully it won't say that A little background though: cap and trade was a conservative policy idea from the 1980s (hence, all this markets stuff). It was a response to the really, really dumb liberal idea of just setting carbon limits / telling businesses no. Since then, we've used cap and trade to reduce sulfur in the 90s. And it worked! Europe's already using it, and so are states in the NE. This stuff has worked (maybe not as well as other methods) but at least it's something.

[Okzsiil]

the case they have been making has been inpnedndeetly confirmed by the research of many others.Wrong. Mann's Hokey Stick was beloved by the UN/IPCC. It was visually much more spectacular and scary than any of the charts the IPCC uses now. So why did the IPCC stop publishing Mann's chart? Because it was so thoroughly debunked by McIntyre and McKittrick that the IPCC was forced to drop it. It was proved to be bogus, based on cherry-picked, incorrect proxies, with the good proxies hidden in an ftp file labeled censored by a devious and unprincipled Michael Mann.Mann is still the same climate charlatan he was in MBH98/99. In Mann's '08 paper, he used a known corrupted proxy – the Tiljander sediment series – in order to make another hockey stick chart. His fraudulent paper was hand-waved through the corrupt climate pal review system, but then blown out of the water when his shenanigans were exposed, again by McIntyre. So Pepper's statement above is completely wrong.Alternative scenarios have been thoroughly debunked. eg Lindzen et al. There are still many who are making rhetorical arguments, expressing their “skepticism”, but they have no science to confirm their positions.Prof Richard Lindzen is smeared here by Pepper, who gives no details. is head of MIT's atmospheric sciences department. For Pepper to claim that scientific skeptics such as Dr Lindzen have no science to confirm their positions makes Pepper nothing more than a crank.Finally, Pepper says:If there is a disconfirming position which can be borne out by researched findings, this should be presented immediately in the accepted forums.There is one common thread that runs through all climate alarmists: their refusal to understand and/or follow the scientific method. For the umpteenth time: scientific skeptics have nothing to prove. The onus is on the alarmist crowd to provide testable, reproducible, real world evidence showing that human CO2 emissions will cause runaway global warming. But there is zero evidence showing that the current *very mild* 0.7b0C warming over the past century and a half is due to anything other than natural variability as the planet continues to emerge from the LIA.Hugh Pepper got everything in his comment completely wrong. Now it's been corrected here and in the comments following Pepper's.Which leaves R Gates, who has never produced the putative evidence I've repeatedly asked for, showing global damage from CO2. In fact, there is no such empirical, testable evidence of global harm from that benign trace gas. CO2 is both harmless and beneficial – to anyone who follows the scientific method. But to Gates, it's his evidence-free reason that Arctic ice is declining. As if.

[Bala]

Ah, if only polling data had aniyhtng to do with the reality of what were really happening with the earth’s climate. For example, how many people believe in ghosts or that the end of the world is coming in 2012? Certainly it’s nice to know what the polls say for those who would like to influence the politics of climate change, but the lesson of history is that perceptions often have very little correlation one way or another with reality…and the herd is a likely to be wrong on an issue as right. Ghosts, Flying Saucers, 2012, Astrology, Perpetual Motion, Magic Fuel Pellets, 100 mph carburetor, Algier Hiss and Rosenburg innocence, 9/11 Inside Job, JFK killed by everyone except Oswald, Cheney/Haliburton Conspiracy, Bush 41 SR-71 to Iran, Nostradamus, Ethanol, Windmills and Solar Cells (for replacement instead of supplemental use) yep, these folks exist and show up in every poll. They show up all right, they are the AGW constituency. These shallow thinkers are either the originators or enablers of countless crackpot diversions and AGW is only the latest. I assume you have manufactured for yourself a safety cushion of cognitive dissonance to allow yourself denial of this, but rest assured, the overlap of all these listed groups is probably 90%, and those people are the AGW cheerleader base. As I said in another thread: You can find them by day wearing sandwich boards along Times Square stating The End is Near, by night they're busy phoning in to Coast to Coast' or Alex Jones. and the herd is a likely to be wrong on an issue as right. That herd will unquestionably, inevitably and indubitably land on the wrong side of an issue, especially the big ones. What more proof is needed than their attempt to rob Trillions of dollars from the taxpayers to theoretically decrease the average temperature by less than a single degree! If this last description of the plan sounds incorrect to you, how would you summarize the net result? [see by Willis].

[Kali]

Unfortunately, at this time in American history, all that polls can itcdiane is the effect of the white hot fury that the MSM has created from the most recent natural disaster. In the case of the earthquake and tsunami in Japan, the MSM, now including Fox, changed the topic from the natural disaster and its effects on the Japanese people to the nuclear power industry. Apparently, the MSM have developed the ability to identify the spin that will most increase the tendencies toward hysteria and panic that exist in the public. The storyline of impending nuclear meltdown was always an illusion. There was no reason whatsoever to believe that the nuclear facilities would explode or release a significant amount of radiation. Yet the MSM grabbed this storyline and holds it today. Either all of the MSM are fools or they are deliberately exploiting public nervousness about all things nuclear and the climate. In doing so, they have created a panic of historic proportions. (By panic, I mean such things as Germany backing off from nuclear power, Senator Lieberman calling for a moratorium, etc.) This is Yellow Journalism turned White Hot Fury Journalism. This bodes ill for the future of civilization.If the MSM support Obama in 2012 then there is no question he will win, unless he self-destructs, something that is likely. We have just seen the power of the MSM and we have learned that there is nothing in the public arena to oppose it. Our rulers are now chosen by masters of hysteria and panic. Between now and November 2012, look for the MSM to grab every environmental news event and to promote Greenie spin with the same apocalyptic fervor that they have promoted nuclear disaster in Japan. Expect public opinion to swing toward the view that manmade CO2 is the devil.