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I’m With Joe

February 20, 2010

Joe Romm attacks British magazine The Economist for lax reporting standards on the climate science.  But it’s even worse than what Joe reports…

In the very same piece Romm refers to, the magazine didn’t just cut corners fact-checking the science, it was also very sloppy with its research on two key climate bills in the US Senate. Here’s an except from its ‘Lexington‘ piece from February 4th:

…Enter Maria Cantwell, the junior senator from Washington state. She is pushing a simpler, more voter-friendly version of cap-and-trade, called “cap-and-dividend”. Under her bill, the government would impose a ceiling on carbon emissions each year. Producers and importers of fossil fuels will have to buy permits. The permits would be auctioned, raising vast sums of money. Most of that money would be divided evenly among all Americans. The bill would raise energy prices, of course, and therefore the price of everything that requires energy to make or distribute. But a family of four would receive perhaps $1000 a year, which would more than make up for it, reckons Ms Cantwell. Cap-and-dividend would set a price on carbon, thus giving Americans a powerful incentive to burn less dirty fuel. It would also raise the rewards for investing in clean energy. And it would leave all but the richest 20% of Americans—who use the most energy—materially better off, she says.

Ms Cantwell’s bill is refreshingly simple. At a mere 40 pages, it is one-thirty-sixth as long as the monstrous House bill (known as “Waxman-Markey”, after its sponsors), which would regulate everything from televisions to “bottle-type water dispensers” and is completely incomprehensible to a layman. Instead of auctioning permits to emit, Waxman-Markey gives 85% of them away, at least at first. This is staggeringly inefficient: permits would go to those with political clout rather than those who value them most. No one is proud of this—Mr Obama wanted a 100% auction—but House Democrats decided that the only way to pass the bill was to hand out billions of dollars of goodies to groups that might otherwise oppose it. (There was plenty of pork left over for its supporters, too.)

Ughh. Firstly…anyone who thinks you just rush off 40 pages of law on how to tackle climate change and that’s how you make a good cap-and-trade market, doesn’t understand how important it is to accurately and thoroughly define the rules of the game. The less you put in the bill, the more you have to put in subsequent regulations. So actually Waxman-Markey’s 1000 pages is more transparent than Cantwell-Collins.

Secondly, despite criticising Waxman-Markey for being 1000 plus pages, The Economist’s columnist obviously hasn’t bothered to even glance at the Bill itself. If he or she had done so, they would notice that only around 300 pages (not 1000)  are devoted to the carbon market title. The rest is about complimentary policies on everything from adaptation, to renewable energy, to transport infrastructure. The authors clearly intended to put in place a strong basis for a massive structural reform of the US economy and its reliance on fossil fuels and carbon.

Worse than that, the claim that Waxman-Markey “instead of auctioning permits to emit, gives 85% of permits away for free” is a gross distortion of the truth! Actually, WM gives only 15% away to entities who need to comply with the scheme, and it does that essentially on the basis of their being exposed to international competition.The so-called “carbon leakage” problem.  

What WM does do, is it directly auctions 15% of permits but it gives 70% of permits to different non-complying parties to achieve a variety of policy goals. The key point to note is that those 70% of permits given away will be sold by the different people that receive them to compliance buyers. Thus, the polluter pays principle is still respected.

The allocation of free permits in WM would be specifically targeted towards funding public policy goals like: keeping electricity costs down for consumers, funding climate science, funding adaptation, funding local infrastructure plans for electric vehicles and clean transport, funding developing countries needs for adaptation etc (which is consitent with goals for the global climate agreement), plus funding emissions reductions of  6 billion tonnes (!) of CO2 emissions from avoided deforestation…! (Those emissions reductions, by the way, would be in excess of the 17% US target for 2020.)  Permits can be used to redistribute wealth in more policy proactive ways than just giving stupid consumers 1000 bucks. So WM does a lot that Cantwell-Collins does not.

Moreover, the Lexington article made no mention of the fact that the Cantwell-Collins bill has much weaker emissions targets than Waxman-Markey, as Romm himself has noted before.

In fact I’m not even sure if Lexington had read Cantwell-Collins? If he or she had, they would have remarked that it would ban non-complying participants from trading permits. This shows a complete lack of understanding of the fact that any market exchange needs players who provide liquity for trading – i.e. the source of the economic efficiency gains – to occur.  As much as there is a ridiculous cult of “liquidity” on Wall Street, for carbon markets to be efficient you need some market makers who are not complying firms. ‘Market makers’ are the ones who make the trading happen, and with carbon, that means financial intermediaries and, yes, speculators. Anyway, there are better ways to control market manipulation than by banning participants, e.g. position limits that limit market power, market surveillance, etc.)  

Finally, Lexingon also failed to recognise the extent to which getting stuff through the US Senate is about more than just broad public appeal. It’s an unfortunate fact of the US Senate system, but the reality is you have to buy off the lobbyists and various regional consituencies and the Senators who represent them if you are serious about getting stuff done. That creates complexity which Waxman-Markey addressed in a very clever way, but which Cantwell-Collins 40 pages does not.

Maybe if The Economist’s reporters actually did some research they might start seeing the real complexity of the Cantwell-Collins proposal.

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