There’s a new video out that criticizes cap-and-trade. Overall, I’d give it a “C”. Here’s why:
- The dangers of promising something for nothing. Many supporters of the current cap-and-trade legislation work hard to avoid the fundamental truth about cap-and-trade, namely that—like a carbon tax—it reduces pollution by making polluting expensive. As a result, it is not surprising that the current legislation is likely to do a bad job of making polluting expensive: over the next twenty years, according to simple calculations based on EPA estimates, the bill will raise the price of gasoline by about 28 cents per gallon (in today’s dollars) and the price of coal-fired power by about 2.8 cents per kilowatt-hour. This makes me very nervous, and when I hear supporters say that the bill will tackle climate change at a cost to the average household of only a postage stamp a day I worry that we’ll get what we pay for: not much. There are technicalities here, and it is indeed possible to have a well-designed policy that reduce emissions at low net cost—e.g., through a tax shift, or through a well-designed cap-and-trade program—but I don’t see how we’re going to seriously reduce emissions without a stronger carbon price. The bottom line here is that supporters of the current legislation are walking a mighty fine line, and the video does a good job of pointing out the potential risks of adopting a policy that may create “a false sense of progress”.
- The dangers of offsets. The video does a good job of describing how offsets are supposed to work and how they might be gamed. It should be noted that the specific examples described in the video might not be applicable to current legislation, but everybody worries about offsets, and for good reason.
- The potential uses of carbon pricing revenue. The video does a good job of describing how carbon pricing revenue—either from auctioning off permits or implementing carbon fees, a.k.a. a carbon tax—could be used to improve the environment and/or help households adjust to the higher fossil fuel prices that would result from carbon pricing.
- Overly broad generalizations. The video says that “cap-and-trade will never work for climate change” and that’s just wrong. The specific proposals on the table might not be good, but that doesn’t mean that cap-and-trade will never work. This is a mistake that James Hansen makes too, so it’s worth remembering the fundamental truth about cap-and-trade, namely that—like a carbon tax—it reduces pollution by making polluting expensive. It makes no sense to simultaneously condemn one of these policies and embrace the other.
- Anti-market hysterics. The video claims that “you can’t solve a problem with the thinking that created it”, but I for one happen to be a big fan of using market forces to correct market failure.
- Anti-trading hysterics. This is closely related to the anti-market hysterics, as when the video makes a big villain out of the whole concept of trading, e.g., all those images of Wall Street types making out like bandits. And the cheer of “Go EPA go! Cap that carbon!” comes dangerously close to endorsing the movement for cap without trade. This movement makes no sense. Yes there’s a case to be made for eliminating offsets, and yes there’s a case to be made for auctioning off permits, but there’s no good case for preventing emissions trading.