Who Killed Cap-and-Trade?


Robert Stavins, Director of the Harvard Environmental Economics Program





Is Cap-and-Trade Really Dead?



Although href=”http://en.wikipedia.org/wiki/Emissions_trading”
target=”_blank”>cap-and-trade has fallen
dramatically in political favor in Washington as the U.S. answer to
climate change, this approach to reducing carbon dioxide (CO2)
emissions href=”http://belfercenter.ksg.harvard.edu/analysis/stavins/?p=533”
target=”_blank”>is by no means “dead.”



The evolving href=”http://www.grist.org/article/2010-03-18-outline-kerry-graham-lieberman-bill-hew-to-obamas-clean-energy/”
target=”_blank”>Kerry-Graham-Lieberman
legislation
has a cap-and-trade system at its heart for
the electricity-generation sector, with other sectors to be phased
in later (and it employs another market-based approach, a series of
fuel taxes for the transportation sector linked to the market price
for allowances). Of course, due to the evolving political climate,
the three Senators will probably not call their system
“cap-and-trade,” but will give it some other creative label.



The competitor proposal from Senators href=”http://cantwell.senate.gov/”
target=”_blank”>Cantwell and href=”http://collins.senate.gov/public/continue.cfm?CFID=1420271&CFTOKEN=90115525”
target=”_blank”>Collinshref=”http://cantwell.senate.gov/issues/CLEARAct.cfm”
target=”_blank”>the CLEAR Act – has been labeled
by those Senators as a “cap-and-dividend” approach, but it is
nothing more nor less than a cap-and-trade system with a particular
allocation mechanism (100% auction) and a particular use of
revenues (75% directly rebated to households) – and, it should be
mentioned,href=”http://belfercenter.ksg.harvard.edu/analysis/stavins/?p=533”
target=”_blank”>some unfortunate and unnecessary restrictions
on allowance trading
.



And we should not forget that cap-and-trade continues to emerge
as the preferred policy instrument to address climate change
emissions throughout the industrialized world – in href=”http://ec.europa.eu/environment/climat/emission/index_en.htm”
target=”_blank”>Europe, href=”http://www.climatechange.gov.au/default.aspx”
target=”_blank”>Australia, href=”http://www.climatechange.govt.nz/” target=”_blank”>New
Zealand
, and href=”http://belfercenter.ksg.harvard.edu/analysis/stavins/?p=568”
target=”_blank”>Japan (as I wrote about in ahref=”http://belfercenter.ksg.harvard.edu/analysis/stavins/?p=568”
target=”_blank”>recent post).



But back to the main story – the dramatic change in the
political reception given in Washington to this cost-effective
approach to environmental protection.



A Rapid Descent From Politically Correct to Politically
Anathema



Among factors causing this change were: the economic recession;
the financial crisis (linked, in part, with real and perceived
abuses in financial markets) which thereby caused great suspicion
about markets in general and in particular about trading in
intangible assets such as emission allowances; and the complex
nature of href=”http://www.govtrack.us/congress/bill.xpd?bill=h111-2454”
target=”_blank”>the Waxman-Markey legislation
(which is mainly not about cap-and-trade, but href=”http://belfercenter.ksg.harvard.edu/analysis/stavins/?p=206”
target=”_blank”>various regulatory
approaches
).



But the most important factor – by far – which led to the
change from politically correct to politically anathema was the
simple fact that cap-and-trade was the approach that was receiving
the most serious consideration, indeed the approach that had been
passed by one of the houses of Congress. This brought not only
great scrutiny of the approach, but – more important – it meant
that all of the hostility to action on climate change, mainly but
not exclusively from Republicans and coal-state Democrats, was
targeted at the policy du jour – cap-and-trade.



The same fate would have befallen any front-running climate
policy.



Does anyone really believe that if a carbon tax had been the
major policy being considered in the House and Senate that it would
have received a more favorable rating from climate-action skeptics
on the right? If there’s any doubt about that, take note that
Republicans in the Congress were unified and successful in
demonizing cap-and-trade as “cap-and-tax.”



Likewise, if a multi-faceted regulatory approach (that would
have been vastly more costly for what would be achieved) had been
the policy under consideration, would it have garnered greater
political support? Of course not. If there is doubt about that,
just observe the solid Republican Congressional hostility (and some
announced Democratic opposition) to href=”http://belfercenter.ksg.harvard.edu/analysis/stavins/?p=533”
target=”_blank”>the CO2 regulatory pathway that
EPA has announced under its endangerment finding in response to the
target=”_blank”>U.S. Supreme Court decision in Massachusetts
vs. EPA
.



(There’s a minor caveat, namely, that environmental policy
approaches that hide their costs frequently are politically favored
over policies that make their costs visible, even if the former
policy is actually more costly. A prime example is the broad
political support for href=”http://en.wikipedia.org/wiki/Corporate_Average_Fuel_Economy”
target=”_blank”>Corporate Average Fuel Economy
(CAFE) standards, relative to the more effective and less costly
option of gasoline taxes. Of course, cap-and-trade can be said to
obscure its costs relative to a carbon tax, but that hardly made
much difference once opponents succeeded in labeling it
“cap-and-tax.”)



In general, any climate policy approach – if it was meaningful
in its objectives and had any chance of being enacted – would have
become the prime target of political skepticism and scorn. This has
been the fate of cap-and-trade over the past nine months.



Why is Political Support for Climate Policy Action So Low in the
United States?



If much of the political hostility directed at cap-and-trade
proposals in Washington has largely been due to hostility towards
climate policy in general, this raises a further question, namely,
why has there been so little political support in Washington for
climate policy in general. Several reasons can be identified.



For one thing, U.S. public support on this issue has decreased
significantly, as has been validated by a number of reliable polls,
including from the href=”http://www.gallup.com/poll/126560/Americans-Global-Warming-Concerns-Continue-Drop.aspx”
target=”_blank”>Gallup Organization. Indeed, in
January of this year, a href=”http://people-press.org/report/584/policy-priorities-2010”
target=”_blank”>Pew Research Center poll found
that “dealing with global warming” was ranked 21st among 21
possible priorities for the President and Congress. This drop in
public support is itself at least partly due to the state of the
national economy, as public enthusiasm about environmental action
has – for many decades – been found to be inversely correlated
with various measures of national economic well-being.



Although the lagging economy (and consequent unemployment) is
likely the major factor explaining the fall in public support for
climate policy action, other contributing factors have been the
so-called href=”http://www.huffingtonpost.com/sahil-kapur/climategate-mainly-expose_b_392590.html”
target=”_blank”>Climategate episode of leaked
e-mails from the target=”_blank”>University of East Anglia and the
damaged credibility of the target=”_blank”>Intergovernmental Panel on Climate
Change
(IPCC) due to several errors in recent
reports.



Furthermore, the nature of the climate change problem itself
helps to explain the relative apathy among the U.S. public. Nearly
all of our major environmental laws have been passed in the wake of
highly-publicized environmental events or “disasters,” ranging from
target=”_blank”>Love Canal to thehref=”http://en.wikipedia.org/wiki/Cuyahoga_River”
target=”_blank”>Cuyahoga River.



But the day after Cleveland’s Cuyahoga River href=”http://en.wikipedia.org/wiki/Cuyahoga_River”
target=”_blank”>caught on fire in 1969, no article
in href=”http://www.cleveland.com/science/index.ssf/2009/06/cuyahoga_river_fire_40_years_a.html”
target=”_blank”>The Cleveland Plain Dealer
commented that “the cause was uncertain, because rivers
periodically catch on fire from natural causes.” On the contrary,
it was immediately apparent that the cause was waste dumped into
the river by adjacent industries. A direct consequence of the
“disaster” was, of course, the href=”http://www.epa.gov/watertrain/cwa/”
target=”_blank”>Clean Water Act of 1972.



But climate change is distinctly different. Unlike the
environmental threats addressed successfully in past legislation,
climate change is essentially unobservable. You and I observe the
weather, not the climate. Until there is an obvious and sudden
event – such as a loss of part of the Antarctic ice sheet leading
to a disastrous sea-level rise – it’s unlikely that public opinion
in the United States will provide the bottom-up demand for action
that has inspired previous Congressional action on the environment
over the past forty years.



Finally, it should be acknowledged that the fiercely partisan
political climate in Washington has completed the gradual erosion
of the bi-partisan coalitions that had enacted key environmental
laws over four decades. Add to this the commitment by the
opposition party to deny the President any (more) political
victories in this year of mid-term Congressional elections, and the
possibility of progressive climate policy action appears unlikely
in the short term.



An Open-Ended Question



There are probably other factors that help explain the fall in
public and political support for climate policy action, as well as
the changed politics of cap-and-trade. I suspect that readers will
tell me about these.



This article is reprinted in GLOBE-Net with the kind
permission of the author



Source: belfercenter.ksg.harvard.edu

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