The Economist Backs Cantwell-Collins

Which, attentive readers know, is the climate change bill that auctions almost all emission allocations starting on day one, and refunds most of the proceeds to households. Here’s the Economist story. (Technically, it’s just the columnist “Lexington,” but the Economist has a consistency voice and position unlike any other news publication.) Here’s an excerpt:

“Of all the bills that would put a price on carbon, cap-and-dividend seems the most promising. . . . The most attractive thing about the bill is that it is honest. To discourage the use of dirty energy, it says, it has to be more expensive. To make up for that, here’s a thousand bucks.

“This challenges the conventional wisdom in Washington, DC, that the only way to pass a global-warming bill is to disguise what’s in it. Leading Democrats try to sell cap-and-trade as a way to create jobs and wean America from its addiction to foreign oil.”

The standard argument against cap-and-trade, or cap-and-dividend, or doing anything about climate change, is that it will cost money. This is true, although the amount is a lot less than people tend to believe. (According to the CBO, Waxman-Markey would have a “net economywide cost” of $22 billion in 2020, or $175 per household [Table 1, PDF page 15]; the CBO does not attempt to quantify any benefits from slowing down global warming.) Compared to Waxman-Markey, Cantwell-Collins is a simple way to deal with the problem with relatively little micromanagement (CC is 1/36th the length of WM, according to the Economist) and less politicization of initial allocations.

Cantwell-Collins should be the solution preferred by advocates of the free market. Waxman-Markey was crafted to satisfy coal-state Democrats in order to get what is basically a Democratic majority in the House, but whether that can make it through the Senate is a big question. By contrast, Cantwell-Collins should be able to create a coalition behind it that includes non-coal-state Democrats and moderate Republicans who want to do something about climate change. (Note that most large corporations–which once upon a time were the core of the Republican Party–want climate change regulation, because they want regulatory certainty.) It will be opposed by coal-state Democrats and by climate change deniers, of course.

But this depends on those “moderate Republicans” deciding to vote for a real solution as opposed to voting against it simply to prevent the Obama administration and Democratic majority from accomplishing anything. I would bet on the latter.

By James Kwak

21 responses to “The Economist Backs Cantwell-Collins

  1. Same question I had with healthcare – if we spend more money on environmental protection doesn’t that money just go to other hands, hands that can create jobs, helping the economy?

    Isn’t this to some degree a stimulative transfer of wealth?

    Don’t the people designing, building, and installing the new “clean” technology represent new jobs? Won’t they in turn patronize the people paying more to protect the environment, thus potentially making up for the costs?

    Money spent on green technology isn’t burned, it’s recycled isn’t it?

  2. The standard argument against cap-and-trade, or cap-and-dividend, or doing anything about climate change, is that it will cost money.

    Actually the standard argument is that the science is bogus/falsified. (And let’s face it, some of it is.)

    That said, if you believe the problem is worth trying to tackle — which I do — then auctioning off permits is second only to a simple “carbon tax” as the preferred solution. Although none of the proposals currently on the table go nearly far enough.

  3. Your argument is not new; in fact, it is centuries old. It is called the Broken Window Fallacy.

    The money being spent does not just go to places; it also comes from places. If it comes from taxes, that interferes with the market’s general tendency to allocate resources efficiently. I mean, why not just raise taxes to 100% and send everybody a check? Think of all the jobs that would create!

    Politicians are always trying to sell the people a free lunch. The reality is that tackling carbon emissions — just like providing health care to everybody — will be expensive. Very expensive.

    The only honest debate is whether the expense is worth it.

  4. No. The honest debate is about the flaw in the market, which failed to recognize and allocate for a cost of burning fossil fuels, and how to calculate that cost.

    It’s no different then the regulatory costs incurred as businesses and municipalities tried to comply with the clean air and water acts in the late 1970’s and 80’s.

    And the real problem for business, as James pointed out, is the certainty in the regulatory environment. Because business don’t know what will happen, they can’t plan for it.

  5. David Mercanus

    Cantwell Collins needs a lot of work, otherwise it won’t accomplish anything. See climateprogress dot org for background on what needs to change.

    It’s just another approach, like Wyden was another approach to healthcare. Wyden was ready to go out of the box, however.

    Oh, and to the poster above, NONE of the science is falsified/bogus. There is as much proof of anthropogenic global warming as there is proof that cigarette smoking causes lung cancer. You can’t point to one arguably questionable method or point of criticism to invalidate mountains and mountains of unassailable science.

  6. I don’t follow all the details, but according to this economist, the bill involves restrictions on trading permits that might not make it “the solution preferred by advocates of the free market”

  7. I will not be drawn into this debate, so this will be my only response. Feel free to have the last word.

    There is as much proof of anthropogenic global warming as there is proof that cigarette smoking causes lung cancer.

    Simply false. The difference is the reproducible experiment, which sciences like chemistry and biology have but sciences like anthropology and climatology do not.

    Climate science is vastly less certain than (e.g.) biology because we do not have a bunch of spare planets and a century to experiment on them. Thus, it is also unreasonable to demand such scientific certainty before implementing a defensive policy.

    But statements like yours merely reinforce the notion that “climate change” is more like a religion than science. You do not help your case by overstating it.

  8. Zic has it right. This is the real debate we should be having – the questions should be simpler:

    1) Is this investment worth it (compared to other investments)? [e.g. the climate science]

    2) Would the markets provide it by themselves? [no, clear and obvious market failures]

    3) Would this harm competitiveness – this, unfortunately, is a distributional issue about the US bearing a disproportionate cost for global returns; from the perspective of the BRIC countries, why is the status quo (US generates 25% of carbon, with only 5% of world pop) legitimate?

    This issue differs from Clean Air Act of the 1970s, where most of the benefit (and cost) was “local”.

    Regardless, the US could unilaterally address this issue by using carbon-neutralizing tariffs at ports of entry, so that the carbon-tax for imported items is similar to the carbon-tax (or quota cost) for domestically produced items.

    The only reason the “China needs to bear its share” argument has ANY validity is because our utter failure to adopt very simple environment-neutral trade policy. Why is Team Obama & Co. not even talking about this?

    Because it’s too easy to extend this concept to Labor policy and other environmental issues, and in their heart of hearts, Team Obama believes so much in Free Trade that they are willing to sacrifice domestic competitiveness to achieve it.

  9. Both you and “zic” missed my point.

    Sure, if you want to assign a probability and cost to “Manhattan underwater by 2060”, then discount that back to present-day dollars (too bad there’s no 50-year Treasury bond — yet — to provide a benchmark), and then use that to craft a policy, well… Whatever.

    My point was that here in the real world, today, the policy goal is to keep CO2 concentrations in a range that has very high probability of not wrecking the biosphere. And the effects of such policies, today, will be very negative. Trying to portray them as “stimulus” is just silly. Sometimes sacrifices are necessary, but we have a whole generation of people who do not want to hear that.

    I agree with you re: China and imports. It is clear that there is zero political will to address this issue in a serious way. So all of the questions about what will happen, exactly, when CO2 concentrations double or triple from here will be answered in the next 50 years as we perform the live experiment.

  10. Well, you missed my point. I was not advocating (at least above) government regulation to redistribute market allocations as it were. My point was more – we describe things like healthcare costs and energy efficiency costs (government spent or otherwise) as “lost” money. However it does not disappear right? It simply exchanges hands which may or may not have a beneficial effect. Therefor when people say, “X” by costing money will hurt the country, they really aren’t giving the full story.

    As far as “market’s general tendency to allocate resources efficiently”, well nothing personal but I think it’s full of crap. The market is the mob and for better or worse the mob completely misses it all the time. That’s why we have a “republic” not a 100% Democracy. The “tyranny of the mob” is real and can be seen every time the market collapses (or conversely, builds a bubble that can collapse). I don’t know why one would believe that pure democracy in markets (that is, laissez-faire markets) would be sane, while pure democracy in governments clearly isn’t.

    Oh sure, it does ultimately correct itself, but a heart attack also corrects smoking and bad eating habits as well. Market systems tend to wait for these “life threatening” events to do the right thing.

    That said, I’m not advocating eliminating markets in the slightest, I’m just saying intervention has its role at times. I like to let my son do his own thing, but if he’s starting to run out in the road in front of a car, I’m going to exercise my parental rights.

    Also to note your analogy of a 100% tax is akin to responding to a suggestion of giving water to a dehydrated man with, “Well that’s stupid, I mean, why don’t you just hold him under water!” Sure, it sounds like a good argument, but it’s pure rhetoric.

    Finally I think you’re wrong about your analysis of CO2’s effects and moreover, even if you’re not, I think the risks of doing nothing far outweigh the risks of muddying the “perfect” markets and being wrong.

  11. Nemo: “The money being spent does not just go to places; it also comes from places. If it comes from taxes, that interferes with the market’s general tendency to allocate resources efficiently.”

    This whole exercise comes from the inability of the markets to take into account environmental costs. The taxes are *supposed* to interfere with the working of the market.

  12. It’s so hard to change the narrative, but so important.

    We are dealing with a tragedy of the commons problem, and we’ll end up losing more than half of the world’s arable land if we stay on our current path, and the timefram we’re talking about is decades, not centuries.

    We need to protect the “fishery”. Cantwell-Collins would do that by setting hard, and FAIR, limits on greenhouse gases. If we adopt these standards, we will ensure the welfare of future generations and claim the moral high ground.

    Then we can shoot the “poachers” who don’t comply.

  13. Yes, but conversely, while I agree there is undoubtedly some “falsification” (or just bad science) in terms of global warming, there is also plenty of falsification (or just bad science) in the other direction.

    The problem is the former is used to say:

    some problems with the data = all of it is bunk

    whereas the later seems to be silently glossed over.

    Now, it appears you are saying you support efforts to protect against global warming (which I mistook in a prior comment, in which case I apologize), so I’m not trying to say otherwise here. Just trying to point out that while saying “there are zero problems with the global warming” theories is as you indicate problematic, it is similarly problematic those who glom onto a few errors and claim the whole thing is a sham because of it.

  14. Theoretically, carbon tax and cap/trade should be equivalent. See here: http://krugman.blogs.nytimes.com/2009/12/07/unhelpful-hansen/
    (Don’t know how you feel about Krugman, but I think the econ is sound as far as it goes.)

    Both are subject to obscure political dealing (every tax has loopholes and exemptions, and granting of emission allowances also subject to rigging) and a too-low tax is just as ineffective as a too-high cap.

  15. Well, I think we need to start talking about what “we” as a commons own. The air for instance, the water, the trees, etc. There is a sense that all the resources of the world can be divvied up whether to private entities or governments. As you imply, given the number of people and the resulting ever shrinking size of the planet (metaphorically), we need to start seeing this as belonging to ALL of us (and I do mean all). The effluent of the Hudson becomes the food of the Chinese and so on.

    Personally I think this is going to have to start applying to oil and everything else.

    I don’t have a clue of how that looks, particularly in a sane way, but I think we need to start thinking about it. There are many resources that are starting to look questionable in strictly “private” hands.

  16. BTW – my question here wasn’t intended to indicate that I think spending more money on the environment is the best thing or not. Simply I was trying to point out that many of those who are against costly intervention make it sound like the money was literally burned up into the atmosphere never to be seen again. Like the expenditure went into space or something.

    My point was it doesn’t – the money is recycled. It could be beneficial, and certainly it isn’t “lost” never to be found again.

    Now you can argue that these forced expenditures cause negative imbalances in the market. That certainly is possible, but of course one has to weigh them against the negatives of the implications of not introducing those imbalances (eg: letting global warming go unchecked).

    While I hear the “Broken Window Fallacy”, I don’t think it even mildly proves that minor intervention is bad nor even that matter for major intervention. Yes, it shows how it could be bad, but just because it gives a representative example, that example hardly proves the extreme of “we should avoid all intervention possible”.

    Frankly I don’t think there is any empirical proof either way. The fact is market systems are just too complicated and nearly any “proof” here can be attributed to other factors. WWII shows market intervention is good, the Soviet Union shows it’s bad. We can go on and on. Unfortunately the “it’s bad” crowd has us by the cojones right now).

  17. I agree, scathew. This has been the age of Individualism and it’s about time for the pendulum to swing back. We need to remember ( conservative Christians especially) what the Bible says: in the end we will stand before the Throne as one being, one Adam. I don’t have a clue how an Age of Unity will look either — but I am eager to begin to to learn. I am so tired of the selfish dinosaurs.

    On the other hand, I think the free market, small government people are right too, in the long run. Things do work out eventually on their own. I mean, in a hundred million years or so Nature can heal itself and might even come up with another intelligent race, perhaps a better one than ours.

  18. Love the last paragraph!

  19. Just as with health care and finance, simpler legislative solutions are better. It’s kind of the Occam’s Razor rule of legislation. We don’t need a lot of whereases, wherefore’s or but then’s, just a simple bill. The health care legislation is bogus, the fianance reform legislation is bogus, filled with talking points, but rotten in their cores. Let’s not F Up the climate change legislation, and get on with trying to do the same on the other major reform measures. Any bill of more than 100 pages should be disallowed as political, bogus, and too complex to understand or enforce.

  20. The thought process begins with perception. To the man on the street the atmosphere looks limitless. To a small plane pilot life on Earth looks more like algae on a boat hull.

  21. Huh? There’s no “experiment” that shows smoking causes lung cancer, because true experiments—i.e., with random assignment—are unethical for things like that.

    What there _was_ was a mountain of statistical evidence from observational data, with an extremely high odds ratio. But no experiment, per se.