I am embarrassed to admit it: I have mixed feelings about the new Waxman-Markey bill, which was passed in the House of Representatives Committee before Memorial Day.  It's the first significant piece of legislation meant to address climate change to have traction in the United States, so I should be elated, maybe throwing a giant green party.  Yet my Debbie Downer continues to dominate, for I simply can't get over some things about the bill which just don't ring true.

 

Don't get me wrong, it has excellent intentions.  The Waxman-Markey plan sets up a cap-and-trade system, in which the government sets a cap on the amount of greenhouse gasses that can be emitted by various industries and regulates this cap with tradable credits.  Big polluters can buy credits from those who pollute less, and essentially, the effects are a charge to pollute and a corresponding incentive to reduce.  The major advantage of this system is that the overall, total emission level is fixed, and the bill's forefront, official goal is to reduce emissions by 20 percent below 2005 levels by 2020.  A good first step, so what's not to love?

 

I'll tell you what: the fine print.  The Waxman-Markey bill includes some provisions buried within the 1,000 pages that create a very weak cap-and-trade system.  The Breakthrough Institute, after plodding through the entire text, found a loophole that will allow companies to purchase up to 2 billion tons of carbon offsets each year, which would fund international projects like reforestation.  The offsets could be used instead of the credits, but the the amount of issued credits will remain the same.  As a result, the bill creates an oversupply of emission allowances.  This oversupply will steadily increase over time, because it also allows extra credits/offsets to be saved from year to year.  With so many emission allowances available, the price of the credits will drop significantly, and regulated industries would have very little incentive to reduce their emissions.  The Institute concluded that the use of these offsets "would allow continued business as usual growth in U.S. greenhouse gas emissions until 2030" - no reduction as intended.

 

There are also general aspects of a cap-and-trade system that I don't like.  The amount of emissions has to be calculated, which is complicated.  Many industries will be forced to rely on theoretical calculations, which require additional checks and verifications; a degree of accuracy is lost.  Enforcement of the emissions and credit trading is big issue.  Like an oversupply of credits, a corrupt reporting system or poorly managed regulator results in fluctuating credit price and a rise in emissions.  Furthermore, if the science used to determine the cap is dubious, the cap itself will be wholly ineffective towards avoiding thresholds.  A cap-and-trade system also focuses on individual action as the solution, not on systematic change.  The market created chooses the easiest means to reduce emissions in the short term, but these are probably different than what needs to be done to achieve significant, long-term reductions.  In short, cap-and-trade is very complex.  In my opinion, it opens up numerous possibilities for failure and creates a market both unstable and vulnerable to manipulation or collapse.

 

Yet what other choice do we have?

 

Personally, I prefer a direct carbon tax.  But as David Roberts, a Grist writer, points out, no carbon tax bill exists - unlike the Waxman-Markey bill which is developed, advanced, approved by the House and very close to law.  If you oppose the bill, what do you achieve?  No climate legislation whatsoever.  Aren't you then on the side of environmental critics, who wanted to do nothing anyway?  Roberts also mentions that both a carbon tax and a cap-and-trade system, by virtue of having to go through our Congress, will have loopholes and most likely impose a low price on carbon in the next decade. 

 

Plus, Carnegie Mellon research suggests that complementary policies will spur the most action, which Waxman-Markey puts into place.  It includes, besides cap-and-trade, a renewable energy standard, a low-carbon fuel standard, smart-grid standards and funding, government procurement policies and direct government investments.  And Paul Krugman, one of the most respected economists of our time, states, "The legislation now on the table isn’t the bill we’d ideally want, but it’s the bill we can get — and it’s vastly better than no bill at all."  He also agrees that it will be as effective as taking 500 million cars off the road by 2020 and suggests that cap-and-trade is just as effective as a carbon tax.  So the Waxman-Markey bill basically accomplishes two goals: putting a carbon pricing mechanism into place, and getting complementary policies started and running quickly.

 

I still worry.  Every part of me wants to love this bill, and the last thing I want to be is the captious, unpleasable, pessimistic stereotype of an environmentalist.  The bill has its strengths and weaknesses, with a few major flaws.  It is, above all, complicated, and this is truly what gives me pause.  For example, Krugman's opinion of the system's efficacy and the Breakthrough Institute's directly contradict.  How can we be confident when nobody really seems to know how it's going to work?  I'm a fan of Occam's razor - no matter what, the simpler, the more elegant the solution, the more effective it is.  I ultimately fear that those few flaws will kill the cap-and-trade system.  Wouldn't no bill have been better in this case?  We'd have no significant reductions and cold, hard justification for the opposition's plan of inaction.  Won't that create a bigger problem?  How will we pass the right legislation then, with the lingering legacy of the wrong? 

 

Please understand.  In 2020 my generation will be rising to power.  I don't want to have to pay for failures we cannot afford, faced with problems for which solutions are too late.  My future is invested in the success of the legislation of the next few years, and so I will continue to worry as long as the Waxman-Markey bill is largely an enigma.  I can only stop when it earns my confidence.  Honestly, it's just a shame enough of the government hasn't given up the excuses already.  Is it too much to ask to understand the problem, carefully draft the legislation and simply pass the right bill the first time?  Unfortunately, that seems impossibly idealistic, even if we are trying to save humanity here.

 

Bottom line of this very long post: we can do better.  The Waxman-Markey bill will live or die regardless of my opinion.  Living, at the very least, it's a start, and the complementary policies will be quite good; dead, it might just save us a lot of problems at the cost of another five months of inaction to create new legislation.  Perhaps I am overly critical about the bill, and I hope my worries will prove to be nothing.  Either way, we should start planning a comprehensive legislation framework.  As I said earlier, I'm with Lester Brown, author of "Plan B 3.0: Mobilizing to Save Civilization", and 2,500 other international economists: focus on tax shifts.  Have the market tell the truth; right now, it ignores the indirect costs of environmentally destructive behaviors.  Phase in a carbon tax of $240 per ton in yearly increments over a decade or so, and then lower income taxes.  Supplement with complementary policies and significant investment into clean energy research and development.  A simple, clear, honest, and effective way to restructure the economy.  That's when we'll throw some serious green parties.

 

(Of course, I could go on for pages about the economic benefits of tax shifts, but I'll save that very long post for another time.)