I just attended a seminar of apparent heavy-hitters who had gathered to talk about the prospects for national carbon cap and trade legislation, and the future of regional schemes. The leading speaker gave an extremely pessimistic prognosis, not about the passage of national legislation, but about the likelihood of successfully reducing global carbon emissions.
To boil it down, he started from the premise that the only mechanisms that would work would be a carbon tax or a “cap and trade” system, which he asserted was essentially the same thing as a tax –i.e., a government mandated price signal intended to spur producers and consumers to switch to lower carbon alternatives. He proceeded to argue that the likely impact of existing regional schemes and a potential national scheme, will be minimal, because the price signal of these politically mandated schemes will never remain high enough to drive significant change – because the pain will make it politically impossible.
His argument was fairly convincing, but I left wondering why it didn’t take him back to his starting assumption. Why are prices signals the only policy tools to be looked at? Why discard all the tools available to a government that wants to foster a new technology and bring down its price. The point, after all, is to substitute low or no-carbon energy sources — not just to make energy, and particularly electric power, more expensive. Government can add other elements to the cap and trade or carbon tax driven price-signal scheme: government can act as a market player to develop demand, and therefore bring down price, for solar PV at military basis, for example. Government can directly fund and/or subsidize R & D, for carbon sequestration, for example. Government can — and many states are already — mandate renewable portfolio standard for power suppliers. Government can stream-line permitting processes for wind farms.
Finally, government could focus on the command-and-control side of the cap-and-trade, i.e., create a carbon emissions cap that will be a meaningful limit, and enforce it, rather than promote the allowances price as a solution. This last concept could be made to sound like a recipe for economic hardship, and an idea that is rooted in ignorance of the wonders of “market forces.” But in reality, it is the most market-oriented idea of all: the fact is that innovation and competition really go to work only when people know they are going to have to live with a legal requirement. The prices of alternatives will come down, when the users really need it to. As long as the users can lobby for a higher cap, and count on buying allowances, they probably won’t pay much for alternatives — exactly the point made by our pessimistic speaker who began his analysis by dismissing every other approach.
My guess is that all the possible measures will be on the table whenever Washington really gets serious about CO2, but until then we will get schemes that are beloved of policy fashionistas but unlikely to get us where we need to go. And Washington will gets serious when popular demand can no longer be ignored. The only real harm from the cap-and-trade scheme is that it will be sold as the whole solution — an idea the public should not accept.
Tags: CO2 reduction, Environment, Law, legislation, Obama administration, Politics
