Cap&Trade Dead – The Door-nail Plan, A Vison of What's Next

Like Scrooge's partner Old Marley, Cap and Trade is dead as a door-nail.  Despite passing in  the House last June, the Cap and Trade bill has been interred by Senators Kerry and Graham, not to mention the New York Times.  Before moving on to alternatives, kudos to Senator Lindsey Graham, Republican of South Carolina.  He is no fan of big, expensive government, but he continues to look for common ground with Democrats on issues like climate change and immigration, issues where something needs to be done now.  Most South Carolinians seem to  prefer the tactical obstructionism of the Republican regulars or the don't bother me with facts Tea Party pandering of Sarah Palin.  Graham is true to his principles, looking for solutions that preserve free markets and reflect cost, budget and tax concerns.  The key is that he continues to look for solutions, giving his home State what it needs, not what it wants.  Fortunately, he is not up for reelection until 2014.  If South Carolina doesn't secede before then, it's voters may recognize Graham's value with the passage of time.  For now,  keep Lindsey Graham in mind for that sequel to Profiles in Courage you've been writing.

The Waxman Markey Cap and Trade bill that passed in the House started as a variation on the successful cap and trade system applied to utility sulfur dioxide emissions to address acid rain.   Then it got complicated, with extended scope, taxes, free allowances for emissions above existing levels and a grab bag of concessions and exemptions needed to garner support.  The tax was scary in a recovering economy, the trade was shaky in light of American's current view of investment banks – and, what the Dickens, all Washington somehow knew it was time to start over.

Senators Kerry and Graham are working on the plan of legislation past. -A utility only cap on greenhouse gas emissions (other industries might be  phased in); taxes on gasoline, diesel fuel and aviation fuel; incentives for oil and gas drilling, nuclear power plant construction, carbon capture and storage, and sustainable energy sources.  Sounds like  an incremental approach which does more good than harm and has one huge asset – it might actually pass.

Senators Cantwell and Collins (another Democrat/Republican duo) are pushing for the plan of legislation present – cap and dividend.  Cap emission limits, auction off rights to emit up to those limits to fossil fuel producers and distributors, pay most of the auction proceeds out to the taxpayers.   The auction is a market mechanism, but the right to pollute is an artificial right, created by government fiat, it's not clear the auction prices will bear any relationship to the external societal costs (for example, the cost to society of climate change as opposed to the cost of drilling and pumping petroleum) of fossil fuels.  The dividend might be sucked up into the great push for deficit reduction.  Even if it's not, it smacks of  a gimmick.  Give me (and other current voters) a one time pay day today for pollution that will hurt my grandchildren.  Sounds a lot like the definition of sustainability – in reverse.

No one is pushing the plan of the future, aka, the Door-nail Plan, because the career of any politician who touches it now will be, what else, dead as a door-nail.  Estimate the cost of climate change if current greenhouse gas emission level increases continue for twenty years.  Estimate the contribution to climate change made by each unit of fossil fuel (barrel of oil, ton of coal, etc).  Tax fossil fuel production accordingly.  Hold tax proceeds in a special account used solely for the purpose of funding climate change cost. Tax is an ugly and hated word, but a tax that measures and captures societal cost external to the fossil fuel production and distribution process, then uses tax proceeds to address that societal cost,  is far less disruptive to real market forces than an artificial auction producing a one-time bribe to voters.  Right now those estimates are probably too tough to handle.  As the causal mechanisms of climate change become clear in greater detail, and as the costly effects of climate change become daily headlines, things will change.  Don't forget the Door-nail Plan, we'll be ready for it someday.

Photo Credit:  Aunt Owwee