by Robert Stavins
In a recent article in the New York Times, John Broder asks “Why did cap-and-trade die?” and responds that “it was done in by the weak economy, the Wall Street
meltdown, determined industry opposition and its own complexity.” Mr.
Broder’s analysis is concise and insightful, and I recommend it to readers. But I think there’s one factor that is more important than all those
mentioned above in causing cap-and-trade to have changed from
politically correct to politically anathema in just nine months. Before turning to that, however, I would like to question the premise
of my own essay.
Is cap-and-trade really dead?
Although 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 is by no means “dead.”
The evolving 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 Cantwell and Collins—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 percent auction) and a particular use of
revenues (75 percent directly rebated to households)—and, it should be
mentioned, 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 Europe, Australia, New Zealand, and Japan (as I wrote about in a 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 the Waxman-Markey legislation (which is mainly not about cap-and-trade, but 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 the C02 regulatory pathway that EPA has announced under its endangerment finding in response to the 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 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 Gallup Organization. Indeed, in January of this year, a 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 Climategate episode of leaked emails from the University of East Anglia and the damaged credibility of the 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 Love Canal to the Cuyahoga River.
But the day after Cleveland’s Cuyahoga River caught on fire in 1969, no article in 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 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.
Related Links:
Lindsey ‘Green Economy’ Graham bashes the Clean Air Act
Let’s call setting a price on carbon “puppies”
Dems more trusted on energy than any other issue, continue pursuing polluter-friendly GOP ideas