The debate over the Waxman-Markey bill has left me troubled. Don’t get me wrong, it is a terribly flawed piece of legislation that should not become law. But I think that reflexive opposition to global warming policies puts Republicans on the wrong side of this issue. I think there are three key aspects to rethinking the opposition.
Conservative Principles Favor Action. Conservatives favor preserving freedom and opportunity for the generations to follow. That is precisely why they should support an effective response to global warming. By now it is obvious that the scientific community has not – and will not soon – reach a unanimous verdict on the scope of human contribution to concentrations of greenhouse gases (GHGs) and global warning. But the majority of experts do believe that GHG emissions are a threat and have spelled out the dire consequences. So the choice is clear. Do nothing and wait to find out if (a) the minority of scientists were right, or (b) a climate disaster ensues. Or, do something effective and (a) waste valuable technologies, investments, and resources that could have been devoted to another purpose, or (b) preserve the climate and freedoms for our descendents.
The first point is that both doing nothing and doing something could be costly. There really is no freebie, and Democrats should be fairly criticized for pretending the contrary. (The hallmark of this misrepresentation is “green jobs” – see more below.) The second point is that doing nothing has the potential to be more costly, so the balance of risks says to do something. In the end, it comes down to paying a price to raise the odds of a better future for our children, nation, and globe.
Aren’t conservatives the breed most dedicated to fighting the costly fights and taking the difficult stands to achieve this goal?
Yes, It Is A Tax. Let’s be clear about a few analytics. A cap-and-trade mechanism is a tax. Period. Indeed, on a blackboard a carbon tax (GHG tax) and a cap-and-trade policy are identical because there is always a tax large enough to generate the same emissions as the cap imposes. And if you impose the cap, the price of an emission permit will match the amount of the equivalent carbon tax.
So if you want to do something about GHG emissions, it will involve a tax. But, as noted above, that is the price of preserving freedom and opportunity. The main issue is which way to go: cap-and-trade or carbon tax.
A bad way to decide is to look at the horrific details embedded in Waxman-Markey and dream of a blackboard-simple carbon tax. No carbon tax will ever get through the House Committee on Ways and Means, pass the Senate Finance Committee and be signed by the President and remain simple. The same pressures of sectoral lobbyists will be brought to bear. The same administrative difficulties will apply to determining the carbon content to be taxed. The same issues will arise in measuring emissions and reductions.
A better way is to realize that an effective global warming policy will be global in scope, decades-long in ambitions, and intricate in its implementation. It will be an undertaking comparable to the postwar development of the international trading rules under the GATT and WTO. It will span time-scales comparable to Social Security. And it will be very complicated to implement.
In light of this, the key to picking between the cap-and-trade and a carbon tax hinges on a variety of subtle issues. What approach can garner the broadest support? Which is easiest to coordinate with other countries? There is no obvious answer to these issues, but certainly cap-and-trade is one possibility. The current Republican attack on cap-and-trade as “cap-and-tax” takes both the sensible approaches off the table.
Economic Flexibility is the Hallmark of Market Solutions. This is where the Democrats get it all wrong. You don’t need a cap-and-trade and dictates on fuel mixes to electricity generation and mandates on the carbon content of fuels and building standards and massive weatherization programs and whatever other big-government initiative you can think of. All you need is a strong, permanent market signal that says reducing GHG emissions is lucrative and the rest will take care of itself. Indeed, the massive layers of regulation added to a cap-and-trade get in the way of the ability to innovate that will be central to success.
It is also were Republicans get it wrong. Given a clear price signal, there is no reason to suspect the economy’s ability to reshape itself to be consistent with this goal. Suppose in 1950 a good, conservative economist had been asked what the economy would look like at the start of the 21st century. It would have been impossible to anticipate the innovations in technology, advances in manufacturing productivity, and rise in services that have transpired in the interim. There should be no reason to suspect the ability of a flexible, market-driven economy to shift gradually to a lower-carbon footprint.
“Gradually” is also the key. From a climate perspective, what matters is the concentration of GHGs in the atmosphere. It makes very little difference whether the GHG emission occurs this year or five years from now. Accordingly, there is no reason to have emissions reduction targets that are so aggressive in the near term as to inflict great economic harm. Instead, the policy should signal clearly that such reductions will have to take place in the decades to come and provide a strong incentive to innovate and reduce the cost of the shift.
The Bottom Line. I think that the current Republican attacks on global warming policies are misplaced. Addressing global warming is entirely consistent with conservative principles, and the cap-and-trade policy approach is one of two broad strategies. Generic attacks labeling it a “cap-and-tax” take both options off the table. A better strategy would be to focus on the (myriad) flaws in the Waxman-Markey bill itself.