Coyote Blog

The whole point of a pollution control regime driven by a carbon tax or cap-and-trade is to acknowledge that 300 million people making trade-off and investment decisions can do a better job reducing pollution than 300 people in Washington commanding solutions.   Give individuals an emissions cap (or raise the price of emissions) and people will make their own decisions how best to handle the response.  One household in Arizona might put in solar, while the Seattle household would see solar as a waste and might get the same reductions via conservation.

So why does the current cap-and-trade bill have so much command and control embedded in it?

In fact, the bill also contains regulations on everything from light bulb standards to the specs on hot tubs, and it will reshape America's economy in dozens of ways that many don't realize.

Here is just one: The bill would give the federal government power over local building codes. It requires that by 2012 codes must require that new buildings be 30 percent more efficient than they would have been under current regulations. By 2016, that figure rises to 50 percent, with increases scheduled for years after that. With those targets in mind, the bill expects organizations that develop model codes for states and localities to fill in the details, creating a national code. If they don't, the bill commands the Energy Department to draft a national code itself.

States, meanwhile, would have to adopt the national code or one that achieves the same efficiency targets. Those that refuse will see their codes overwritten automatically, and they will be docked federal funds and carbon "allowances" -- valuable securities created elsewhere in the bill that give the holder the right to pollute and can be sold. The Energy Department also could enforce its code itself. Among other things, the policy would demonstrate the new leverage of allocation of allowances as a sort of carbon currency -- leverage this bill would be giving to Congress to direct state behavior.

The reason, of course, is that Congress may nominally support cap-and-trade (mainly because it is hip and trendy, not because they really understand it) but they most certainly do not buy into the philosophy behind it -- that millions of individuals can make better decisions collectively than a few planners in Washington.  Because Congress most certainly thinks they are smarter than everyone else and can make better decisions.

Of course, this is absurd.  Has anyone tested these mandates above and seen if they are a less costly way to reduce emissions than other steps?  Of course not, just as they did not for the new CAFE standards.  In fact, I can prove it -- Do making massive investments in insulation and air conditioning efficiency make any sense in San Diego?  Of course not -- in that mild climate, these are near useless investments.  Does making me buy a more fuel efficient car to drive my 1.5 mile commute make sense?  Of course not.  But this is exactly what is happening, because Congress can only regulate to the mean, and the result is that in many cases its commands make no sense.  Which is exactly why cap-and-trade was invented, ironically.