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Cap and Rent-Seek

February 12, 2008, 11:23 am

Just the other day, I made the point that just because regulated corporations support a regulation does not mean that said regulation is sensible or good for the economy.  Often, incumbents are beneficiaries of industry regulation, which tends to give them certain advantages over new entrants.  I showed an example with General Electric and the new energy bill regulating light bulbs:

we see that GE has a product sitting on the shelf ready for release
that fits perfectly with the new mandate.  Assuming competitors don't
have such a technology yet, the energy bill is then NOT a regulation of
GE's product that they reluctantly bow to, but a mandate that allows GE
to keep doing business but trashes their competition.  It is a market
share acquisition law for GE.

Marlo Lewis makes a similar point, this time in relation to cap and trade systems:

I can't count how many times I've heard that line of
chatter"”and from people who usually assume anything corporations are
for must be bad!
 
There are many reasons some corporations
support cap-and-trade, or at least say nice things about it in public.
Some companies seek the PR value from looking green....
 
But in the case of energy companies, many who support
cap-and-trade do so in the expectation that they'll get a boatload of
carbon permits from the government"”for free!
 
Permits represent an artificial, government-created
scarcity in the right to produce energy. The right to produce energy is
very valuable, especially where government restricts it. The tighter
the cap, the more valuable each permit traded under the cap.
And this is a major problem with cap and trade that no one talks about:  It is a huge government subsidy and protection of existing competitors against new entrants.  Because in most systems, current competitors receive a starting allotment of credits for free, but new entrants who want to start up and compete against existing companies must purchase their credits.  This is tolerated in Europe, because that is how the European quasi-corporate-state works, with politicians and large corporations in bed together to protect each others' incumbency.  But it creates a stagnating economic mess, ironically locking in place the very companies and business models environmentalists would like to see overtaken by new ideas and entrants.

Frequent readers know that I am not convinced the costs of man-made global warming exceed the costs of abating such warming.  However, if we are going to do so, a carbon tax makes so much more sense, in that it avoids the implicit subsidies of incumbents and reduces the opportunities for rent-seeking and political shenanigans.  Politicians, however, live for these rent-seeking opportunities, because they generate so many campaign contributions.  They also favor hidden taxes, as cap-and-trade would be, over direct taxes, such as the carbon tax, because they are, well, gutless.

More here on cap-and-trade vs. carbon tax.

HT:  Tom Nelson

Tags: , , , , , , , , ,
Category: Regulation

2 Comments

  1. Steve:

    Why don't we just rename all taxes on energy, and energy products as 'carbon taxes'? We'll be ahead of the game, progressive, and it will have just as much of an effect on carbon emissions as any of the loopy trading, and credit schemes floating around today....with the added benefit of not putting any money in Al Gores pockets.

    February 12, 2008, 1:11 pm

  2. Tim Fowler:

    Sure cap and trade, might put up barriers to competition, but a carbon tax is a tax, and gives more money to government. Negative either way. (Not necessarily, because other taxes might be lowered to compensate, but I'm not exactly confident that will happen if a carbon tax actually gets passed.)

    February 13, 2008, 2:55 pm