Picking Winners

The whole point of cap-and-trade (or a carbon tax) is to set broad costs of emissions or broad tradeable limits, and then let millions of individual consumers and industries figure out the most effective way for each of them to meet these costs or limits.  For example, if I were to have a personal cap, changes in my car's MPG would be meaningless, because my work is 1.9 miles from my house.  I would probably start with putting the film coating on my windows of my house I have been considering.  They guy in New Jersey who drives 45 miles to work and has a small house might have a different solution.

But this whole philosophy of letting individuals drive the bus flies in the face of everything Congress believes in.  They believe they are smarter than you or I, and thus they should pick the solutions, not us.  And allowing for individual action doesn't generate campaign contributions like picking winners does.

So despite being a cap-and-trade bill, Waxman-Markey essentially picks winners.  One way is through targeted investments of taxpayer money in technologies whose owners have lobbied hard before Congress.  Another is this:

The legislation will drive up individual and commercial consumer's fuel prices because it inequitably distributes free emissions "allowances" to various sectors.  Electricity suppliers are responsible for about 40% of the emissions covered by the bill and receive approximately 44% of the allowances "“ specifically to protect power consumers from price increases.  However the bill holds refiners responsible for their own emissions plus the emissions from the use of petroleum products.  In total refiners are responsible for 44% of all covered emissions, yet the legislation grants them only 2% of the free allowances.

This means that Congress has decided to extract all of the CO2 reduction from transportation and other refined fuel users, rather than from electrical power generation.  Is this because they have some study in hand that shows the best bang for the buck in reducing CO2 comes from transportation?  Of course not, and even if they did, it would be hard to believe given the number of large coal plants in this country that generate far more CO2 than even a fleet of Escalades.

No, the reason for this is purely political -- every representative has an electric utility in their district lobbying and paying campaign contributions, but few have organized lobbies of automobile drivers.   And so, rather than pushing for fuel shifts from coal to gas or nuclear in power generation, this bill will primarily achieve its meager results from making it more expensive for people to drive.


  1. James H:

    Another reason I can think of is keeping the cost impact more hidden. If your electric bill goes up, you can immediately link that to cap and trade (in fact, the power companies will probably mention it in their newsletter, something like "pricing increases due to CO2 regulations"). But with the burden on refined fuels, a couple of different things happen. Gas prices jump, which is blamed on "big oil" and their "excessive profits", and the cost of all goods and most services also increase. Most people won't be able to connect the rising costs of G&S to the cap and trade regulation, so no detrimental impact to the pols.

  2. Bob Smith:

    Not only are there few auto driver lobbies (other than AAA, whose views on this bill I do not know), there are many anti-auto lobbyists, not the least of which are the many public transportation agencies.

  3. Scott:

    If this drives gas prices up, the costs won't stay hidden for long, neither will the bill survive any longer than the doomed ethanol subsidies. Especially after it absolutely kills our economy.

  4. Fred from Canuckistan . . .:

    Higher gasoline taxes will "make" electric cars more cost competitive . . which is what Obama wants ??

  5. Bob Smith:

    If this drives gas prices up, the costs won’t stay hidden for long, neither will the bill survive any longer than the doomed ethanol subsidies.

    The costs won't stay hidden, but the reason for those costs will. Politicians will blame everybody under the sun except themselves.

    There are plenty of ethanol subsidies left, you know. The ethanol mandate in gasoline, for one.

  6. nom de guerre:

    none of it matters, as the boys in congrefs well know. come november 2010, we can have 15% unemployment (or, in real 'u-6' numbers, 22%), we can have $6 gas, iran and north korea can be firing upon us at will while our dear leader sucks his thumb and does nothing, $2500 gold and 20% inflation, any nightmare you want to think of.....

    and the incumbents running for re-election will still win 90% or more. why? **because they always do**. watch and see.

  7. Nick Archer:

    The only sane energy policy is "Don't waste energy".
    This is an individual decision for each of us, and the
    last thing the government wants is for people to
    learn individual responsibility.

  8. SubsidyEye:

    Very instructive blog. Thank you. I had not realized that the W-M bill was being so selective in the way it allocates (or doesn't) emissions allowances.

    I wonder whether there is one additional -- perhaps fundamental -- explanation for Congress deciding not to grant free allowances to refiners: they are hoping that making refiners pay immediately for the carbon emissions associated with the use of their fuels will provide yet another stimulus for biofuels.

  9. PolWatcher:

    All one need do is see who is sponsoring the bill - waxman and markey (small letters intended) - and know it will boost government, hurt those who really work for a living and cost more for the citizenry. Of course, those poor souls who "have lost at the lottery of life", the usual suspects, will be given "help" to overcome the blow dealt the rest of us financially by these megalomaniacs by simply foisting more of them and their "care" on the rest of us. This will include those unemployed as a result of this action.

    The bill must pass the Senate. We shall see what happens there.

  10. Semmes:

    Cap & Trade is about looting. Only liars or fools that believe liars give any credence to man made global warming. Do your own research. Research like math is hard. It takes time and critical analysis. CO2 is what plants take in and O2 is what they expel. Cyclical warming and cooling are normal and primarily due to Sun spot activity. The Global Cooling scare that didn't work in the 1970's (http://www.denisdutton.com/cooling_world.htm) was on all the news and talk shows, magazines etc. and people then still had the ability to spot bogus "Chicken Little" hysteria. Sadly after 30 years of massively expanded psychotropic drug use and utter degeneration of government school systems it is now apparent that that the people who run the government, multinational corporations and the "caring" professions (all controlled by the same groups) can disseminate any bunkum they wish to frighten and manipulate the sheep.

    The people who own the Federal Reserve (mostly foreign), Multinational Banks, Wall Street and your Senator and Representative are not content to rape the US of 2 years worth of our entire GDP by years end they are going to tax the air that you breath. The people that are raping us are going to run the Carbon Credit market. Al Gore is the controlling shareholder in Occidental Petroleum. Do you understand? Can you think?

    Discussing the details of this bill is like arguing how many angles can dance on the head of a pin. The people who wrote this are the same people who wrote the tax code. They peruse with glee discussions of detail in a bill that simply gives them the legal ability to control all human activity.

    Can you not even contemplate whether the bill is even constitutional? Qui bono? (Who benefits?) Was the foundation of Roman law and the first question any good detective asks? When you figure that out you will understand.

  11. Jason Calley:

    Totally aside from the fact that the wealthy and the powerful (Al Gore) own shares in the market that has been set up do the actual trading -- and will hence get their percentage of every trade made -- we should remember that cap-and-trade will be a powerful force to allow the continued de-industrialization of the US. Based on several decades of personal attention to current news and world history, it appears certain to me that a concerted effort has been underway since at least 1970 or so to strip mine America of its industrial and manufacturing capacity and to leave us as a primarily agricultural bread basket for the world. Cap and trade gives legal (perhaps I should put "legal" in quotes to illustrate its fundamentally unConstitutional basis) force to any decisions which hamstring manufacturing and shift any profits from industry toward agriculture. Farmers who use low-energy, high labor methods of growing crops may well qualify for "carbon sequestration" credits, money which will push factories to close while encouraging farming.