So Why Are We Even Bothering with Cap and Trade?

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.


  1. rex pjesky:

    This is one hell of a good point.

  2. Frank Gas:

    As a Canadian who woke up to snow on the ground yesterday, I'm really for climate change, but if it REALLY was such a big deal, why do our two federal governments now own a company that makes the worst gas guzzlers? And, why did they allow Hummer to be sold instead of just shutting it down? If I was not already such a cynic, the hypocrisy would be jaw-dropping.

  3. Link:

    In healthcare most of the spending goes to a small number of chronic diseases -- chronic patients don't get well, you manage their condition. For many of these chronic conditions, you can't underestimate the importance of patient variability. You can often get better outcomes by "managing" to this patient variability. When you do, you can often reduce costs -- because you avoid the high costs of patient breakdowns -- things like hospitalizations.

    I mention this because the federal government will likely force patient management to the mean, and make everyone worse off. Would you use the same dialysis regimen for a 300 pound man as you would for a 100 pound woman? ... you get the idea.

  4. A Stoner:

    Actually Europe has tried this, and it is failing and has failed.

  5. Jon:

    Just a quick story... I am in the unfortunate position of working for a fossil fuel industry in Washington, DC. I went up to the Hill for a briefing on what the states are doing with cap and trade. The director of air and radiation management for Maryland, Tad Aburn, gets up and immediately goes into how much the Regional Greenhouse Gas Initiative (RGGI) has raised for Maryland with it's 3 auctions, 53 million smackeroos, and that the whole program is a GREAT success.

    I thought the point of cap and trade was to mitigate climate change? I guess I'm just gullible and should have assumed this was all about transferring wealth from the beginning.

  6. RJL:

    Cap and Trade is simply a means to new tax revenue. The C&T reduction goals, if met, would put us back in the pre-inustrial era. Since this would be unacceptable, the industry will exceed allowable emissions, the FedGov will tax it, and it will all be passed along to the consumer as a hidden tax.