Cap-and-trade and energy politics: A Salon debate

Steve Everley made the case against putting a price on carbon this morning. Now David Roberts responds

Topics: Global Warming, Energy, John F. Kerry, D-Mass., Lindsey Graham

Cap-and-trade and energy politics: A Salon debate

Over the next three days, Salon will be featuring a dialogue between two very different voices on the subject of climate change legislation. Steve Everley is manager of policy research at American Solutions and a contributing author to “To Save America: Stopping Obama’s Secular-Socialist Machine,” by Newt Gingrich, and David Roberts writes about energy politics for Grist.

Everley led off with his thoughts this morning, and a response from Roberts followed a few hours later (it appears below Everley’s post).

Steve Everley: With the unemployment rate near 10 percent, creating jobs should be the first consideration of our elected leaders, but instead President Obama and his liberal allies in Congress are insisting on enacting a national energy tax that will kill jobs and drive American businesses overseas.

The vehicle for imposing this vast new energy tax system is cap-and-trade, a scheme where the government arbitrarily determines how much carbon each company can emit, chooses which companies get free permits to emit carbon and which companies have to pay for them, and then puts unelected bureaucrats in charge of regulating the whole system.

The result is higher energy costs, which virtually every economist will tell you are necessary for cap-and-trade to be effective – higher prices are necessary to prevent consumers from using what the left considers too much energy. President Obama even bragged that under his ideal cap-and-trade plan, electricity prices would “necessarily skyrocket.”

President Obama has also listed Spain as the model for his energy policy, noting last year that the Spanish government’s investments in green energy “are paying off in good, high-wage jobs – jobs they won’t lose to other countries.”

But a study from economics professor Gabriel Calzada of King Juan Carlos University in Spain shows that his country’s push for “green jobs” has been a disaster for the economy: Calzada found that each green job created not only costs on average 2.2 jobs in the private sector, but also upward of $800,000 each in government subsidies. Two months ago, Spain’s unemployment rate topped 20 percent.

If Spain is the model that President Obama and the left wish to emulate, then America’s unemployment rate will also “necessarily skyrocket.”

Many other studies have shown, including those from the Brookings Institution and the Congressional Budget Office, that higher energy costs lead directly to fewer American jobs. The CBO adds that the shift toward so-called green technologies, President Obama’s biggest selling point for this new cap-and-trade energy tax, would actually reduce economic productivity as each worker in the energy industry would now spend the same amount of time producing less energy.

The European Union sold cap-and-trade to its member countries in 2005 on the basis that it would create jobs and boost their economies. The opposite happened. Since 2005, this policy has cost the EU economy over $7 billion, and the U.S. Government Accountability Office found last year that the EU system did not significantly advance investment in new technologies, which President Obama and his liberal allies in Congress keep pointing to as the source of new jobs that cap-and-trade energy taxes are supposed to deliver.

With that kind of record, what rational policymaker would seek to impose this new energy tax system on his or her own constituents as a way to create net new jobs and net new economic wealth, and not just a massive redistribution of wealth?

Last fall Sen. Kerry tried to sell his cap-and-trade energy tax plan by pointing out that America had effectively reduced its emissions in the past year “because of the downturn in the economy.” In order to get to where we need to be, Kerry concluded, we just need to go “another 14 percent.”

It was an illuminating admission from the Senate’s staunchest defender of the energy tax. Kerry articulated a direct relationship between economic stagnation and cap-and-trade, proof that an energy tax is a strategy that will kill more American jobs and make the recession permanent.

- – - – - – - – - – - -

David Roberts: I confess to being uncertain how to respond to Mr. Everley’s opening salvo. Like his boss Mr. Gingrich, one of the original masters, he seems to be stringing together words and phrases poll-tested to inspire fear. The presence of the term “unelected bureaucrats” does not generally signal good faith and seriousness.

So let’s back up a bit. Why would we want a mandatory cap on greenhouse gas emissions? Because we have a large and pressing problem to solve, namely climate change, a phenomenon that Everley astonishingly fails to even mention. The best science indicates that the developed world needs to reduce its emissions over 80 percent by 2050. That is a truly Herculean task, and I’d be quite curious to hear how Everley proposes to accomplish it without a mandatory cap on carbon pollution — or if he thinks it’s a real problem at all.

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By emitting greenhouse gases, industries are imposing costs on the public, but they are not paying those costs. Carbon pollution is a classic economic “externality” that distorts the proper functioning of the market. One way or another, those costs need to be internalized, incorporated into the market price of fossil fuel-intensive goods and services. It’s important to note that such a move would not raise net costs — it would simply move those costs to their rightful owners. It would force the market to tell the truth.

So how to go about it? In the late 1980s, a group of market-inclined environmentalists, recognizing the limits of “command-and-control” air pollution regulations, developed a new model: rather than plant-by-plant mandates, set a declining upper limit on the total pollution emitted across the U.S. economy, issue tradable pollution permits, and allow private capital to flow to the best (read: cheapest) means of meeting the cap. Thus you harness environmental goals to market forces. This essentially conservative idea impressed the administration of George Bush Sr., who signed into law the 1990 Clean Air Act amendments, which implemented such a system for acid rain pollutants. It was a resounding success, reducing pollution much more cheaply than expected, with massive social and health benefits. (For a compact history of cap-and-trade, I recommend this article in Smithsonian.)

Market-based pollution limits have been so effective that a bipartisan group of senators led by Sens. Carper. D-Del., and Alexander, R-Tenn., is now pushing a similar trading system for SO2, NOx, and mercury — so-called multipollutant legislation. Leading lights on the right used to feel the same way about using market-based systems to reduce greenhouse gases. For instance, a wise man once said:

“I think if you have mandatory carbon caps combined with a trading system, much like we did with sulfur, and if you have a tax-incentive program for investing in the solutions, that there’s a package there that’s very, very good. And frankly, it’s something I would strongly support.”

That was Newt Gingrich in 2007, before he was angling for a presidential nomination from a party dominated by its Tea Party fringe. Similarly, in 2008 California Senate candidate Carly Fiorina said that a cap-and-trade system would “both create jobs and lower the cost of energy.” Now that she’s seeking votes from the Tea Party, she’s allying with the Senate’s premier flat-earther, James Inhofe, R-Okla.

In short, conservative politicians are turning away from — and grotesquely mischaracterizing — a market-based pollution control system for primarily self-interested electoral reasons. This has made clear dialogue on the subject extraordinarily difficult.

Anyway, I don’t want to bore people, but a couple more quick notes. First, the Spanish study Everley cites has been debunked up one side and down the other, most recently by the DOE’s National Renewable Energy Laboratory. No one but conservative ideologues takes it seriously anymore. Recent studies of cap-and-trade bills, like the one a couple weeks ago from the Peterson Institute for International Economics, show that they would be net job creators, if modest ones. Other studies, from, for example, the EPA and CBO, show that the bills would reduce the deficit, which you’d think would be attractive to conservatives.

On the costs of a cap-and-trade system, the economic consensus is that it would cost American households about a postage stamp a day — a far, far smaller price than would be imposed by the damages from climate change. For more on that consensus, see this discussion paper (PDF) from journalist Eric Pooley.

To conclude: virtually everyone agrees that the U.S. needs to invest in new clean energy industries and solutions. That’s the easy part. The politically more difficult part is how to pay for those investments. A cap-and-trade system offers a twofer: It discourages carbon pollution by raising its price, and it uses that revenue to fund clean energy solutions. Conservatives want to spend the money, but they don’t want to raise it. It’s fiscally and morally irresponsible.

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