Oregon’s Rejection of Cap-and-Trade: Remembering Waxman-Markey

[Editor note: The post reprints a ten-year-old post that is relevant today with the recent rejection of cap-and-trade by the state of Oregon.]

The case for regulating carbon dioxide (CO2) is quite questionable on purely physical scientific grounds (examine the empirical data; understand the debate over feedback effects regarding climate models). The balance of evidence is certainly not toward the high end of the Intergovernmental Panel on Climate Change (IPCC) temperature range, and it is, in fact, trending at the low end of this range with a decade of temperature quiet. The low end is where the problem not only fades but where little temperature reversal can occur no matter how capped global emissions are.

Given, the scientific debate is complicated, and recent data has been trending away from long-held views of alarmism. But on economic cost/benefit grounds, the case for policy activism falls apart, for leading economists have been unable to justify pricing CO2 via government mandates without assuming perfect knowledge (William Nordhaus’s “environmental pope“) where we have:

• Infallible knowledge about the problem (the “market failure”);
• Infallible knowledge about the solution (what to do policy-wise); and
• Perfect implementation of the solution (no political imperfections, or what is called “government failure”).

And then there comes the political animal called Waxman-Markey, a bill that was called a “monstrosity” by James Hansen at 648 pages–and is now more than double that in size.

So the debate is not only about market failure from unregulated greenhouse gas (GHG) emissions, as the Chronicle editorial board sees it. It is about analytic failure and government failure.

A second look at the paper’s editorial support of Waxman-Markey is called for. This is a bill that hardly resembles what economists and political scientists would call focused, rational public policy, even from a climate activism viewpoint.

And a good place to start such a rethinking is with the piece published yesterday by the Chronicle’s ace business columnist/editorialist Loren Steffy. Steffy’s position on energy has clashed with the editorial slant before, and he has once again added a needed perspective in the energy/climate debate for Houston’s newspaper of record.

Here is Steffy’s column of June 26, 2009:

“If Only Wind in Bill Could be Harnessed”

To paraphrase Pink Floyd, the energy bill that the House of Representatives may vote on as early as today would have us trade congressional hot air for the cool breeze of meaningful policy.

Rather than take a realistic approach to America’s energy needs, the bill offers heavily subsidized alternative fuel programs as an economic balm that will create jobs and an expensive cap-and-trade program that’s likely to cost far more than Congress intends.

In an interview with the Chronicle this week, President Barack Obama talked up the bill, saying it would benefit Texas. He noted our state’s strong renewable energy standards and that “wind energy has just taken off and been a huge economic boon to the state.” [Think Enron]

Wind energy has “taken off” because the state has mandated its inclusion in our overall energy mix and because it committed $5 billion of our money to building transmissions lines to the wind farms of West Texas. As for the economic boom, well, that depends on how you look at it.

Last month, the Electric Reliability Council of Texas released a study that found most Texans would pay about $27 a month more under Obama’s plan. That’s a little more than the cost of “a postage stamp a day” that Obama predicts it will cost, even accounting for the rise in first-class postage.

Obama downplays such cost studies, much as he does the concerns over the cap-and-trade system that’s the centerpiece of the bill. Cap and trade is supposed to reduce carbon emissions, though as I explained in an earlier column, it may do more to raise consumer prices when we can least afford it.

Obama noted that cap-and-trade worked well for combating acid rain. While that’s true, it ignores a key difference between acid rain and carbon. Acid rain was the result of pollutants that could be reduced using existing technology. We don’t have any economically viable technology for reducing carbon. We can, of course, simply use less, but that’s hardly the bold initiative for growth the president seeks.

A more accurate comparison for the cap-and-trade plan is the European carbon markets, where prices have been volatile since they opened.

Speaking of Europe, Obama’s wind energy plan is based in part on a similar program in Spain, which has spent more than any European nation on wind energy. Harnessing the wind, though, has not brought an employment boom to Spain. A study released in March by the Rey Juan Carlos University, which I posted on my blog last month, found that based on Spain’s experience, the U.S. could expect to lose nine jobs for every four created in the name of green energy.

Similarly, a study by the University of Illinois found that most of the estimates for jobs created by the government subsidizing alternative fuels are flawed. In fact, there’s not even a consensus on what constitutes a “green” job.

What Obama wants is a bill that will stimulate the economy, create jobs and generate sustainable growth while giving rise to new environmentally friendly sources of energy.

Those are admirable goals, but too many proposals for alternative fuels come with unrealistic expectations and are laden with government subsidies.

In Houston, any moves to curtail fossil fuels come with the threat of job losses and slower growth. At the same time, we also can’t ignore the need for cleaner air and the potential of a burgeoning alternative fuels industry.

As consumers, we’re going to have to pay more for energy — whether it’s conventional fossil fuels, new alternatives or both — but alternative fuels are unlikely to break this economic crisis. For such programs to be successful, they have to be financially viable. Even then, sources such as wind power are likely to be a supplement rather than a replacement for fossil fuels.

In the meantime, we need to increase incentives for finding and developing conventional fuels and adopt meaningful conservation efforts.

The bill before the House, though, avoids many of those tough trade-offs. Instead, it offers inflated rhetoric and overly optimistic projections, favors pet programs and ignores the potential consequences.

It may seem like the cool breeze of change, but the bill is just more of the same hot air that’s become the trademark of Congress.

We need a good energy good legislation on energy and climate change. This isn’t it.