Reality on hiatus in the matter of cap and trade
The Economist summarizes the Obama administration’s cap and trade legislation as things currently stand in Congress:
Industries that emit carbon dioxide would have to buy permits to do so. A fixed number of permits would be auctioned each year. The permits would be tradable, so firms that found ways to emit less than they were entitled to could sell some of their permits to others. The system would motivate everyone to reduce emissions in the most cost-effective way. It would raise energy prices, which is the point, but it would also raise hundreds of billions of dollars, most of which Mr Obama planned to give back to voters. Alas, that plan looks doomed.
On May 15th Henry Waxman and Edward Markey, the Democratic point-men on climate change in the House of Representatives, unveiled a bill that would give away 85% of carbon permits for nothing, with only 15% being auctioned. The bill’s supporters say this colossal compromise was necessary to win the support of firms that generate dirty energy or use a lot of it, and to satisfy congressmen from states that mine coal or roll steel.
Giving away permits creates several problems. First, it generates no money, thereby royally messing up Mr Obama’s budget. Second, it means that the permits go not to those who value them most (as in an auction) but to those whom the government favours. Under Waxman-Markey, electricity-distributors would get the largest share, with the rest divided between energy-intensive manufacturers, carmakers, natural-gas distributors, states with renewable-energy programmes and so on. Oil firms, with only 2% of the permits, feel hard done by. But most polluters, having just been promised hundreds of billions of dollars’ worth of permits for nothing, are elated.
As we previously noted, the FT had it right the other day: “On the drawing board is a vast and unfathomably complex new system, which fosters corruption, raises little revenue and tries to suppress the incentives that are its entire purpose. Otherwise, it all looks quite promising.” In this administration, reality apparently doesn’t count for much.
Watching the Obama administration is like watching a TV show. The writers make up whatever script they like. Reality is the thing that is on hiatus. We feel like we’re sitting around waiting for something important to begin, just listening to the crickets chirp. Meanwhile, there are rumblings off in the distance.
When will reality intrude? The bill for Obama’s crazy spending hasn’t arrived yet. This modern-day Don Quixote tilts at windmills made of straw men and few remark the absurdity of the quest. His fans still love their guy and his eloquence, while his opponents make some good points, but few seem to notice. It would be nice if this interim period ends not with a bang but a whimper.