Plan B for cap and trade

Kerry and Graham try a new approach. Is it any good?

David Roberts has a good one:

Sens. John Kerry (D-Mass.), Joe Lieberman (I-Conn.), and Lindsey Graham (R-S.C.) appear set to introduce a draft of their new climate/energy legislation this week. Graham says they are trying to hash out a moderate bill that can draw broad public support and pick up a few Republican votes.

Now, as it happens, what Graham is groping around for already exists. There is a moderate climate/energy bill that has drawn broad public support and picked up a few Republican votes. It’s called the American Clean Energy & Security Act (ACES), or Waxman-Markey. It passed the House back in June of ‘09.

The idea being floated is that the new legislation will scrap the economy-wide cap on carbon emissions, and instead apply sector-specific rules. Electric utilities, for example, will still operate under some sort of cap, and presumably renewable energy mandates, support for nuclear energy, and money for “clean coal” will be thrown in. Gasoline will incur a carbon tax. Buildings and appliances will face tighter efficiency standards. For now, it sounds as though manufacturers might be left alone entirely, presumably as a sop to the Chamber of Commerce and National Association of Manufacturers.

Would such a hybrid approach be better than doing nothing at all? Quite probably. Tighter efficiency standards are a good thing in their own right, so they’re still perfectly good as part of a package bill. Ditto for a carbon tax on gasoline. Ditto for a cap on utility emissions. If all of the individual pieces are designed well, the result could be a step forward in our energy policy. Will the step forward be big enough? Environmental groups are taking a wait-and-see approach:

John Coequyt of the Sierra Club said the idea of simplifying the emission reduction plans could work by separating the politics of each individual industry. “By separating them, it gives you an opportunity to treat those industries in a way that makes them happier,” he said. But without all the details, he questioned whether Kerry, Graham and Lieberman had done enough to ensure the bill actually accomplishes what it needs to in the way of curbing greenhouse gases.

“I don’t know if you can do that and have a system that gives you a guaranteed reduction target,” Coequyt said. “I think that’s the challenge.”

Prediction: environmentalists will end up hating any compromise bill, and justifiably so.

Next question: will such a hybrid approach be as good as the Waxman-Markey bill that has already passed the House? Almost certainly not, for a whole bunch of reasons:

1. Instead of a unified carbon price, the system will result in a crazy quilt of different costs in different industries, making the total package more expensive than it otherwise would be.
2. Because rules won’t be applied in a uniform way, the opportunity for loopholes and industry giveaways will be much higher. And I don’t just mean giveaways to polluting industries. We really don’t want an energy policy that, say, enshrines special favors for wind turbine manufacturers.
3. Any revenue raised is far more likely to disappear into a black hole. For example, there’s already talk that money from a gasoline tax would be used to fund development of electric vehicles. That seems like a flatly terrible idea. Under Waxman-Markey, about 83% of revenue was going to be steered back into the hands of consumers. Under the hybrid approach, more of that money is going to go to, for example, Detroit.
4. It will be very difficult to guarantee a specific level of reductions by a specific date using a grab-bag of different measures.
5. For decades, the United States has lacked a comprehensive energy strategy. We’re sorely in need of one, and this mishmash of a bill wil just kick the can further down the road.

These things aren’t necessarily deal-killers. As I said, a gasoline tax is a good thing in its own right, and so are building efficiency standards, etc., even if these things don’t quite add up to comprehensive cap-and-trade.

So, we’ll all wait and see. The real villains in this story, as before, are the moneyed interests who are standing in the way of the Senate bill. But it is worth taking one more moment to bask in the breathtaking ignorance of the Annie Leonards of the world. If cap and trade fails, as it very well might, then of course we won’t end up with something simpler, cleaner, and more citizen-friendly. No, we’ll end up with something less effective, more opaque, and friendlier to polluters. Such a bill might still be worth passing, but let’s at least recognize what has been lost.

Update: Roberts has an excellent follow-up post here, which covers this territory with a lot more analysis of the underlying politics.