Cap and trade (and energy policy, too)

For environmental policy wonks, few pieces of legislation have been as widely anticipated as what Rep. Henry Waxman (D-CA) released today in his draft American Clean Energy and Security Act of 2009 (summary here). Waxman became chairman of the House Energy and Commerce Committee earlier this year — taking over from Rep. John Dingell (D-MI) — and vowed to push a climate bill through committee by Memorial Day and the full House by year-end. That would be a tall order under any circumstances; it’s made even more difficult with the country in the depths of an economic recession.

Waxman and his subcommittee chair, Rep. Edward Markey (D-MA), came out swinging for the fences today with a mega-bill that addresses energy policy (federal renewable energy standards, new energy efficiency standards, support for plug-in hybrids and smart grid technologies) as well as climate change (carbon caps on 85% of the U.S. economy, greenhouse gas regulation for cars, low-carbon fuel standard, and investments in carbon sequestration). In a word, this legislative draft is breathtaking. But can it pass?

Waxman’s strategy must be to offer enough program features so that everyone (or at least a majority in Congress) likes enough of the components to vote for the whole thing. I can see this approach working, and I can also see it leading to Congressional paralysis. Just understanding the bill’s implications may require each member of Congress to take a tutorial in energy and climate policy economics.

The legislative drafters have shrewdly inserted measures (particularly a system of rebates) to cushion the economic impact on the most affected industries. In addition, carbon offsets would play a major role in meeting the proposed GHG caps, thus reducing compliance costs.

Last month, Energy & Environment Daily tried to assess where House members currently line up on climate legislation. 218 votes are needed for a majority. Here’s their take:

* Yes: 163
* Fence Sitters: 126
* No: 146

Lots of horse-trading will surely occur before the full House votes on Waxman’s bill in late 2009. And then there’s the Senate, which must work in parallel to come up with its own bill. Watch for a legislative battle commensurate with what’s at stake!

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  1. Sal - April 1, 2009

    What will this accomplish. These measures are nothing more than revenue generation. If there are rebates already built in for the most adversely affected industries, then what is the point. Here you want a program that works, allocated “X” number of units of carbon needed to be achieved by every man, woman and child and business. Once you reach this level you no longer can drive, have electrical service nor can you buy clothes or other not essential items.
    Stupid, I agree. But no more stupid than developing a program and then allow escape routes for those whom it affects the most.
    Again this is really nothing more than revenue generation, so lets call it what it is…”A TAX” because it will do nothing to curb anyones carbon footprint and allow those with the money to buy there way out of it.

  2. Adam Stein - April 1, 2009

    Hi Sal,
    There is a common misconception that rebates undermine the efficacy of a carbon cap. This isn’t true, although the economic logic is certainly confusing. Read more here.
    Note that this doesn’t necessarily mean industry rebates are a good idea, but the cap will still work.