Seriously: The Waxman-Markey Bill is Good

Written by adam


Thomas Friedman makes a bunch of very good points in his recent column on the Waxman Markey climate change bill that just passed in the House. But the opening comes on awfully strong:

> There is much in the House cap-and-trade energy bill that just passed that I absolutely hate. It is too weak in key areas and way too complicated in others. A simple, straightforward carbon tax would have made much more sense than this Rube Goldberg contraption. It is pathetic that we couldn’t do better. It is appalling that so much had to be given away to polluters. It stinks. It’s a mess. I detest it.

> Now let’s get it passed in the Senate and make it law.

I certainly understand the angst. There’s nothing more soul-crushing than watching legislators legislate, and the despair is magnified a thousand-fold when the horsetrading involves the fate of the planet. But I’ve read enough analyses of the legislation at this point to say with some confidence that the bill gets the major things right.

Typical of much recent post-hoc analysis, a Times article purports to detail the ways in which the bill “grew fat with compromises, carve-outs, concessions and out-and-out gifts intended to win the votes of wavering lawmakers and the support of powerful industries.” Sounds juicy, but the article mainly lists a bunch of standard-issue industry handouts. Nothing to be glad about, but nothing world-ending either. Harvard economist Robert Stavins not long ago had an insightful post about how these sorts of giveaways are actually a feature, not a bug, of cap-and-trade; revenue from the program can be used to buy political support without undermining the environmental integrity of the cap. The process isn’t pretty, but — as we just witnessed — it works.

About a year and a half ago, I gave a broad overview of seven key features of a climate bill. Let’s see how Waxman-Markey stacks up:

**1. Go deep**

Waxman-Markey goes deep, calling for an 83% cut in carbon emissions by 2050. Think about it: in 40 years we’ll practically be a carbon-neutral society. The bill is a bit slow to get going though, pushing too many of the reductions toward the back end.

**2. Go broad**

The bill is impressively broad, capping 86% of emissions sources directly, and addressing a lot of the remaining emissions through other forms of regulation or incentive. Compare this to Kyoto, which covers only a bit more than 50% of emissions.

**3. Go to the source**

This is wonky detail, but the W-M bill correctly caps emissions upstream, covering about 7,400 facilities. This relatively small number of regulated entities simplifies administration of the program.

**4. Make polluters pay**

Here the bill offers up a mixed bag, but it’s not nearly as bad as some critics have suggested. Out of the gate, the bill requires that 15% of permits be auctioned, rising to 70% in 2030. That 15% is low, but an additional 30% of permits are essentially rebated to consumers via their utility bills, and another 10% are given to states to fund renewable energy and efficiency programs. David Roberts took a look at the allowance allocation and found that something like 75% of the allowances are being allocated to consumers, clean energy, or other public purposes over the lifetime of the bill. Again, this is a vast improvement over Kyoto. The mechanism for distributing the allowances is surely more complicated than it needs to be, but whining about complexity in federal legislation is a mug’s game.

**5. Spend wisely**

Again, this is a mixed bag, but the good seems to outweigh the bad. Not only is quite a bit of money flowing back to consumers in the form of rebates, but sizable pools have been allocated for worthy programs like rainforest preservation, public transportation, energy efficiency and renewable energy, etc.

**6. Be (a little) flexible**

Many of the less politicized aspects of the bill are actually quite good, including thoughtful flexibility mechanisms, such as clauses for banking of permits and a strategic permit reserve to guard against price swings.

**7. Politics matter**

Well, the bill passed, so it gets high marks in that regard. We won’t know for some time exactly how the compromises it contains will affect the integrity of the cap. Most of the giveaways seem fairly harmless, but oversight and enforcement will be critical to the program’s success. One particular area of concern will be ensuring that giveaways to agricultural interests don’t undermine the cap.

Stepping back a bit: the bill for the first time ever places a strict carbon cap on the entire U.S. economy, putting us on a trajectory toward 83% emissions reductions in 40 years. It establishes a rising carbon price, providing financial incentives for energy efficiency and renewable energy. And it scores passing to good marks on a wide set of criteria used to grade climate change legislation. Yes, there are hundreds of ways the bill could be improved. Yes, it has some lurking design issues that could cause problems down the road. But based on what we presently know and can foresee, it’s a fine start.

(Hat tip: I am deeply indebted to Sightline for providing some of the analysis underlying this post.)

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  1. scribblin

    It all sounds good, in theory, and I support reducing carbon emissions – beginning with myself, of course, holding myself accountable. But I’m worried, very worried, about what this could do to American manufacturing. Various free-trade agreements have already created a scenario in which manufacturers win big by moving American jobs overseas. I’m concerned that any cap-and-trade scheme may simply accelerate this by adding a further financial impetus. Why play the auction game when you can close your factory and move the jobs to a country where people work for a fraction of the cost and where emissions aren’t an issue? If you don’t think the loss of American manufacturing is a serious matter, look at the “Made in ________” label or stamp on the items in your home. You’ll be shocked to see that very little of what you own was made in the U.S.A. When a nation can’t produce what it needs, it becomes dependent on others. When we give up American manufacturing jobs, we give up our sovereignty. Solution: Rather than increasing the cost of manufacturing (an inflationary practice, since increased costs will, of course, be passed along to consumers), we should be lowering it. Further, let’s not encourage the clean energy industry to become lazy via self-inflicted tariffs on alternatives. We need to do this right. We need to make clean energy cost-competitive without artificially inflating the alternatives. Otherwise, potentially, all we’re doing is raising the price of everything and chasing American jobs overseas. (Apologies for length; there was a lot to say.)

  2. William Potash

    I think you ought to look at my earlier comments on the earlier posts for a good counter-argument. Don’t support the ACES. Just read Greenpeace’s arguments against it.

  3. djrabbit

    Great analysis. Rainforest preservation is huge, so are the efficiency standards and adaptation funds.
    ACES also has a review period 5 years out, at which point EPA tightens the cap if science demands it (which it probably will) — that puts us half-way through Obama’s second term, after the cap is already in place and the argument that capping emissions will destroy the economy is dead.
    Once this thing is in place and it’s built up a constituency (clean tech, offset providers, etc) we can always go back and strengthen it, people. The Clean Air Act has been amended four times folks (ACES will make it five), there’s no reason to assume this will be last bite at the apple.

  4. djrabbit

    The reason that manufacturing left after the free trade deals is that workers in Mexico, China, Vietnam demand 1/10 or less the salary of American workers. In other words, free trade essentially made US labor 1,000% more expensive than foreign labor.
    Now take a look at the CBO estimate of energy cost increases due to ACES — on the order of only 10-20%. And that’s before accounting for all those free allocations to industry and electricity users. The people arguing that a 20% cost increase due to ACES will have the same devastating effect as a 1000% cost increase are ignorant and wrong.
    You should also check out the import and trade-imbalance provisions in the bill — any US manufacturer that moves oversees will likely still have to pay for its emissions, at least for those goods that it imports into the US (still the biggest market in the world).

  5. djrabbit

    In the House, ACES was supported by the United Steelworkers, the UAW, the AFL-CIO, and the AFL-CIO Building and Construction Trades Department, which includes the International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers; the International Brotherhood of Electrical Workers; the International Brotherhood of Teamsters; and the Sheet Metal Workers’ International Association. (See Mayor John Fetterman’s July 7 testimony before the Senate Cmte. on Env. and Public Works)
    Probably because they want manufacturers to flee the country, huh?

  6. dlmchale

    Hello, I guess the Keeling Curve needs reinvent? Chuck and his team built the baseline in 1959 and recieved the President’s highest science award for doing so (Republican award but this stuff is not really an issue). Quietly the data was built and recorded, there is not a lot of ‘hulla-boola’ here. People began to look at it in ernest when ppm in other studies began to reflect the same data. Even the ‘real’ skeptics confirm this. IPCC used the same current scientific to compose their model. The best skeptics debate the findings Keeling made at Mauna Loa because this is a volanco so the other data baseline composed to validate (or deny) Chuck’s study was built, The Global Mean Average Over Marine Surfaces. Sorry to say Other Mike, they are both about 386-387ppm; today. The 30,000 ‘others’ are simply ‘others’. They do not dispute either data, they look at the data collection, the equipment the criteria for assumption and the variable in the model. Well for those who do not know this variable here it is: “The estimated uncertainty in the Mauna Loa annual mean growth rate is 0.11 ppm/yr. This estimate is based on the standard deviation of the differences between monthly mean values measured independently by the Scripps Institution of Oceanography and by NOAA/ESRL”. Granted the equipment and the controls can be challenged for both studies. The ‘others’ have no data or no model just the reclusive denial this brings the dialog back to what a third study might do to substain these basic premises, then there is the overwelming data from so many sea ice samples worldwide. Other Mike if you can submit a specific sea ice study that supports non-climate change, I’m interested in following up with my 2.5 cent review (this is not mean spirited in any way). It’s just science, ‘cus you know if you can repeat a model or experience or test or experiment with similar findings 68% of the time it becomes something of crediable value and will be studied for validity.
    Now about the ACES bill, conserve, a new grid, more solar, carbon tax (gotta have it) and arm and arm with other scientists who have spent decades studing climate change; yep-let’s get to it.
    thxs dm

  7. TJ

    Unfortunately the making the polluters pay part will work just like making the bankers pay for making bad loans. We the taxpayers or in this case consumers will pay for everything. No one keeps a business going that doesn’t make money so if we need what the business produces we will just pay more for it.

  8. Gail Coffey

    While the idea of actually getting a climate bill passed is exciting, we need to be truthful and realistic. These cap and trade goals are way too little too late-pathetic. I don’t think we will ever legislate our way to lower carbon emissions through federal legislation-too much dirty energy lobbying. The states will have to take the lead.
    Several people mentioned about how this climate bill will be bad for the economy. When are we going to recognize that the current economic model and U.S. standard of living means we are destined to destroy the planet?
    We need to downsize and be content with less on a global scale. Our planet is already loaded with so much waste and toxins that we may not even have to wait for climate change..