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Seriously: the Waxman-Markey bill is good

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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