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July 03 2009

environmental-sustainability
19:01

Another economist in the Waxman-Markey camp

In "Another comment on Waxman-Markey", Charles Kolstad (co-editor of the AERE journal, Review of Environmental Economics and Policy) concludes:

Although the bill has its shortcomings, at its core it is an impressive piece of legislation. If the senate trims some of the glaring defects, then the U.S. will become the world leader in taking global warming and climate change seriously.

After a quick review of cap-and-trade, Kolstad takes aim at three concerns:

... (1) that permit costs will drive up the cost of everything in our economy and hit the average citizen hard in the pocketbook; (2) that certain industries will be put at an unfair competitive advantage, causing jobs to migrate to China; and (3) that the carbon cap is too lax and too many permits are given away.

Although it is true that permit costs will be passed on to consumers, the respected nonpartisan Congressional Budget Office estimates the costs per household to be $165 per year – hardly a heavy burden. Furthermore, the costs are fairly evenly spread among various income classes.

In terms of industries that will be hard hit, it is true that some industries that emit a lot of carbon or use a lot of fossil-fuel-based electricity may see their costs rise. Most industries will see costs rise less than 1%. A few industries will see larger increases, but most of these are bulk-material industries (such as cement), the production of which is highly local and not likely to move overseas. ...The bigger picture, however, is that there may well be job losses in some sectors but gains in others, as cleaner energy technologies grow.

Another criticism is that the bill has very weak targets for reducing greenhouse gases. It is true that for the next five to ten years the cap is quite loose – in fact it increases every year through 2016. And as a result, during this period, the price of allowances is expected to be very low. But eventually, and this is the important part, the cap does tighten. In twenty years, the goal is to have greenhouse gas emissions 42% below 2005 levels. That would be a remarkable achievement that would overshadow any slow beginning or temporary giveaways that might be in the bill.

But the problem without a comeback is this:

Probably the biggest shortcomings in the bill are not the cap-and-trade portion but all the other sections, particularly those dealing with agriculture and biofuels. Biofuels, for instance, are exempted from the cap even though they can be a major source of GHGs. Agriculture is generously granted offsets that can be used in lieu of permits, and the offset program is overseen by the U.S. Department of Agriculture.

Good luck to the Senate getting rid of those!