On the 17th of April, the Obama administration proclaimed the new doctrine that carbon dioxide is bad for our health and circumstance. Not much of a revelation for many in the fields of public health, but certainly a bold move politically. With this announcement, and the Clean Air Act already in play, the EPA can step in and begin regulating emissions with the blessing of the Supreme Court and Executive branch. The Financial Times writers, Andrew Ward and Sarah O’Connor, offer a brief synopsis of it in their article “US declares carbon dioxide a danger to human health”.
I find the maneuver encouraging, but we are still at least one large step from doing much of anything tangible to curb emissions…and a chasm away from doing it right.
Does the Obama administration really want the EPA to handle CO2 admissions? I doubt it. In fact, the real bite of this new axiom and emboldened EPA has already been noted by much of Congress: it’s twisting the screw to get them to pass some legislation. It is always more pleasant for an elected official to vote for the obvious than vote for the confrontational. Naturally, some of them are quite uncomfortable with the Obama camp turning up the heat on potential environmental legislation (perhaps that will make them more empathetic to the scientific community’s discomfort with the world’s rising temperature). Notwithstanding some Congressional pleas that Obama isn’t playing fair, the legislative branch will now have to take a long, serious look at the current cap-and-trade proposal. Before, it was just a matter of voting down something they (and some lobbyists) didn’t want any part of. Now, it means forfeiting a market-based system of regulation for an executive agency book of mandates (you can almost hear the far-right teeth grinding…environmental protection, bigger government…they haven’t experienced such agony since the 70s).
But will cap-and-trade do it? Maybe, but I’ve got my doubts. I should moderate my demur with a caveat: it probably will do something, it just might not be much. Briefly, this system aims to declare a national ceiling on emissions, slice the total up like a pie and distribute them to every corporation that pollutes. Those that need more permits (slices of pie) will have to buy them from others, who have permits to spare. Ideally, it keeps the total emissions at an agreed upon level and encourages innovation (i.e. do what you can to need as few permits as possible and sell the left-overs). Not so bad thus far, but the tricky part comes next. PRICING.
The conundrum of this particular proposal is putting the right price tag on the permits. Aim to low, and they become so cheap that nobody changes behavior and we’ll merely have a bunch of permits laying around on the ground like unwanted grocery store coupons (EU demonstrated this one). Price them too high, and you can significantly alter your export industries and engender a whirlwind of business backlash (that will be there regardless, so it’s the first point that matters). I think this is an especially important consideration in the wake of our financial armageddon. To curtail America’s prodigal ways, it needs to reconcile its trade deficit (i.e. export a little more and import a little less). Some careful mathematics and a stroll down a fine line is in order if we hold to cap-and-trade.
To get away from the precarious efforts to price permits, I think we should just implement a carbon tax. Get a few smart people in a room, initiate a circumspect approximation of the negative externalities intrinsic to each unit of CO2 emissions, and charge the polluter accordingly. Take the new revenue and invest it in environmental protection interventions and subsidize new technology (help businesses pollute less, make solar and wind power implementable, etc.). Don’t want to pay more taxes? Then stop polluting…that changes behavior, right? Additionally, the price is stable (just like a sales tax), so any business can calculate its upcoming fiscal year liabilities based on expected emissions multiplied by per unit tax. No black magic or unexpected outcomes (like rock-bottom permit prices). And last but not least, the carbon tax has a social appeal: it gives Rush Limbaugh and his delusional acquaintances an excuse to get together again over a cup of tea.
