David Schoenbrod and Richard B. Stewart explain why the Waxman-Markey “cap-and-trade” bill isn’t, fundamentally, a market-based approach to regulating greenhouse gasses:
As a candidate for president in April 2008, Barack Obama told Fox News that “a cap-and-trade system is a smarter way of controlling pollution” than “top-down” regulation. He was right. With cap and trade the market decides where and how to cut emissions. With top-down regulation, as Mr. Obama explained, regulators dictate “every single rule that a company has to abide by, which creates a lot of bureaucracy and red tape and often-times is less efficient.”
… [Yet] Waxman-Markey is largely top-down regulation dressed in cap-and-trade clothing. It purports to set a cap on greenhouse gases, but the cap is so loose in the early years that through the use of cheap offsets the U.S. need not significantly reduce its fossil-fuel emissions until about 2025. …
The top-down directives come in three forms. First, electric utilities, auto makers and states get free allowances on the condition that they comply with regulations requiring coal sequestration, alternative energy sources, energy conservation, advanced auto technology and more. Second, many other provisions of the 1,428 page bill mandate outright regulation on subjects ranging from how electricity is generated to off-road vehicles and household lighting. Third, still other provisions provide subsidies for government-chosen technology “winners” such as alternate energy sources, plug-in vehicles and weatherization of old buildings.
Progress on most or all such fronts will be needed, but when, where and how should be decided principally by a cap-driven market, not the “red tape” that candidate Obama deplored.
The bill would impose dramatically lower limits in the future, but the authors see little reason to expect future politicians to allow them to go into effect. What would go into effect in the legislation are hundreds of pages of new energy mandates, more industrial policy directives from Washington and many more subsidies for politically favored technology choices.
The authors believe that cap-and-trade can be successfully applied to greenhouse gas emissions, and they much prefer the approach to the likely alternative (source-by-source EPA regulation of greenhouse gas emission). But Waxman-Markey isn’t going to do the job.