The CAT is out of the bag...*

The wheels in the House are starting to whirl and turn with all the elegance and haste of a steam ship towards the issue of climate change. The Waxman-Markey bill is just making its way out of committee where it will surely be flogged, beaten and carved up upon the floor of a the entire chamber. Without getting into the political viability of the bill itself ("even bleaker than prospects for the Nationals’ pitching staff,"(WSJ)), how does the thing stand before the gaze of economic and environmental policy wonks?

Apparently, the bill is some thousand or so pages, so I'm getting everything here second hand. But first, the basics: the bill would propose a cap-and-trade system on the U.S. economy. And if you're a certain member of the McGill economics department (Chris Green), that's already an enormous problem. His argument is that whereas a carbon tax would impose predictable and established costs on the entire economy, a cap-and-trade system where all the carbon output in the U.S. is capped at some arbitrary level by design allows for no flexibility and therefore little adaptation to the program. If the cap is set "too high," as it was when the E.U. decided to adopt a similar system, nothing has been accomplished climate-wise. On the otherhand, if the cap is set "too low," permit costs will skyrocket and may wipe out a sizeable portion of U.S. industry before anyone has time to invest in the long-term carbon-reducing capital. Furthermore, since carbon permits will be traded on an exchange like any other, like any other exchange, speculation, mania and panic may prove to be the rules of the game, soo too will price volitility. And on top of that, depending on how the permits are allocated (and according to the bill, they're being distributed, not auctioned-off), we could be opening ourselves up to an enormous amount of potential corruption and manipulation.

On the other hand, a carbon tax is fairly straight forward. All the costs are on the table, they're universally applied, and rather than allowing the market to determine the price with all the potential financial manipulation entailed, the market determines the carbon output. That may be less satisfying than some definite cap on carbon, but according to Green, it's likely to be more effective and politically viable in the long run. Ironically, (in the Morissettian sense, I think) the Republicans are already trying to retitle the plan "cap-and-tax" (...or "tax-and-cap"...or "tax-and-wed gay aborted fetuses," I don't remember). But, at least according to Green, and having been sufficiently brainwashed by him during his class, I'm close to agreeing with him, a tax would be the better policy.

On top of the inherent problems with a CAT system, there is a whole lot of other add-ons in the bill--"bullshit," in political jargon. Apparently, the cap (which I assume with be adjusted annually between implimentation period and 2050) can be met almost entirely with so-called "offsets." I've always thought the entire idea of offseting was a crock-of-shit. Reminicent of the 15th century Catholic Church, throwing a bunch of money at the nebulous and often questionably useful green industry rather than actually changing ones behavior isn't behavior our policy should be encouraging. If you think there are too many scam faux green products and charities trying to cash-in on the yuppie self-congratulation, just wait until there become a direct policy-mandated fiscal incentive to buy "Easy Ecopods" or to donate to organizations promoting eco-awareness in rural Ethiopia.

And then there's the problem with enforcement. Unfortunately, this problems seems to be a universal one, affecting both a carbon tax and a trade system alike. Here's Peter Dorman at EconoSpeak on that issue:

Never mind that it will take an incorruptible army of inspectors to determine just who is behaving how badly, that most small emissions will have to be left outside of such a system altogether, and that parceling out emission budgets this way is an open invitation to rent-seeking.

The simple, effective, non-moralistic solution is to cap the extraction of fossil fuels from the earth, or their importation from other countries. That will make these fuels scarce and expensive, and we can all decide how much we are willing to pay for them according to any reason, noble or base, that moves us. Why is this not on the table? (source)

I've never heard that idea, but it's an interesting one. Good luck with it.

*this pun is dedicated to Sarah, with apologies to everyone else.