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Tuesday, May 13, 2008

A really bad idea: McCain's Climate 'Market'

Here is John McCain's speech on climate change policy.

He is proposing a cap a trade system, similar to the one that hasn't worked in the EU because it reduces free market policies.

The WSJ explains McCain's Climate 'Market' (emphasis added)
In theory, this would be achieved by imposing emission ceilings on electric power, transportation fuels, commercial business and industries. If a company produced less carbon than it was allowed under the cap, it could sell -- i.e., trade – its extra allowances to other businesses. Under the McCain plan, permits would be given away to industries, at least initially. Mr. Obama prefers to "auction" the permits, meaning businesses would be taxed at the outset. So Mr. McCain's plan would help mitigate the transition costs of putting "the age of fossil fuels behind us."

The problem is that once government creates an artificial scarcity of carbon, how the credits are allocated creates a huge new venue for political rent-seeking and more subsidies for favored industries. Some businesses will benefit more than others, in proportion to their lobbying influence and how well they're able to game the Beltway. Congress itself will probably take the largest revenue grab, offering itself a few more bites out of the economy and soaking politically unpopular businesses.

Then there's the question of whether any of this will even reduce greenhouse gasses. The McCain plan would allow businesses unlimited use of domestic and international offsets to comply with the carbon cap. So a chemical manufacturer, say, would pay an industry not covered by the program – most notably, agriculture – to reduce its emissions. Or it could pay a coal plant in China for plucking low-hanging efficiency fruit, like installing smokestack scrubbers. In other words, U.S. consumers would be paying higher prices for energy in return for making Chinese industries more efficient and competitive. Europe is in the midst of that experience now under the Kyoto Protocol, and most of its reductions so far have been illusory.

The compliance bookkeeping for this new "market" is vastly complex, and a McCain Administration would create a public-private "Climate Change Credit Corporation" to oversee it all. This new regulatory body is likely to morph over time into an "Energy Fed," similar to the one Warner-Lieberman would create. Such an agency would set the price of energy indirectly by fiddling with carbon levies, which will undoubtedly lead to economy-wide distortions.
So here we have it folks - what McCain is proposing:
  • Increases the cost of doing business by increasing taxes
  • creates an artificial scarcity of carbon
  • increases the opprotunities for corruption since it "creates a huge new venue for political rent-seeking and more subsidies for favored industries", as Congress "takes the largest revenue grab"
  • Makes Americans pay for making China more competitive
  • Creates yet another bureacracy
And if that wasn't enough, it sets the price of energy indirectly, which will lead to shortages.

Bad idea, bad policy.

UPDATE, Wednesday May 14
Quit Freaking Out, Senator McCain


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