Is Carbon Legislation Too Complex For Its Own Good?

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THE VINE NOVEMBER 21, 2008

Is Carbon Legislation Too Complex For Its Own Good?

It's going to be tough getting any bill that reduces U.S. greenhouse-gas emissions through Congress in the next two years, and scores of different legislative strategies are no doubt being dreamed up as we speak. As we've been reporting here, Democrats like Barbara Boxer and Jeff Bingaman have talked about the need to put out a "streamlined" cap-and-trade bill that's less complex than the 548-page Lieberman-Warner behemoth that died in the Senate this summer. But what exactly would a simpler bill look like? Keith Johnson of The Wall Street Journal rightly questions whether a streamlined bill is even possible—and whether it'd actually be easier to pass:


But establishing economy-wide limits on greenhouse-gas emissions, and a market to trade those emissions rights, is a rather complex task in its own right. At the same time, the kinds of things that make cap-and-trade bills complex also make them politically palatable to a broader audience, making them easier to pass, if harder to understand and implement.

For example: The question of whether to sell or give away emissions permits can make the difference between securing broad support from business or fighting it tooth and nail. If they’re sold, what to do with the proceeds? Spend them on energy research, or refund the money to Americans hit by higher energy prices? Do certain sectors like steel, aluminum, chemicals and the like need special protection so they don’t flee for balmier shores? Does the government need to establish permit price floors and ceilings to calibrate the bill’s impact? How complicated should the “banking and borrowing” of emissions permits be to allow business to adapt to the new regulations and shifting economic conditions?

Those are all very good questions. Now, there are number of "simple" climate bills floating around in Congress—Rep. Pete Stark has a carbon-tax bill that runs just six pages. Bingaman wrote a cap-and-trade bill that, while criticized for having weak CO2 reduction targets, was only about 100 pages long. But once the horse-trading starts, these bills naturally get more complicated—for instance, during the Lieberman-Warner debate, the bill's sponsors needed to add $4 billion in allowances for coal-burning rural cooperatives in Montana and Virginia to win support from Senate Finance Chair Max Baucus and, for that matter, Warner himself. And so on. Coalition-building makes things more complicated. Handouts help grease the skids. That's how you get to 548 pages very quickly.

Likewise, it's all well and good for cap-and-trade advocates to say, "Well, let's just auction off all of the pollution permits and rebate the proceeds to consumers—that'll make things simple." But, as Johnson says, auctions increase opposition from business groups, who want to get pollution permits for free so that they can reap profits from this whole scheme. (Here's a simple explanation of allocating vs. auctioning. Interestingly, Obama's new OMB director, Peter Orszag, is a major proponent of having the government auction off pollution permits rather than giving them out for free—indeed, many experts believe that messy and inaccurate allocation procedures help explain why Europe's emissions-trading scheme stumbled so badly at first: The EU gave away too many permits, which meant that companies didn't have to make meaningful reductions at first.)

Alternatively, Congress could do what California did in passing its landmark climate legislation in 2006, setting general targets for reducing greenhouse-gas emissions and leaving most of the difficult implementation decisions up to the EPA—or some sort of newly created, non-political Federal Reserve Board-type entity that would figure out how to create safety valves, permit banks, floors and ceilings for carbon prices, support for various effect industries... Would that make a climate bill easier or tougher to pass? I'm not sure. A bill that deferred thorny questions to some other agency would certainly have never passed muster with John Dingell, who was famous for his fastidiousness during markups—he wanted Congress to spell out every last detail. Then again, Dingell's not the House energy chair anymore.

--Bradford Plumer

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