More Problems with Cap-and-Trade

I've probably already exceeded my quota for comments about Cap-and-Trade, so I'll keep this post brief.

First, a slightly older piece from Reason about the hidden costs that have been mixed into the bill. It's worth reading simply for the fact that the author (Ronald Bailey) refers to Cap-and-Trade as "Rube Goldbergesque" in its unnecessary complexity. The complexity, of course because this is Congress, is meant to hide the extra costs that are built into the bill.

Second, Ted Gayer of The American compares (pretty accurately, I think) Cap-and-Trade to quitting smoking. His analysis shows how Congress' special interests have messed up the concept behind the bill in the first place, mostly by restricting HOW industries can reduce their greenhouse emissions. Says Gayer:

"Unfortunately, there has been little discussion of the other components of the Waxman-Markey bill that will increase the cost of pollution reduction without achieving any climate benefits. Most notably, the bill includes a renewable electricity mandate, which requires electricity utilities to substitute renewable energy (such as wind, solar, or geothermal energy) for energy derived from fossil fuels. Electric utilities would need to generate 6 percent of their electricity from renewable energy in 2012, ramping up to 20 percent by 2021."

"The electricity mandate undermines the cost-saving feature of a cap-and-trade program. Rather than allow the market the flexibility to find the cheapest sources of pollution reduction, the mandate prescribes where and how the reductions must occur."

Ultimately, he attributes this fact to the power of the renewable electricity lobbyists that have convinced Congress this is the only way to reduce greenhouse gasses. Rather than allowing the market to find its own answers, Congress is forcing electric companies to provide electricity that comes from alternative fuels.

The idea behind Cap-and-Trade (specifically the "trade" part) is that companies have the flexibility to trade away their required emissions cuts to other companies who might be able to cut their emissions more cheaply. Basically, it should create a market where some companies (those who can cheaply/easily cut emissions) will purchase the emissions of other companies. That means it doesn't matter who cuts what amount, but the total amount is met.

Restrictions like this, however, change that. Now, electric companies have their hands tied. The power of the alternative fuel lobbyists have removed that flexibility.

So whats more important to the idea behind the bill: That greenhouse gasses are reduced, or how greenhouse gasses are reduced? The difference is not as subtle as it seems.

Let Gayer have the last word:

"Achieving reductions in greenhouse gas emissions is a costly endeavor. Congress only makes things worse by supplementing their cap-and-trade program with expensive mandates that serve no environmental end."