Could Cap-and-Trade Have Cut It?

By Kennedy Maize (@kennedymaize)

Washington, D.C., 24 October 2012 – Here’s one for climate science and policy wonks. Remember the Waxman-Markey cap-and-trade bill? Among the community of the climate alarmed, there was much gnashing of teeth, tearing of hair, and sack cloth and ashes when the legislation that passed the Democratic House in 2009 died on its way across the hill to the Senate.

We are doomed, was the lament. Without this complex, corruption-prone, counter-intuitive measure (second best after a politically impossible carbon tax), the U.S. was doomed to be the worldwide leader in warming the earth. But dry those green-tinted tears, folks. Hold the sobs. A new analysis from the estimable environmental think tank Resources for the Future concludes that U.S. greenhouse gas emissions would be higher today, and on a steeper ascending path, if Waxman-Markey had become law.

Looking at where Waxman-Markey would have taken us and where we are today, RFF economists Dallas Burtraw and Matt Woerman conclude that “emissions in the domestic U.S. economy under the current status quo…will probably be less in 2020 than would have occurred if the Waxman–Markey cap-and-trade proposal (H.R. 2454) had become law in 2010.” Without Waxman-Markey, the U.S. is on pace to nearly reach the goal the Obama administration agreed to in Copenhagen in December 2009: a 17% reduction in emissions from 2005 levels in 2020.

Given current policies, including the Obama administration’s Clean Air Act regulatory initiatives (new efficiency standards for cars and new rules for power plants) and the impact of low-cost natural gas, says the RFF analysis, the U.S. likely will see about a 16% reduction in CO2 emissions. Had Waxman-Markey been in place, the economists argue, the 2020 U.S. reduction would likely be around 14% (plus emitters would have banked an additional 6% that could be used in later years).

Burtraw and Woerman note that some of the “secular” economic elements not foreseen in cap-and-trade, such as plentiful gas, still would have occurred, but there was a pernicious aspect of the cap-and-trade regime that would have limited the natural reductions. They write that “an emissions cap also serves as an emissions floor; that is, it specifies not only the maximum but also the minimum emissions that can occur. Under an emissions cap, because maximum emissions are fixed at the national level, the actions of agents within the economy cannot affect the overall level of emissions.”

Critiquing the RFF paper, Michael Levi of the Council on Foreign Relations, a supporter of cap-and-trade, has expressed skepticism at the analysis of Burtraw and Woerman. Burtraw and Woerman said that putting the Waxman-Markey plan into law would have waylaid the Obama regulations under the Clean Air Act. Levi argues that the vehicle efficiency standards are easily justified without a greenhouse gas connection, so would have happened if Congress had passed the Waxman-Markey bill.

Further, says Levi, assumptions that announced or planned Obama regulations that are not yet in effect can be credited with reductions are flawed. “Whether the U.S. government will actually put in place such measures, though, remains to be determined,” he says, “since most of the CAA regulations that Burtraw and Woerman have in their model don’t exist yet. Whether a second Obama administration will pursue those standards (which are admittedly relatively modest) remains to be seen. It’s fairly certain that a Romney administration wouldn’t.” In any case, says Levi, the Copenhagen targets are pretty small beer; meeting the 2020 goals is not a big deal.

In a response, Burtraw agrees about 2020. “Focusing on 2020 can be misleading,” he writes. “Even if the U.S. is on course to achieve its goals for 2020 and if emissions reductions here in the U.S. are greater than would have occurred with cap and trade, the climate is not better off than if cap and trade had passed. To achieve the kind of emissions reductions that are called for beyond 2020 requires a price on carbon because that would help achieve emissions reductions in a cost effective way across the economy and provide the incentive for innovation that will be necessary to achieve long run emissions reduction goals.”

And that raises an issue that neither RFF nor Levi want to discuss. Let’s stipulate, for purposes of analysis, that reducing the concentration of CO2 to some level to forestall the warming predicted by the mainstream climate models would be desirable (and lots of experts think the models are dodgy). Let’s say 450 ppm. Are there any measures the U.S. government could adopt that will achieve this goal, short of shuttering the economy entirely? Unlikely, and that’s why neither candidate talked about global warming during the presidential campaign.