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As a candidate for president in April 2008, Barack Obama told Fox
News that “a cap-and-trade system is a smarter way of controlling
pollution” than “top-down” regulation. He was right. With cap and trade
the market decides where and how to cut emissions. With top-down
regulation, as Mr. Obama explained, regulators dictate “every single
rule that a company has to abide by, which creates a lot of bureaucracy
and red tape and often-times is less efficient.”
It’s no wonder that the House advertises its American Clean Energy
and Security Act of 2009 (also known as the Waxman-Markey bill) as “cap
and trade.” And last Thursday a coalition of environmental groups and
unions launched a “Made in America Jobs Tour” to sell it as a ticket to
“long-term economic prosperity.” But the House bill would, if passed by
the Senate this autumn, fail the environment and fail the test of
Waxman-Markey is largely top-down regulation dressed in
cap-and-trade clothing. It purports to set a cap on greenhouse gases,
but the cap is so loose in the early years that through the use of
cheap offsets the U.S. need not significantly reduce its fossil-fuel
emissions until about 2025. Then the bill would require a nosedive in
fossil-fuel emissions. This balloon mortgage pledge of big cuts later
is unlikely to be kept.
The top-down directives come in three forms. First, electric
utilities, auto makers and states get free allowances on the condition
that they comply with regulations requiring coal sequestration,
alternative energy sources, energy conservation, advanced auto
technology and more. Second, many other provisions of the 1,428 page
bill mandate outright regulation on subjects ranging from how
electricity is generated to off-road vehicles and household lighting.
Third, still other provisions provide subsidies for government-chosen
technology “winners” such as alternate energy sources, plug-in vehicles
and weatherization of old buildings.
Progress on most or all such fronts will be needed, but when, where
and how should be decided principally by a cap-driven market, not the
“red tape” that candidate Obama deplored.
This government dictation of technology would undermine President
Obama’s March 19 pledge that, by addressing climate change, we would
become “the world’s leading exporter of renewable energy.” That
requires coming up with better, lower-cost technologies than the rest
of the world. This won’t happen if the government picks the
technologies. Recall that, in the 1980s, government established the
Synfuels Corporation that spent billions to produce energy alternatives
and came up with nothing. More recently, government required refiners
to put corn-based ethanol into gasoline on the theory that it’s good
for the environment. Yet we’ve learned that wide-scale ethanol
production can do more harm than good in regard to air quality and
climate change, turn wildlife habitat into corn fields, and raise food
By contrast, the cap-and-trade legislation that Congress applied to
acid rain in 1990 produced big dividends for the environment and the
economy. It cut the acid-rain causing emissions from power plants by
43% and saved electricity consumers billions of dollars compared to
A cap and trade can be used to tackle carbon emissions more
efficiently than top-down micromanagement of technology. Indeed, cap
and trade should be used to regulate major conventional pollutants such
as sulfur dioxide and nitrogen oxides. It is not only the smarter way
to regulate such pollutants, as Mr. Obama recognized, but it is also
necessary because key greenhouse gases and many conventional pollutants
come from the same fuel-burning processes. Systems for regulating both
kinds of pollutants should work together rather than at cross purposes,
as detailed in our recent report for the New York Law School and NYU
School of Law: “Breaking the Logjam: Environmental Reform for the New
Congress and Administration.”
Why has the House turned its back on the cap-and-trade approach?
Both parties have played to their bases so that the only way for the
Democrats to pass Waxman-Markey was to buy swing votes by picking among
technologies such as coal sequestration to please critical
While the House represents constituencies, the president must keep
the focus on the broad national interest. Candidate Obama’s comments on
cap and trade came when asked to back up his claim that he would be a
“uniter” by naming “a hot-button issue where you would be willing to
buck the Democratic Party line and say, ‘You know what? Republicans
have a better idea here?'” President Obama needs to lead on the
principles on which he campaigned and the Republicans in the Senate
need to listen. Otherwise, Congress will pass something like the House
bill or, worse still, won’t legislate at all.
In that case, the Environmental Protection Agency would regulate
greenhouse gases under the Clean Air Act. This would involve even more
top-down control than Waxman-Markey. Regulators would be required, for
example, to impose source-specific emission limits on every major new
or modified source. Government would decide who cuts emissions through
a complicated process that would undoubtedly produce the very red tape
and inefficiency Mr. Obama warned about. Congress should instead apply
to climate change the market-based solution that it successfully
applied to acid rain nearly 20 years ago.
David Schoenbrod is a visiting scholar at AEI. Richard B. Stewart teaches law at New York University.
Editor’s note: The report Breaking the Logjam: Environmental Reform for the New Congress and Administration is available from the New York Law School-NYU School Law project of that name at www.breakingthelogjam.org.
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