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A public policy blog from AEI
The EPA’s new carbon emission rule, which environmental activists are praising as historic and momentous, is built on three big assumptions: First, global warming is happening, and human activity is playing a key role. That even though Earth’s surface air temperature has unexpectedly been flat for 15 years while greenhouse-gas emissions have continued to rise. (As I have written, however, the data seem compelling enough to warrant action.)
Second, a cap-and-trade system is an effective way of reducing carbon emissions. While the Obama administration plan doesn’t specify what action individual states must take to meet their carbon emissions targets, the new rule seems likely to nudge them into creating or joining cap-and-trade programs. But as the Breakthrough Institute has pointed out, “Cap and trade has repeatedly failed because it doesn’t address the main barrier to the widespread deployment of clean energy technologies: the technology-based price gap between new clean energy and mature fossil fuels.”
A recent New York Times piece on cap-and-trade outlines the troubled history of Europe’s Emission Trading System and notes that despite reform, emission permits are trading at just a fourth of the price level “many analysts believe is needed to spur investment in cleaner energy sources.” California’s trading system works better, but prices are still only around a third of the necessary level.
Already, in fact, many environmentalists are calling for the EPA to toughen the proposed rule, which mandates US power plants cut emissions 30% by 2030 from levels seen in 2005. As David Hawkins of the Natural Resources Defense Council told Grist, “We’ll be pushing for 2020 reductions of at least 35 percent below 2005 levels, ramping up to more ambitious targets later in the decade.” And Tyson Slocum of Public Citizen’s energy program, “It’s a good first step, and only the proposed rule. We’ll submit comments pushing for a stronger standard.”
All of which leads to a third assumption: Americans will tolerate sharply higher energy prices to fight global warming, which is the whole point of cap-and-trade. The New York Times:
Poll questions, however, often struggle to convey the political arguments on both sides of the climate debate — which may mean that climate proposals fare less well in actual political debates than in polls. … In December, the Stanford/USA Today survey randomly assigned respondents to one of three different questions on the policy, all of which explained a cap-and-trade system. Support ranged from 48 percent to 70 percent. Yet none of the questions warned that consumer prices may rise — the main argument opponents make against cap-and-trade.
Not to mention that this push for higher energy prices comes in the wake of a sluggish post-recession recovery which may signalling a permanent downshift in US growth rates. Rather than President Obama’s back-door cap-and-trade plan, better an expanded public investment agenda into clean energy, including advanced nuclear technologies. One such bipartisan approach was sketched in a joint 2010 report from AEI, Brookings, and the Breakthrough Institute:
To accelerate energy innovation and modernization, we propose a role for government that is both limited and direct. It is limited because it is focused, not on reorganizing our entire highly complex energy economy, but rather on specific strategies to drive down the real cost of clean energy technologies. Instead of subsidizing existing technologies hoping that as they scale up, costs will decline, or providing tax credits to indirectly incentivize research at private firms, this framework is direct because the federal government would directly drive innovation and adoption through basic research, development, and procurement in the same way it did with computers, pharmaceutical drugs, radios, microchips, and many other technologies.
Or as that Breakthrough report argues:
History shows that such technological transformations do not occur through modest shifts in market price signals. We didn’t tax the telegraph to get telephones or put a cap on typewriters to see the birth of the personal computer, as Breakthrough’s Michael Shellenberger and Ted Nordhaus often note.
Instead, time-and-time again, the most reliably successful driver of new innovation and transformative technology changes has been an active partnership between private-sector entrepreneurs and innovators and a public sector acting as both an initial funder and demanding customer of new, cutting-edge technologies.
Government has a role to play here, just not the one demanded by the Obama administration and its green activist supporters.
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