Waxman-Markey, Now Somewhat Watered Down, Is Still Hugely Important
As the price of passage, it looks like the Waxman-Markey energy/climate bill is getting watered down somewhat. Joe Romm deems the new legislation a B or B- bill rather than the B+ it started out as. I would say that, warts and all, this is a historic piece of legislation and seeing it enacted into law would be a very good thing. Had the non-watered-down version of the bill passed, there would have been need for further action in years to come. This watered-down version to some extent changes the nature of the further action needed in years to come but the basic shape is the same—huge progress, much work left to be done.
But let me take some time out to express outrage about one aspect of the change that doesn’t really have a huge environmental impact, the decision to give away the carbon permits to utilities. The conservative bloc on climate/energy issues has a clear position. They think emissions should go up and up and the earth should get hotter and hotter and we’ll just kind of cross our fingers. The moderate bloc, by contrast, has portrayed itself as concerned with the climate crisis but worried about the tradeoffs with short-term economic growth. But the concession they’ve forced here doesn’t do anything to boost short-term growth. Instead, whereas auctioning the permits would have made rich people bear most of the cost of reducing emissions, by giving the permits away you make poor people bear most of the cost.
The environmental impact of the two methods is similar, and the overall costs are similar. But the moderates acted swiftly and decisively to reallocate a portion of the costs onto the backs of the poor. And they’ve done so specifically under guise of looking out for the interests of the working class. They ought to be ashamed of themselves.
29 Responses to “Waxman-Markey, Now Somewhat Watered Down, Is Still Hugely Important”
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May 13th, 2009 at 12:33 pm
I like fiery. Fiery works for you.
May 13th, 2009 at 12:35 pm
And this legislative framework can be tightened over time. Given the opposition, which is *huge*, this is still a big victory.
May 13th, 2009 at 12:37 pm
After paying close attention to the workings of congress over the last several years, I can say with confidence that ” reallocat[ing] a portion of the costs onto the backs of the poor… under guise of looking out for the interests of the working class” is virtually the definition of contemporary “moderation.” That, and torturing people.
May 13th, 2009 at 12:44 pm
The analysis in the earlier post on wealth effects seems pretty suspect. Instituting cap and trade doesn’t create new wealth in the form of the right to emit carbon–that right already existed. Rather, it limits the right, thereby destroying wealth. The plan is to pay a cost now, so as to avoid having to pay a larger cost in the future.
Auctioning off permits forces carbon emitters to pay the entire cost of the policy, while deriving only a small part of the total benefits down the road. By giving away permits, the costs are shared between the utilities and consumers. This doesn’t seem particularly inequitable.
Or am I missing something?
May 13th, 2009 at 12:45 pm
Actually giving away permits also undermines effectiveness. Yes not intuitive, but consider.
Volatility of permit prices is the great bugaboo of cap & trade, specifically anything that lowers permit prices too much even for a short time. Low permit prices equals businesses not investing in emission reductions. With excessive volatility you end up with a situation like RECLAIM in Southern California, where when the cap is tightened requirements are not met because nobody made the capital investment that would allow meeting the standard.
So where does giving away permits come in? Well hopefully even a permit giveaway situation, the plants will institute some savings so they can sell some of the permits. But they will keep at least some (probably most) for their own use, because there is not way they drop to zero instantly. And the permits they keep are the ones they would be bidding for year in and year out. So the stabilizing influence of major steady bidders is eliminated. This may not impact much on average price. You reduce supply and demand on average by about the same amount. (For various reasons not exactly the same, but close enough). But by removing the a large steady demand, remaining demand will tend to change more with economy and permit price. So you while permit price will still have about the same median value, it will swing more wildly about that median – creating higher high prices and lower low prices. So this undermines the effectiveness of cap and trade.
May 13th, 2009 at 1:19 pm
Name names! Who are these moderates?
May 13th, 2009 at 1:50 pm
By giving away permits, the costs are shared between the utilities and consumers. This doesn’t seem particularly inequitable.
Not if you don’t mind reducing the disposable incomes of poor people, it doesn’t. When the government auctions the permits, funds are raised that can used either to reduce the tax bills of the folks on whom utility bill increases fall most heavily, or increase spending on the same. It’s true that Evan Bayh can probably afford to pay a higher electricity bill. Not so sure about a single parent on food stamps.
Incidentally, I had thought that the current rendition of Waxman-Markey calls for only a minority of the permits to be given away, with about 2/3rds still e auctioned. Anybody know if this is the case?
May 13th, 2009 at 2:09 pm
You’re missing at least 2 things.
Emitters would not bear the entire burden of the costs of auctioning. They would pass almost all of the costs on to their customers, who would then use less energy.
The government, with this new source of funds, could effectively rebate the proceeds of the auctions to the taxpayers in the form of individual tax credits. The credit would be the proceeds from the auctions divided by ~300 million people, give or take some adjustments for households. Anyone who used the average amount of energy would break even. Those who used less would profit, while those who used more would pay.
Giving away the permits makes future, low-emission plants less competitive.
If I develop a power plant that emits only a tenth of the CO2 of existing plants, I have to pay them to get their permits. My new efficient plant pays a subsidy to the old poluting plant. That’s crazy.
May 13th, 2009 at 2:22 pm
It’s more like 90/10, at least for utilities. At that ratio, utilities might just cut back on production to eliminate 10% of their emissions. It would result in less than a 10% drop in energy production. The price increases from shortages might be more profitable than selling the power they can make minus the cost of the additional offsets.
While the goal of the policy is to reduce carbon emissions, this would put the burden almost entirely on the consumer.
May 13th, 2009 at 2:25 pm
This really misses the point. A cap-and-trade bills with permit giveaways means that energy costs go up, but that there’s no money to rebate to consumers. So you’re average voter is going to see an invrease in their energy costs, at a time when money is already tight for most people, and they’re not going to be happy. They’re going to blame Democrats, and vote for Republicans. And then Republicans are going to shred the program.
Passing this bill would be suicide, and wouldn’t even have good long run results when you factor in the politics down the road.
May 13th, 2009 at 3:03 pm
well, I’d say this is no accident. idiot repubs and mealy centrist wussy dems want the public to associate cleaning up the environment and combating global warming with large cost increases. this should take care of that nicely. in 2 years the repubs will say “the democrat party gave you cap and trade, and what happened? your bills went up, didn’t they?” and that will be all they need to say. on that issue at least, esp. if the economy is still in the toilet.
May 13th, 2009 at 3:37 pm
onceler – Fortunately, Obama and the rest of the real democrats are there to fix the economy and help the environment and give us free and better health care all at the same time during a recession. Now that the dems run everything in DC, I’m anxiously awaiting their plan to do this. Or at least a halt to the incessant, ineffectual whining about republican obstructionism.
May 13th, 2009 at 3:39 pm
Can someone let us know which moderates we need to write to? The comments are very informative. Now let have the representatives hear from voters.
May 13th, 2009 at 4:22 pm
The problem with giving the permits away isn’t that it makes poor people rather than rich people bear the cost. You can redistribute wealth using the tax system independent of what you do with cap and trade. The problem with giving the permits away is that a market system enables economically efficient utilization of GHG-emitting processes by giving the rights to whoever is willing to pay the most, and encourages carbon reduction in all industries by setting a price on emissions.
Really, this is stupid. Can’t we just pay off whoever is going to get rich by these giveaways in cash and then go with a workable system? Everyone will be better off.
May 13th, 2009 at 4:29 pm
“The problem with giving the permits away isn’t that it makes poor people rather than rich people bear the cost. You can redistribute wealth using the tax system independent of what you do with cap and trade.”
From a political stand-point, people aren’t going to understand the connection if the rebate isn’t attached to the cap and trade program. They might appreciate it if it comes from somewhere else, but then they’ll still just see cap and trade as something that makes their electric bill higher every month. Their has to be an offsetting rebate and it has to be explicitly tied to the cap and trade program, or carbon pricing is a political non-starter. If you force it through anyway you’ll hand the GOP political power, they’ll shred the program at the first chance they get, and carbon pricing will be forever stigmatized, and no one will touch it until catastrophe is imminent.
May 13th, 2009 at 4:29 pm
[...] really can’t emphasize enough how wrong Matt is in this post. It might be true that there’s not much difference between auctioning permits and giving them [...]
May 13th, 2009 at 4:43 pm
Oh you poor little lambs who have lost their way. Tsk.
As mentioned above this is just a tax dressed up as something else. A “user fee” if you like. Just like all the taxes passed along to you in your telephone bills.
The rich have only so much money to attach, and the Democrat fat cats are finding out they are not going to be exempted. Guess what happens there, heh.
So, now that the new income tax rates are floated, we will see additional taxes on everything else. How about a tax on health benefits? Or maybe the employer portion of SS and Medicare? Considering that Obama is running a bigger deficit in one year than Bush’s first seven, you’d better enjoy free breathing as long as possible.
And BigY is outraged that poor people are going to have to pay their fair share? Too bad bud. Don’t like it? Write your Congressman.
May 13th, 2009 at 4:58 pm
Brien, I agree on the political implications. From a purely policy perspective, however, it is incorrect to see the big problem with giveaways as an increase in income inequality. In theory, you could even combine permit giveaways with energy rebates from the treasury with no connection to auction proceeds. Such legislation would have a beneficial effect on income equality as well as reap potential political dividends, but would still suffer from the economic and environmental problems I mentioned above.
May 13th, 2009 at 5:09 pm
How about a parable of the fishes?
May 13th, 2009 at 6:09 pm
These people are not moderates. They’re corporate shills, and campaign contributions do tend to focus the mind. Of course there are regional considerations- dirty power plants in the Midwest burning cheap coal, etc. But this has nothing to do with ideology and everything to do with differing interests.
Apparently the MSM dare not speak its name or something, and so label every concession to interest groups ‘centrist’ but you don’t have to.
May 14th, 2009 at 3:05 am
Since you linked to it again, cap & trade in any form does *not* ‘create a new source of wealth in the economy.’
It internalizes an externality, which is not at all the same thing.
By your logic, zoning commissions and alcohol control boards create wealth. (as a first order effect)
May 14th, 2009 at 8:29 am
[...] the environmental impact of the bill, but does put the cost of fighting climate change on the backs of the poor, argues Matt Yglesias. Actually, whatever happens to the permits, any cap-and-trade bill is a big [...]
May 14th, 2009 at 8:46 am
Carbon capping, unnecessary, expensive, regressive and dangerous. Robbing poor Peter to pay Rich Paul. Why do Democrats hate poor people?
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May 14th, 2009 at 9:17 am
Thanks for the critique. One thing I was wondering, as this bill moved through the subcommittee, was where is the organizing? Why did no national/regional environmental organization target the voters in the “brown dog” Democrat districts? It wouldn’t have been difficult to organize a call-in day, or even to send people door-to-door. Until we convince representatives that clean energy and climate change really are on their voters’ minds, we don’t stand much chance of seeing adequate legislation.
May 14th, 2009 at 2:40 pm
I don’t understand why these guys continually use this economic argument to maintain that these environmental bills aren’t worth doing. There won’t be any economy if we don’t radically reorient our approach.
Does anyone think that this bill is going to survive the Senate in anything like its current form? If it’s close in the house, what chance does it really have?
May 14th, 2009 at 2:46 pm
Oh, and kim, that’s total BS and you know it. With the auction of carbon credits, which all really committed environmentalists are for, given a choice, poor people get a tax and rate break.
Or are you one of the people that believe that Obama’s tax cut for everyone making under $200,000 a year of taxable income was actually an increase?
Seems like the right wing has a problem with counting. Let’s go over it.
Larger numbers = increase, smaller numbers = decrease. Like the Pentagon budget is a larger number now than it was before, therefore, it’s budget was increased.
The amount of taxes everyone making under $200,000 of taxable income owes under the new rates is smaller, therefore taxes have decreased for a huge majority of Americans, about 95%.
May 14th, 2009 at 7:23 pm
“By giving away permits you make poor people pay most of the cost.” What that really means is that a tax credit the people might have gotten, had the permits been auctioned, they would not get under a giveaway. Interesting way to put it — saying that when you don’t get the money you hoped for, something is being taken away from you. The cost is of course paid in the form of higher prices, auction or no auction.
May 14th, 2009 at 9:40 pm
[...] | Tags: carbon auctions, Climate Change, Global Warming, waxman-markey bill | Here is a Matthew Yglesias post from earlier this week discussing carbon auctions and the compromises being ma… But let me take some time out to express outrage about one aspect of the change that doesn’t [...]
May 15th, 2009 at 6:44 am
[...] Yglesias notes, even with all the concessions, this is still a decent bill. Could be a better one, but it [...]