Posted by: bmeverett | October 28, 2009


The Senate version of the infamous “cap and trade” bill has now emerged, co-sponsored by John Kerry (D-MA) and Barbara Boxer (D-CA). Congress is apparently incapable of learning from the past.
The Kerry-Boxer Bill (no, it’s not an invoice for the Senator’s underwear) is designed to stop the seas from rising, save the polar bears, prevent the spread of malaria and other dread diseases – all at no cost to the American consumer. How does it do this?
The Bill sets targets for US emissions of greenhouse gases compared to our emissions in 2005. As is always the case with targets of this type, the base year is higher than current emissions. CO2 emissions in 2005 were 6 billion metric tons compared to the DOE’s estimate of 5.7 billion metric tons for 2009. The required reductions are 3% by 2012, 20% by 2020, 42% by 2030 and 75% by 2050. These “caps” will define allowable emissions credits, which will be allocated through some mechanism, either auction or allocation. Companies will have to obtain sufficient credits to cover their emissions either by using their allocation or by purchasing credits from other companies who have credits in excess of their emissions.
The bill isn’t quite this simple, of course. It’s full of other provisions mandating efficiency improvements, spreading money around to favored groups (like the coal, renewables and biofuels industries), requiring transportation planning, providing adjustment assistance to displaced workers and lots of other goodies. It’s a regular grab-bag of constituent giveaways.
The bill also has a whole list of escape hatches. For example, the price of carbon emission credits has a floor and a ceiling. In other words, if it proves too expensive to cut carbon, we don’t have to do it. Companies can also get credits for international carbon offsets, which have proven to be a wonderful loophole in the Kyoto Protocol. Under this approach, companies can get credit for paying other countries not to do things they were not going to do anyway.
This bill sounds an awful lot like the infamous Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act of 1985, sponsored by Phil Gramm (R-TX), Warren Rudman (R-NH) and Ernest Hollings (D-SC), which was intended to eliminate government deficits by establishing deficit targets, which the Congress and the President were legally obligated to meet. The first version of this law was declared unconstitutional, so Congress enacted a revised version in 1987. As you may have noticed from our current 13-figure deficits, this law has not been one of the more successful legislative efforts of our time.
The reason for its failure is very simple: no Congress can pass legislation committing future Congresses. Gramm-Rudman failed because every year Congress and the President would essentially change the law by moving certain expenses “off budget” (one of the more ridiculous concepts ever to come out of Washington), exempting certain types of expenses, such as interest and entitlement payments, or simply changing the targets and the dates by which they must be met. In short, the law had no impact at all.
Kerry-Boxer is the same. For the next several years, the “caps” are meaningless – less than the accuracy of our carbon measurements. Furthermore, it takes a couple of years to gather and process the data in order to determine whether the target has actually been met. That gives them 5 years or so in which nothing of any real substance needs to happen.
By 2020, the caps in Kerry-Boxer will hypothetically start to bite, raising consumer energy costs and potentially constraining US economic growth. One of a number of things could happen. First, we might actually meet the targets. Doubtful, but possible, particularly if the economy remains chronically weak. Second, Congress could change the targets or push out the timeline. Third, the extensive escape clauses in the Bill might eliminate the need to do anything substantive. Finally, the whole climate change issue might just go away, and Congress could repeal the whole mess.
John Kerry is 66 years old and Barbara Boxer 69. Kerry has one more Senate election before 2020, and Boxer has two. 2020 is a lifetime away in American politics. In the meantime, both Senators can take credit for saving the world.
Gramm-Rudman and Kerry-Boxer are example of “aspirational” policies. I first noticed this approach when President Jimmy Carter gave one of his many scolding speeches to the American people on energy. His speech of July 15, 1979 stated that the US would never import more oil than we did in 1977. Never! What mechanism did the President have in mind to ensure that this limit would not be exceeded? None. He simply hoped it wouldn’t happen before the 1980 election. After that, who cares?
Nobody should like Kerry-Boxer, even if you are a supporter of the catastrophic climate change hypothesis. Its impact on carbon emissions will be negligible. It may, however, impose significant costs on the economy, distort investment decisions, increase the national debt and cause a lobbying frenzy in Washington, as special interests seek favors or exemptions from the Bill’s requirements. Sounds like a great deal for Washington. For the rest of us – not so much.


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