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A post by Maynard

As the nation debates “cap and trade”, I wonder how many people understand what we’re contemplating. Let me try to set down the basic situation as I understand it. Of course I have strong opinions, but I’ll try to put these aside for this post.

We’ve long had laws and regulations against dumping pollutants into the environment. Nobody is debating whether people have the right not to be poisoned, but we may reasonably question what constitutes a threat requiring government intervention, or whether the contemplated form of intervention will do more good than harm.

When you burn fuel, you initiate a chemical process in which a carbon-based material combines with oxygen from the air. The result is liberated energy — the heat of the flame — and waste products of carbon dioxide and other materials. Historically, the pollutants of concern have been everything other than the carbon dioxide. For example, the refinements of cars over the years have been in pursuit of complete combustion of gasoline, meaning that nothing comes out of the tailpipe other than CO2 and H2O.

In the recent era, concerns arose that the concentration of atmospheric CO2 was rising, and this rise was due to human activity. On this point, I think the data is pretty solid.

What effect will the rise in CO2 have on the ecosystem? This is an appropriate question, and I lament that it tends to get argued as a matter of political dogma or political opportunism, with arguments often backed up by junk science. I’m not going to descend into that morass here. The point is that, rightly or wrongly, carbon dioxide has now been declared a pollutant. This means the government steps in.

So now that the government has this new thing to regulate, the question is how they plan to do it. The answer we’re getting is “cap and trade”.

In a nutshell, the government decides the total amount of carbon dioxide the nation is allowed to produce. That’s the “cap”. Let’s say they limit national CO2 emissions to 1000 tons. They do this by writing up 1000 permits, each of which permits the bearer to emit 1 ton of CO2. So if you’re a coal-burning utility, you’ve got to get your hands on one of those permits for every ton of CO2 that goes up that smokestack.

How do you get a permit? That’s the “trade” part of the thing. You can beg or buy it from the government, or maybe you can buy someone else’s permit on the secondary market. But one way or another, you need that permit or the government won’t let you burn your coal.

Obviously buying a permit to do this thing that used to be free raises the cost of business. But how much does it increase costs, and what effect will this have on the overall economy? These are the questions that should be openly discussed in our national debate.

In a simple implementation of cap and trade, the government would simply auction off all the CO2 permits. Let the market decide how to allocate the emission of CO2. The costs would be clear, and all buyers would have equal status and equal opportunity. It would also be a source of government revenue. The process I’m describing is open and straightforward.

That’s not what’s happening. Due to politics, we seem to be moving towards a very obfuscated form of cap and trade. Favored industries will be given permits. The playing field is shifted from market allocation to special interests and cronyism. That’s why hundreds of pages of mysterious amendments are being tacked onto these bills. Many of these details would not withstand scrutiny, which is why they’re rushed into law before anyone can read them.

The complexity of the current cap and trade bill is designed to pay off special interests while making voters lose sight of the costs. We should remember that, since the right to emit CO2 is to be capped, therefore this resource must somehow be allocated or rationed. There’s no getting around this. So either the allocation/rationing is made by the marketplace (in the form of higher prices which motivates decreased consumption), or it’s made by the government (in the form of giveaways to favored parties). In the former case, resources go to whoever is willing to pay the most. In the latter case, they goes to whoever has the most political pull. The structure being created seems to be more of the latter than the former. It’s a product of the “government knows best” mindset. People should understand the choice that’s being made, and the curtailments it places on our freedoms.

For further reading, here’s the Wikipedia article on “Cap and Trade”.