The End of Cap-and-Trade

by Reihan Salam

The current issue of NR features an editorial opposing cap-and-trade, and I agree with it. Public support for cap-and-trade is dwindling as voters learn more about the costs involved. I am somewhat more sympathetic to Lindsey Graham than the editors, in part because I think Graham is right to back policies that would encourage the expansion of nuclear power. But it’s not clear to me that cap-and-trade legislation larded with subsidies is the right way to achieve this goal.

One of the strongest objections to creating a carbon market is that it would not make a dent in global temperatures thanks to the massive expansion of coal electric facilities in East and South Asia that is already underway. I wonder, however, if there might nevertheless be a case for a very small carbon tax designed to reduce the mercury, particulates, and other conventional pollution emitted by coal plants, which have a negative — and expensive — impact on public health. Keith Johnson of the Wall Street Journal recently discussed a report from the National Research Council on “Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use.”  

The upshot? America’s current energy mix carries a “hidden cost” of about $120 billion a year, the report found. And that number doesn’t include any tally for the cost of greenhouse-gas emissions or climate change—estimates for climate costs range from $1 to $100 a ton of carbon dioxide emissions, but are so variable the report didn’t quantify them. The figure also doesn’t include other hidden costs, such as the portion of the U.S. military expenditure needed to protect global oil production and transport.

The $120 billion figure boils down to coal and cars. Transport costs the country $56 billion. Coal-fired electricity costs the country $62 billion per year, largely in health impacts from particulate matter. Natural gas for power generation, in contrast, adds about $740 million a year in hidden costs.

Looked at another way, coal’s hidden pricetag adds up to 3.2 cents per kilowatt hour. Compare that to the 2 cents-per-kilowatt hour that wind power gets from the government—that’s less a subsidy than a partial attempt to level the playing field.

This kind of analysis is far from flawless, and it should be obvious that no central planner will be able to determine an “appropriate” price that reflects all of the imaginable externalities, negative and positive. Yet I’m struck by the idea, advanced by Randall Parker among others, that a modest carbon tax could make nuclear power far more competitive with coal electric — so much so that, Parker suggests, we’d immediately stop building coal electric plants. 

Again, I believe that climate change is a serious problem, a stance that not all conservatives accept. But if burning coal is also causing serious health problems, that strikes me as a decent argument for slapping the equivalent of a sin tax on its use. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.