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The Emperor’s New Cap-and-Trade Clothes



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Patrick Appel at The Daily Dish has put up two more responses from readers to my post on costs and benefits of Waxman-Markey.

I’ll focus first on one important point that they both made. The first says:

[W]e all understand that if China and India and all the other big emitters stay on sidelines, it is wasted effort. So, the stated “benefits” of Waxman-Markey, looked at in this way are of course near zero.

The second says:

Manzi is largely correct on his central point: Waxman-Markey’s emissions targets, if adopted only by the United States, will likely lead to a net economic loss for the United States, because the avoided temperature increase will be so small.

So before we move on, let’s note that my critics all seem to agree that if Congress passes this law, and we do not subsequently get agreement by the rest of the world (i.e., parties that Congress can not compel) to also reduce emissions, then the Waxman-Markey bill will create net economic losses for the citizens of the United States. Apparently everyone already knew this, but I guess I like to emphasize the obvious.

The first correspondent goes on to say:

Not all leading economists working on this issue think it will cost a lot (in terms of economic impacts). It won’t be free, but it is not going to drag the economy down. Every analysis I’m aware of shows some reduction in overall economic growth of at most a percent or two – the baseline continues to grow. So rather than being 100% wealthier by set date, we are only 98 or 99% wealthier.

I provided a link to specific present value calculations for this trade-off under the assumption for global agreement in my post. I guess if you want to wave your hands and say that “a percent or two” of U.S. economic growth is no big deal, you’re free to do so. I think that’s a whole lot of money.

The second makes explicit the point that the essence of this proposal is to impose large economic costs on American taxpayers for the sole purpose of providing a negotiating advantage in getting the rest of the world to do the same. He starts by saying that if we could structure such a global deal that I would agree that “it looks pretty good”:

However, if W-M becomes a model for the rest of the world, it starts to look pretty good, even by Manzi’s own standards.

This is not correct, at least by “Manzi’s own standards.” As per the first several paragraphs of my post, I believe strongly that such a global deal would not create expected net benefits for the world as a whole, never mind for U.S citizens. I won’t repeat that entire part of the post, but will just refer back to it. This correspondent suggests my “own math suggests I’m wrong.” He doesn’t explain why this is so, other than by referring to somebody else’s analysis. Once again, I linked directly to the research document that substantiates my claim that the global NPV benefits of an optimal emissions mitigation program has an expected value equal to 0.2 percent of future global consumption. As far as I can see, this analysis remains unchallenged. My argument is that we will never have such an optimal system in the real world, and that economic drag created by non-optimality will create costs that are much larger than 0.2% of future consumption. This argument also seems to me to be unchallenged. The fact that another party has done some other calculations that I have not reviewed, endorsed or deployed doesn’t really seem to me to address this argument.

So let’s review the overall bidding, at least as I see it:

1. Everybody agrees that if Waxman-Markey becomes law, and it does not lead to a global, binding and enforced agreement to severely reduce global greenhouse gas emissions, then it makes U.S. taxpayers worse off economically.

2. I have presented an economic argument that even if such a global agreement were achieved it would accomplish in the best case a net increase in NPV of global consumption of 0.2%, and a practical argument that it would almost certainly reduce global economic welfare. These specific arguments remain undisputed.

3. Those who argue that Waxman-Markey would lead to a global agreement have provided no evidence that it would have this negotiating effect, and are presenting what is, at best, a pretty idiosyncratic negotiating premise that by giving away our leverage as one participant in a collective action problem we will somehow increase our ability to get others to sacrifice on our behalf.



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