Politics & Policy

Fudge or Free Markets

The energy-policy choices that we face.

The collapse last week of the Lieberman-Warner bill, the enviro-Left’s attempt to bribe Senators to impose energy rationing on the nation, shows that we are now left with only two energy-policy choices: We can adopt fudging issues as a policy, which will achieve nothing, hurt many, and satisfy no one; or we can pursue a free-market policy that will anger green activists and alarmists but actually do some good. Chances are that fudge is on the menu.

How did we get here? To answer that question, a look at the recently failed policy proposal is instructive. The Boxer Amendment — all 490 pages of it — to the Lieberman-Warner Climate Security Act sought to reduce U.S. greenhouse-gas emissions by instituting a “cap-and-trade” regime to make energy use more expensive. Leaving aside the folly of proposing this at a time when Americans are hurting from steeply rising energy prices, Senate Environment and Public Works Committee Chair Barbara Boxer (D., Calif.) and her well-funded environmental-movement allies realized that they could not sell this scheme without massive bribery.

The Act would have raised about $7 trillion in new government revenues and funded over $4 trillion in new government programs (yes, that’s trillion, with a t). Some of that money would have paid for the support of special interests that might be hurt most by the Act. Other portions of it would go toward new handouts to the rapidly growing environmental-industrial complex of rent-seeking “green” businesses and their consultants from the advocacy movement.

However, even with those provisions, Sen. Boxer and Majority Leader Harry Reid (D., Nev.) could not find 50, never mind 60, votes to compel an up-and-down vote on Lieberman-Warner. Of the 48 votes they managed to scrape together, several senators said after the vote that, while they supported voting on the bill, they would not have voted for it as it stood because it directly harmed their constituents. This shows that there is little political will for any policy with a large price tag on it for consumers. This is likely to hold true even if Democrats increase their majorities on Congress in this year’s elections.

So what are we left with? If there is an appetite to “do something” about global warming, what could get through Congress? There appear to be two options.

First is the classic governmental approach of fudging the issue. The Boxer amendment would have created a cap-and-trade scheme that would auction emission permits to businesses, which would then trade the permits, selling if they could achieve emissions reductions and buying if they could not. Without the auction element-that is, with permits simply allocated for free-big business would be more likely to support such a scheme, as economies of scale would allow for reductions that cost less than the market price of a permit. The losers would be smaller-scale institutions, such as hospitals, as has been the case in Europe, where just such a scheme operates.

Moreover, the “cap” of cap-and-trade is a politically imposed mechanism, so politicians will ensure that no big constituency is penalized by getting too small an allocation. This political pressure practically guarantees that any cap would be set too high to reduce emissions, while at the same time increasing costs to consumers. In the end, all it will do is transfer wealth to the carbon emitters. Again, this is exactly what has happened in Europe. (Given the current political importance of gas prices, a scheme that exempts transportation could be politically viable, yet such a compromise would establish an infrastructure that could, with a couple of regulatory tweaks, turn into the vast wealth redistribution engine that the Boxer Amendment sought to impose.)

There is another way. A free-market energy and global warming policy would benefit the economy and American consumers, not penalize them. It would secure short-term energy supplies by removing regulatory obstacles that prevent us from utilizing the considerable energy resources currently locked up in Alaska, the Rocky Mountains, and the Outer Continental Shelf. It would encourage technology development and deployment for the medium term by removing regulatory barriers to energy innovation, redeploy resources to fund research via prizes at no net cost, and focus on making alternative energy cheaper, not traditional-source energy more expensive.

It would also seek to promote means of adapting to a warmer world by, for instance, tackling directly existing problems that warming might exacerbate, rather than attempting to fine-tune the atmosphere.

Finally, it would promote trade measures that have helped make developing nations wealthier, thus making them more resilient to any changes in climate.

Such a package of measures, correctly marketed, could prove to be not just popular, but effective in tackling the twin problems of energy security and global warming. Sadly, it is unlikely to be adopted. Given the current political climate in Washington, we are far more likely to end up stuck in the fudge of a European-style cap-and-trade scheme, and see our energy and climate woes worsen.

 – Iain Murray is senior fellow in science, energy and technology at the Competitive Enterprise Institute and author of The Really Inconvenient Truths: Seven Environmental Catastrophes Liberals Don’t Want You to Know About – Because They Helped Cause Them, new from Regnery.

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