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VALVO: Cap-and-trade magic show
Question of the Day
The trick with any global warming bill is to convince enough people that everything will change but nothing will hurt. You need enough details to appease environmentalists, while using enough sleight of hand so that no one else can tell what you're doing. This is why politicians have abandoned a straight carbon tax - it's too obvious. It's no surprise that Congress hasn't passed a global warming bill - this is a pretty hard trick to pull off.
Sen. John Kerry, Massachusetts Democrat, and Sen. Joe Lieberman, Connecticut Independent, have unveiled their latest effort, the American Power Act, which tries to put a new face on an old illusion. Instead of using the same, tired, global warming rhetoric the American people have soundly rejected, the Kerry-Lieberman bill is supposedly about national security or energy independence. However, the core of bill is the same cap-and-trade proposal that would drive up energy costs, cripple domestic industries and cost American jobs - with one key difference.
Kerry-Lieberman changes the landscape by using a sector-based approach. The bill targets any source with more than 25,000 tons of greenhouse gas emissions per year, which the authors estimate would affect 7,500 sources. These sources are then divided into three sectors: power plants, manufacturers and transportation. This is cap and trade via divide and conquer. By establishing separate programs for these major sectors, Kerry-Lieberman attempts to use giveaways to buy off enough opposition in each sector to pass the bill.
Electricity producers would be swept under the cap immediately, but would receive free allowances for their emissions until 2026. This has the effect of both increasing costs to consumers (the allowance price, as Europe learned, is passed through to consumers in higher prices even when permits are free) and providing a windfall to utilities.
Manufacturers would be covered starting in 2016, but would receive free allowances beginning in 2013 to pay for increased production costs due to higher electricity costs from covered utilities.
Transportation sector emissions will be covered under the cap, but oil producers and refiners would buy their allowances at a fixed price outside of the auctions. This linked fee is essentially a gas tax, although the bill's authors would prefer you not look behind the curtain. The revenues get paid into the Highway Trust Fund, which makes no sense if you are trying to make people drive less to solve global warming, but makes lots of sense if you're buying political support.
This legislative innovation is significant because a sector-based approach provides a negotiating flexibility that an economy-wide cap does not. It avoids the sausage-making obstacle that tripped up Rep. Henry Waxman, California Democrat, when he was unable to cut political deals with one industry because it would adversely affect his deal with another. A sector-based approach is clever because you can treat each sector differently from the outset, cut separate deals, and avoid spoiling the broader illusion.
However, Kerry-Lieberman is more similar to Waxman-Markey than it is different. Both bills threaten green tariffs on countries that don't self-inflict austerity measures. They both include massive subsidies for politically favored energy sources and use welfare-style energy rebates to buy off consumer outrage.
Both bills also fail to put caps on either agriculture or forestry. The reasons are twofold. Simply put, farm state lawmakers would never support a bill that attacks agricultural emissions. This played out in the Waxman-Markey process when House Agriculture Committee Chairman Collin Peterson, Minnesota Democrat, successfully obtained absolution for farmers in exchange for his caucus' votes.
Second, cap-and-trade bills need to sell offsets as a supplemental way for covered sources to get under the cap. Both bills allow 2 billion tons in offsets per year. Land use, soil treatment and trees are the easiest ways to generate offsets. If agriculture and forestry were forced to account for their own emissions, they would simply consume all of their own offsets and would have nothing left to sell back to other regulated sources. Carbon offsets are the farm subsidies of the 21st century, which is sure to please hesitant farm state senators.
It's no wonder trust in government is at an all-time low. Citizens have seen this game before and they know what cap and trade means for them. It would be refreshing for a politician to embrace the true costs of the bill and not pretend central energy planning comes without significant pain.
Magic tricks are all about diversion. As long as the target has his attention focused on something else, the illusionist moves the final pieces into place. One global warming message campaign after another has failed to persuade Americans to support legislation that would raise energy costs, allow government to play kingmaker, threaten a green trade war and still do almost nothing to address the ostensible problem.
It's possible Mr. Kerry and Mr. Lieberman can pull a rabbit out of a hat on this one, but I doubt it.
James Valvo is government affairs manager at Americans for Prosperity.
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