America's Cap-and Trade Legislation: A "Dour" View From Across the Pond

At least one major European-based publication -- The Economist magazine, which is published in London -- has poured a huge bucket of cold water on the Waxman-Markey "American Clean Energy and Security Act of 2009."

Despite the self-congratulatory pronouncements of the last few days among some members of America's politically green class, this week's Economist includes an editorial entitled "Climate Change and Congress: Weak Medicine," which comments on the failings (in its view) of this legislation.

(Now I hasten to say that something may be better than nothing in this case, and to be sure the U.S. has been missing in action for most of this decade in regards to the climate debate.  But on the other hand, many Americans have a curious way of looking at "reality" that only another American -- but hardly anyone else in the world -- could appreciate.)

Here is the Economist's assessment of three reasons why the legislation is too weak:

"First, it envisages America cutting carbon dioxide emissions by 17 percent below 2005 levels by 2020...Europe, by contrast, is aiming to cut its emissions by 20 percent below 1990 levels by 2020...

"Second, the purpose of a cap-and-trade system is to introduce a carbon price.  But the bill sets a ceiling of $28 per ton on the price of carbon -- too low to change behavior enough.

"Third, under a cap-and-trade system, the government issues permits to pollute.  The Administration had wanted 100 percent of permits to be auctioned, but the bill would hand most of them out free...When that happened in Europe, power-generation companies passed the cost of buying permits on to consumers and pocketed the value of the ones they had been given free.  In order to avoid such an outcome, the bill specifies that the value of free permits must be passed on to consumers.  But if consumers are protected from price increases, they will have no incentive to cut back on carbon consumption -- which is one of the goals of the scheme."

In contrast, The Economist suggests that America should dump this legislation and enact a carbon tax:  "Sceptics will howl about the initial cost, but it will be transparent and far, far cheaper than the impact of serious climate change."  

The Economist has been wrong on a million fronts before and it will be again.  But this editorial should provoke at least some consideration in the U.S. about whether the current cap-and-trade bill is the way to go.

Of course, the other point that makes this assessment even "richer" is that it comes from a European-based publication.  That will provide plenty of cover for those in the U.S. who are prone to rail on about how "the Europeans" (writ large) are always trying to tell "the infants" in "the colonies" how to do things.  No parent and child relationship is ever easy to understand, and this one isn't either.