The Real Climate Choice Before Congress: Cap and Trade or Command and Control?

In recent days, moderate Democrats in the Senate have been telling the White House that they are so exhausted by the health care bill they can't possibly face the controversy of cap and trade.

While Congress may be running out of steam, we can take comfort in the fact that the EPA is busy making up for time lost under the Bush Administration. This past fall, EPA declared that it would regulate greenhouse gases as pollutants under the Clean Air Act. EPA Chief Lisa Jackson announced the new rule on September 30:

The Administrator announced a proposal requiring large industrial facilities that emit at least 25,000 tons of GHGs [greenhouse gases] a year to obtain construction and operating permits covering these emissions. These permits must demonstrate the use of best available control technologies and energy efficiency measures to minimize GHG emissions when facilities are constructed or significantly modified.

"By using the power and authority of the Clean Air Act, we can begin reducing emissions from the nation's largest greenhouse gas emitting facilities without placing an undue burden on the businesses that make up the vast majority of our economy... EPA's proposed climate regulation applies to the approximately 14,000 large businesses that emit about 70% of the nation's greenhouse gases."

What the moderate Democrats on the Hill don't seem to understand is that the EPA regulation of greenhouse gases now under development will raise the price of energy and carbon without the positive features of the Waxman-Markey and Boxer-Kerry climate bills. Legislation like Waxman-Markey is a step forward because it provides more flexibility in meeting emission caps. Its cap and trade provision allows companies to trade pollution allowances in order to achieve the greatest pollution reduction at the lowest possible price. The new approach to climate policy in Waxman-Markey also addresses the root causes of global warming by promoting the development of new energy technology and encouraging greater energy efficiency. It includes programs for climate adaptation, carbon sequestration and the transition to a green energy economy. EPA's new rule, on the other hand, is good, old-fashioned "command and control." The business community might prefer a bill with both carrots and sticks, if the alternative is the current law, which only provides sticks.

In comparison to Waxman-Markey, the Clean Air Act is a non-comprehensive, unsophisticated approach to climate policy. It wasn't designed to deal with a problem like climate change, even though it can be contorted and used for that purpose. EPA's proposed rule is a hacksaw, when the Obama Administration would rather operate with a scalpel. Nevertheless, if Congress is unable to provide an adequate tool to begin the process of reducing greenhouse gases, then the EPA will simply have to use what is available. Though inadequate, the Clean Air Act is far better than nothing.

So much of the politics in Washington these days seems to focus on symbolic political issues. Cap and trade is a good example. Cap and trade is simply a way of meeting a regulatory limit with the least possible economic cost. The "cap" is just another name for a regulation, and the alternative is simply commanding each business to meet a rigid cap.

A similar symbolic battle is going on within the environmental community with the boundlessly absurd debate between cap and trade and carbon tax advocates. When you regulate limits on an emission and it costs money to reduce the emission, you have imposed a form of tax. When the government regulated auto safety and commanded car manufacturers to provide seat belts and airbags, we increased the cost of automobiles. That was a technology-forcing regulation that in effect was a tax on auto safety. In the case of greenhouse gases, the goal is to change the behavior of polluters and encourage the development of alternative sources of energy. A carbon tax can do that, as can a law limiting emissions.

The argument is often made that a tax is a simpler, more direct policy and easier to implement. That may be true, but if we set the tax at too low a level--say, like the current tax on gasoline--it will be very hard to raise at a later date. The trend in environmental and safety regulation is that as we learn more, we make the rules more stringent. The political reality is that when you don't really know the safe level of a hazardous substance, it is probably best to set a standard that can be changed over time. The federal tax on gasoline was supposed to fund the entire interstate highway system and its operation and maintenance. Unfortunately, this tax has not kept pace with inflation and our roads have fallen apart. A carbon tax would be equally difficult to change.

Let's get past the silly season of symbolic politics and begin the long and difficult transition to a green energy economy. The Waxman-Markey and Boxer-Kerry proposals are constructive and comprehensive proposals. They are not perfect, but they are better than the Clean Air Act alone. For the Obama Administration, climate policy is one of the three domestic priorities needed in the midterm and 2012 elections, the first two being economic revival and health care reform. Obama's political base is expecting progress on all three, and moderate Democrats are making a mistake in allowing their opponents to define the political center.