Your SlideShare is downloading. ×
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Postmortem on the waxman markey cap and trade bill
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Postmortem on the waxman markey cap and trade bill

729

Published on

A set of slides discussing the cap-and-trade approach to control of carbon emissions and the political implications of the failure of the Waxman-Markey cap-and-trade bill.

A set of slides discussing the cap-and-trade approach to control of carbon emissions and the political implications of the failure of the Waxman-Markey cap-and-trade bill.

Published in: Education
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
729
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
7
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Free Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Postmortem on Waxman- Markey: The Politics of Cap-and-Trade Post prepared July 28, 2010 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.
  • 2. The Death of the Waxman-Markey Cap-and-Trade Bill
    • As recently as 2008, prospects for cap-and-trade climate legislation looked good, with support from both major-party presidential candidates
    • By July 2010, cap-and-trade is officially dead. The Senate will not bring the House-passed Waxman-Markey bill to a vote, nor will it propose a substitute
    • What have we learned about the politics of cap-and-trade?
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Source: http://commons.wikimedia.org/wiki/File:Global_warming.JPG
  • 3. The Basic Economics of Carbon Emissions
    • The case for controlling carbon emissions is based on evidence that they cause harmful externalities in the form of climate change
    • The economically optimal level of emissions would be achieved where the marginal cost of abatement equals the marginal external cost of carbon emissions
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
    • Definitions of terms:
    • Carbon emissions: Quantity of carbon dioxide or equivalent other greenhouse gas released into the atmosphere
    • Marginal cost of abatement: Cost of reducing emissions by one additional ton (increases as emissions decrease)
    • Marginal external cost: The damage done by the climate change associated with one additional ton of carbon emissions
  • 4. Controlling Emissions with a Carbon Tax
    • One way to control emissions would be impose a tax of a fixed amount per ton of carbon
    • Firms would eliminate any emissions for which the marginal cost of abatement was less than the tax
    • Result: Emissions would be reduced from the “business as usual” level to the optimal level
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
  • 5. Controlling Emissions with Cap-and-Trade
    • Instead, emissions could be controlled using cap-and-trade
      • Government sets a cap on carbon emissions (e.g. 50 tons)
      • Permits are issued allowing one ton of emissions each
      • Permits are bought and sold until an equilibrium price is reached
      • Firms with high marginal abatement costs are buyers, those will low costs are sellers
    • Result: Emissions are reduced to the optimal level
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
  • 6. Comparison of Effects on Emissions
    • Either a carbon tax or cap-and-trade could be used to reduce emissions to the optimal level
    • Many economists think that carbon taxes are better in one important respect
      • Under cap-and-trade, the price of permits could vary widely from year to year as market conditions changed
      • A carbon tax would be constant from year to year
      • A more predictable price might provide a stronger signal to firms to invest in pollution control technology
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
  • 7. Comparison of Effects on Government Revenue
    • Each $10 per ton of carbon tax (equivalent of 10 cents per gallon gas tax) could bring in $50 billion revenue per year*
    • Possible uses of tax
      • Pay down federal debt
      • Subsidize clean energy
      • Reduce payroll tax or other taxes
    • If cap-and-trade permits were sold at auction by the government, the same revenue would be generated
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ *Estimate by Carbon Tax Center www.carbontax.org
  • 8. Political Advantages of Cap-and-Trade: Building Coalitions
    • Some have argued that cap-and-trade makes it easier than a carbon tax to build a coalition for action on climate change
    • Instead of selling all permits by auction, some permits could be awarded free based on past emissions
    • This “grandfathering” approach would make it attractive for some polluters to support the coalition needed to pass a cap-and-trade bill
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Source: http://commons.wikimedia.org/wiki/File:Political_volunteers.jpg
  • 9. Political Advantages of Cap-and-Trade: Avoiding Tax Resistance
    • Others have argued that cap-and-trade would meet less political resistance because it is not a tax
    • If permits are auctioned, they produce revenues, but the revenues do not have to be called taxes
    • If permits are given away as incentives to promote desired behavior (pollution abatement, improvements in energy efficiency, research, etc.) they achieve desired results without passing through the budget at all
    • Until recently, some Republicans in the U.S. House and Senate supported cap-and-trade even though they oppose tax increases
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Source: http:// commons.wikimedia.org/wiki/File:Taxprotestorsmis.jpg ; http://commons.wikimedia.org/wiki/File:No_IRS.svg
  • 10. Results of Coalition Building in Waxman-Markey
    • The Waxman-Markey bill achieved a majority coalition in the House but only at great cost to its effectiveness
    • 85% of permits were given away free, leaving little revenue gain
    • Special provisions of the bill prevented electric utilities from passing the costs of pollution abatement through to consumers, thereby limiting the impact on energy demand
    • Command-and-control provisions (e.g., renewable energy mandates for utilities) departed from the efficiency of a market-based approach
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ HR 2454, The American Clean Energy and Security Act or Waxman-Markey bill, passed the House in 2009 but failed to come to a vote in the Senate and is officially dead as of July 2010
  • 11. Collapse of the Cap-and-Trade Coalition in the Senate
    • It proved impossible to put together a majority coalition for cap-and-trade in the U.S. Senate
    • So much was given away to build the House coalition that little room was left for further bargaining
    • Senate Republicans chose to characterize cap-and-trade as a disguised tax, calling it “cap-and-tax”
    • Former Republican supporters of cap-and-trade withdrew their backing
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Under current rules of the U.S. Senate, a 60% majority is required to pass most legislation. Picture source: http://upload.wikimedia.org/wikipedia/commons/a/a6/US_Senate_Session_Chamber.jpg
  • 12. Lessons of Waxman-Markey
    • The coalition-building power of the cap-and-trade approach did not prove as strong as supporters had hoped
    • Cap-and-trade has now been rebranded as “cap-and-tax,” reducing its future political appeal
    • Attempts to assemble a coalition for cap-and-trade led to extensive departures from the simple market-based version found in economics textbooks
    • Although prospects are dim for any near-term action on climate change, the case for carbon taxes, rather than cap-and-trade, may have been strengthened as a long-term strategy
    Post P100728 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/

×