The Deep Cynicism of Waxman-Markey

I’ve written a lot about why I believe that even if one accepts that Waxman-Markey will accomplish its stated goals for greenhouse gas emissions reductions via a cap-and-trade mechanism, it would still be a very bad law.

At a practical political level, as far as I can see, the fulcrum of the debate is among midwest and mountain state Democrats. The Republicans (excepting the senators from Maine) seem solidly against it, and most coastal Democrats solidly for it. The legislative strategy appears to be to cut whatever side deals are necessary to get the swing Democrats to support it. This mostly has meant giving away special allowances and spending programs to pretty much every industry or region that actually produces greenhouses gasses at sufficient scale to play the lobbying game.

There does not seem to be any line in the sand that they will not cross. At this point, the side deals seem to have consumed the cap. That is, when you look under the hood, there is not really a material binding cap in this bill for at least a decade. Nothing is left but the political rents. This is basically why the CBO now estimates that all those net revenues from auctioning ration cards that were going to help offset our structural budget deficit are not going to be there. In fiscal terms, Waxman-Markey will bring in almost nothing. We’ve given it all away.

Informed activists look to the various clean air and water acts, and argue by analogy that we just need to get the structure in place, and then over decades, as with those bills, work the courts, staff the regulatory agencies with true believers, pass occasional amendments in Congress and so forth, in order to tighten the limits. This logic is an extension of the “We need this deal, even though it looks terrible on a standalone cost-benefit basis, so that we can get the rest of the world to go along with binding caps” to something like “We need to pass an ineffectual law to set up a structure that over time can be used to create an effectual law that is still terrible on a standalone cost-benefit basis, so that we can then use this to persuade the rest of the world to go along with binding emissions caps”. Talk about your bank shots.

But beyond this, I think this analogy is mistaken. This is less like the Clean Air Act than it is like a new corporate income tax. It comes with a set of powerful rent-seeking entities with strong incentives to keep very high theoretical rates in place, while carving out exemptions for themselves. It’s hard to imagine a structure better designed to reward lobbyists, large industries and members of Congress, and less likely to efficiently reduce greenhouse gas emissions.