Feds Play Down Carbon Cap-and-Trade

Published April 1, 2009

Recent statements and actions of Obama administration officials have some observers wondering whether the president may be backing away from campaign promises to impose a cap-and-trade system to control greenhouse gases.

“The concern about cap-and-trade in today’s economic climate is that a lot of money might flow to developing countries in a way that might not be completely politically sellable,” Energy Secretary Steven Chu told The New York Times for a February 11 article. Chu floated the idea of a direct tax on carbon emissions as an alternative to the more complicated and restrictive cap-and-trade idea.

Needs China’s Help

On February 13 The Christian Science Monitor reported Hillary Clinton chose Asia, “particularly China,” for her first trip as secretary of state to discuss economic issues and “to enlist China to set curbs on its carbon emissions.

“Without that,” the newspaper continued, “President Obama may not be able to win enough Senate votes for a cap on U.S. greenhouse gases. If China isn’t making much of a sacrifice, many U.S. senators, especially those from coal states, may not support CO2 cuts or a treaty seen as reducing U.S. competitiveness.”

In a cap-and-trade system, the government would set limits on total carbon emissions and allow companies to buy and sell carbon “credits,” depending on whether a company produces more or less carbon than it is allowed. Total carbon output for the nation would have to stay within the capped level of emissions.

A carbon tax, by contrast, would not place direct limits on carbon emissions, but would instead levy a tax on emissions.

‘Provides Cover’ for Tax

Regardless of whether the Obama administration backs a direct tax on carbon emissions or sticks with cap-and-trade, consumers would end up paying more for energy, said William Yeatman, energy policy analyst at the Competitive Enterprise Institute.

“Cap-and-trade is slick marketing to mask a tax,” Yeatman said. “It’s assigning an emissions quota to tens of thousands of users and suppliers of energy. Imagine the task that would be to do carbon audits and monitor all those entities. In all honesty it’s not feasible. But it provides necessary cover for what is in essence a tax on carbon.”

Yeatman does not believe Obama will drop the cap-and-trade idea.

“They know that a tax is not viable in this economic climate or any climate,” Yeatman said. “Chu intimated they could be embracing a carbon tax, but when you carefully read the text of the interview, he seems to be speaking about an international regime, which is a whole different beast than domestic cap-and-trade.”

Affects Economies, Not Warming

Patrick Michaels, senior fellow in environmental studies at the Cato Institute, said he believes there is little practical difference between a cap-and-trade system and a carbon tax.

“Neither of these would have an effect on global temperatures, but they would both have an effect on economies,” Michaels said. “Chu’s recent comments to the Los Angeles Times about no agriculture in California and the death of California cities because of global warming show he is either extremist or extremely naïve and certainly not experienced enough to understand the adaptability of agriculture.

“Those comments were a signal to me that all of the top environmental leadership in the Obama administration [is] extremist and alarmist. You cannot go predicting the end of the world and say maybe we won’t do anything about that and have credibility,” Michaels said.

Gerald Prante, senior economist at the Tax Foundation, said many economists, given a choice, favor a carbon tax over cap-and-trade because a tax “is more flexible. It’s a political and public relations question of whether you go with one or the other. Cap-and-trade is a tax but not called a tax. So politically speaking, we may get cap-and-trade when a carbon tax may be better.

“Either way, though, energy would cost more. It’s all semantics,” Prante added.

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.