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Sunday, March 1, 2009

Bracken Hendricks: Robert J. Samuelson’s Essentially Deceptive Rhetoric on Cap and Trade

[BLOGGER'S Note: I prefer a carbon tax, but that is just my opinion.]

Robert J. Samuelson’s Essentially Deceptive Rhetoric

Our guest blogger is Bracken Hendricks, a Senior Fellow with American Progress Action Fund and the founding Executive Director of the Apollo Alliance.

Robert J. Samuelson

The Wonk Room, June 3, 2008 — In today’s Washington Post and a parallel piece in Newsweek, Robert J. Samuelson gets it wildly wrong on federal policy for reducing greenhouse gas emissions, parroting a litany of falsehoods and misrepresentations concerning the Lieberman—Warner cap-and-trade legislation now being debated in the Senate. He writes:

The chief political virtue of cap-and-trade — a complex scheme to reduce greenhouse gases — is its complexity. This allows its environmental supporters to shape public perceptions in essentially deceptive ways. Cap-and-trade would act as a tax, but it’s not described as a tax. It would regulate economic activity, but it’s promoted as a “free market” mechanism. Finally, it would trigger a tidal wave of influence-peddling, as lobbyists scrambled to exploit the system for different industries and localities. This would undermine whatever abstract advantages the system has.

Samuelson is the one being “essentially deceptive.” Like most detractors of action on global warming, Samuelson continues to push the unsubstantiated notion that reducing emissions will tank the economy, and thus is not worth the effort. The problem with this argument is that it ignores the last three decades of science, misunderstands basic economic theory, and overlooks the enormous opportunity presented by the clean energy economy.

Inaction is by far the most expensive policy option. Global warming was correctly termed “the biggest market failure in human history” by Sir Nicholas Stern, a senior economic advisor to the government of Tony Blair. Establishing a price on emissions through a cap-and-trade system actually improves the efficiency of the economy by ensuring that market prices include the real social costs of pollution and inefficiency. This is a basic fact of economics, popularized in the early 1900s by economist Arthur Pigou and embodied by the contemporary “polluter pays” principle. Recent studies by the Intergovernmental Panel on Climate Change and even the Bush Administration itself confirm the high costs of inaction and the existence of a wide range of cost-effective actions to bring down carbon emissions and stimulate economic innovation.

The “abstract” advantages of cap and trade are real. Samuelson simultaneously argues that cap-and-trade is a backdoor carbon tax while deriding its advantages over a tax. One of the fundamental differences between a set tax and cap-and-trade is that while a carbon tax assumes the government knows the proper marginal cost of emissions, a cap-and-trade system lets the market set the price. In an economy like the U.S. that has been functioning without any effective greenhouse gas constraints, the initial cost of emissions reductions is likely to be quite low as we capture the low-hanging fruit of efficiency gains.

“Influence peddling” should be addressed in any system. As John Whitehead writes at the Environmental Economics blog, “Just like any government policy, both a carbon tax and cap-and-trade can be gamed through the political process. It is goofy to try to argue that one would be gamed more than the other.” Samuelson’s concern about influence peddling can be addressed by a commitment to auction 100% of the emissions permits, as advocated by the Center for American Progress. The opportunity for gamesmanship would be minimized by a full, transparent, permit auction instead of the free allowance giveaway advocated by most polluters.

Global warming is not just an environmental crisis — it is a public policy problem. Given the choice between an innovation economy that uses clean energy efficiently, and an economically devastating climate crisis, the choice is obvious. It is time for naysayers like Samuelson to stop pitting the economy against the environment, and recognize that a safe and sustainable environment is the bedrock of our prosperity. That is an idea worth investing in.

UPDATE: Ryan Avent at The Bellows writes:

Washington Post columnist Robert Samuelson has long impressed me as one of the most hackish economic columnists not associated with the Wall Street Journal and not named Ben Stein, but today’s piece on cap-and-trade is dismally, embarrassingly stupid. Its essential premise is that consumers and producers of energy don’t respond to price signals, something so incredibly, obviously wrong that even the dolt editors of the Post opinion section should have wondered what was up. Samuelson should be ashamed of himself.

Link to article:

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