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Hobson's Hamburger

It’s time to end the uncertainty about carbon costs.

Fortnightly Magazine - August 2009

weak position to bring China, India and Russia into an international accord. Failure to exercise international leadership won’t exempt America from the costs of carbon constraints, but it might give our global rivals an excuse to stay on the sidelines at Copenhagen—further weakening the competitiveness of U.S. exports in global markets.

Third, any GHG constraints that are likely to emerge from this session of Congress will be moderated by economic concerns. Elected officials appreciate the fragility of the economy, and any GHG regulation enacted this year would be easier for American businesses to swallow (at least in the short term) than would regulation that’s likely to emerge at some future date, when the U.S. economy is growing again. In other words, if Congress kills the bill this year, its ghost might return with a vengeance at some future date.

So “now or never” doesn’t really mean GHG regulation can happen only this year. It means this year is the best time for it to happen. And it means that if you don’t like the Waxman-Markey mangle, then probably you’ll hate the alternatives.

Price Visibility

The compromise nature of the ACES bill means that many of the best reasons for supporting it have less to do with the legislation itself than they do with the threat of something worse. We might’ve wanted a nice sirloin steak, but instead we’re getting a greasy hamburger, and we’d better accept it or we might find ourselves choking on spoiled liver.

That makes it difficult to get excited about the bill, or, frankly, to be particularly optimistic about its chances for accomplishing its stated goals.

For example, the bill contains massive subsidies for corn-based biofuels, encouraging investments in an inefficient and uneconomical industry. It provides a large allocation of emissions allowances to auto manufacturers, effectively slowing the transition toward plug-in electric vehicles. And it includes a raft of federal mandates that will force states to change their building codes to improve efficiency by an arbitrary percentage—30 percent at the outset, and 50 percent by 2015. This kind of prescriptive, top-down approach concentrates power in federal hands, and invites litigation from states that already have stringent building-efficiency codes.

Additionally, ACES allocates allowances to retail electricity distributors rather than emitters. Arguably, this approach would ease the pain on consumers, and would reduce the regulatory burden for utilities. But it seems like a peculiar and convoluted way to assign responsibility for GHG reductions, and it might undercut states’ authority over resource-planning decisions.

Further, to the degree this approach allows utilities to insulate consumers from the cost of emissions, it perpetuates the bulk-rate scheme that has effectively hidden the true costs of energy from consumers for nearly a century. Plus, ACES seems to assume the current regulated industry structure will remain unchanged, with today’s retailers continuing to own the market for all eternity. Such assumptions seem obtuse, given prevailing trends toward smart metering, time-of-use pricing and distributed resources—and given the lessons of the telecom industry and its technology revolution.

Nevertheless, despite these and many other shortcomings, Congress should accept this greasy