Three Strikes! Why Cap-and-Trade is Dead for 2009

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Obama's pitch on energy needs some work.“No Drama” Obama somehow managed to step in it again last week, plunging himself into the Skip Gates arrest and racial politics when he was meant to be drumming up support for health care reform.

If the measure of how badly the White House narrative veered off course is to observe that many of the Sunday shows spent more time on ObamaGates (I might have to trademark that one) than they did on health care, it is worth noting that Waxman-Markey is barely in the rear view mirror anymore. It does not appear to be on the Senate’s radar either.

Any hope of climate change legislation is rapidly fading and Waxman-Markey is poised to become another smudge on the road, steam rolled by the political process in much the same way the BTU Tax, Kyoto ratification, and previous energy-environment bills were.

What went wrong? I’m interested in your thoughts on whether cap-and-trade ever had a chance? Or, is strategy to blame for squandering the best chance at climate change legislation that we have had in a generation? If so, who dropped the ball? The White House? The House Dems? Senate leadership?

I’ll post my “three strikes” below, but what do you think killed cap-and-trade?

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  1. He gave a one hour news conference with detailed answers about all aspects of the health care reform debate. Then he answered one question about the Gates controversy. Maybe he went slightly too far in his description of what happened, but is it entirely his fault that the media chose to devote all their attention to that, and hardly any to the substance of what is one of the most important issues facing this country today?

  2. 1. The House bill is not built to pass the Senate.

    As noted in yesterday’s WSJ, Waxman-Markey “passed the House a few weeks ago by a 219-212 vote–not much of a margin. Most interesting was the fact that of America’s 50 state delegations in the House, 28 voted no and 22 aye, and one quarter of the 219 majority votes came from New York and California. Most of America’s states and communities didn’t much like the bill.” See: http://online.wsj.com/article/SB10001424052970204886304574308771420637620.html

    As I noted in a post here back in June (see http://cleantechies.wpengine.com/2009/06/29/can-obama-push-climate-change-bill-through-senate/ ), it is difficult to say whether this is a failure on the part of House Dems who crafted the legislation or – and I think this is the more likely cause – as a country we are still far apart on energy and the environment.

    2. Obama’s Rush

    All the deadlines are killing Obama’s agenda. Sotomayor had to be done by August, health care by the recess, climate change had to make it through the House by July 4th, and then tack on the arm-twisting for stimulus, F-22s, and all the rest. Too much, too fast. Energy is now lost in the shuffle.

    3. The Saudis Did It

    $2.25 gasoline is not helping. Americans have settled in to the notion that whatever the Iraq and Afghan wars are – and whatever they think about them – they are not about energy. I.e., there is no compelling national security push on energy right now. There is also little economic pressure with gas prices low and given that climate change is still very much on the fringe of the average American’s priority list, the bill needed some other hook to help it gather momentum.

  3. For those of you with your head’s in the sand still figuring out who Waxman and Markey are check out Matt’s article (http://cleantechies.wpengine.com/2009/07/28/waxman-markey-opposition-threatens-us-leadership/)

    Joe,

    Interesting you include the Saudis, great point there, though it wouldn’t be the first time that they and other islamist states failed to help the US’ cause. This and the point of Obama’s rush are the solid points you raise – the 1st, while important, is merely a symptom I’m afraid.

    At its core, the country doesn’t give much importance to environmental leadership – I appreciate that the opposition questions the benefits of leadership while highlighting the obvious shortcomings (though there are shortcomings inherent with leadership and responsible behavior). Unfortunately the opposition’s concern about the economic frailty of the country rings too loudly – largely because as humans we discount future benefits too greatly and attribute a disproportionate amount of importance to short term ups and downs.

    I fear that the answer is getting younger representation in our government, I say we have a couple seats for teenagers, they have a vesting interest in our competitive future and a healthy planet.

    So, for me… the main strike we have against us is that we are Americans. We want our cake and we want to eat it too. We’ve heard for too long (starting with Reagan?) that we deserved our cake, and we were special enough to eat it… we should eat it now, and we shouldn’t worry about needing cake in the future (or bother with vegetables for that matter).

    The second strike: we are represented overwhelmingly by people that won’t benefit from systemic changes to the status quo. We need the participation of younger people that want to find a harmonious homeostasis with our neighbors and and our environment. We should have the winning team from the next Model UN tackle our colossal debt, environmental and energy issues. I think they would be revolutionarily prescient in their solutions.

    The third strike against us is that we have allowed our politicians to be voted into office based on the checks that they can raise, not by the merit of their opinions. We don’t listen to what they say as Americans… C-SPAN is too boring it seems for us to bother… perhaps they got some crazy animations we would begin to realize that the politicians we’ve voted into office are not necessarily representing our best interests, but rather they are ensuring that they are guaranteed a seat at the next session of congress through the support of constituencies that pay for them to get in front of voters… because we are too lazy to tune in.

  4. Heritage Foundation estimated that it would cost the average family an extra $3,000 a year and Obama (caught on tape) menacingly wanted energy costs to go up in now infamous interview with SF Chronicle. Communists posing as Greens nowadays flunked both economics and history. Obama’s disapproval rating now 10% higher than his approval rating. Average temperatures dropped .7% since Al Gore’s propaganda movie and infamous hocky stick. Enough! No more bailouts, regulation of energy, taxes, government takeovers, rationing of healthcare, stimulation of deficits, printing money out of thin air, trade wars. This is the worst recession since WWII and it’s because we have too much government control over our lives already.

    • Ben, you are the first person I have heard say that we are in a recession because we have too much government control over our lives already. Even Alan Greenspan would not agree with that. Ben Bernanke and Henry Paulson do not agree with that. Richard Posner does not agree with that. All of them admitted that the mortgage markets got out of control due to insufficient regulation, not too much.

  5. Ben Bernanke and Hank Paulson have zero credibility. Both insisted that the worst was over after the collapse of Freddie/Fannie. Geitner was in charge of the New York Fed at the apex of the housing bubble. Just a sampling of what he regulated:

    Bank holding companies

    State-chartered banks

    Foreign branches of member banks

    Edge and agreement corporations

    US state-licensed branches, agencies, and representative offices of foreign banks

    Nonbanking activities of foreign banks

    National banks (with the Comptroller of the Currency)

    Savings banks (with the Office of Thrift Supervision)

    Nonbank subsidiaries of bank holding companies

    Thrift holding companies

    Financial reporting

    Accounting policies of banks

    Business “continuity” in case of an economic emergency

    Consumer-protection laws

    Securities dealings of banks

    Information technology used by banks

    Foreign investments of banks

    Foreign lending by banks

    Branch banking

    Bank mergers and acquisitions

    Who may own a bank

    Capital “adequacy standards”

    Extensions of credit for the purchase of securities

    Equal-opportunity lending

    Mortgage disclosure information

    Reserve requirements

    Electronic-funds transfers

    Interbank liabilities

    Community Reinvestment Act subprime lending requirements

    All international banking operations

    Consumer leasing

    Privacy of consumer financial information

    Payments on demand deposits

    “Fair credit” reporting

    Transactions between member banks and their affiliates

    Truth in lending

    Truth in savings

    http://mises.org/story/3446

    Here in California, we have the harshest environmental regulations, the highest taxes, the worst bond rating and El Centro has 28% unemployment. Thanks, socialists.

  6. I’m glad we have some conversation going here.

    Ian: I’m not sure how I feel about the argument that an official position of American exceptionalism extended to our energy policy. I do think that it may have been evidenced in our consumption habits – as it is in our consumption of everything else – and that we built policy that could sustain the economic and lifestyle choices that our country had made. The extent to which those choices were directed by business interests and the role they are playing now in blocking reform is an open question.

    Ben: I think you make a great point about Obama’s position on energy. The SF Chron tape is an example that they have kind of run from, but the attitude is something that they have been very open about. Its the position of the administration to “make clean energy the profitable kind of energy.” When you propose to “make” something profitable, it is by defintion anti-competitive (I use that term as it contrasts with laissez-faire). The administration is going to pick the winners and losers. And, we see it playing out already. There is double pressure applied on the old guard, not only will we pass RPS and other incentive programs that subsidize new technologies, but we’ll cap carbon and regulate other emissions to put downward pressure there. In short, they are going to make it impossible to be profitable to run a coal-fired power plant. OK…the only question is, can we do that and still have an available supply of affordable, reliable electricity. We’re going to find out.

    Joe: I agree with you on the takeaway from the presser. Still, it shocks me that he stepped into that. I’m not sure where they saw that going and my guess is that even someone with Obama’s endurance and discipline was tired at the end of an hour event and went off message. As for Ben’s point, he might be the first you have heard raise the point, but he is certainly not the only one making it. There has been a consistent line of argument coming from the GOP and conservative talkers claiming that it was government programs that required high-risk lending that led to the subprime crisis. In fact, that is the theme of Thomas Sowell’s Bestseller “The Housing Boom and Bust.” (http://www.amazon.com/Housing-Boom-Bust-Thomas-Sowell/dp/0465018807/ref=sr_1_1?ie=UTF8&s=books&qid=1248894427&sr=1-1)

    Again, thanks to all for joining the discussion.

  7. I think you’ve identified a major problem with cap and trade. We can disagree about the science of global warming, climate change, or whatever they’re calling it nowadays. But it is absurd to control something in the future unless you are clairvoyant. It would have made as much sense to put cap and trade on horse poop and buggies before the Model T was issued and it could have the same effect now of regulating future anacryonistic activities that may not even exist. It is important to understand this from a rather dry economics perspective. http://www.econlib.org/library/Columns/y2009/Murphyclimate.html

  8. The House strategy for Cap and Trade was 1) hand out allowances to utilities and other powerful lobbies, and 2) hope carbon costs will remain low (the so-called “postage stamp a day”). But many midwesterners, including North Dakotans Sen. Byron Dorgan and Rep. Earl Pomeroy are sceptical of the “postage stamp” strategy. High-coal states will face major costs, and the strategy puts supporters at risk in the 2010 or 2012 elections.

    But Senate still has time to choose an alternative strategy that sets aside Waxman and Pelosi’s vision of realpolitik (that had almost everyone holding their noses by the end of House debate). An alternative strategy would be to level with the American people, tell them that costs might be high, but auction revenues will provide them with a dividend to help cover the costs. Perhaps Van Hollen’s Cap and Dividend bill could be modified to limit the tradability of the auctioned permits, and then return the revenues to the people, bypassing the lobbyists and financial speculators. More info at http://www.capanddividend.org.

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