The Dernogalizer

June 1, 2009

Poor Post Op-Ed

Filed under: Energy/Climate,National Politics — Matt Dernoga @ 6:13 pm
Tags: , , ,

There’s a very primitive article written by Martin Feldstein, a professor of Economics at Harvard, which is interesting since I thought they had standards regarding who taught at their institution.  To see a real analysis of cap and trade by a professor of Economics at Harvard that actually uses the degree earned for the position, see HERE.  I’m going to make a few quick points below about how poor this column is by taking his paragraphs and providing real context to them.

“The Obama administration and congressional Democrats have proposed a major cap-and-trade system aimed at reducing carbon dioxide emissions. Scientists agree that CO2 emissions around the world could lead to rising temperatures with serious long-term environmental consequences. But that is not a reason to enact a U.S. cap-and-trade system until there is a global agreement on CO2 reduction. The proposed legislation would have a trivially small effect on global warming while imposing substantial costs on all American households. And to get political support in key states, the legislation would abandon the auctioning of permits in favor of giving permits to selected corporations.”

Only the first 2 sentences is right.  Yes there’s a proposed system, and yes emissions will lead to serious consequences.  However not just environmental consequences, also economic and national security harms as well.  So there’s a problem, but…we should wait for a global agreement.  It looks like Feldstein has just taken us back to the delayer strategy from 12 years ago with Kyoto.  That was a brilliant idea.  Do nothing and set action back a good 10 years.  While an auction is preferable, the notion that all the permits are being given to corporations is a false one.  Once again look at the analysis by the real Harvard economist here.

“The Congressional Budget Office recently estimated that the resulting increases in consumer prices needed to achieve a 15 percent CO2 reduction — slightly less than the Waxman-Markey target — would raise the cost of living of a typical household by $1,600 a year. Some expert studies estimate that the cost to households could be substantially higher. The future cost to the typical household would rise significantly as the government reduces the total allowable amount of CO2.”

Wrong!  Once again severe dishonesty.  This is under the assumption that 100% of the permits are auctioned off, and that none of the money is returned to consumers.  However, 80% of the allowances in in some way allocated back to consumers.  An EPA analysis actually takes into account the allocations and lump-sum rebates being given back to consumers through local distribution company allowances pegs the cost to be on average $90-150 a year.  It’s also worth noting that because electricity prices will go up, consumption will go down, but consumers will get rebated for the higher prices separate from electricity costs.  This means energy consumption will fall, energy conservation will rise, and the cost to consumers may end up being negligible.

“Americans should ask themselves whether this annual tax of $1,600-plus per family is justified by the very small resulting decline in global CO2. Since the U.S. share of global CO2 production is now less than 25 percent (and is projected to decline as China and other developing nations grow), a 15 percent fall in U.S. CO2 output would lower global CO2 output by less than 4 percent. Its impact on global warming would be virtually unnoticeable. The U.S. should wait until there is a global agreement on CO2 that includes China and India before committing to costly reductions in the United States.”

Oh and the whole we alone will not solve global warming, so therefore we must do nothing argument.  Well..if we want a U.S. China deal, or to capitalize on Russia’s new stance, then we might want to be able to bring something to the table so we can get a global deal.  Yes I might just be 1 out of millions of Americans, but it doesn’t mean I shouldn’t make environmentally conscious decisions just because my neighbors aren’t.  Lead by example.

“The CBO estimates that the sale of the permits for a 15 percent CO2 reduction would raise revenue of about $80 billion a year over the next decade. It is remarkable, then, that the Waxman-Markey bill would give away some 85 percent of the permits over the next 20 years to various businesses instead of selling them at auction. The price of the permits and the burden to households would be the same whether the permits are sold or given away. But by giving them away the government would not collect the revenue that could, at least in principle, be used to offset some of the higher cost to households.  The Waxman-Markey bill would give away 30 percent of the permits to local electricity distribution companies with the expectation that their regulators would require those firms to pass the benefit on to their customers. If they do this by not raising prices, there would be less CO2 reduction through lower electricity consumption. The permit price would then have to be higher to achieve more CO2 reduction on all other products. Some electricity consumers would benefit, but the cost to all other American families would be higher.”

Once again, you’re misrepresenting the permit allocation, and how the burden to households if affected by rebates given back to them.  See HERE.

“In my judgment, the proposed cap-and-trade system would be a costly policy that would penalize Americans with little effect on global warming. The proposal to give away most of the permits only makes a bad idea worse. Taxpayers and legislators should keep these things in mind before enacting any cap-and-trade system.”

This isn’t judgement.  Judgement weights facts.  Nevermind that there’s absolutely no mention of the job creating potential of green investments.  Nevermind the value of getting off of foreign oil.  Nevermind the value a stable livable climate.  Nevermind energy savings from conservation.  Go back and get your degree checked.

**Update** 6/2/09** Joe Romm of Climate Progess has a very insightful post on this column.  The best part which I’m coping here adds light to the $ cost stated in the op-ed.

“But what about the claim the CBO recently estimated that “the resulting increases in consumer prices needed to achieve a 15 percent CO2 reduction — slightly less than the Waxman-Markey target”?  Well, that was based on a 2000 analysis of a 15% cut from 1998 levels, quite different than Waxman-Markey.  And that study didn’t model the aggressive clean energy deployment strategies that Congress and Obama have advanced in the stimulus and the climate bill.  And that study was at a time of low prices whereas the reality of high oil prices again makes any target much easier and cheaper to meet.”

**Update 6/3/09** Economist Paul Krugman has also trashed Feldstein’s column.

**Update 6/7/09** A good letter to the editor in the post responding to this column.


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