Fudge or Free Markets

Fudge or Free
The energy -policy choices that we

By Iain Murray

The collapse last week of the
Lieberman-Warner bill, the enviro-Left’s attempt to bribe Senators to impose
energy rationing on the nation, shows that we are now left with only two
energy-policy choices: We can adopt fudging issues as a policy, which will
achieve nothing, hurt many, and satisfy no one; or we can pursue a free-market
policy that will anger green activists and alarmists but actually do some good.
Chances are that fudge is on the menu.

How did we get here? To answer
that question, a look at the recently failed policy proposal is instructive. The
Boxer Amendment — all 490 pages of it — to the Lieberman-Warner Climate Security
Act sought to reduce U.S. greenhouse-gas emissions by instituting a
“cap-and-trade” regime to make energy use more expensive. Leaving aside the
folly of proposing this at a time when Americans are hurting from steeply rising
energy prices, Senate Environment and Public Works Committee Chair Barbara Boxer
(D., Calif.) and her well-funded environmental-movement allies realized that
they could not sell this scheme without massive bribery.

The Act would
have raised about $7 trillion in new government revenues and funded over $4
trillion in new government programs (yes, that’s trillion, with a “t”). Some of
that money would have paid for the support of special interests that might be
hurt most by the Act. Other portions of it would go toward new handouts to the
rapidly growing environmental-industrial complex of rent-seeking “green”
businesses and their consultants from the advocacy movement.

even with those provisions, Sen. Boxer and Majority Leader Harry Reid (D., Nev.)
could not find 50, never mind 60, votes to compel an up-and-down vote on
Lieberman-Warner. Of the 48 votes they managed to scrape together, several
senators said after the vote that, while they supported voting on the bill, they
would not have voted for it as it stood because it directly harmed their
constituents. This shows that there is little political will for any policy with
a large price tag on it for consumers. This is likely to hold true even if
Democrats increase their majorities on Congress in this year’s

So what are we left with? If there is an appetite to “do
something” about global warming, what could get through Congress? There appear
to be two options.

First is the classic governmental approach of fudging
the issue. The Boxer amendment would have created a cap-and-trade scheme that
would auction emission permits to businesses, which would then trade the
permits, selling if they could achieve emissions reductions and buying if they
could not. Without the auction element-that is, with permits simply allocated
for free-big business would be more likely to support such a scheme, as
economies of scale would allow for reductions that cost less than the market
price of a permit. The losers would be smaller-scale institutions, such as
hospitals, as has been the case in Europe,
where just such a scheme operates.

Moreover, the “cap” of cap-and-trade
is a politically imposed mechanism, so politicians will ensure that no big
constituency is penalized by getting too small an allocation. This political
pressure practically guarantees that any cap would be set too high to reduce
emissions, while at the same time increasing costs to consumers. In the end, all
it will do is transfer wealth to the carbon emitters. Again, this is exactly
what has happened in Europe. (Given the current
political importance of gas prices, a scheme that exempts transportation could
be politically viable, yet such a compromise would establish an infrastructure
that could, with a couple of regulatory tweaks, turn into the vast wealth
redistribution engine that the Boxer Amendment sought to impose.)

is another way. A free-market energy and global warming policy would benefit the
economy and American consumers, not penalize them. It would secure short-term
energy supplies by removing regulatory obstacles that prevent us from utilizing
the considerable energy resources currently locked up in Alaska, the Rocky
Mountains, and the Outer Continental Shelf. It would encourage
technology development and deployment for the medium term by removing regulatory
barriers to energy innovation, redeploy resources to fund research via prizes at
no net cost, and focus on making alternative energy cheaper, not
traditional-source energy more expensive.

It would also seek to promote
means of adapting to a warmer world by, for instance, tackling directly existing
problems that warming might exacerbate, rather than attempting to fine-tune the

Finally, it would promote trade measures that have helped
make developing nations wealthier, thus making them more resilient to any
changes in climate.

Such a package of measures, correctly marketed, could
prove to be not just popular, but effective in tackling the twin problems of
energy security and global warming. Sadly, it is unlikely to be adopted. Given
the current political climate in Washington, we are far more likely to end up
stuck in the fudge of a European-style cap-and-trade scheme, and see our energy
and climate woes worsen.