James Pethokoukis

Politics and policy from inside Washington

Problem with cap-and-trade is substance, not style

Mar 11, 2010 15:20 UTC

Washington is obsessed with optics and messaging. Indeed, U.S. proponents of limiting carbon emissions hope rebranding their “cap-and-trade” proposal as “pollution reduction” will boost the flagging proposal on Capitol Hill. But the real problem is the product, not the packaging. There are far more politically feasible and economically effective ways of dealing with climate change.

1) As it is, the Obama administration and Capitol Hill Democrats are late to the name-change game. Republicans have already effectively rebranded “cap-and-trade” as “cap-and-tax.” And as much as Washington insiders argue that America is woefully undertaxed, the American public heartily disagrees. Higher taxes are still political poison. Especially ones that hit the broad middle class. And especially during a time of historically high unemployment. Americans aren’t stupid. The whole point of a cap-and-trade plan is to eventually make carbon more expensivee. And that “cost” or “tax” or “pollution reduction” will eventually come out of their pockets.

2) Whatever you call it, an overarching, national cap on carbon emissions is going nowhere in the Senate after passing narrowily in the House. (The recent scientific clash over climate change data hasn’t helped its prospects in the upper chamber.) A possible Plan B is a gradual, sector-by-sector approach to cap-and-trade starting first with electric utilities and eventually expanding to various manufacturing sectors over the decade.

3) But that misses the point. The core political problem here is not how carbon is priced or what the method is called, but rather what is done with the revenue. The original Obama plan was to take some of the money from auctioning carbon permits and devote it to clean energy research. The rest would, temporarily, pay for middle-class tax cuts. But the suspicion has lingered that the money would eventually be funneled toward healthcare reform funding.

4) For the public to accept a rising carbon price, the money must be permanently returned to the public. Gaining momentum is a bipartisan plan where 100 percent of carbon permits are auctioned with 75 percent of the revenue returned as “dividends” and 25 percent invested in energy research. And in his new book, 2012 Republican presidential frontrunner Mitt Romney echoes an Al Gore idea of a carbon tax whose revenues are used to offset individual payroll taxes. Indeed, there are indications that key anti-tax crusaders would be willing to accept a carbon tax plan if the potential revenue was fully refunded in some fashion.

So forget the rebranding. Time to launch a new product.


Yes, use the most powerful economic medicine available — prices — to dislodge the “incumbent technologies”: fossil fuels. For example, as long electricity can be made from coal at a fraction of the cost of renewable alternatives, low-carbon energy alternatives can’t gain a foothold.

Cap-and-trade is a hidden, volatile and regressive carbon tax, which Wall St would set and collect.

A revenue-neutral carbon tax is explicit, predictable and with revenue recycling as you suggest, it’s progressive. See http://www.carbontax.org.

Expanders vs. Restrainers

Dec 15, 2009 13:38 UTC

I actually agree with this greenie op-ed the UK’s Guardian, though the author and I are on different sides:

Humanity is no longer split between conservatives and liberals, reactionaries and progressives, though both sides are informed by the older politics. Today the battle lines are drawn between expanders and restrainers; those who believe that there should be no impediments and those who believe that we must live within limits.

EPA carbon ruling creates an even bigger ‘uncertainty tax’ for business

Dec 7, 2009 20:41 UTC

Call it the Uncertainty Tax. I mean, it is not enough that the American private sector has to deal with the mercurial state of healthcare, financial and tax reform, now it has to calculate the likelihood and impact of  the Obama administration unilaterally imposing draconian carbon rules? Even the EPA calls such efforts inefficient and economically disruptive. A few other thoughts:

1) Expect loads of litigation.

2) Don’t expect this to nudge Congress into passing cap-and-trade in 2010.

3)  Did I mention loads of litigation?

4)  It this looks likely, Congress would probably strip the EPA of its authority to do so.

5)  If Congress does not act, this could be the beginning of a multi-year effort  to regulate climate emissions. So more uncertainty.

James Pethokoukis is the money and politics columnist/blogger for Reuters Breakingviews. Previously, he was the economics columnist for U.S. News & World Report where he wrote the monthly Capital Commerce magazine column. Pethokoukis was also the managing editor of the magazine’s Money & Business section. He has written for many publications including the New York Times, the American, USA Today, Investor’s Business Daily, and TCS Daily. Pethokoukis is also an official CNBC contributor and appears frequently on that network’s Kudlow & Company, Power Lunch, and The Call shows. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, CNN, and Nightly Business Report on PBS. A 1989 graduate of Northwestern University where he double majored in Soviet politics and American history and a 1991 graduate of the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion.james.pethokoukis@thomsonreuters.com


The Obama administration is perhaps most remarkable for how it has emboldened the rest of the extreme left. Pelosi and Reid attempt to shove through outrageously dangerous legislation knowing that the anti-American, anti-business president will eagerly sign it. The spokewoman for the EPA could barely mask her glee that this unelected group would soon be forcing draconian regulations on industry and homeowners.

Since the release of the climategate emails the left has confirmed that they are unconcerned with facts or consequences. They march on unashamed with their plan to halt progress and punish success.

Posted by Pat Duggan | Report as abusive

The Michigan economic example

Oct 7, 2009 13:34 UTC

Both California and Michigan are turning into powerful economic examples of what not to do. Here is a bit on Michigan Gov. Jennifer Granholm’s green job push:

Since taking office in 2003, Granholm has created 163,300 positions, her office says. She expects that a recent infusion of more than $1 billion from the Obama administration aimed at nurturing car battery and electric-vehicle projects will generate 40,000 more positions by 2020.

In the past decade, however, as the auto industry has grown smaller, Michigan has lost 870,000 jobs — about 632,000 of them during Granholm’s tenure. The number is expected to reach 1 million by late next year, the end of her term.

Me: And what is the cost per job, I wonder, in various tax subsidies. The Tax Foundation plots a better way:

The typical pattern after such “job creation” purchases is:

  • far fewer jobs appear than were promised;
  • the tax incentives turn out to be far more generous than advertised (see recent scandal about Iowa’s film tax credits, a type of tax giveaway that Michigan has indulged in to a remarkable degree); and
  • the state’s politicians distract the public’s attention from the failure of previous job creation deals with new ones.

The bottom line is that politicians should focus on the nuts and bolts of government, which does not include gallivanting around the globe searching for companies to bribe.

The story also mention the fate of the Electrolux refrigerator plant in Greenville. It shut down three years ago, taking 3,000 jobs with it, despite tax breaks from the state. I am familiar with this story. I interviewed the union workers up there four years ago. Even though it had been clear for years that Electrolux was likely going to shift production to Mexico, the workers I met had done little to prepare for the eventuality. No reeducation or retraining such as upgrading of computer skills, for instance. And few seemed willing to move to cities or states with better economies.


Sorry folks, it’s unions pure and simple. Ask yourself would GM/steel companies/shoe manufacturers/fabric mills have financial problems/exist if the unions would never have existed? The cost of living would be much lower than it is today? The move to overseas production would never have occurred. Unions make things cost more than they are worth—see Walmart for evidence.

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$10 trillion for clean energy? Maybe a bit overambitious

Oct 6, 2009 17:23 UTC

Working for the International Energy Agency must be hoot. Where else can you recommend a $10 trillion investment and kinda-sorta be taken seriously? From the WSJ:

The IEA, energy adviser to the world’s richest nations, urges more-aggressive reductions in carbon emissions than what many nations are currently planning. In the report, to be released Tuesday, the IEA calls for investment — in clean-energy initiatives such as solar power, new nuclear plants and other measures — of $500 billion a year over the next 20 years.

That is 37% more investment than what the IEA estimated was necessary just a year ago. Some analysts put the current level of investment in clean energy at around $100 billion a year.

And this is my favorite line in the story:

The IEA’s projections, though sometimes seen as overly ambitious, are generally regarded as relevant guideposts for the energy industry.


This is not really a huge deal compared to the size of the energy problem.
Large numbers should always be considered in context.
Let’s see, OECD primary energy consumption is ~5.5 bill tonnes oil equivalent per year. (http://www.iea.org/Textbase/stats/balan cetable.asp?COUNTRY_CODE=28) This corresponds to about 40.4 billion barrels of oil-equivalent. So $500 billion per year is $12.37/bbl oil-equivalent used in OECD per year.
Or, 29 cents/gallon-oil-equivalent. That seems quite reasonable.

Posted by Paul Leiby | Report as abusive

The cap-and-trade endgame on Capitol Hill

Sep 30, 2009 16:54 UTC

The great Dan Clifton of Strategas Research hears the same thing I am hearing:

We continue to believe the Senate does not have 60 votes for a meaningful cap and trade bill and today’s events are largely designed to keep the process moving. With healthcare taking up so much of the calendar and financial regulation to follow, cap and trade is now squarely put into the election calendar. Should something pass next year, we expect the legislation to a be a stripped down energy bill (as opposed to cap and trade) and that will feature a Renewable Portfolio Standard and possibly easing of approval for transmission lines.


Still, we can not take it for granted. Proposed cap and trade legislation would cost Americans thousands in increased energy costs as well as lost jobs. Write to Congress at http://tiny.cc/pxIgi.

Posted by CCit26 | Report as abusive

Study: Cap-and-trade will cost U.S. families $1,200 a year

Jun 15, 2009 14:41 UTC

From the non-partisan Tax Foundation:

A new Tax Foundation calculator now shows how much a U.S. cap-and-trade system would cost individual households annually. The Tax Household Cap-and-Trade Burden Calculator is based upon a study released in March, Tax Foundation Working Paper No. 6, “Who Pays for Climate Policy? New Estimates of the Household Burden and Economic Impact of a U.S. Cap-and-Trade System.” The study shows that a cap-and-trade system designed to reduce greenhouse gas emissions by 15 percent would place an annual burden of $144.8 billion on American households. The average annual household burden would be $1,218, which would be approximately 2% of the average household income.


The above link wasn’t working for me, but I found the source article (1) which had the link you were shooting for, I believe:

http://www.taxfoundation.org/publication s/show/24472.html

“Using RIMS II multipliers we estimate the broader economic impact of cap and trade. Depending on how the system is structured, cap and trade could reduce U.S. employment by 965,000 jobs, household earnings by $37.8 billion, and economic output by $136 billion per year or roughly $1,145 per household. Lawmakers weighing the costs and benefits of climate policy should be aware that cap and trade would impose a significant and regressive annual burden on U.S. households, and would not represent a “tax free” way to reduce greenhouse gas emissions.”

1). http://www.taxfoundation.org/news/show/2 4750.html

Obama’s gas price conundrum

Jun 12, 2009 17:52 UTC

This American Thinker post explores the political fallout of rising gas prices on the Obamacrats. (Gas was a $1.80 when Obama took office.) When gas prices soared in 2008, the Dems hammered Bush and the GOP. But super-high prices ended up being a plus for the McCain campaign since he was arguing for an “all of the above” energy policy (more driling and nukes, not just alternative energy) which strikes most people as a pretty reasonable approach.  If we head back to $3.50/4.00,  the Obamacrats could get hit by a double whammy — public unhappiness at high gas prices and at the administration’s refusal to move beyond a green approach.


It’s so amazing that we throw ten dollar words at an economic problem that no one has acknowledged yet. High gas prices mean more dollars spent at the pump. When you put $40 more into your tank per week, you spend less else where. The housing problem was not the only contributer to our economies down fall. Yet, it still gets top priority while gas prices sneak up. The housing market has always been headed down a steep gully. For years people have lived pay check to pay check and over their heads with debt. Change the gas prices and Americans stay home and shop way less. Obama’s tenure as yet, has failed to recognize how important gas prices are to Americans! Charge the OPEC countries the same for wheat that we spend for gas and watch the price go down. We have no guts in our government to use US goods and services over seas as a marketing tool. By the way, this topic was not an issue during the election: trade practices and supporting American goods and services.

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Cap-and-trade off the table for 2009

Jun 12, 2009 12:50 UTC

That is the conclusion of this Reuters story. But how about 2010? Here is the money graf:

Two obstacles stand in the way. First, advocates must convince the public the bill, which might initially raise electricity and other energy prices, will ultimately save money by heading off damage caused by global warming. … One opponent, the Coalition for Affordable American Energy, whose members include the influential U.S. Chamber of Commerce and about 200 other organizations, has estimated climate legislation could cost U.S. households $1,400 per year by 2020. … Second, experts said the bill must include nuclear energy, which is nearly emissions free but comes with other problems such as toxic waste. Claussen said a resolution on nuclear power could help the Senate reach the required 60 votes for the bill’s passage.

Me: Unless money from cap-and-trade is fully refundable to consumers, I don’t see it happening. And if it excludes nukes, it seems like a fantasy plan untethered from political, economic or scientific realities.


I aggree with your comment. Until will embrace the idea of nuclear power; we are never going to make any efforts to stop global warming.

Posted by Jason | Report as abusive

Comment of the day …

Jun 10, 2009 17:05 UTC

I may never get a better comment than this one from my post about the $2 trillion cost of climate change legislation:

Personally I wouldn’t be upset if the human race perished, it’s the plant and animal life that doesn’t have a say in all this that I feel sorry for.  Hopefully they’ll fight back before it’s too late.

Me:  This sounded so familiar. I searched my mental memory and eventually recalled a Space: 1999 episode based on this very premise.


Please have reader refer to the book “ISMAEL” written by a buddhist in the 90′s i think. Ismael was a talking gorilla locked in a cell. He stated that the myth of Genesis is that “God” gave power to man to do what he saw fit with the earth. Ismael says this is a false assumption and that man is the one who is destroying is own species. He says to the reader that civilization is like a 747 that has fallen over a cliff 10.000 years ago. We just have not crashed yet.

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