No need to cave yet

Obama could create a cap-and-trade system without Congress 4

The new Congress has been making up for lost time on climate change.  Senators and Representatives have been rushing to get a cap-and-something passed this year.

At the same time there are fears that it may be impossible to build a filibuster-proof majority in the Senate for a good climate bill, leaving greens with two options:  either accept a bad bill, or accept inaction.

But things might not be as bad as they seem.

In a report released today, the Institute for Policy Integrity at New York University School of Law found that if push comes to shove, Obama could create a cap-and-trade system on his own, complete with auctions and the ability to sign an international agreement.

This means that if the Senate refuses to agree to meaningful action on climate change, there is another option available.  Obviously this is not ideal—legislation would provide a better democratic “stamp” and help ensure the longevity of the policy.  But at the end of the day, with climate tipping points breathing down our neck, and the Copenhagen summit looming large, it is good to know that our President could pull the trigger.

At the same time that the Obama administration has the option to create a cap-and-trade system, it is also under a strict timetable to begin regulating greenhouse gases from a host of sources.  First cars, then marine vessels and aircraft, and eventually stationary sources.  Many of these mandatory requirements of the Clean Air Act can only be fulfilled by command-and-control regulation—which businesses hate because they are more costly and constrain flexibility.  By law, EPA will eventually have to choice but to regulate.  If industry wants to avoid these regs, then, they will have to go through Congress.

As EPA moves closer to adopting greenhouse gas regulation, it will continue to turn up the heat on Congress.  Industry will want to avoid costly regs, and the status quo for greens shifts from total inaction to regulation by EPA—giving them greater ability to say no to a bad deal.

EPA’s top priority should be to meet its legal obligations while giving Congress enough breathing room to legislate.  But, by moving forward with smart regulation, it will add pressure on Congress that may finally be enough to overcome its inertia.

Michael A. Livermore is the executive director of the Institute for Policy Integrity at New York University School of Law. He is the author, with Richard L. Revesz, of Retaking Rationality: How Cost-Benefit Analysis Can Better Protect the Environmental and Our Health.

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  1. Orng Crush Posted 3:03 pm
    27 Apr 2009

    I agree with Cap and Trade, but the party needs to watch out. It is starting to look like a dictatorship with "reconciliation" action in Congress and now a potential Obama fiat. I'm all for this, but Dems are awfully close to overplaying their hand here, and they could soon lose all their capital.

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  2. LogicRules Posted 5:48 pm
    27 Apr 2009

    The Obama style cap and trade would be a disaster.  Selling credits to collect money for social programs not related to climate change is just not honest or wise.I am a climate change agnostic, not convinced CO2 is or is not a problem.  However, it is obvious that CO2 reductions are coming, whether needed or not.  So, why make things twice as damaging to the economy as they need to be.  Ideally, we should reduce our carbon emissions with as little cost as possible.  Punishing electric utilities, which appears to be the aim of some people, is counter productive.  Increasing the cost of generating electricity will be passed on to the consumer, and the utilities will actually make more money, not less, since they are regulated utilities and will be awarded a reasonable profit.Obama has promised to make utility rates skyrocket, and his style of cap and tax will do just that.  The reason for the tax is to make a down payment on his health plan.  The unintended consequences might include the destruction of the US manufacturing base due to inability to compete internationally.  If you thought there were too many companies moving overseas before, just wait until their power cost doubles.  The argument that he will return the cost of the credits to the consumer is a red herring.  Only the poor would get the rebate.  The middle class and business would get hit hard.

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  3. SallyVCrockett Posted 8:29 am
    28 Apr 2009

    While I believe strongly that we need comprehensive climate change legislation soon, and while I respect and admire the administration for their commitment to the issue, I also understand the concerns of consumers--already struggling under the weight of this economic downturn--about rising energy costs. A cap and trade system is not capable of both mitigating climate change and bolstering the economy. But a carbon-tax shift accomplishes both goals: reducing emissions and making the consumer whole. It should at least be part of the debate.

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    1. LogicRules Posted 9:24 am
      28 Apr 2009

      A carbon tax is the method I would recommend, if asked.  It has the drawback of not having set limits, so the tax would need to be adjusted, I assume, in order to achieve the desired reductions.  There are issues with it however.Let's take an electric utility that burns coal as an example.  Each year, they pay an ever increasing tax on the coal they burn.  Each year, they apply for a rate increase, or perhaps initiate a pass-through provision, so that they can collect enough money from the consumer to pay the tax.  Then, the government gives the tax money collected to certain of the consumers.  Lots of money has moved around, but nothing has been accomplished.  There is no incentive to reduce CO2 emissions.  In order for this type of tax to work, we need to allow for wheeling power at the lowest level so every consumer can buy from the lowest cost, least taxed, most efficient utility.  That would work, and sending the tax to the consumer is less important since costs would not go up as fast or as high.  Industrial users wheel natural gas now and it works very well.  With the current method of electrical distribution, the small consumer can't buy from the lowest cost provider, they are stuck with whatever provider serves their area.  I have no idea what Duke Energy or Detroit Edison think of this, and don't know what the technical issues are, but it would provide power from the greenest sources at the lowest cost.  I checked on several electric power sites and this idea was not considered, so maybe it is technically impossible?

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