Marking Up Waxman-Markey

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Jun 22 2009, 12:48 pm by Megan McArdle

There is some very angry back and forth about the CBO's scoring of the Waxman-Markey climate change bill. Economically, I agree, the per-household costs seem to be small. Politically, they may be much larger than their economic cost, for two reasons: first, I'm not sure people are going to put any rebate in the same mental basket as the higher prices, and second, people aren't going to pay the costs on a per-household basis. Some households will suffer a lot, while others will be net beneficiaries. Matt, Ezra, Ryan and I are all probably among the net beneficiaries.

But the real question, I think, is whether the low cost is a feature or a bug. The only way a bill is going to have an impact is if it causes real financial pain to American households--enough to get them to change their behavior. Waxman-Markey obviously is not going to do that. And indeed, the projections of its effect on global warming are entirely negligible.

So the reason to get this mad about Waxman-Markey is either that you think it provides a framework for future action, or that you think it will persuade China and India to get on board. The latter is, I think, entirely wishful thinking on the part of American environmentalists. China is not going to let its citizens languish in subsistence farming because 30 years from now, some computer models say there will be some not-well-specified bad effects from high temperatures. Nor is India. Global warming isn't even high on the list of environmental concerns they'll want to attack as they get rich; local air pollution is far more pressing. Thinking that we're somehow going to lead them by example is like thinking that poor rural teens are going to buy electric cars because Ed Begley jr. has one.

No, I think the argument has to rest on the notion that Waxman-Markey gives us a framework to advance. And it might. But then again, Europe's much-vaunted system has had multiple spectacular failures, and the only reductions it has actually achieved seem to come largely from controversial offsets with large auditing problems.

I don't say this happily; I take climate change seriously. But I am a pessimist about the prospects for control; the coordination problems so far seem insurmountable. Unless Waxman-Markey serendipitously leads to the development of some clean technology that makes carbon obsolete, I'm pessimistic about how much it will accomplish.

Comments (1)

satya June 22, 2009 3:39 PM

Two points. First, I agree that it is highly unlikely that the Chinese will agree to binding carbon cuts, for the simple reason that the Chinese are likely to insist on a per capita baseline for emissions allowances, and on a per capita basis China isn't the problem, the U.S. and Europe are the problem. But there is a difference between cutting emissions and controlling the rate of China's emissions growth, and I suspect (although we will have to see once the real negotiations begin) that China would be willing to some form of binding limitations on emissions growth, which would be a step forward at least. I disagree with your notion that China or India are likely to be unconcerned about global warming. China may have more to lose from a global warming treaty, but they also are a lot more vulnerable to the consequences of global warming. A flood or a drought in this country raises the price of corn by a quarter; a flood or drought in China can cause famines that kill millions. Climate change is an economic threat to the United States, but to China it is a direct threat to national stability, and the Chinese do not have a history of underestimating threats to their national stability.

Second, it wouldn't be "serendipitous" for Waxman-Markey to lead to the development of clean technology, it is the design of the statute. As long as the emissions of carbon are a zero-cost activity, the market will never adjust to clean energy technology. Only by imposing a cost proportional to the harm of carbon emissions on our society can we expect new technology to develop. That technology, hopefully, will be cost-efficient enough to spread to the developing world and give China a way out of the development-or-environment problem. But it will never happen unless something like Waxman-Markey passes, thus, Waxman-Markey isn't hoping for a serendipitous event as much as hoping to have a direct, causal relationship with new clean technology.