Cap And Trade Passes The House

From the NYT:

“The House passed legislation on Friday intended to address global warming and transform the way the nation produces and uses energy.

The vote was the first time either house of Congress had approved a bill meant to curb the heat-trapping gases scientists have linked to climate change. The legislation, which passed despite deep divisions among Democrats, could lead to profound changes in many sectors of the economy, including electric power generation, agriculture, manufacturing and construction.

The bill’s passage, by 219 to 212, with 44 Democrats voting against it, also established a marker for the United States when international negotiations on a new climate change treaty begin later this year.

At the heart of the legislation is a cap-and-trade system that sets a limit on overall emissions of heat-trapping gases while allowing utilities, manufacturers and other emitters to trade pollution permits, or allowances, among themselves. The cap would grow tighter over the years, pushing up the price of emissions and presumably driving industry to find cleaner ways of making energy.

President Obama hailed the House passage of the bill as “a bold and necessary step.” He said in a statement that he looked forward to Senate action that would send a bill to his desk “so that we can say, at long last, that this was the moment when we decided to confront America’s energy challenge and reclaim America’s future.”

Think about it. Cap and trade is completely in line with standard market economics: you identify an externality that the market does not capture, design a market system to capture and price that externality, and rectify a market failure. The Democrats, who favor the bill, have a huge margin in Congress. They water it down in various ways to make it more palatable to various wavering people. And after all that, it still only passes by seven votes.

That’s sad. I hate to think what will happen to it in the Senate.

It’s also a testament to the power of special interests. Consider the bill’s emissions credits. President Obama proposed to auction them all, which would have allowed them to be distributed to those businesses to whom they were most valuable; the proceeds from the auction would have gone both to rebates to consumers and to funding a continuation of the middle class tax cuts. Oh no! shrieked various utilities and other corporations that would have had to pay for those auctioned credits. And lo! our representatives caved, which means that the money that would have paid for our tax cuts is no longer there.

I’m really glad it passed: it’s a lot better than nothing. But it could have been better still.

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