How to Think About Waxman-Markey

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Tyler Cowen sent out the call for a cost-benefit analysis of the Waxman-Markey (W-M) climate bill making its way through Congress, and Jim Manzi (lately of the Atlantic, also of the American Scene and National Review) has responded. I have tangled with Jim on climate policy a number of times. We disagree very much about what ought to be done, but Manzi is a very rigorous thinker and worth engaging. And because he is so rigorous in his approach, his analysis of the bill and his conclusion should give W-M supporters pause. He writes:


In the end, clarity about costs and benefits is the enemy of Waxman Markey. It is hard to get around the conclusion that it can not be justified rationally based on the avoidance of climate change damages.

Now, he and I disagree in various ways about the appropriate numbers to use in such an analysis. I think emission reductions are likely to be cheaper and easier to attain, particularly as time goes on, and I think there are very good reasons to suspect that the IPCC estimates understate the likely effects and cost of warming. But rather than quibble with his numbers, I'm simply going to concede that on a pure cost-benefit analysis, W-M is difficult to justify. I also think that a simple cost-benefit analysis of the bill misses far too much to be useful in isolation.

The first trouble-spot is one Manzi acknowledges. It is difficult to justify the bill because it imposes costs on the current American electorate, and the current electorate will barely suffer at all from the effects of climate change. If you think that current taxpayers ought to be concerned only with the benefits of the bill to themselves relative to costs they'll have to pay, then you probably should not support it. But of course, you shouldn't think that; it's a pretty deplorable outlook.

There are obviously some serious moral issues involved in bequeathing to future generations a much less hospitable climate and the resulting geopolitical chaos. More offensive still is the burden we impose on other nations. Americans are carbon gluttons. Our per capita emissions are twice those of most developed nations, four to five times greater than those in large emerging markets, and 20 to 100 to 1,000 times larger than those in places like sub-Saharan Africa. But our emissions don't stop at our border. Rather, because of our temperate location, we will be spared many of the most severe consequences of warming to come this century, which will instead be focused overwhelmingly on poor countries. This is illiberal and immoral. We don't have the right to invade whomever we please for the sake of a few percentage points of GDP growth, and we don't have the right to conclude that since this generation needn't worry about warming there's no need to change our behavior.

Another tricky but important consideration is that whatever version of W-M passes is extremely unlikely to be the final word in climate policy. Obviously, there is no responsible way to build the potential for future emendations into a current cost-benefit analysis. Still, this should be taken into consideration. The record of environmental regulation in this country is one of steady revisitation and improvement of rules. It is also inconceivable that Congress would not address any serious and unexpected economic issues that may arise; if low-income households are getting hammered, legislators will face significant pressure to make some changes.

The question that many greens have been grappling with is whether it is better to pass an imperfect bill now under the expectation that it will be improved later, or to continue building the constituency for a better bill, to be passed at some future point. This isn't an easy matter to resolve. But given the history of environmental rules, and the difficulty the Congress has had passing any carbon pricing bill at all, it seems clear to me that we should seize the opportunity to pass what's passable, and clean the bill up over time. Manzi would say that he'd prefer no bill to a perfect one, I think, but as I mentioned above, that's not a very sound approach to the issue.

Another knock on W-M is its effect on potential international negotiations. Manzi says we're giving away our trump card by preemptively limiting emissions. This is a little nuts. Recall, for starters, that an American emits five times more carbon than a Chinese person. Recall, also, that we've been emitting in this fashion for decades, during which period China has been very poor, and therefore not much of a contributor to climate change. If I were China, I'd be reluctant to even talk to America before they had a law on the table.

But the broader point is this -- people who are very serious about diplomacy have concluded that we stand a better shot at an agreement with emerging markets with a law in place than we do without one. Given that we've had a few bites at the apple without a law and haven't managed to secure major concessions from China, I see no reason to dispute their conclusion.

The bottom line is that it is never comfortable to disturb an existing economic order for the sake of others' welfare, but it occasionally must be done. This is one of those times. We should work to make the regulatory process as efficient and painless as possible, but we should also understand the political constraints that apply and recognize that the ideal policy is unattainable. If there were a compelling and achievable policy alternative to the passage and steady improvement of a carbon pricing regime, then we'd all leap for it. Sadly, there isn't.

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Ryan Avent is The Economist's economics correspondent and the primary contributor to Free Exchange, an economics blog

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