Is Cap and Trade a 'Special Interests' Giveaway?


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My colleague Clive Crook thinks so -- he calls the new bill a "travesty" and a "playground for special interests" in his new FT column -- and so do many of the commenters on this blog. But while my instinct is always to be a shameless comment demagogue, and while I agree with Clive that there are a lot of warts on the new American Clean Energy and Security Act, I do think it's worth making one point about the bill's 'corpoate giveaways.'

I've written elsewhere that in an ideal world we'd want to regulate emissions with a carbon tax. I still believe this: A carbon tax would be simpler and fairer and (potentially) easier to scale globally. But it seems to me that cap and trade does have one feature that is nice bulwark against the harms of lobbying: It puts a strict cap on emissions. This means that lobbyists can affect how permits are distributed -- who gets them and when -- but not the overall level of emissions that will occur. (I don't think this would be true of a carbon tax cluttered by the concerns of special interests: A tax exemption here or there will reduce the tax's effectiveness in limiting emissions.)

Sure, the distribution of permits is still very important. When the government gives permits to select recipients, it is rewarding one industry over another, and favoring "incumbent" companies over those that might enter the market in the future. I think that is unfair. But those concerns about fairness are entirely separate from concerns about the environmental effectiveness of the bill. A cap and trade bill that gives all the permits to Donald Trump will be just as effective in reducing emissions as a bill that auctions off all of the permits and uses the revenue to fund an across the board payroll tax cut.

I thought this point was expressed very eloquently and at greater length last month by Harvard's Robert Stavins. So here's a question: has anything been added to the bill since then that would reduce its effectiveness?

I was looking for a stereotypical picture of sinister corporate interests, but the best I could come up with was the darn monopoly man.

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Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism. He was previously a fellow at The Atlantic and an editor at The Guardian. More

Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism, an economics blog that was recently published in book form by Simon and Schuster. He was previously a fellow at The Atlantic and an editor at The Guardian. He is also on Twitter.
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