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Andrew Winston

Andrew Winston

Posted: June 20, 2008 10:55 AM

Free Market Double-Talk


The U.S. Senate's latest attempt at tackling climate change, the Warner-Lieberman bill, went down this month...again. The complaints of the opponents ranged from fear of higher energy prices to concerns about how the government will use the money collected when permits to emit carbon are sold. But the biggest concern seemed to be the bill's scale and supposed lack of forethought about how it will affect the economy.

Granted, enacting a giant government initiative with no real planning and no consideration for those hurt by it isn't just for invading countries. But how much of an intrusion on the economy is cap-and-trade? It's a fair question and vital to answer since even most critics admit that we will pass something under the next President (given statements made by both Senators McCain and Obama).

If we don't understand the concerns of the few, strong voices that helped sink the bill, we'll never make 60 Senators happy and get a good piece of legislation passed. The usual suspects - the conservative media (often the Wall Street Journal on this topic) and Republican Senators - have focused on the trauma the bill would cause Americans.

Let's look at their attack points.

First, energy prices will likely rise, a regressive impact. The loony Senator Inhofe - who claims global warming is a "hoax" without explaining why thousands of scientists would be in on the big con - is now lamenting a "tax on the poor" (it's nice to see the Senator worrying about those living paycheck to paycheck). The GAO did estimate that gas prices would rise 52 cents...by 2030. Two cents more per year, compared to the price increases we're already seeing from normal market forces and oil supply constraints, is not very impressive. Of course for many people, even that much is financially challenging, which is why lawmakers wanted billions sent to those hurt the most. Confusingly, the critics decried this plan as well.

So, the second line of attack. Dripping with sarcasm, the conservative press decried the hundreds of billions that will go to relief for the poor, payments to fossil-fuel industries, investments in alternative energy, and international aid. If pricing carbon causes some pain, then getting money into the hands of the people most affected, helping carbon-dependent industries "transition," and investing in alternative energy makes political and economic sense. The last, foreign aid, is about rich countries helping poorer countries adapt to the effects of treating the atmosphere as a dumping ground for carbon for decades. These spending priorities are dead on and actually answer some of criticisms as soon as they're out of skeptics' mouths.

Finally, the third major line of attack: the larger concern about messing with the economy. The whole point of cap-and-trade is to fix the largest market failure the world's ever seen - the current pricing of carbon and its impacts at zero. So of course it's an intrusion, but it uses free market forces to solve the problem. Free markets are wonderful, but there is no such thing as a large-scale market with nobody minding the store. Would the stock market work without the SEC, FASB, and some governing rules? To be fair, there's a better way to deal with the externality of carbon - tax it. But just imagine what conservative critics would say about a new tax. So cap-and-trade is the next best thing. We set the total amount of pollution, step back, and let companies compete to get rid of carbon - the cheapest, most innovative solutions win. Isn't that free enterprise at its best?

The critics are also upset that the government will auction off some of the permits instead of giving them all away. This complaint confuses me: selling the permits is much more hands-off than the government picking segments of the economy that "deserve" to pollute. In fact, not auctioning the permits penalizes the companies that already cut carbon (like DuPont, which has reduced emissions 75%). Punishing the most forward-thinking, innovative, and leanest businesses in our economy is a horrible idea. And it certainly doesn't help our national competitiveness any either.

In total, all of the opposition smacks of being ticked off about losing the "debate" on the science of climate change. Aside from ignoring that we're running out of options, they're suggesting that the shift we need will only cause harm, disregarding the companies that will make billions selling solutions to our problems (like GE or Johnson Controls) and ignoring the strong research and analysis from non-partisan sources like Lord Nicholas Stern from the London School of Economics. The Stern Review concluded that taking action on climate change is much less expensive than the damage to world economies from not taking action.

Cap-and-trade is a great way to start. But it seems that critics don't actually love, or understand, free markets as much as they say they do.

Andrew Winston helps companies use environmental thinking to grow and prosper. He is co-author of the best-seller Green to Gold, writes a monthly e-letter Eco-Advantage Strategies, and regularly blogs on green business.

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