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Richard L. Revesz and Michael A. Livermore

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In Gina McCarthy Hearing, Possible Conversation Over Cap-and-Trade

Posted: 04/10/2013 4:59 pm

On the eve of Gina McCarthy's first Senate committee hearing towards her confirmation, we find our work a potential topic of conversation between certain senators and the candidate for EPA Administrator.

Four senators on the Environment and Public Works Committee, including James Inhofe and David Vitter, sent a letter to Ms. McCarthy asking for her take on a petition the Institute for Policy Integrity, which we direct, submitted to the EPA in 2009. There are now reports that they plan to raise the question during tomorrow's hearing.

We're not exactly sure how our petition caught the senators' attention out of the many others currently filed with the agency. But now that it has, it bears discussion.

We are pro-cost-benefit analysis and believe market mechanisms are often the most efficient approach to pollution control. As such, the request in our petition is for EPA to adopt a cost-effective approach to reducing greenhouse gas emissions in the transportation sector. The petition builds on the Supreme Court's finding that greenhouse gases are a pollutant, and EPA's own finding the emissions in the transportation sector endanger public health and well-being.

Specifically the petition offers a way to reduce the carbon emissions from vehicle fuels. A cap on emissions would be applied to refineries and importers (as opposed to gas stations or drivers). Proceeds from permit auctions could be returned to the public as a rebate so they are buffered from price hikes.

This can all be done under existing authority EPA has under the Clean Air Act.

This is a pretty straightforward cap-and-trade proposal very similar to the one currently in place to control acid rain. In fact, there was a time when members of the GOP were the most enthusiastic advocates for cap-and-trade. For example, in 1998, Senator Inhofe made this statement at a hearing on amendments to the Clean Air Act:

"I certainly support market-based approaches, like the one in S. 1097 [a bill to create a cap-and-trade program to control acid rain], for dealing with pollution. Three weeks ago I gave a Clean Air Reauthorization speech in which I called for more market-based approaches to be incorporated into the Act. I intend for reauthorization hearings to cover this topic next year. I would like to ask today's witnesses to keep th[is] point in mind during your testimony: The need to incorporate more market-based approaches into the Clean Air Act, for example by broadening the cap and trade programs." (Emphasis added)

We believe that market mechanisms, used appropriately, will generate efficient economic outcomes. That means that if the scientific consensus on human-caused climate change is correct, the correct cap or fee would necessarily generate economic benefits in excess of costs. If the Senators disagree with us, it is either because they do not share our confidence in market mechanisms, or they disagree about the risks associated with greenhouse gas emissions.

We submitted our petition to ensure that if Congress cannot find its way toward legislation to limit greenhouse gas emissions, and climate policy must continue to proceed through EPA regulations, that the rules will be as cost-effective as possible. Our approach would give economic actors the opportunity to reduce their emissions in the cheapest way they can find.

In their letter to EPA, the senators also imply that the market-based model that we have proposed is insensitive to low-income individuals. In fact, it is much easier to address distributional concerns using market mechanisms. Our proposal specifically advocates that allowances under the cap be auctioned and the proceeds returned to American families. Economic analysis has shown that the cap-and-dividend model need not be regressive, and can protect individuals and families from the negative effects of price hikes.

Our petition on vehicle fuels makes sense from economic, legal, and scientific perspectives. Whether it works politically is not for us to decide. If senators do bring it up during tomorrow's hearing, we'll be watching with interest to see what Ms. McCarthy says. So far, EPA has not moved on our petition, and we have, indeed, contemplated litigation because nearly four years have passed with no word from EPA.

We have contacted the senators' committee staff to discuss their views, but have thus far received no response.

 

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