Congressional hot air?

The partisan recriminations will continue this week, following the defeat of the Lieberman-Warner Senate climate change bill last week, which would have established a cap-and-trade system for curtailing carbon dioxide emissions in the United States. 

The debate marked an important milestone, as it signalled that a congressional majority may for the first time support binding legislation designed to curb carbon emissions -- perhaps even at the cost of higher energy prices.  However, the more politically and economically painful measures necessary to curb global warming are still a long way off in the United States -- and may never come.

Congress 'goes green'

Lieberman-Warner attracted the backing of 48 senators in a parliamentary vote to cut off debate and officially consider the measure, versus only 36 opposed.  (A supermajority of 60 votes is required for such 'cloture', under the chamber’s rules).  This is the most votes a Senate climate measure has ever received; it might have garnered a symbolically-important majority if some absent senators, such as Hillary Clinton, had managed to attend the debate. 

Over-generous allowances?

Yet even if the bill wins passage next year (when it would receive the backing of prospective Presidents John McCain or Barack Obama, instead of a certain veto from George Bush) it will be years before US CO2 emissions are significantly reduced.  This is because, in its current form, the law would feature a very generous emissions cap.

Cap-and-trade regulatory regimes establish an overall emissions threshold for an economy, slice it up into tradable credits, and dole them out to emitting companies.  Firms that reduce their carbon use can sell excess credits on a marketplace, where they can be freely traded among polluters.  This gives companies a major economic incentive to cut carbon use.

However, if the initial emissions cap is generous, the system can amount to a simple government handout to industry, as firms can easily generate surplus credits by undertaking rationalisations and modernisations already in the pipeline.  Worse, the largest benefits typically accrue to the most 'dirty' sectors, which usually receive the most credits.  This is precisely what happened in the EU, under its initial carbon-trading regime -- and explains why many large industrial concerns favour such a law.

No pain, no gain

If the world is to slash its carbon footprint enough to have a meaningful effect on global warming, the United States will need to impose a much tighter emissions cap.  How tight?  Columbia University economist Jeffrey Sachs optimistically estimates the total cost at approximately 2% of global income.  However, as the largest economy and CO2 emitter (although China will soon take the lead in the latter category), the US share would be quite large, in absolute terms.  Will that happen anytime soon?  As they say in New York, Fugetaboutit…