James Hansen on Cap-and-Trade: One More Time (fee-and-dividend can be politicized too)

“After this Waxman/Markey bill reached 3500 pages in length I stopped counting. Every lobbyist who could raise his arm to write a paragraph got it stapled into the bill. Legislators were paying off the people who paid them off. That’s the way our Washington politics seems to work.”

– James Hansen, “Canadian Common Sense.” May 16, 2016.

As U.S. states and foreign jurisdictions contemplate or implement cap-and-trade regimes as their preferred way to price carbon dioxide (CO2), it is good to see James Hansen raise his voice–again–on the issue. One only wishes that Hansen, the father of the global warming scare twenty-six years ago, would come out for market adaptation over cap-and-trade as his second-best option.

Hansen is upset that politicians are telling him to forget his carbon tax (fee-and-dividend) idea.

“Too simple and honest. ‘I can’t get one vote for that’ in the U.S. Senate, so said the Democratic leader charged with shepherding energy/climate legislation during Obama’s first term,” Hansen recalls. “He was referring to revenue-neutral ‘Fee & Dividend’, a gradually-rising carbon fee collected at fossil fuel sources (domestic mines and ports of entry) with the funds distributed equally to all legal residents of the country.”

“Cap-and-Tax”

Hansen has seen the grotesque Waxman-Markey legislation, and he senses how politics takes over.

“Don’t let the perfect be the enemy of the good” I was told. Good? How can cap-and-trade be good, if it is certain to be check-mated before it is global? Even in checkers you must think a few moves ahead. What is the ‘cap’ on India? Cumulative fossil fuel emissions of the average American are now 25 times greater than those of an Indian. Why would India accept a small cap? They have declared that they will not, and they mean it. The planet is cooked with that approach.

That’s the global checkmate. But cap-and-trade is checkmated in many individual countries; it is labeled cap-and-tax, correctly, because it raises prices without compensation to the public. So there is no prospect of getting 190 nations to adopt cap-and-trade with caps that stabilize climate.

P = P: Cap-and-Dividend is Political, Too

Government intervention in the economy–through a regulation, subsidy, or tax provision–is political. You can’t take politics out of the political except in a mental experiment. The real world is what it is: A = A. Or in this instance, P = P, politics equals politics.

Peculiarly, Dr. Hansen believes his “clean” fee-and-dividend proposal will be enacted without political change and will stay “clean” in future political periods.

In contrast, a carbon fee, should it be agreed upon by say China and the U.S., could be made near-global via border duties on products from countries without a carbon fee. A slowly rising revenue-neutral carbon fee is the approach that would help nations such as India move as rapidly as practical to clean energies, which they desperately need. Obligations for technical and financial assistance from the developed countries are already well recognized.

In the real world, there is government failure in the quest to address market failure. James Hansen must realize that fee-and-dividend, with an array of tax rates and border adjustments, is cap-and-trade waiting to happen. He must consider the free market’s wealth-is-health outcome to deal with future climate change, natural or anthropogenic.