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Bootleggers and Baptists Tackle (Carbon) Prohibition

Editor note: This post from one year ago is reprinted for its continuing relevance to the climate-change debate. The “bootleggers” are hard at work in the post-Enron era with nearly 150 companies, lead by Exelon Corp., Entergy Corp., and Constellation Energy Group Inc., buying 30-second television spots running from today through President Obama’s State of the Union address on Wednesday. 

The climate-change public policy debate might be thought of as a straightforward morality play. In one corner, we have the good guys laboring mightily against all odds to save the planet from rampant consumerism, human short-sightedness, and corporate greed. In the other corner, we have the bad guys, laboring mightily to preserve their profits by stoking materialism, economic selfishness, and fear of big government. Behind the curtains of this morality play, however, is a fascinating dance between the “good guys” (the Baptists) and “bad guys” (the bootleggers) to pass some form of mutually beneficial prohibition.

The emergence of the bootlegger and Baptist coalition in climate change politics has never been more obvious than last week, when the United States Climate Action Partnership (USCAP – a coalition of big business and big environmental groups) put forward its plan to reduce greenhouse gas emissions by 80 percent below 2005 levels by 2050 through a mandatory, economy-wide cap-and-trade program. While this is somewhat less ambitious than President Obama’s proposal (an 80 percent reduction over that same time period relative to 1990 levels), the real give-away about what’s going on can be found in the proposed emissions standards for new coal-fired power plants. To wit:

• any such facility permitted after Jan. 1, 2015, could not emit more than half of the carbon dioxide emissions now considered normal for coal-fired power plants; and

• any newly permitted coal-fired power plant today would have to have the ability to be retrofitted to meet that standard.

This, dear readers, is little but a replay of the old-source/new-source standards incorporated in the Clean Air Act (CAA), which likewise established tough emissions standards for future power plants but much lighter rules for plants currently in operation. The best review of what happened then and why is the classic Clean Coal/Dirty Air, pointedly subtitled How the Clean Air Act Became a Multibillion-Dollar Bail-Out for High-Sulfur Coal Producers and What Should Be Done about It (Yale University Press, 1981). The authors, Bruce Ackerman and William Hassler, were environmentalists with sterling credentials who simply could not stomach the deal necessary to bring the business community into the pro-CAA camp. Alas, their whistle-blowing operation gained so little attention and had such little impact that, today, environmentalists cannot discuss the Clean Air Act without making the sign of the cross and whispering in awed reverence.

Today’s version of Bruce Ackerman is Joe Romm, another environmentalist with sterling credentials who cannot stomach the Baptists’ betrayal-in-the-making. Joe’s main concern, however, isn’t the old-source/new-source distinction—it’s the lack of ambition with regards to emission controls and the invitation to use carbon offsets (like planting trees or paying Chinese companies to reduce emissions) that seems to bug him the most. Well, he certainly has a point on both counts. Obama’s campaign promises call for significantly larger emissions reductions than this, and the carbon offset market has proven ripe with fraud and make-believe emission reductions. Still, it is good to know that there are at least a few environmentalists who are uninterested in gaining a slot on some corporate board or securing some lucrative consulting contract somewhere down the road.

Why should a libertarian skeptic about the dangers of climate change applaud environmental absolutism in this case? Several reasons.

First, the bifurcated old-source/new-source regulation makes no economic sense whatsoever. It distorts the power market by artificially advantaging older plants relative to newer plants. It spawns a huge legislative/legal-industry to fight over old-source/new-source distinctions until the end of time, creating substantial deadweight losses. It creates huge, unearned windfalls for politically clever corporations and thus encourages future market-rigging mischief. It would be far, far better to settle on one standard and apply it across the board to old sources and new sources alike.

Second, without corporate support, the climate change alarmists will get nowhere. Consider, for instance, the latest report out of the Pew Research Center for the People and the Press, finding that climate change is the least important issue of the 20 issues they asked about in their recent public opinion survey. While I would be surprised if that prevented the adoption of some sort of climate change bill in this or the next Congress, still, without corporate support that bill would likely be rendered economically toothless, with loopholes and timetables delaying serious emissions reductions until some time relatively far into the future. I am unaware of any significant environmental initiative that was successfully signed into law that didn’t manage to scare-up significant, widespread corporate support.

Third, there is a virtue in political honesty. If politicians want to argue for laws that will seriously reduce anthropogenic greenhouse gas emissions, then let’s have an honest discussion about the costs and benefits of those proposed laws. Symbolically potent gestures that are more empty than real feed the public belief in free lunches. While one could argue that it’s better to get an empty gesture than a real one, when the latter has far more costs than the former, I can’t believe that any good will come from a culture of political dishonesty and voter illusion.

16 comments

1 Josh Maxwell { 01.24.09 at 11:34 am }

I’ve been reading along for a while now. I just wanted to drop you a comment to say keep up the good work.

2 jae { 01.24.09 at 12:51 pm }

“First, the bifurcated old-source/new-source regulation makes no economic sense whatsoever. ”

Ahem. I disagree and have to question whether or not you have any experience in industry or economics (and whether you are really a libertarian!). The basic “grandfathering” provisions of the CAA were necessary, because it was simply not economically feasible for the older facilities to bring the plants up to the standards that could easily be achieved by new facilities. In many cases, it would have been cheaper to walk away from the old plant and build a new one. Especially in the pulp and paper and power industries, where the whole combustion systems would have to be replaced. Requiring essentially a complete rebuilding of the entire coal power generation system would have created economic havoc, and your electricity rates would probably be double what they are now. Although the system was abused and has made thousands of lawyers very wealthy, it worked, overall, since the USA has the cleanest industrial plants and the best air quality of any industrialized nation in the world.

3 Ed Reid { 01.24.09 at 4:29 pm }

“Third, there is a virtue in political honesty.”

I believe “political honesty” is an oxymoron.

“If politicians want to argue for laws that will seriously reduce anthropogenic greenhouse gas emissions, then let’s have an honest discussion about the costs and benefits of those proposed laws. ”

The discussion of the benefits of a US law to reduce US CO2 emissions will be extraordinarily short; there will be none, with the possible exception of a minor reduction of the rate of growth of global CO2 emissions and in the rate of growth of atmospheric CO2 concentrations.

The discussion of the cost of the Obama program can also be brief. The program would cost ~$1 trillion per year throughout the period. That does not include the costs of manufacturing facilities and employment moving from the US to developing countries, which will be far less altruistic about their CO2 emissions.

There is no national, or multi-national, solution to a global “problem”. There is a global “solution”, or there is no solution. That is apolitical, un-PC honesty from a crusty old curmudgeon.

4 Why Do the Alarmists Feel Bad About Debates–and Debating? — MasterResource { 01.25.09 at 9:39 am }

[...] Taylor of the Cato Institute recently posted on the spat between environmental purist Joe Romm of Climate Progress and the environmental groups [...]

5 Mick C Pitlick { 01.25.09 at 5:48 pm }

Jerry, Thanks for raising awareness of the perversely motivated USCAP. Your post is linked at our MIX Z (www.pitlick.com), where we ponder how firms like Alcoa will remain internationally competitive against Indian and Chinese suppliers, free of carbon fees. Are these corporations really serving the interests of their owners?

6 jae { 01.25.09 at 10:04 pm }

“I believe “political honesty” is an oxymoron. ”

No, it’s a complete fairy tale! If the “climate change” leftist-communist-extremists really believed that CO2 was a problem and wanted a solution that makes sense, they would be touting nuclear energy and hydropower to lower CO2 emissions. But NO, NO, NO! The only solution that works in their evil self-righteous- satanic creed is to try to destroy capitalism in order to lower CO2 emissions. How can people be so frigging blind?

7 Jerry Taylor { 01.26.09 at 9:39 am }

Jae:

The old-source/new-source distinction is unwise because it gravely distorts the market and creates rampant inefficiency. A unit of air emissions from an old coal-fired power plant has the same environmental and human health impact as a unit of air emissions from a new coal-fired power plant. What possible justification is there to treat those emissions differrently from a regulatory perspective? Doing so leads to deep problems.

First, it imposes competitive disadvantages on new entrants which in turn leads to the the cartelization of the wholesale power business. The new-source/old-source standards are in effect a massive wealth transfer to coal-fired power plants built before 1970 and the wealth in question comes ultimately from ratepayers, who pay higher prices as a consequence of artificially restricting competition and encouraging producer inefficiency (see below).

Second, it encourages overall inefficiency in power production given the artificial advantages conferred to old plants relative to new, more efficient plants. How many industries outside of the power industry find that the most profitable facilities are those with 40+ year-old technology? Obviously, profit incentives like this distort investment flows in myriad, unproductive ways.

Third, upgrading those plants threatens to turn “old sources” into “new sources” for regulatory purposes. This discourages otherwise economically sensible investments that would surely be made.

Fourth, the never-ending legal fight about when an upgrade to an old, grandfathered coal-fired plant makes it for all intents and purposes a “new” source for regualtory purposes has eaten up hundreds of millions of dollars that have gone to lobbyists and lawyers. That money (termed “dead-weight losses” by economists) could be more profitably spent on wealth creating investments elsewhere.

If we find ourselves in a regulatory world in which tough standards are only imposed on those who can comfortably pay them but lighter standards are imposed on those who can’t, we’ll discover – as economists already have – that we’re artificially subsidizing inefficient economic actors to the detriment of the economy as a whole.

Why is it libertarian to support such a policy? If pollution is imposing significant costs on third parties, the proper libertarian position – it seems to me – is to at the very least force the polluter to compensate the injured third parties for the losses they are being forced to incur. Establishing rules that let less economically healthy companies off the hook from said compensation does not strike me as a very principled (libertarian) thing to do.

8 jae { 01.26.09 at 10:25 pm }

Jerry, thanks for taking time to take me on. But I don’t agree. If you have been in an industrial situation where these things have happened, I think you would change your opinion, at least a little. Perhaps you are an idealist, seeing everything as black and white. You simply don’t shut down the majority of all, say, coal-fired electrical generating plants on xx date, if they don’t conform to technology that was not available when they were built. You, sir, are a hopeless idealist, and we need fewer of you.

9 Jerry Taylor { 01.27.09 at 6:54 am }

I didn’t say I was in favor of shutting down a majority of coal-fired power plants by x date. I said that standards should apply without favor. The old-source/new-source distinction was in the in 1970 Clean Air Act for a reason – it was necessary to bring the coal industry along and thus get the bill passed. Without it, it’s not clear to me that the bill passes. If the Congress had the votes to impose new source standards on existing facilities, there’s a pretty good chance that it would have done so.

10 TokyoTom { 02.02.09 at 11:23 pm }

Jerry, the points you make are precisely those made by those who favor carbon taxes over cap and trade. Given that cap and trade is so much worse that a carbon tax, I would think that libertarians and conservatives would be trying to build a coalition in that direction. Are such efforts underway?

11 The Waxman-Markey Gravy Train (Part II): Specific Winners in the Electric Industry — MasterResource { 08.28.09 at 10:25 am }

[...] change yet privately see this as the greatest money-making opportunity of their lifetimes. The Bootleggers and Baptist model of government intervention is in clear evidence. Adam Smith must be turning over in his [...]

12 Ed Reid { 01.23.10 at 9:43 am }

It is interesting to contemplate the developments of the past year in this context.

We have watched through a keyhole as two “sausages” were made by bootlegger-influenced baptists. Each of these sausages bears some fleeting resemblance to both cap & trade and a carbon tax, combined with an unhealthy dose of “winner picking” and income redistribution.

We have watched the globe cool, though the “settled science” remained “settled”, while many of the scientists became quite unsettled as the result of the release of details regarding their activities.

We have seen the global community expose its various, disparate elements (achievers, aspirants and beggars) for all to see during a massive snowstorm in Copenhagen.

Finally, as I have pointed out here previously, we have seen the “Three Legged Stool” of anthropogenic global climate change exposed for those capable of seeing it without any assistance from the bootleggers, the baptists or the media.

Leg 1: Zero carbon emissions (“350″, Gavin Schmidt)
Leg 2: Zero animal husbandry (Ban Ki Moon)
Leg 3: Population Controls (John Holdren, Cass Sunstein)
Seat: World Government (EU President, early Copenhagen draft)

The stool above would arguably have been the most expensive piece of truly ugly furniture in the history of the world, had it been assembled.

13 Kate { 01.23.10 at 3:55 pm }
14 ClimateTF { 01.25.10 at 10:35 am }

Certainly, we need climate change legislation. But we need to adopt fresh perspectives, forge new partnerships, and create an emissions policy that will be seen as balanced and workable. We need a “#GreenPlanB”. Read more here: http://www.climatetaskforce.org/2010/01/25/take-action-support-a-%e2%80%9cplan-b%e2%80%9d-for-climate-policy-today/

15 Chris { 01.27.10 at 11:45 am }

A progressive tax on pollutants (SO2, CO2, etc.) (though I don’t think CO2 is a pollutant) could be applied equally on new and old plants (progressive in the sense that the tax increases at higher brackets of emissions, like income tax). Thus, really old and highly polluting plants would be shutdown, some would make minor improvements to stay in business, and newer, efficient plants keep doing their own thing.

Here’s the key about the whole debate about cap and trade (and health care): it’s all about redistributing wealth without using an explicit tax. Obama and liberal dems would be viewed in a better light if they were honest with the american people if they proposed an open tax for either policy (CO2 reductions and health care). Of course, it likely won’t pass, but at least the would be intellectually honest about what they are doing.

16 Jerry Taylor { 01.27.10 at 12:49 pm }

There is no good economic argument for a progressive tax on pollutants. In fact, there is a very good argument against it; it disadvantages large economic actors relative to smaller economic actors and thus threatens to reduce overall economic efficiency.

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