A Free-Market Energy Blog

Hansen Warns Against ‘Cap-and-Tax’ (Steyer and California, are you listening?)

By Robert Bradley Jr. -- August 4, 2014

“What, in short, if there is government failure in the quest to address what is seen as market failure? James Hansen should consider supporting his [fee and dividend] scheme inside the ivory tower, not outside in the real world. The two are not the same.”

As California labors under its cap-and-trade law for stationary sources, and as Tom Steyer pushes the state to include the transportation market for allowances as well, words of warning come from climate scientist/activist James Hansen. Such updates his biting analysis back in 2012 against California’s initial program.

Hansen’s latest concerns Australia, which ditched their carbon tax. In a July 29th post, Facing Facebook: Australia’s Cap-and-Tax, Hansen states:

The two main points that I made in discussions in Australia re their cap-and-trade were (1) it would be ineffectual in reducing emissions, and (2) it would be recognized as a tax, and thus it would not survive and grow at the rate needed to phase out emissions.

Did you know that cap-and-trade is by and for big banks? In the U.S. there is a revolving door between Wall Street and Washington. The skilled trading units at JP Morgan Chase and Goldman-Sachs can make enormous amounts from cap-and-trade, every dime coming out of the public’s pockets.

The fluctuating prices are bad for our purpose. If the public, businesses, and entrepreneurs know that carbon prices will continue to rise, as in fee-and-dividend, they will begin to make the choices that move us rapidly to a clean energy future.

The half-baked 3000+ pages of the Waxman/Markey cap-and-trade scheme in the U.S. (and scheme is the right word) were not written by our Senators or Representatives slaving into the night. They were written by lobbyists for special interests and stapled into the bill by our elected representatives, who are beholden to the special interests.

Our representatives, in both parties, seem to feel entitled to the Washington life style, once elected. Did you know that Dick Gephardt, after retiring as House Democratic Leader, received $120,000 per quarter from a single source (Peabody Coal)? I doubt that Peabody wastes its money — they probably get their money’s worth in lobbying. I don’t mean to pick on the Democrats; one party is not noticeably better than the other in this regard.

We seem to have a situation where members of both parties like their status and don’t really want to stanch the money flow. And the electoral system has been pretty well rigged such that it is very hard for a third party to rise.

‘Fee-and-Dividend’ Naiveté

In fairness, what Hansen wants in place of cap-and-trade is a version of a revenue-neutral carbon tax, which introduces its own set of problems [see the posts of Robert Murphy (here and here) and Marlo Lewis].

But what is rather amazing is the political naiveté of Hansen in his quest for “a simple honest approach, fee-and-dividend, designed for the public and most of all designed to effectively address the carbon/climate matter” and without “one dime to the government.”

Once in place, this system would be armor-plated; most people would get more money in the dividend than they pay in increased costs; they would want the carbon price to rise.

Yes, rich people would pay more, but nothing they can’t afford, and it addresses growing wealth disparity.

Not one dime for government? Armor plated?

Who pays for administration? What happens if not dimes but millions of dollars go to the general fund? What happens if the calculations behind the tax (yes, it is a tax) do not “effectively address the carbon/climate matter”? And what is “armor plated in the political world of broken promises and activist jurists?

What, in short, if there is government failure in the quest to address what is seen as market failure?


James Hansen should consider supporting his scheme inside the ivory tower, not outside in the real world policy. The two are not the same.

Short of that, Hansen’s on-the-mark criticisms about cap-and-trade (and renewable energy subsidies) should be heeded. As the Washington Post editorialized some five years ago, “Cap-and-trade regimes,” the editorial board wrote, “are complex and vulnerable to lobbying and special pleading, and they do not guarantee success.”


Appendix: Related Hansen Posts at MasterResource

Hansen to Obama/EPA: State Renewable Credits, Cap-and-Trade Are Special-Interest, Ineffectual GHG Mitigation Policies (June 2, 2014)

James Hansen: Still More Good Energy Realism (just ignore his climate alarmism, world fee-and-dividend fix) (March 18, 2014)

Game, Set, Match Fossil Fuels? James Hansen Sleepless in Ningbo” (March 13, 2014)

Energy Realism Amid Climate Alarmism: James Hansen Rides Again (February 25, 2014)

Is the Environmental Movement Net CO2 Positive? (James Hansen wants to know) (February 24, 2014)


California Cap-and-Trade Cronyism: James Hansen Weighs In (December 21, 2012)


  1. Ed Reid  

    “As the Washington Post editorialized some five years ago, “Cap-and-trade regimes,” the editorial board wrote, “are complex and vulnerable to lobbying and special pleading, and they do not guarantee success.” ”

    First, nothing ever guarantees success, no matter how well intentioned, especially if the government is involved.

    Second, a carbon tax is at least equally “complex and vulnerable to lobbying and special pleading”.

    Third, the very idea that a revenue neutral tax could possibly be designed by the US Congress is laughable. Hansen clearly admits to the redistributional aspects of even his own proposal.

    Finally, in the absence of a truly global program to reduce CO2 emissions, the only measurable result would be the economic pain imposed by the governments of the nations imposing the cap or tax on their citizens.


    • rbradley  


      Good points. And the administrative costs of ‘fee and dividend’–would the general taxpayers pay for this new additive ‘revenue-neutral’ tax program?


  2. Ed Reid  


    Thanks. Perhaps the program could be administered using the spare time of federal employees who are currently viewing porn at work in their spare time; or, by IRS employees who are no longer harassing TEA Party and Patriot groups. Hope springs eternal!


  3. Ray  

    Dr. Segalstad states that human contribution to atmospheric CO2 is miniscule so any attempts by humans to control the CO2 are futile.


  4. Wayne Lusvardi  

    Even those who are advocates for California’s Cap and Trade emissions permit program are concerned that auction prices for permits will spike too high in an economic crisis and there are not enough permits held in reserve to flood the market to cut off any wild speculation or manipulation of the market.

    Let me explain. Cap and Trade is a system where a limit on air pollution is put on large industries and electric utilities. This is called a Cap.

    The California Air Resources Board has been selling pollution permits for about $12 per ton at auctions in 2013-14. Starting in 2015 the Air Board will start reducing the number of permits available to be purchased lower than the pollution limit. Thus, industries will have a choice of either lower emissions or buying permits in state auctions or from other industries and utilities that have surplus permits. This is called Trade. Thus the name Cap and Trade.

    But in an unforeseen event, such as a sudden economic recovery, industries and utilities might be in a wild scramble to buy pollution permits at speculative prices (Tulip Bulb mania).

    The Air Board says they have ways of containing such an event. They intentionally hold pollution permits off the market in reserve. In an emergency they could flood the market with permits and cut off any panic buying and skyrocketing prices. Once the cost of permits gets to $50 per ton of emissions, gasoline prices would have to rise sharply and the economy would be affected quickly.

    There is no cap on permit prices. Instead the Air Board says holding permits in reserve will do the trick.

    Remember the California Energy Crisis of 2001? If something like that occurs again there needs to be a price cap on permits prices and there needs to be many more permits held in reserve.

    Economist Gary Schilling is predicting a real economic recovery as the value of the dollar becomes stronger and foreign trade increases again. This could be the trigger that shoots Cap and Trade between the eyes when they are not looking.


Leave a Reply