Waxman-Markey Energy Bill

Last week, the Waxman-Markey energy bill passed the House by a narrow margin of 219 to 212. There are a number of reasons why people are opposed to the legislation. Some continue to question the underlying science about climate change; others worry about the potential cost to consumers of the programs outlined. And of course, many are concerned that the bill calls for the creation of a cap-and-trade program for carbon emissions.

As someone who has followed these issues for over a decade, I believe that cap-and-trade has strong merits as an enabler of innovation on carbon emissions reductions. Specifically, cap-and-trade:

• Leverages market-based incentives. In general, policy that fosters market-based incentives encourages greater innovation and is more efficient than traditional command and control regulation. In a cap-and-trade program, the government sets an industry cap. Companies then have the flexibility of determining how they wish to comply, and those who are successful can sell excess credits.
  
  
• Provides environmental certainty. Under a cap-and-trade program, there is, by definition, a clear cap for the amount of emissions produced. Any legislation and resulting innovative efforts by companies that fail to produce true environmental impact will be harshly judged in the coming years.
  
  
• Has worked before. While not a direct parallel, the innovative Acid Rain cap-and-trade program has been incredibly successful, reducing SO2 emissions by 51% compared to 1990 levels. Another successful cap-and-trade program is the NOx Budget Trading Program in the Northeast, which reduced ozone-based NOx emissions by 60% compared to 2000 levels. Cap-and-trade is a proven policy innovation.
  

A US cap-and-trade program also:

• Encourages global harmonization. At the end of the day, carbon emissions are a global challenge, and we must address the issue on a global level. Establishing a cap-and-trade program allows the US to harmonize efforts with foreign countries and learn from their early pilots on similar programs.
  
  
• Re-establishes our leadership position. As one of the highest polluting countries in the world and the leader of the free world, the US has a moral obligation to step up to the plate. A cap-and-trade program would allow the US to reassert our commitment to being an innovator on the link between business and the environment & gives us credibility during the upcoming Copenhagen meetings in the fall.
  

Is the Waxman-Markey bill a perfect piece of legislation? No, of course not. But I do believe the cap-and-trade program will work, esp. with accurately tracked emissions data and a smaller number of free permits. Just as important, the bill is fomenting a sea change behind boardroom doors and will foster the types of innovation we need to address our nation’s energy challenges.

For an overview of the current bill (without reading all 1200 pages), check out this snapshot.

For other opinions about Waxman-Markey, including those of our President and various enviro groups, read this article.