Climate Change the Politics of Waxman-Markey

So my first post is about something that I have no really credentials on, nor is it one of my big issues, and that is climate change. I grant it is highly important, and I do care. I just do not live and breath the thing.

That said, discussion has happened, particularly with the news of Chairman Peterson (D-MN) of the House Committee on Agriculture reaching a compromise with the House Committee on Energy and Commerce Chair, Henry Waxman (D-CA).

While I do not know the full details, the bill creates a cap and trade system, and there are giveaways of carbon credits in the early years. This system is probably not the most efficient way to handle that. A carbon tax levied on some of the top producers of carbon as well as the transportation sector would likely work better, but taxes are perhaps one of the most political issues ever, and thus politically that idea is infeasible. That said, Waxman-Markey may be what we can get.

There are differing views about the political viability for the matter to move forward. Some think the strategy is brilliant. Others are not so sure. Essentially, I do not know how the public thinks on the matter.

However, what I do know from my friends and a lot of science involved friends is that they think this is scientifically proven that global warming is happening now. I agree that the evidence points in that direction too. However, one of the concerns about all of these cap and trade systems and many other ideas that we create is that we forcibly try to create cost-benefit analyses of these matters. This creates problems given the long time horizon and the uncertainties of what is going on here.

Take this bill. Here the Congressional Budget Office (CBO) predicted a much lower cost and in fact a benefit for those with lower incomes. That arose only by providing highly progressive tax breaks; we will refund Social Security taxes. However, the CBO did not include the economic gains from the bill. That is too hard to predict. While CBO did mention that global warming would have pretty catastrophic effects, most are outside the U.S. and even then the damage here is many years off. That creates a problem with the discount rate in expected value (how much is the large amounts of money to deal with climate change at some uncertain point in the future worth now). We cannot even really predict these matters. Furthermore, it is unclear how much the bill will reduce emissions. Martin Feldstein stated once that unless China joins in, that could create a problem.

And yet, what all of this fails to examine is exactly how we do make decisions. We make them based on values expressed through politics. While perhaps not including China is a mistake, perhaps we need to do this bill as a signaling. The fight over the proper discount rate masks these values. It is a great dance. It is often worthwhile to hide it in these signals, but we should recognize that as we move forward with this matter.