Four Reasons to Oppose the Energy Bill

The energy bill that recently passed the US Senate and House of Representatives is a legislative debacle. Here are four reasons why:

1. The bill will not reduce CO2 emissions. The emissions caps imposed by the bill are, at least for the next decade, nowhere near stringent enough to produce significant emissions reductions. Proponents of the bill claim that the real emission cuts will kick in "later on," but in the meantime, the deadweight losses of the new regulatory scheme are with us from day 1.
   
   
2. The bill strips cap and trade of its price-signaling ability. By giving away 85% of the emissions permits we ensure that the price of energy will remain uncoupled to CO2 emission. This will undercut the primary feature of cap and trade, viz., its use of market mechanisms to create incentives to reduce emissions.
   
   
3. The bill favors incumbent firms and technologies. Most of the emissions permits are being given away, but only to incumbents in industries such as energy and transportation. Upstart firms offering low-emission technologies will still have to buy emissions credits for whatever CO2 they do emit, making them less competitive with existing technologies, which undercuts the bill's stated objective of reducing our reliance on fossil fuels.
   
   
4. The bill is filled with pork The House leadership was unable to muster sufficient support for the bill in its original form, so they were forced to use pork barrel projects to buy the support they needed. These wasteful projects contribute nothing to combating climate change. They will be enormously expensive in the short term and very difficult to get rid of in the long term.
   

Proponents of the energy bill try to explain away its flaws by saying that it is just a first step, that we need to establish our credibility as a nation at fighting climate change, and that the bill will provide a framework for change. In fact, the bill will undermine our national efforts to reduce greenhouse gas emissions and will likely foreclose the possibility of any further policy reforms five or ten years to come. Furthermore, the bill creates huge deadweight losses in the form of compliance costs and a non-productive industry dedicated to brokering emission permit trading. The bill in its current form is so flawed that it would be preferable to scrap it entirely and try again in the next legislative session.