It's not often that I praise conservatives or conservatism, but every so often even a blind squirrel finds an acorn. Now, courtesy of Smithsonian Magazine's August 2009 edition, here's a great example of exactly what I'm talking about - "The Political History of Cap and Trade: How an unlikely mix of environmentalists and free-market conservatives hammered out the strategy known as cap-and-trade"The basic premise of cap-and-trade is that government doesn't tell polluters how to clean up their act. Instead, it simply imposes a cap on emissions. Each company starts the year with a certain number of tons allowed—a so-called right to pollute. The company decides how to use its allowance; it might restrict output, or switch to a cleaner fuel, or buy a scrubber to cut emissions. If it doesn't use up its allowance, it might then sell what it no longer needs. Then again, it might have to buy extra allowances on the open market. Each year, the cap ratchets down, and the shrinking pool of allowances gets costlier. As in a game of musical chairs, polluters must scramble to match allowances to emissions.That's right, the Reagan Administration and first Bush White House both were fans of what today's extremist, flat-earth Republicans denigrate as "cap and tax." In so denigrating, of course, these Republicans demonstrate that they're completely clueless about economics, history, and the fact that this is a fundamentally Republican, free market, conservative idea. Heck, it even appears that George W. Bush was a fan of "cap and trade". But of course, now that Democrats are in charge, Republicans like Eric Cantor and John Boehner just have to oppose everything they propose from a hard-line, knee-jerk ideological perspective -- even if it originally came out of their own party.
Getting all this to work in the real world required a leap of faith. The opportunity came with the 1988 election of George H.W. Bush. EDF president Fred Krupp phoned Bush's new White House counsel—Boyden Gray—and suggested that the best way for Bush to make good on his pledge to become the "environmental president" was to fix the acid rain problem, and the best way to do that was by using the new tool of emissions trading. Gray liked the marketplace approach, and even before the Reagan administration expired, he put EDF staffers to work drafting legislation to make it happen. The immediate aim was to break the impasse over acid rain. But global warming had also registered as front-page news for the first time that sweltering summer of 1988; according to Krupp, EDF and the Bush White House both felt from the start that emissions trading would ultimately be the best way to address this much larger challenge.
But perhaps, you say, the evidence on "cap and trade" for acid rain indicates that it didn't work out very well, so perhaps we shouldn't apply it to CO2? Well...perhaps you might just want to reconsider that assumption. As it turns out...
Almost 20 years since the signing of the Clean Air Act of 1990, the cap-and-trade system continues to let polluters figure out the least expensive way to reduce their acid rain emissions. As a result, the law costs utilities just $3 billion annually, not $25 billion, according to a recent study in the Journal of Environmental Management; by cutting acid rain in half, it also generates an estimated $122 billion a year in benefits from avoided death and illness, healthier lakes and forests, and improved visibility on the Eastern Seaboard. (Better relations with Canada? Priceless.)That's right, we ended up getting $122 billion in benefits from "cap and trade" for acid rain at a cost of just $3 billion, or a 40:1 rate of return. Seems like this - a huge bang for the buck from an idea rooted in Reagan Administration free market conservative principles - would be something even the Eric Cantors of the world might be able to understand. But no...