Thursday, May 21, 2009

On Waxman-Markey

First, read Brad Delong on Paul Krugman:
1. Paul Krugman's analysis is correct.
2. If you think that Paul Krugman's analysis is incorrect, see rule number 1.
Now, read Paul Krugman on Waxman-Markey:
The legislation now on the table isn’t the bill we’d ideally want, but it’s the bill we can get — and it’s vastly better than no bill at all.

One objection — the claim that carbon taxes are better than cap and trade — is, in my view, just wrong. In principle, emission taxes and tradable emission permits are equally effective at limiting pollution. In practice, cap and trade has some major advantages, especially for achieving effective international cooperation.

Not to put too fine a point on it, think about how hard it would be to verify whether China was really implementing a promise to tax carbon emissions, as opposed to letting factory owners with the right connections off the hook. By contrast, it would be fairly easy to determine whether China was holding its total emissions below agreed-upon levels.

2 comments:

Gar LIpow said...

First: Krugman is not always right. During Clinton years he was pretty strongly on the side of Neoliberalism. I means this not as a "consider the source" but as a disposal of the idea the Krugman is always right.

Secondly on the China argument. Any international treaty that includes China (or for that matter that includes the U.S.) will have to measure compliance by ends rather than means. So if China agrees to reduce its emissions by a certain amount, it is up to China what combination of Command & Control, Cap & Trade and Carbon Tax it used. And look at CDM if you think that cap-and-trade is less gameable than carbon taxes. Krugman is actually making a pretty dishonest argument here. He is comparing gameability of emisisons reduction at the micro and macro level. In point of fact a cap-and-trade is more gameable at the micro level(company by company or whatever) than carbon tax. A carbon tax could be tied to a cap as easily as a permit system. And since a Carbon Tax is not on the table if you think it irrelevent remember that Krugman brought up the idea that C&T is better policy. I would be willing to accept a valid cap-and-trade as a second best policy that is worth supporting for reasons of political reality. But if cap-and-trade advocates try to rub in their victory by insisting that it is better policy even if a carbon tax were winnable, well they are keeping it a topic of conversation, and I will point out that they are wrong.

Unfortunately Waxman-Markey is NOT a valid form of cap-and-trade. A really bad cap-and-trade can be worse than nothing. Here is my policy analysis that argues that Waxman-Markey is really worse than nothing.

Waxman-Markey should be called Jekyll-Hyde"

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