The Potential of Cap-and-Trade

The GOP should ensure the success of Obama’s energy plan

By Peyton R. Miller

Much of Senator Obama’s rhetoric with respect to energy during the campaign involved the need for government to restrict carbon emissions to prevent climate change. Although legitimate questions have been raised as to the extent to which human activity is responsible for global warming, there is no disputing the fact that, as John McCain explained, America sends billions of dollars a year to “countries that don’t like us very much” in exchange for oil. 

As I have noted in these pages, Obama’s proposal of a windfall profits tax is a thinly-veiled attempt to pander to resentment against corporate profits and has no place in a serious energy policy. The president-elect’s cap-and-trade proposal, on the other hand, could benefit both the environment and U.S. security interests in that, if successful, it would decrease dependence on foreign oil by reducing consumption. Republicans, who maintain the ability to block legislation in the Senate, should support this idea in principle but demand that whatever policy is enacted be reliably enforced and economically sustainable.

Cap-and-trade has earned a reputation for reducing environmental pollutants while minimizing costs to the economy. In 1990, President George H. W. Bush approved amendments to the Clean Air Act, which imposed a cap-and-trade regime on sulfur dioxide emissions by domestic electric companies in an effort to reduce acid rain. During the 1990s, emissions dropped below mandated levels while electrical output increased. This strategy is clearly more economically effective than a command-and-control system, in which the government would simply set an emissions cap for each individual firm, and is the most politically viable course of action.

Obama’s plan would be more far-reaching than Bush’s: He would impose an economy-wide cap-and-trade regime on all carbon emissions. He is right to propose government action to reduce energy consumption, but this system will be more difficult to enforce than the Clean Air Act because it will be enacted on a far greater scale. 

Moreover, if other industrialized countries fail to reciprocate these cuts, such a program might result in a sustained or increased level of global emissions while American energy sector jobs are shipped overseas, where energy companies enjoy lower business costs. Any plan is likely to have little environmental benefit without enforceability and international reciprocation, and congressional Republicans should require that these benchmarks be met before consenting to Obama’s plan.

Even if other countries do not agree to follow suit in reducing carbon emissions, adopting cap-and-trade can reduce American dependency on foreign oil by reducing demand. Such an ambitious goal as Obama has proposed—he would cut carbon emissions eighty percent by 2050—will require some government sponsorship of conservation and alternative energy development in order to transition to a more efficient economy. 

To lessen the economic shock of reduced emissions, Republicans should stipulate that the extent to which carbon emissions are restricted be at least partially contingent upon the success of Obama’s policies in promoting conservation through such proposals as improving government buildings, weatherizing homes, and subsidizing the purchase of fuel-efficient automobiles. They must further ensure that whatever energy demand remains after the emissions quota has been met can be accommodated by alternative energy sources. In this regard Obama has advocated government sponsorship of solar, wind, and geothermal energy, which are environmentally friendly but will require substantial infrastructural development, and probably many years, to become reliable energy sources. 

During the campaign, Obama promised to consider support for clean coal and nuclear power, which have proven to be effective alternatives, and he must be pressured to follow through on this commitment. Most importantly, government must recognize that, for the foreseeable future, the United States will be dependent on carbon-based fuel sources. Republicans must therefore continue to demand expanded domestic drilling, which would both create jobs and decrease oil imports

It may sound like heresy for a conservative to suggest any kind of increased government regulation, let alone in regard to an environmental issue. American consumption of oil, however, is as much a national security concern as an environmental threat, and the free market has proven itself incapable, at least in the near future, of meaningfully reducing oil use. It is therefore clear that government action is necessary, and cap-and-trade, if prudently enacted, can be an effective tool in reducing emissions with minimal economic impact. It is the responsibility of Republicans to see that the government adopts a plan that fulfills both of these criteria.