Debating cap and trade

By Eric Shierman
In: Global Warming
Friday December 28, 2018

Last week I pointed out mainstream environmental economics is on the side of those who oppose cap and trade. Perhaps this might seem strange to many Oregon Catalyst readers, but environmental extremists tend not to like a carbon tax.

Check out this exchange I had on Twitter:

That’s Sharon Shewmake, a newly elected member of the Washington House of Representatives, taking a quote of mine from last week’s article and declaring it falsely labeled as mainstream. Whether or not one is in the mainstream likely matters much to her, rhetorically speaking, because most, perhaps all, of her experience debating opponents of cap and trade probably has entailed her interlocutor cherry-picking research critical of anthropological global warming, giving her the heuristic high-ground. But I did no such thing. Instead, I pursued her point Socratically instead:

When William Nordhaus won the Nobel Prize in Economics two months ago, I saw many environmentalists get excited about it as some kind of validation, but what many did not realize is that he has also been critical of cap and trade schemes. Who is Arthur Pigou? He was a classical economist that devised a market-based alternative to command and control environmental policies. After dropping the names of those two unimpeachable giants in the field of environmental economics, I directed her to a concrete example: Washington State’s failed cap and trade ballot measure.

Notice she failed to answer my question about Washington’s referendum. Instead, she dug herself deeper into the fringe by dropping Martin Weitzman’s name. There’s a reason Nordhaus has a Nobel prize and Weitzman doesn’t. Nordhaus doesn’t deny foundational economic principals like the time value of money. (This is related to a rather technical thing I mentioned last week – the discount rate). More importantly, notice the epistemology she’s been forced to embrace when Representative-elect Shewmake said there are “tons of assumptions.” There are tons of assumptions behind mainstream climate models as well. I doubt the existence of those assumptions makes her consider the contrarian conclusions of climate scientists like Nicola Scafetta of Duke University just as valid as the scientists she prefers. But that’s how people on the fringe sometimes are wont to argue.

As long as a carbon tax is set equal to the actual social cost of carbon (which mainstream economics finds to be rather low) then it’s hard to see how it could be arbitrary. If instead, we were trying to cap emissions, then how would you more accurately pick a level that’s not arbitrary, in comparison to a direct tax? She didn’t give us an answer. Instead, she tried to obfuscate by making a strange claim:

IAMs are Integrated Atmospheric Models, that is, they take a pure climate model (GCM) and incorporate some kind of social science parameter. But what she said just isn’t true. When the amount of CO2 that needs to be capped to stop our climate from warming gets estimated, that does not require social science. It’s pure climate science.

I’m still waiting for her answer. Perhaps one was not forthcoming, because cap and trade policies are never designed with the actual social cost of carbon in mind. That’s why Nordhaus rejects them. Caps are designed to reduce emissions, regardless of what the costs to society actually are.

I hope this annotated exchange will give you some hope for the new year. A lot of bad ideas have been proposed for the 2019 legislative session, and many will pass. But cap and trade might not be one of them. Even in a blue state like Oregon, where most voters reject the position that we should do nothing about global warming, cap and trade is so inefficient it can be defeated by a better alternative.

Eric Shierman lives in Salem and is the author of We were winning when I was there.

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