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Postman on Politics

Chief political reporter David Postman explores state, regional and national politics.

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November 2, 2007 1:05 PM

Bloomberg to mayors: Put progress above politics

Posted by David Postman

New York Mayor Michael Bloomberg will soon address a lunch meeting of the U.S. Conference of Mayors' climate summit.

You can see more of what he plans to say in this earlier post. But how would his pollution tax work?

Bloomberg's plan is an alternative to the better-known cap-and-trade system to control pollution. Cap-and-trade sets limits on emissions that get tighter over time. Companies either have to stay below the limit or can essentially "buy credits" from others that would allow higher emissions. That system was created during the administration of George H.W. Bush, but today it is more popular among Democrats, including Rep. Jay Inslee. He said earlier this year:

The economic benefit of an American cap-and-trade system on greenhouse gas emissions will be to spur investment in new clean-energy technologies that could be exported to China and the entire globe. We can create high-wage jobs here by supplying green technologies to the world.

But Bloomberg in the advance text of his speech said that caps and trades are an indirect approach. He'd rather just charge a fee for pollution.

Cap-and-trade is an easier political sell because the costs are hidden — but they're still there. And the payoff is more uncertain.


There are also logistical issues with cap-and-trade. The market for trading carbon credits will be much more complex and difficult to police than the market for the sulfur dioxide credits that eliminated acid rain. And there are political issues — because the system is subject to manipulation by elected officials who want to hand out exemptions to special interests. A cap-and-trade system will only work if all the credits are distributed from the start — and all industries are covered. But this begs the question: If all industries are going to be affected, and the worst polluters are going to pay more, why not simplify matters for companies by charging a direct pollution fee? It's like making one right turn instead of three left turns. You end up going in the same direction, but without going around in a circle first.

A direct charge would eliminate the uncertainty that companies would face in a cap-and-trade system. It would be easier to implement and enforce, it would prevent special interests from opening up loopholes and it would create an opportunity to cut taxes.

Bloomberg also will talk about linking the new pollution tax with a reduction in the federal employment tax. He didn't specifically include that in his proposal, but said it is a promising idea.

After all: Employment is good, pollution is bad. Why shouldn't we lower the cost of the good and raise the cost of the bad? Studies show that a pollution fee of $15 for every ton of greenhouse gas would allow us to return about $500 a year to the average taxpayer. And a charge on pollution would be less regressive than the payroll tax, because the more energy you consume, the more you would pay.

There is already reaction to Bloomberg's speech. Sightline, the former Northwest Environment Watch, has posted an interesting critique by senior researcher Eric de Place. He has what he admits is a wonky take on Bloomberg's criticism of cap-and-trade.

As far as I can tell, Bloomberg completely ignored the right way to do cap & trade, which starts with auctioning the credits, not giving them away for free.

This is what he says has been ignored by Bloomberg:

AUCTIONED CAP & TRADE — This is the best system, but Bloomberg's remarks seemed to ignore this possibility entirely. In this system, instead of passing out credits for free, the government would hold regularly scheduled auctions. The big advantages are: 1) The cap puts a firm limit on pollution and drives emissions down over time; 2) It raises revenue that can be used to invest in ghg reductions, or cushion consumer impacts, or both; 3) It activates the power of the market to seek out the cheapest and most efficient reductions first, and to prioritize; and 4) It tips the playing field away from big historic polluters and toward leaner and cleaner competitors. One of the potential drawbacks of this system is that it has emissions certainty, but price uncertainty. (It's the inverse problem of the carbon tax.) So there is some risk of price volatility. There are, however, a number of good ways to reduce volatility (such as banking, borrowing, trading system linkages, and so on). These tend to be treated as technical details of the auction system, but they're actually pretty fascinating.

But there's also excitement about someone of Bloomberg's stature speaking out about a way to control emissions. de Place calls the speech a bombshell and says someone else at Sightline will soon be writing about "Bloomberg's awesome framing" of the issue. (That post is now up here.)

MORE: Bloomberg is now delivering his speech. He said that mayors and some governors have taken action on global warming. But he says the federal government, Congress and the administration hasn't done anything meaningful. He laughed at pollution control measures that set goals far out in the future, like one bill that set new standards that have to be reached by 2050.

"Do you know how many people in Congress will be in office, much less alive, in 2050? If I ever saw ducking, that is the ultimate. ...

"There is no substitute for federal leadership. Leadership is not waiting for others to act, or bowing to special interests, or making policy by polling or political calculus. Leadership is about facing facts, making hard decisions and having the independence and courage to do the right thing, even when it's not easy or popular. ... We've all heard people say, "It's a great idea, but for the politics.


"We've got to put progress over politics."

MORE: Is Bloomberg running for president? He knows the question will be asked. He said that on Halloween trick-or-treaters urged him to run for higher office.

"I should mention I was wearing a Steven Colbert mask at the time."

Jokes aside, Bloomberg sounds like an insurgent candidate running against the Washington establishment. He criticized subsidies for corn-based ethanol, which he said may be good agricultural policy, "but you can't argue that it's good for consumers or the environment." And at the same time, the government charges a tariff on sugar-based ethanol.

"Everyone knows that politically-driven policies are costing taxpayers billion while providing only marginal carbon reductions. ...

"We should demand of those running for office an explanation of explicitly what they will do."

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