The
Waxman-Markey Bill, the much-ballyhooed clean energy legislation passed recently by the U.S. House of Representatives, is an economic and political mess.
It introduces huge new distortions in markets, imposes onerous new regulations on a number of industries, requires a large addition to bureaucracy and risks a trade war.
And it does very little to fight global warming.
At this point, however, investors really only need to know two key things about this legislation in order to set themselves up for profit, while avoiding any losses from the bill’s fallout:
- From a political standpoint, Waxman-Markey is likely to become law in something close to its current form, meaning investors can craft a plan of attack with a fairly high degree of confidence.
- And, from an economic standpoint, it seems to define a pretty clear set of winners and losers, enabling us to flesh out that plan.
A "Good" Tax?
I’m not sure whether I believe in global warming. We clearly seem to be producing more carbon dioxide than we used to, but it’s not clear how much of an effect that’s having on global climate. Equally, the effects of extra carbon dioxide are long-term and largely irreversible, so even if the warming effect is limited in our lifetime, we probably owe it to our grandchildren not to leave them living in a steam bath.
To the economically minded who share my skeptical-but-cautious view, the optimal policy is pretty obvious: We should enact a carbon tax. Government operations have to be funded somehow, and there’s no obvious reason why a carbon tax should be any more economically damaging than any other kind of tax.
A carbon tax has two advantages over other alternatives:
- First, it can be varied easily, as we get new information and become more worried or less worried about global warming.
- Second, it allows investment and purchase decisions to be made by the market, just tweaking the price mechanism a bit to reflect our concerns about carbon emissions.
We’re not going to get a carbon tax, because it has the politically deadly word "tax" as part of its name. Still, during the presidential campaign, then-candidate Barack Obama showed off a pretty sensible "cap-and-trade" program. All the carbon emissions permits were sold, so the market was able to work properly, with no freebie giveaways to politically favored recipients.
