Capping Trade

Capping Trade

When Congress heard testimony last month on the environment and climate change, the hearing was before a panel of the House Ways and Means Committee that deals with taxation and trade.

If you don’t know why that is, you probably don’t understand very much about the politics of the environment in Washington.

The environment is a tax issue — the largest tax issue on the transportation world’s plate, in fact — because the most significant measure to address environmental concerns is the construction known as cap-and-trade that’s aimed at integrating carbon measurement and the free market.

Cap-and-trade moved higher on the Washington agenda, and to the top of the transport radar, this month when Reps. Henry Waxman, D-Calif., and Ed Markey, D-Mass., released details of their proposed plan for a kind of market-based system that, at least in theory, would gradually lower carbon emissions over time.

In broad strokes, companies would get permits to allow for the release of a certain amount of carbon emissions — the “cap” — and energy-efficient companies that fall below that limit would get credits they could sell — the “trade” — to the less efficient.

As Markey put it to an audience in Boston last week, as quoted by the Christian Science Monitor: “We do create a market for carbon credits which is similar to the one which exists in Europe right now … and that way the markets can make a determination.”

We’re all for free markets, of course (let’s not get into debates about “discussion groups” here). But trying to create a pollution-fed marketplace as a substitute for more concerted environmental action doesn’t do much to serve the commercial world or environmental goals.

We’ve already seen the results in action, not in the very debatable impact of the cap-and-trade program in Europe, but in the financial sector. A market not of goods and services but of amorphous carbon credits would surely lead to a secondary market in those credits, building value not in the environmental goals but in the speculation on the value of credits over time and across industries.

Even Democrats who are strongly for environmental action see the problem in building a market for carbon credit derivatives. “Deregulation brought a meltdown to West Coast electricity markets and helped cause our current financial crisis,” Rep. Pete DeFazio, D-Ore., said in a statement this month. “Yet, here we are again talking about a deregulated market to respond to one of the most important and pressing challenges of our time, global warming.”

It’s an even worse bargain for transportation operators. As purchasers of fuel across all modes, they and their shippers would be hit with all the costs while the markets in carbon credits take on all the financial benefits.

The beauty of cap and trade is that it is not a carbon tax, so no one can be accused of raising taxes. And if you know why a plan that is not a tax is before a tax committee, then you understand Washington very well.

Paul Page is editorial director of The Journal of Commerce. He can be contacted at 202-355-1170, or at ppage@joc.com.