The GOP Changes Its Tune on Cap and Trade

Cap and trade was conceived by Reagan, delivered by the first Bush, and praised by the second Bush. Ironically, it’s now threatened by GOP officials, writes Daniel J. Weiss.

President Ronald Reagan works at his desk in the Oval Office of the White House as he prepares a speech on tax revision.
<br /> (AP/Scott Stewart)
President Ronald Reagan works at his desk in the Oval Office of the White House as he prepares a speech on tax revision.
(AP/Scott Stewart)

Opposition to “cap-and-trade” legislation to reduce global warming pollution is a common refrain among many Republican and a few Democratic officials this fall. The program is derided as a “cap and tax” that would drain voters’ wallets while bankrupting the nation. But ironically enough, the three most recent Republican presidents promoted cap and trade, including Ronald Reagan. They employed such a system to phase out lead in gasoline, cut chlorofluorocarbons and other ozone-depleting chemicals, and reduce sulfur pollution from power plants responsible for acid rain—all without undue cost. Officials who are criticizing it now are doing so for political purposes, and they could likely make it harder to employ cost-effective, market-based policies in the future to significantly lower pollution at an affordable cost.

For instance, the “Pledge to America: the 2010 Republican Agenda” promises to “oppose attempts to impose a national ‘cap and trade’ energy tax.” After the demise of comprehensive global warming legislation in the Senate, Minority Leader Mitch McConnell (R-KY) gloated that “cap-and-trade, which is also known as the national energy tax, is dead in the United States Senate.”

Yet many Republican officials greatly admire the father of cap and trade: President Ronald Reagan. Former Gov. Sarah Palin (R-AK) praised Reagan last year:

When you realize the magnitude of President Reagan’s achievements, there is absolutely no reason why anyone would ignore his ‘demonstrably good’ example.

Nonetheless, she opposes a global warming plan that would employ the innovative cap-and-trade system first created by President Reagan. Like Palin, many of today’s public officials are repudiating Reagan’s legacy of cap and trade for cheap political gain and to curry favor with the polluting industries that are supporting attacks on those who voted for a cap-and-trade market mechanism to reduce global warming pollution.

A little history is in order. Cap and trade was developed as a more flexible, market-based system to reduce environmental pollution compared to the so-called “command and control” model employed by environmental laws in the 1970s. The old system required each polluting facility to make a fixed reduction in air or water contamination, which ignored that some facilities could cut pollution more cheaply than others.

Cap and trade is a cost-effective alternative that allows the firms that can more cheaply reduce their emissions below their required limit to sell any additional reductions to companies that are not able to make reductions as easily. This creates a system that guarantees a set level of overall reductions while rewarding the most efficient companies and ensuring that the cap can be met at the lowest possible cost to the economy.

The Reagan White House conceived the first cap-and-trade program to reduce pollution. It was used in the 1980s to phase out lead in gasoline at a lower cost. An EPA analysis shows:

…estimated savings from the lead trading program of approximately 20 percent over alternative programs that did not provide for lead banking, a cost savings of about $250 million per year.

President Reagan also signed the Montreal Protocol in 1987 to slash the production and use of chemicals that deplete the upper ozone layer essential to screen out cancer-causing ultraviolet rays. His administration established a cap-and-trade system to implement the chemical reductions the protocol required. A 2006 scientific assessment concluded that “the Montreal Protocol is working” to reduce chemicals and protect the ozone layer.

President George H.W. Bush, Reagan’s successor, was the first president to propose the employment of a cap-and-trade system in an environmental law. The Clean Air Act of 1990 includes his proposed cap-and-trade system to reduce the sulfur pollution from power plants responsible for acid rain.

The Clean Air Act passed the Senate by a vote of 89-10 and the House by 401-25. Many staunch conservatives voted for it including Sens. Kit Bond (R-Mo), Trent Lott (R-MS), Mitch McConnell (R-KY), and Strom Thurmond (R-SC). Conservative House supporters included Reps. Newt Gingrich (R-GA), Joe Barton (R-TX), Dennis Hastert (R-IL), Jim Inhofe (R-OK), and Fred Upton (R-MI).

When President Bush signed the Clean Air Act into law he highlighted its innovative cap-and-trade mechanism:

The acid rain allowance trading program will be the first large-scale regulatory use of market incentives and is already being seen as a model for regulatory reform efforts here and abroad.

By employing a system that generates the most environmental protection for every dollar spent, the trading system lays the groundwork for a new era of smarter government regulation; one that is more compatible with economic growth than using only the command and control approaches of the past.

President Bush’s prediction came true. An EPA analysis a decade after the law was passed determined that the actual cost of cutting sulfur emissions by 40 percent was substantially lower than it had predicted: “$1 to $2 billion per year, just one quarter of original EPA estimates.” A CAP analysis determined that in 2006 utility rates were 5 percent lower (in real dollars) than before the act passed in 1990. And the U.S. economy added 16 million jobs during this time.

President George W. Bush also included a cap-and-trade mechanism in his “Clear Skies” bill that would have amended the Clean Air Act. Upon the bill’s introduction he noted the success of his father’s cap-and-trade program:

The 1990 Clean Air Act Amendments have significantly reduced air pollution, especially through the innovative "cap-and trade" acid rain control program. [It] has been a resounding success, cutting annual sulfur dioxide emissions in the first phase by 50 percent below allowed levels. Emissions were reduced faster than required, and at far less cost…The program only requires a handful of EPA employees to operate.

Sen. John McCain (R-AZ) introduced several global warming pollution reductions bills during the previous decade. While running for president in 2008 McCain proposed to reduce global warming pollution via a cap-and-trade program.

John McCain’s climate plan will be similar to the very successful acid rain trading program created under the first President Bush in the early 1990s.

A cap-and-trade system sends a market signal that organizes the whole economy around our environmental goals…The market evolves by requiring sensible reductions in greenhouse gases, but also allowing full flexibility in how industry meets that requirement.

Then-Gov. Sarah Palin (R-AK) also supported a cap-and-trade system to reduce global warming pollution as the GOP nominee for vice president. She reiterated that support (see 34:00) during the vice presidential debate.

Former Speaker of the House Newt Gingrich (R-GA) also endorsed a cap-and-trade system to reduce global warming pollution in 2007:

I think if you have mandatory carbon caps combined with a trading system, much like we did with sulfur, and if you have a tax-incentive program for investing in the solutions, that there’s a package there that’s very, very good. And frankly, it’s something I would strongly support.

Gingrich has changed his tune, however, just two years later. He railed against the “cap-and-trade energy tax” in 2009.

Why have Republicans and a few Democrats rejected this successful policy innovation developed and deployed by Republican Presidents Reagan, Bush, and Bush? In Gingrich’s case it may be the $350,000 from oil and coal interests his political committee received during the first quarter of 2010 alone.

In addition to giving money to Gingrich, Big Oil, Dirty Coal, and other special interests have spent hundreds millions of dollars over the past two years to convince legislators, politicians, and citizens to oppose cap and trade and other measures that would create jobs, cut oil use, and reduce pollution. Center for American Progress Action Fund analyses find that these interests spent at least $68 million in 2010 alone to air misleading and fictitious ads on global warming. What’s more, many of these same interests spent over $500 million in 18 months to lobby Congress to oppose clean energy and global warming legislation.

The New York Times reports that these efforts are bearing fruit:

[Tea Party views] in general align with those of the fossil fuel industries, which have for decades waged a concerted campaign to raise doubts about the science of global warming and to undermine policies devised to address it.

They have created and lavishly financed institutes to produce anti-global-warming studies, paid for rallies and Web sites to question the science, and generated scores of economic analyses that purport to show that policies to reduce emissions of climate-altering gases will have a devastating effect on jobs and the overall economy.

Special interest money, then, has played a big role in public officials rejecting this tool created and sharpened by Presidents Reagan, Bush, and Bush.

Among Tea Party activists, ideology also plays a part in their rejection of cap and trade as a solution to global warming. Many activists do not believe that global warming is real despite reams of scientific data to the contrary. A New York Times poll found:

…that only 14 percent of Tea Party supporters said that global warming is an environmental problem that is having an effect now, while 49 percent of the rest of the public believes that it is. More than half of Tea Party supporters said that global warming would have no serious effect at any time in the future, while only 15 percent of other Americans share that view, the poll found.

Tea Partiers, therefore, would oppose any solution to a problem they do not believe exists.

There’s a bigger point to be made here, though. This summer the Senate failed to act on global warming legislation that employed a cap-and-trade mechanism to reduce costs. Noted economists Richard Schmalensee, who worked in the Reagan White House, and Robert Stavins warned soon after that rejecting cap-and-trade programs such as those in the Senate bill could increase the expense of future pollution reductions. They worry that policymakers would hesitate to employ a discredited cap-and-trade system and instead rely on a traditional, more expensive command-and-control method.

To reject this legacy and embrace the failed 1970s policies of one-size-fits-all regulatory mandates would signify unilateral surrender of principled support for markets. If some conservatives oppose energy or climate policies because of disagreement about the threat of climate change or the costs of those policies, so be it. But in the process of debating risks and costs, there should be no tarnishing of market-based policy instruments. Such a scorched-earth approach will come back to haunt when future environmental policies will not be able to use the power of the marketplace to reduce business costs.

Schmalensee and Stavins’s warning should be heeded: This current crop of Republican and a few Democratic officials—in their zeal to curry favor with their special interest funders and Tea Party activists—could doom future efforts to follow the path paved by Presidents Reagan, Bush, and Bush to reduce pollution in the most cost-effective way possible.

Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy at American Progress, where he leads the Center’s clean energy and climate advocacy campaign.

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Daniel J. Weiss

Senior Fellow