Saturday, March 03, 2007

Pigou Club (more)

More on road congestion pricing can be found at urban planning research, this post by UCLA's Michael Manville.

I have two problems with the standard analysis. First, the "equity" argument is much more complex than many writers suggest. If road pricing gets us away from the status quo (jobs programs that leave HOV lanes and rail transit in their wake), then I am not at all sure that the change to pricing is "inequitable".

Or pricing means that the new revenue stream finances even more pork -- in which case, no one can tell the result.

So, how will they handle the equity argument in Monaco?

Today's WSJ lead editorial (parts below) recounts how cap-and-trade involves politics. And how that's a big problem.

Cap and Charade

(WSJ March 3, 2007; Page A8)

The idea of a cap-and-trade system for limiting carbon-dioxide emissions in the U.S. has become all the rage. Earlier this year, 10 big American companies formed the Climate Action Partnership to lobby for government action on climate change. And this week the private-equity consortium that is bidding to take over Texas utility TXU announced that, as part of the buyout, it would join the forces lobbying for a cap on carbon emissions.

But this is not, as Lenin once said, a case of capitalists selling the rope to hang themselves with. In most cases, it is good old-fashioned rent-seeking with a climate-change patina.

Start with the name. Most of those pushing this idea want you to think about it as cap-and-trade, with emphasis on the trading part. Senator Barbara Boxer touts all the jobs that would be created for people trying to game the system -- er, save the planet. And her colleague Jeff Bingaman calls cap-and-trade "market based," because, you know, people would trade stuff.

But for that to happen, the government would first have to put a cap on CO2 emissions, either for certain industries or even the economy as a whole. At the same time, it would allocate quotas for CO2 emissions, either based on current emissions, or on energy output, or some other standard. If a company then "over-complied," which means it produced less carbon dioxide than it was allowed to under the rules, it could sell the excess allowance to someone else. That someone else would buy the right to produce CO2 if doing so cost less than actually reducing emissions.