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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Sunday, July 5, 2009 Energy bill is in unknown territory No one seems to know precisely how the term "hat trick" came into being, although we're pretty sure that it originated as a cricket term meaning that a bowler (pitcher) hit three wickets. From there, for no obvious reason, it spread to hockey where it was used when a player scored three goals in one game. And, like trifecta in horse race gambling, its once specific meaning has spilled over into common usage to mean achieving three of anything. Whether we look at it as a hat trick, a trifecta, or simply bad-news-comes-in-threes, we have a trio of major reforms under way: finance, health care and now energy. On the night of June 26, the House of Representatives passed the Waxman-Markey Bill -- otherwise known as the American Clean Energy and Security Act -- by a narrow margin. Whether night votes are inherently less thoughtful than votes taken in the light of day isn't clear, but it is fairly certain that in this case few, if any, representatives had read either the 1,200-page bill itself or the 299-page amendment attached that morning. What was voted on, then, were not the details but the generalized ideas contained in the bill -- global warming, cap-and-trade, alternative energy sources -- and it was not surprising that it was a close vote. These are complicated and contentious issues. It is not surprising, either, that the two overarching goals of the bill are things that almost all of us can agree on We want to reduce our dependence on foreign oil, and we want to reduce our negative impact on the environment. Unfortunately, once we got past those two goals and began to look at the details, consensus was quickly undermined. And when it toppled, it fell on economics, and we're still sifting through the debris for any surviving principles. Despite the fate of consensus, at this point it is probably still wise to apply generous discounts to the claims of partisans on both sides. If this bill is eventually signed into law, it will not transform our world into a Utopia of clean air, cheap energy and icebergs safe for polar bears. On the other hand we should also be skeptical of estimates that claim to know what household energy costs will be 40 years from now. What we do know with certainty about the bill passed in the House is an unusual attempt to mix mandates and markets. Past efforts to achieve environmental change have focused on mandates. The Environmental Protection Agency, for example, would set standards and individuals and businesses had to comply or face serious consequences. The new bill doesn't get rid of mandates exactly, but it does install a cap-and-trade system on the implementation process. This system, which resembles a kind of environmental Monopoly game, involves giving everybody a starter set of polluting licenses at the beginning so they can play. In this bill these licenses would be free at first. Later the government would auction off the licenses and only the businesses with higher prices and profits will be able to afford them. In order for the cap-and-trade system to work, the federal government has to know what the permissible atmospheric emissions have to be. Instead of demanding compliance at that point, though, for some reason we superimpose a market-game where participants -- businesses -- can buy and sell licenses to pollute. It's all unreal, though. The federal government still controls the board and the dice because it sets the emission standards. How this would result in economic efficiency isn't clear at all. And in fact, despite its use in Europe, the entire cap-and-trade system smells more like some economics professor's classroom game than the real world. That's not to say that some people won't make money on cap-and-trade. It is a system that invites favoritism, and eventually the big winners will be the federal government and the financial markets. And once again the people in our country who actually produce things -- energy and products -- will end up financing the lifestyles of investment bankers and lobbyists. There is a real risk that the American Clean Energy and Security Act will provide neither clean energy nor security -- merely impoverishment. The U.S. economy has proved to be remarkably adaptable to change, but it will stagger under the weight of sudden, severe increases in energy costs. Given the lead times for breakthroughs in energy technology, the economy may not be able to adapt in time to prevent a disastrous contraction. Ironically, the two other reforms under way in health care and finance, are all about managing risk, while this energy reform bill ignores it. Maybe that makes sense in some board game world, but real life is not a game. James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal. READER COMMENTS Be the first to comment. You must be a registered user and verify your e-mail address to post comments to blogs or articles on HeraldNet. To register, click here. To read other terms and conditions, click here. Log out

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