The Democrats Are Now The Home Of Market-Based Solutions

(Crossposted on “Alas” and on “TADA.”)

In an op-ed in the Boston Globe, Richard Schmalensee and Robert Stavins (of MIT and Harvard, respectively) lament the Republican Party’s newfound opposition to market-based environmental solutions.

LAST WEEK, the Senate abandoned its latest attempt to pass climate legislation that would limit carbon dioxide emissions, putting off any action until the fall at the soonest. In the process, conservative Republicans dubbed the cap-and-trade system “cap-and-tax.’’ Regardless of what they think about climate change, however, they should resist demonizing market-based approaches to environmental protection and reverting to pre-1980s thinking that saddled business and consumers with needless costs.

In fact, market-based policies should be embraced, not condemned by Republicans (as well as Democrats). After all, these policies were innovations developed by conservatives in the Reagan, George H. W. Bush, and George W. Bush administrations (and once strongly condemned by liberals).
In the 1980s, President Ronald Reagan’s Environmental Protection Agency successfully put in place a cap-and-trade system to phase out leaded gasoline. The result was a more rapid elimination of leaded gasoline from the marketplace than anyone had anticipated, and at a savings of some $250 million per year, compared with a conventional no-trade, command-and-control approach.

In June 1989, President George H. W. Bush proposed the use of a cap-and-trade system to cut by half sulfur dioxide emissions from coal-fired power plants and consequent acid rain. An initially resistant Democratic Congress overwhelmingly endorsed the proposal. The landmark Clean Air Act amendments of 1990 passed the Senate 89 to 10 and the House 401 to 25. That cap-and-trade system has cut sulfur dioxide emissions by 50 percent, and has saved electricity companies — and hence shareholders and ratepayers — some $1 billion per year compared with a conventional, non-market approach.

Frankly, in the 1980s the Republicans were right. All else held equal, it’s better to use market mechanisms to cut carbon (or other needed changes) rather than issuing inflexible and crude regulations. The government can, and should, decide on overall goals such as “we need a big cut in sulfur dioxide emissions.” But the market is much better than government at finding the most affordable and efficient ways to achieve such goals.

Unfortunately, today’s conservatives no longer believe in market-based solutions; instead, they believe in denying that problems exist at all. We’ve seen this in health care, when a market-based approach to universal healthcare that conservatives favored in the 1990s has been overwhelmingly rejected by conservatives. And we’ve seen this in the conservative argument that cap-and-trade isn’t needed, because global climate change is probably just a conspiracy of liberal climate scientists, or even if it does exist then it’s not worth spending any money to mitigate.

Incidentally, the result of conservatives opposing market-based approaches isn’t that nothing will happen on carbon. It’s that instead of market-based approach like cap and trade, we’ll have direct “command and control” regulations from the EPA. Is there any conservative who thinks that we’re better off with more EPA regulations than we would be with a market-based approach?

Ezra points out that this sort of thing is the inevitable result of obstructionism and a routine super-majority requirement to pass any legislation through the Senate. When Congress is made useless and incapable of action, other, less democratic agencies take over.

This is, more often than people realize, the end game of the filibuster: It’s not that the issue is tabled, but that it is handed over to the executive branch, or an independent agency, or the courts. It is handed over, in other words, to an institution free from the filibuster.