Patrick O'Mahen: Time to cap-and-trade Finley

BY PATRICK O'MAHEN

Published November 14, 2010

Why oh why can’t we have a better press corps?

I stole that line from economist and blogger Brad DeLong. But I was so enraged after reading Nolan Finley’s utterly worthless column in last Thursday’s edition of The Detroit News, DeLong’s lament in response to journalistic incompetence was the only reaction I could muster.

Finley has a problem with the Environmental Protection Agency’s plans to regulate carbon dioxide emissions. He suggests that the EPA’s plans will bury coal plants under unnecessary regulations, which will then drive up consumer electricity prices by at least 25 percent. He claims to be baffled by the EPA’s drive to regulate CO2 because coal plants have cut emissions by 80 percent over the last 30 years.

Let’s start with Finley’s most disingenuous claim: that coal plants have cut emissions by 80 percent over the last three decades.

The problem is that Finley doesn’t specify which type of emissions. It’s true that coal-fired plants have drastically reduced certain types of emissions. According to current figures from the EPA, power plants generate about 73 percent of the sulfur dioxide emitted in the U.S. SO2 is harmful to the human respiratory system and a major ingredient in acid rain. Since 1980, total SO2 emissions have been cut by 71 percent. Mercury emissions and particulates have also declined significantly.

But Finley’s column isn’t about those pollutants — it’s about carbon dioxide. Those emissions have been steadily rising over the past years, increasing about 13 percent between 1990 and 2008. EPA statistics consistently show that electrical power plants — most of which are coal-fired — account for the largest source of CO2 emissions in the U.S., and their share of total carbon emissions is growing.

Why have sulfur dioxide levels decreased while carbon dioxide levels increased? It’s because there are strict national regulations limiting sulfur dioxide output and none regarding carbon dioxide — yet. That’s so simple I would think Finley could get it into his head.

But Finley’s sins extend beyond his dishonest bait-and-switch on emissions. He also displays ignorance regarding different types of regulation. For most of the column, he complains about a scheme of regulation called cap-and-trade, which he dismissively refers to as “cap-and-tax.” He also complains about the pending EPA regulations on carbon dioxide emissions. He seems to think that cap-and-trade and the pending regulations are the same thing. But they are actually quite distinct animals.

Under the Clean Air Act of 1970, the EPA has traditionally regulated most pollutants under a scheme known as “new-source review.” Under this system, existing sources of pollutants, like an old coal-fired power plant, are grandfathered into the system, while new plants are subject to strict review. The regulation has been used with considerable success, but it’s economically inefficient and doesn’t cut pollution as much as it could. Instead of building new cleaner plants, power companies tend to let the old unregulated ones wheeze on.

Cap-and-trade is considerably more flexible. Instead of directly regulating each source of pollution, the EPA sets an overall cap on the amount of a pollutant that can be emitted. Then it either assigns or auctions off permits for each ton of pollutants. Businesses that end up emitting less pollution than their number of permits can sell them to companies who pollute above their allottment. The trading aspect is critical — it creates a free market in carbon which maximizes pollution reduction while minimizing economic costs.

Cap-and-trade has been used to manage sulfur dioxide successfully under the 1990 amendments to the Clean Air Act. By 2007, the program exceeded its reduction targets and has allowed the United States east of the Mississippi River to start recovering from the affects of acid rain. And the program only cost 25 percent as much as the EPA estimated, while electricity prices remained constant between 1995 and 2007. So much for Finley’s insinuation that regulation jacks up power rates.

Finley claims that we’re “losing the fight” against cap and trade — but a national cap-and-trade plan died in the Senate in August. What Finley is actually railing against are less effective direct regulations. Cap-and-trade would have been more effective from both an environmental and an economic standpoint — but it was blocked by the same Republicans who Finley exhorts as champions of common-sense policies.

Finley may be an experienced columnist, but this time he makes some major errors that could have been remedied by a few hours of research into the mechanism of how environmental regulation really works. Readers rely on the News to provide them with accurate information about public policy. When Finley misinterprets simple facts, he fails to do his job. He’s certainly entitled to his own opinion on environmental regulations, but he’s not entitled to his own facts.

Patrick O’Mahen can be reached at pomahen@umich.edu.