The Death of Cap and Tax
Wall Street Journal | President Obama’s undeniable success in passing liberal legislation hasn’t translated into greater popularity for himself or the Democratic Congress. So perhaps he’ll get a bump in the polls now that he’s suffered his first setback on one of his signature promises.
We refer to the failure of cap and tax, which Mr. Obama once modestly promised would signal “the moment when the rise of the oceans began to slow and our planet began to heal.” Senate Majority Leader Harry Reid gave the plan, if not the planet, up for dead this month, and last week he unveiled a new energy bill whose major provisions include a Cash for Clunkers replay for home appliances and a $5.8 billion subsidy for natural gas vehicles.
In other words, the green lobby has suffered a landmark defeat, and the recriminations in the liberal press are remarkable. Either Mr. Obama didn’t sell it well enough, perfidious Big Business intervened (never mind that many CEOs were supporters), the obtuse middle class won’t sacrifice for the global good, or evil Republicans . . . Everyone is to blame but the policy itself.
In fact, the bill went down for lack of Democratic votes, in particular those from Midwest coal and manufacturing states. Voters in those states have figured out that cap and tax is a redistributionist exercise from the carbon-dependent heartland to the richer coasts. A Democrat—Jay Rockefeller of West Virginia—is also leading the charge to repeal the EPA’s climate “endangerment” regulation that imposes cap and trade though the backdoor.
The American Council for Capital Formation released a study on Senator John Kerry’s “compromise” climate plan—which the greens castigated as too modest—that showed cumulative GDP losses of $2.1 trillion through 2030 and consumer electricity price increases up to 42%.
Environmentalists didn’t even get consolation prizes like a “renewable portfolio standard,” the mandate for utilities to generate a set percentage of their electricity from wind, solar and other marginal sources that was supposed to be their cap-and-tax fallback. The new oil and gas taxes that Mr. Obama endorsed in January, which would have run as high as $60 billion, didn’t make Mr. Reid’s cut either.
Left as collateral damage are House Democrats who Nancy Pelosi forced to walk point last year on a promise that the Senate would also take up the bill. Mrs. Pelosi has no regrets, last week calling that vote “one of our proudest boasts.” The Blue Dog Democrats who voted for it will now deny paternity as they try to save their seats.
As for the Senate, Mr. Reid’s new nonclimate energy bill is all about trying to link Republicans to Big Oil. With BP as the corporate villain, Democrats are proposing to lift the $75 million oil spill liability cap for economic damages to infinity. And to do so retroactively on all rig leases.
This is a bad-faith exercise. Mr. Reid knows that Democrats like Mary Landrieu of Louisiana have criticized Democratic proposals to set even a $10 billion cap, while Senate Republicans have proposed giving regulators the power to raise the cap based on specific circumstances. Mr. Reid’s proposal is designed to throw a bouquet to the trial bar and undermine any grounds for compromise so Democrats can have an election issue.
The main effect, if it passed, would be to push the small- and mid-sized producers that account for most domestic drilling out of the Gulf, regardless of their safety records. Only the supermajors would be able to afford insurance under the unlimited liability regime.
A study by the consultant IHS Global Insight found that the vacuum of independent players would result in some 289,000 lost jobs in the Gulf states by 2015 and “significantly shrink offshore oil and gas activity, reduce the dynamism of the industry, and dilute U.S. technological and industry leadership.”
Another Reid inspiration is a break-up of the Minerals Management Service. (The agency was recently renamed by the White House, like rebranding Philip Morris as Altria.) Liberals have always hated an agency that encourages energy production, not that another round of bureaucratic musical chairs will prevent the next blowout. In addition to ensuring higher energy costs and more green-tape delays, the reorganization will ensure that no one in government is accountable when the next leak does occur.
Whatever one thinks of the science of climate change, cap and tax is the wrong policy response. At enormous economic cost, it would do little to reduce global carbon emissions. To the extent that it reduces growth, it would make the world less able to cope with the consequences if temperatures do rise. The richer the world, the more resources the world will have to adapt and ameliorate bad effects.
Meantime, the failure of cap and tax removes one more threat to the still-mediocre economic recovery. With more such failures, Mr. Obama’s approval rating might start rising too.