Feldstein Hates Cap and Trade

Marty Feldstein doesn't like the cap and trade legislation:

Cap-and-Trade: All Cost, No Benefit, by Martin Feldstein, Commentary, Washington Post: The Obama administration and congressional Democrats have proposed a major cap-and-trade system aimed at reducing carbon dioxide emissions. ... But... The proposed legislation would have a trivially small effect on global warming while imposing substantial costs on all American households. And to get political support in key states, the legislation would abandon the auctioning of permits in favor of giving permits to selected corporations.

The leading legislative proposal, the Waxman-Markey bill that was recently passed out of the House Energy and Commerce Committee, would reduce allowable CO2 emissions to 83 percent of the 2005 level by 2020, then gradually decrease the amount further. ...

The Congressional Budget Office recently estimated that the resulting increases in consumer prices needed to achieve a 15 percent CO2 reduction -- slightly less than the Waxman-Markey target -- would raise the cost of living of a typical household by $1,600 a year. ... The future cost to the typical household would rise significantly as the government reduces the total allowable amount of CO2.

Americans should ask themselves whether this annual tax of $1,600-plus per family is justified by the very small resulting decline in global CO2. Since the U.S. share of global CO2 production is now less than 25 percent..., a 15 percent fall in U.S. CO2 output would lower global CO2 output by less than 4 percent. ... The U.S. should wait until there is a global agreement on CO2 that includes China and India before committing to costly reductions in the United States.

The CBO estimates that the sale of the permits for a 15 percent CO2 reduction would raise revenue of about $80 billion a year over the next decade. It is remarkable, then, that the Waxman-Markey bill would give away some 85 percent of the permits over the next 20 years to various businesses instead of selling them at auction. ...[b]y giving them away the government would not collect the revenue that could, at least in principle, be used to offset some of the higher cost to households. ...

In my judgment, the proposed cap-and-trade system would be a costly policy that would penalize Americans with little effect on global warming. The proposal to give away most of the permits only makes a bad idea worse. ...

Here more from FactCheck.org on the $1,600 figure:

Testifying before the House Subcommittee on Income Security and Family Support in March, Terry M. Dinan, a senior adviser for the nonpartisan Congressional Budget Office, conceded that ... a 15 percent cut in CO2 emissions could run the average household about $1,600... The range: $700 for the average household in the lowest one-fifth of all households, according to income, to nearly $2,200 for households in the highest quintile. But the CBO's estimate did not include "any benefits to households from lessening climate change." And the CBO also concluded that cost increases for some families, at least, could be offset if revenues from the allowances were returned to consumers. ...Dinan said that a 2000 CBO study "concluded that lower-income households could be better off as a result of the policy (even without including any benefits from reducing climate change) if the government chose to sell the allowances and use the revenue to pay an equal lump-sum rebate to every household..."

And ... analyses of the impacts of the Waxman-Markey bill have varied as well. ... An EPA analysis of the draft version found that "[t]he cap & trade policy has a relatively modest impact on U.S. consumers assuming the bulk of revenues from the program are returned to household[s]," and it estimates the average cost per household to be between $98 and $140 per year. ...

Four percent is a start, it's a moral obligation in any case, we don't yet know for sure what the tax rebate structure will look like, and it would give us more leverage to induce other countries to do the same (e.g. Brad Plumer says "Several experts have told me that China is taking global warming seriously in part because they're worried about ... retaliation—so why not keep up that friendly pressure?").

Update: I should have noted Feldstein's past support for tradeable gas rights.