Markey on cap v. tax and ways to properly regulate carbon markets
In Houston last week for CERAWeek, Rep. Ed Markey — chair of the Energy/Environment Subcommittee and the Global Warming & Energy Independence Select Committee — gave an interview to the Houston Chronicle.
He had this to say on the tax vs. trade question:
Q: A cap-and-trade system is widely assumed to be the form the climate change bill will take, but economists and many others say a carbon tax would be a simpler, more efficient method to reach the same goals. Is the door completely closed on a carbon tax?
A: I think it’s much more likely that a cap-and-trade system will be used. They’ve already reached a consensus in Europe, that 400-million-person continent, that that’s the way to go, and it’s the overwhelming way we’re going with. I understand economists, and how they want to have a debate over what’s more efficient, but in the end we can construct it as a cap-and-invest bill that is imposed in a fair, predictable way and will create incentives for innovation. What I use as an analogy is the 1996 Telecommunications Act. Up until then not one single home had broadband access. My goal in that act was to create the incentives for the deployment of broadband that could then lead—because of that huge additional capacity that was constructed—to the creation of thousands of other companies that could use that broadband capacity. I didn’t know the names of the companies would be Google, eBay, Amazon, YouTube and thousands of others that created 3 to 5 million new jobs in America. But 10 years later people look back at the black rotary phone era as ancient history, but it’s not that long ago. And I think we can do that same thing here. We have the opportunity to create 3 to 5 million new jobs in the energy sector if we unleash a technological revolution, because we have created through a cap-and-trade system a set of incentives that provides that opportunity. And I’m very confident that the same thing will happen. That’s been my experience as chairman over telecommunications, chairman over regulation of the financial marketplace: the incentives have to be put in place in a predictable way that creates the incentives for the change that the country needs.
As to the fear of financial speculators, he had this to say:
Q: Some of these emissions traders will be the same folks trading oil futures last summer who were accused by many in Congress of driving up prices through speculation. Is that something that concerns you?
A: On my Web site is the legislation I introduced last year, called ICAP, and it’s my first take at what the regulatory framework should look like. I included an entire title in the bill entitled "Carbon Market Oversight," to allow FERC (the Federal Energy Regulatory Commission) to regulate the allowance or credit market to ensure its fairness and integrity and liquidity. That title draws on many of the things I learned while I was chairman over the securities marketplace for eight years. Those lessons are the need for transparent markets, the need for strong anti-fraud, anti-manipulation standards, and the need for good oversight and enforcement. So, they’re all Enron lessons, they’re also lessons from this derivative marketplace and subprime market crisis. Both of those areas are pretty much unregulated. If you allow a marketplace to remain fundamentally unsupervised for a long period of time, unfortunately as we saw with Enron and now with this subprime-plus-derivatives financial crisis that we’re now living through, you have an economic catastrophe on your hands. I helped design the law for the government securities marketplace in response to the late 1980s economic crisis with the program trading act of 1990. I’m the author of the insider trading act by which all these people got prosecuted. I’m the author of the penny stock act which regulates all the penny stocks in America.
And when I was chairman of the telecommunications committee in 1993 I moved over 200 megahertz of spectrum to create the third, fourth, fifth and sixth wireless phone company in each market of the United States. But the way it was designed was to ensure the two incumbents, who were still analog, could not bid for the third, fourth, fifth and sixth markets. They were both analog and they were charging 50 cents per minute. By 1996, in just a two or three year period, all of those new companies went digital, they dropped the price to under 10 cents a minute, the first two incumbents moved to digital and dropped their price to under 10 cents per minute, and we had an incredible revolution that today results in people having in their pocket a device that can pull up CNN or Google or make a phone call or text. In the future maybe even put together little movies and send it around the world and start charging admission to it. It’s a revolution that only took place because we got the auction right.
And here (for emission credits)there will be an auction. But there will also be a financial market that will need to be regulated correctly. I have been fortunate in being the chair of those two committees and that really provides me with some insight on how that should be designed, and it’s coupled with my now 33 years on energy, the natural resources committee and the chair of the select committee. So I have a pretty fair idea of the magnitude of the problem. But the principles are fairly obvious that have to be built into this law. If they’re not put in, or not enforced, then we’ll have problems. But as long as they’re in and they’re enforced, the marketplace can be extremely productive in creating the change that we’re looking for.
As you look back the 1990 Clean Air Act resulted in a technological solution that largely solved the acid rain problem. The speed at which companies created the technology to solve the problems once there was an economic stake in it shocked economists who had predicted just the opposite. I think that’s illustrative of what will happen if we design cap and trade systems to deal with CO2. I think our country can be a beneficiary of the job creation. I’m going to Houston to hear from the people who are at this conference who are going to be affected by these laws. That can be extremely helpful to me to make sure we fine-tune this legislation properly.