Chu is Right, But Not About Cap and Trade
The following comment by Energy Secretary Steven Chu from the Earth Day congressional hearings on the Waxman-Markey cap and trade bill is really interesting:
As Secretary of Energy, I think especially now in today’s economic climate it
would be completely unwise to want to increase the price of gasoline. And so we
are looking forward to reducing the price of transportation in the American
family. And this is done by encouraging fuel-efficient cars; this is done by
developing alternative forms of fuel like biofuels that can lead to a separate
source, an independent source of transportation fuel.
It is interesting for several reasons. First, The EPA analysis of the Waxman-Markey bill shows clearly that the bill increases the costs of gasoline (see p. 29 in the report here in PDF and p. 50 in the Appendix here in PDF). Apparently neither Chu or those critical of the bill who were questioning him were aware of this fact (or else Chu wouldn’t have phrased his response as he did and those critical would have followed up on this exact point).
More importantly however is that Chu’s answer contradicts the entire point of cap and trade legislation. The point is to make fossil fuels more expensive and this new expense will motivate efforts to improve efficiency and invest in alternative energy technologies. Henry Waxman explained this logic just last week:
If we raise the price of energy, which will happen if we’re reducing the amount of carbon emissions, and industries have to figure out how to live in a carbon-constrained environment, they are going to have to figure it out because it’s in their profitable interest to figure it out.
The key point is that under a cap and trade regime increases in the costs of energy come before (and indeed are the reason behind) advances in efficiency and technology. So if Chu really believes that it would be unwise to raise the price of gasoline, then he is not a fan of cap and trade.
Chu is correct that a successful strategy will be based on making energy cheaper. But this approach is not cap and trade.