Did Cap-And-Trade Die Today?

Did the Obama administration put a knife in cap-and-trade intentionally or was it just a government snafu?

In case you missed the news, the White Office Office of Management and the Budget wrote a memo warning of adverse economic consequences that might result from regulating carbon emmissions and questioned the application of the precautionary policy with regard to carbon emmissions.

From the WSJ, here is the relevant statement with regard to the economic consequences:

The document warns the EPA, “Making the decision to regulate CO2 under the (Clean Air Act) for the first time is likely to have serious economic consequences for regulated entities throughout the U.S. economy, including small businesses and small communities.”

From the actual memo from OMB here is its analysis of the application of the precautionary policy:

The finding rests heavily on the precautionary principle, but the amount of acknowledged lack of understanding about basic facts surrounding GHGs seem to stretch the precautionary principle to providing for regulation in the face of unprecedented uncertainty.

In the absence of a strong statement of the standards being applied in this decision, there is a concern that EPA is making a finding based on (1) “harm” from substances that have no demonstrated direct health effects, such as respiratory or toxic effects, (2) available scientific data that purports to conclusively establish the nature and extent of the adverse public health and welfare impacts are almost exclusively from non-EPA sources, and (3) applying a dramatically expanded precautionary principle. If EPA goes forward with a finding of endangerment for all 6 GHGs, it could be establishing a relaxed and expansive new standard for endangerment. Subsequently, EPA would be petitioned to find endangerment and regulate many other “pollutants” for the sake of the precautionary principle (e.g., electromagnetic fields, perchlorates, endocrine disruptors, and noise).

(Note that this is only an excerpt from the memo. The link above will take you to Regulations.gov and there you will find a link to a pdf of the entire memo.)

The memo was leaked ahead of EPA Administrator Lisa Jackson’s appearance before the Senate Environmental and Public Works Committee. Ms. Jackson had said several weeks ago that her agency’s finding that greenhouse gases are a public health danger would trigger the beginning of regulation of carbon emissions. Today she said that finding would not necessarily lead to government regulation. A complete about face for the administration.

The EPA finding and its ability under the law has been the big stick that Obama has been able to hold over the head of Congress as he pushes for a cap-and-trade regime. Basically, do it legislatively or I have the power to do it via regulation. Until today, that was a very big stick indeed. Now, who knows.

The real puzzle here is did the Obama administration leak the memo itself in order to get off the hook. Have they determined that the whole concept carries too much economic risk and therefore too much political risk to pursue at this point in time or was it leaked by lower level opponents that are just trying to torpedo the program.

I don’t suppose we will soon know the answer to that question. I do think that we can discern a very difficult road ahead for any type of climate legislation.

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