Common Tragedies

Thoughts on Environmental Economics

WRI’s got my back

Posted by Rich Sweeney on March 19, 2009

At risk of inviting another WSJ hissy fit, one more word on the regional incidence of cap and trade. The data that the editors used in their initial editorial, and which I subsequently took issue with, came from the World Resources Institute. Now WRI has weighed in on the matter, and here’s what they have to say:

In arguing against cap-and-trade policies, opponents often try to have their cake and eat it too, using contradictory logic and selective use of statistics to make their case. Take the latest op-ed from the Wall Street Journal, which basically argues that cap-and-trade policies are inevitably regressive.

The WSJ starts off with a fairly standard observation:

Once the government creates a scarce new commodity – in this case the right to emit carbon – and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices.

Okay, that’s economics 101. But then comes this observation and chart (using WRI data), which suggests that some states will benefit at the expense of others:

California is the No. 2 carbon emitter in the country but also has a large economy and population. So the average Californian only had a carbon footprint of about 12 tons of CO2-equivalent in 2005. The situation is very different in Wyoming and North Dakota—paging Senators Mike Enzi and Kent Conrad—where every person was responsible for 154 and 95 tons, respectively.

This is where the Journal starts cherry-picking the data. While many factors can explain a state’s relatively high or low per-capita emissions, one of the most significant ones is electricity exports between states. In particular, Wyoming, North Dakota and West Virginia are huge electricity producers that export at least 60% of their electricity to neighboring states. On the other side, New Jersey, California, and Florida are huge importers: 41%, 38% and 20% respectively. But emissions are “charged” in the states where the fuel is consumed, which means states that produce more electricity than they use have disproportionately high emissions—especially in per-capita terms.

In other words, the chart in many ways reflects production rather than consumption. And as the Journal points out, production costs would “inevitably be passed on to all consumers.” Owing to inter-state trade (especially for electricity), that means that all states—rich and poor—will share the burden of a cap on carbon.

There will no doubt be regional differences in the economic impacts of cap-and-trade. That’s why nearly every cap-and-trade proposal includes some form of cost mitigation, either directly to taxpayers (such as “cap-and-rebate”) or to “end-use energy consumers” (as in the US-CAP proposal). But to suggest that a few states will bear the lion’s share of the burden while other states benefit is disingenuous and deeply misleading. The Journal can and should do better.

And they didn’t even call the newspaper an idiot*.

* Note: Anyone who read my post would see (I think) that I wrote the WSJ is an idiot** for refusing to publish my letter, not for their initial confusion about carbon emissions from production.

** Also note that a newspaper cannot be an idiot.

H/T to Mathias in the comments.

2 Responses to “WRI’s got my back”

  1. Jim said

    I’m don’t know whether to be impressed or dismayed by your evenhandedness. The WSJ editorial page didn’t experience “initial confusion” about carbon emissions. They intentionally constructed a bogus argument using misleading data. When you called them on it, they defended themselves by stating outright, “The correct data doesn’t exist, so we used the bad data, even though the correct data would undercut the argument we’re trying to make.” They were also snotty as all hell, with backhanded snark about the climate change “clerisy.” (That’s you, by the way.)

    They’re hacks. Call them on it.

  2. Tim said

    I giggled when I read ‘hissy fit.’

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