Monday, June 29, 2009

A Moment Worthy of Reflection

House passage of the Waxman-Markey bill last Friday deserves a moment of quiet reflection. For anyone who has followed the internal politics, it is hard to convey how dicey this looked a few months ago. The bill is far from perfect – the 2020 target is too low and too many permits are assigned gratis. But none of that matters. If something like this bill survives the Senate, it will be good enough to set the United States on a unilateral path to de-carbonization. Never mind that the levels will likely turn out to be too conservative. With a basic mechanism in place to internalize the costs of carbon, as reality sets in we can always ratchet up the targets. And the same is true of the rest of the world. This bill, if it becomes law before the end of the year, may set a low bar for the rest of the world to sign on to. But here too, once there is consensus on a way forward, it will be much easier to push collectively for a steeper rate of de-carbonization. Easier, but by no means easy. There has been a Faustian deal in selling this legislation – that it will be accompanied by economic growth. That may be true in the short run. But in the long run, internalizing the true cost of carbon will extract a high price and an uneven one at that, as some sectors of economy will be much more affected than others. For developed economies there will be enough surplus wealth to ease the transition for those most affected. The Developing World is a wholly different story. There the costs (in terms of lowered rates of economic development) will be much larger and hard to offset than most are willing to admit. As such, the real challenge may not be so much getting an agreement as much as sticking to it.

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