thats_wild (2008-01)

Free-Market Love

That's wild

How Lamar stopped making carbon-trading sense

by Rikki Hall

There is something deeply democratic about the price of goods being freely negotiated between buyer and seller, so free-market economics have become entwined in our image of ourselves as Americans. Free markets keep economic power decentralized and diversified, and they empower us as consumers and as competitors in commerce. It is no wonder politicians place free markets alongside constitutional freedoms like speech and assembly.

I wonder, though, whether we have fallen so madly in love with markets that we have lost sight of what they are. Free markets are not economic anarchy. The textbook definition is giving way to a popular version that says a free market lacks government regulation. Anarchy is not what we have nor, presumably, what anyone really wants; but lost in rhetorical flourishes, some of us sound that way.

Government provides a stable currency for transactions and protects us from fraud, collusion and other dishonest practices. Many forms of government regulation are consistent with free market principles and even necessary to maintain market freedom.

In a free market, buyer and seller have all the information they need to make rational decisions, and there is adequate competition. Governmentâ’s role is to preserve competition and make information available. Unregulated markets are not free, but free-market zealots call for an end to regulation. It is one thing to hear a talk-radio blowhard drowning in market idealism, but sometimes senators stop making sense.

Lamar Alexander makes lots of sense on emissions. He was first to propose carbon controls to the U.S. Senate, though his bills have so far failed to pass. He is working for tighter controls on sulfur, nitrogen, and mercury gases as well.

Sulfur and nitrogen gases acidify rain, and acid rain damages high-elevation ecosystems. Congress capped emissions and started a market for those types of gases and now Alexander and other senators are deliberating over how to start a carbon emissions market.

Alexander favors cap-and-trade over a carbon tax because it allows the market, not Congress or a bureaucracy, to set prices. Fair enough. Markets should set prices. He wants to take a slow approach, working sector by sector.

That makes sense too, though there are examples to learn from. Europe instituted carbon trading a few years ago and issued too many credits, so prices were too low to spur investment in cleaner technologies. Our own emissions trading has proven more successful, and other countries offer successes to emulate and mistakes to avoid. Still, we can grant Alexander caution.

He stopped making sense when he reacted to a more aggressive emissions bill introduced by Delaware Sen. Tom Carper. The bill would impose a carbon cap by issuing allowances and letting polluters sell unused allowances to others who emit more than allowed. The bill refers to this exchange of credits as an auction, and that is where Alexander slipped:

â“I have been careful about the auctions. I have been to a lot of auctions. I know they must have them in Minnesota as well as Tennessee. I have yet to see one where the purpose of the auction was not to get the highest possible price. Well, if I am paying my electric bill down in Memphis or if I am at Eastman Chemical in East Tennessee or ALCOA trying to keep my electric costs in line, I am not interested in my senator coming to Washington and having an auction to raise my electric rates to the highest possible price.â”

Auctions are free markets, a better representation of the ideal than some retail markets. Sellers in free markets want the highest possible price, and sellers in Alexanderâ’s proposed system would want the highest price. Buyers want the lowest possible price. Utilities will be seeking a low price, not high rates, and utilities that cut emissions will be able to lower rates. With regard to markets setting price, Alexander is fer it while heâ’s agin it.

He wanted his own bill adopted, and his emotions clouded his understanding of market freedom. It happens all the time.

Rikki Hall is managing editor and publisher of Hellbender Press , a non-profit environmental education journal.


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