The House Energy & Commerce Comittee reported legislation last Friday that would create a cap-and-trade system for greenhouse gas emissions in the United States. I’d like to expand a bit on some recent writings by Bjorn Lomborg and Greg Mankiw about this topic. Dr. Lomborg wrote in last Friday’s Wall Street Journal about a developing “Climate-Industrial Complex,” and Greg has proposed a Fundamental Theorem of Carbon Taxation:

cap-and-trade = carbon tax + corporate welfare

Why would a firm support legislation that would raise power costs, increase regulatory burdens, and slow GDP growth? I can think of six reasons:

1. We are noble and altruistic: Your firm’s leadership is genuinely concerned about the threat of severe climate change and what it could mean for the world.
2. We need to buy a seat at the legislative bargaining table: You believe that legislation is likely to happen and directly affect your firm, probably in a bad way. You think that by publicly supporting legislation, you will be better able to influence the legislative process. You are trying to buy access to the key Members and Congressional staff so you can get emissions credits or avoid pain. This is Greg’s corporate welfare point, and a core element of Mr. Lomborg’s Climate-Industrial Complex argument.
3. We make money if carbon is more expensive: If you produce wind turbines or build nuclear power plants, then a carbon price is good for business. If you’re a power company that produces relatively low-carbon fuel relative to your competitors, then you benefit from a high carbon price. Or if you’re a manufacturer that gets its power from a low-carbon source, and your competitors are in coal country, then they are harmed and you are (relatively) helped by a carbon price.
4. We make money if power costs increase in the U.S.: You’re a foreign firm with operations heavy in European countries that already have a carbon price. You would like to level the playing field by creating a carbon price in the U.S.
5. We make money off trading, so we make money in a cap-and-trade system: If you’re a financial firm that would make money off establishing or participating in a trading system for emissions credits, then a cap-and-trade system is good for business (but a carbon tax is not).
6. Green is good marketing: […]