DAVID GREENE, HOST:

All right, we've been reporting elsewhere in the program about the Obama administration's new tougher rules on carbon emissions. Republicans say the Environmental Protection Agency, which announced the rules, is going to kill jobs and raise electricity prices. Senate Republican leader, Mitch McConnell, says the move is quote, "a dagger in the heart of the American middle class." But as NPR's Chris Arnold reports, Republicans are objecting to something their own party once championed.

CHRIS ARNOLD, BYLINE: One way the EPA plans to allow states to implement the tougher carbon rules is with a method known as Cap and Trade. In recent years, that term has become a dirty word for many Republicans. But what's kind of strange about that is that Republicans used to be the big advocates of Cap and Trade. It was originally a conservative idea and a market-based approach to environmental regulation.

ROBERT STAVINS: Well, it is very ironic.

ARNOLD: Robert Stavins is a Harvard economist. He was on the EPA's Environmental Economics Advisory Board under both Republican and Democratic presidents. So we asked him to try to explain all this, starting with what Cap and Trade really is. So to do that, Stavins takes me outside to the sidewalk.

What are we standing in front of here?

STAVINS: Well, so we're in front of a parking meter on a congested, busy street.

ARNOLD: Stavins says limiting carbon emissions is kind of like a city limiting the amount of time people are allowed to park somewhere.

STAVINS: So one thing they could do would be direct conventional regulation, sort of the old-style, which would be to say that when you come in to Harvard Square you can only park for one hour. That's it. Everybody can park for one hour.

ARNOLD: But that's very inflexible. Somebody needs to park for 10 minutes to grab a sandwich, somebody else has to park for two hours for a doctor's appointment. The parallel with power plants is that it's often much easier for one power plant to cut emissions and much harder for another one. So under Cap and Trade, the government issues the industry pollution tokens, if you will, to plug into the EPA's pollution meter. If you really need to pollute, you can put in tokens, at least until you run out of them.

I got 15 minutes. I got 30 minutes and I'm out of tokens - what do I do now?

STAVINS: Well, what you do is buy tokens from others that have them. And if this was really a pollution market, as we've had in the United States and other parts of the world, rather than parking meters then there are platforms on which you could go to buy those rights.

ARNOLD: There's a limited number of tokens created by the government - that's the cap. But the point is the industry itself, private companies, get to decide where it makes the most sense to cut emissions and where it makes more sense to say keep burning coal. Back in his office, Stavins says in the Reagan years Republicans and conservatives love this idea. That is, the government sets a cap on pollution but the free market gets to work out how best to achieve the pollution reductions. Back then, actually, it was Democrats who were skeptical.

STAVINS: Democrats of that era were much more suspicious of the market. I remember they characterized Cap and Trade systems as quote, "licenses to pollute."

ARNOLD: In 1989, though, President George H.W. Bush proposed the use of a Cap and Trade system to cut, by half, sulfur dioxide emissions or acid rain from coal-burning power plants. And both Democrats and Republicans got behind it. In what today might seem like an almost unbelievable show of bipartisanship, those Clean Air Act amendments passed the Senate 89 to 10 and the House 401 to 25. But then, four years ago, Democrats wanted a big climate change bill. Republicans opposed it. And Stavins says in the political fight, Republicans bashed Cap and Trade just because it happened to be part of the bill. Here's Senator Marco Rubio in a 2010 campaign ad.

(SOUNDBITE OF CAMPAIGN AD)

SENATOR MARCO RUBIO: If Cap and Trade were imposed on America it would devastate economic growth. It would get rid of jobs, it would be permanently debilitating.

ARNOLD: Some prominent Republicans, including John McCain, used to support Cap and Trade. But since that legislative battle four years ago, they've said they're against it. And economist Robert Stavins is worried about that.

STAVINS: I think unfortunately what's happened is that conservatives have sort of boxed themselves into a corner because they've demonized the very instrument that they had created and the very instrument which is cost-effective and therefore is the friend of low-cost but effective environmental regulation.

ARNOLD: The fight over these latest carbon emissions rules from the EPA is just getting started. But many economists hope that the Cap and Trade policy tool doesn't get dragged through the mud again when the rhetoric really starts flying. Chris Arnold, NPR News, Boston.

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