The latest stop on John McCain's policy tour came at an Oregon wind-turbine manufacturer, where the topic was – what else? – the Senator's plan to address climate change. This is one of those issues where Mr. McCain indulges his "maverick" tendencies, which usually means taking the liberal line. That was the case yesterday, no matter how frequently he claimed his approach was "market based."

In fact, if "the market" is your favored mechanism, Mr. McCain's endorsement of a "cap and trade" system is the worst choice for reducing greenhouse-gas emissions. The Bush Administration has pursued one option, which combines voluntary measures with subsidies for "clean" alternatives. Since 2001 under this approach, U.S. net carbon emissions have fallen by 3% – that is, by more than all but four countries in cap-and-trade-bound Europe.

At the other end of the market spectrum is a straight carbon tax, which would at least distribute costs more efficiently. It would also force politicians to be honest about – and take responsibility for – the true price of their global-warming posturing.

Then there's cap and trade, which Mr. McCain has backed for years and would, as he put it with some understatement, "change the dynamic of our energy economy." He noted that Americans have a genius for problem-solving but continued, "The federal government can't just summon these talents by command – only the free market can draw them out." To translate: His plan is "market based" insofar as it requires an expensive, invasive government bureaucracy to interfere with the market.

Mr. McCain's proposed targets and policy instruments more or less mesh with the global-warming bill sponsored by Senators Joe Lieberman and John Warner that may come up for debate next month. The McCain plan would aim to return emissions to 2005 levels by 2012, and to 1990 levels by 2020. Barack Obama supports similar reductions.

In theory, this would be achieved by imposing emission ceilings on electric power, transportation fuels, commercial business and industries. If a company produced less carbon than it was allowed under the cap, it could sell -- i.e., trade – its extra allowances to other businesses. Under the McCain plan, permits would be given away to industries, at least initially. Mr. Obama prefers to "auction" the permits, meaning businesses would be taxed at the outset. So Mr. McCain's plan would help mitigate the transition costs of putting "the age of fossil fuels behind us."

The problem is that once government creates an artificial scarcity of carbon, how the credits are allocated creates a huge new venue for political rent-seeking and more subsidies for favored industries. Some businesses will benefit more than others, in proportion to their lobbying influence and how well they're able to game the Beltway. Congress itself will probably take the largest revenue grab, offering itself a few more bites out of the economy and soaking politically unpopular businesses.

Then there's the question of whether any of this will even reduce greenhouse gasses. The McCain plan would allow businesses unlimited use of domestic and international offsets to comply with the carbon cap. So a chemical manufacturer, say, would pay an industry not covered by the program – most notably, agriculture – to reduce its emissions. Or it could pay a coal plant in China for plucking low-hanging efficiency fruit, like installing smokestack scrubbers. In other words, U.S. consumers would be paying higher prices for energy in return for making Chinese industries more efficient and competitive. Europe is in the midst of that experience now under the Kyoto Protocol, and most of its reductions so far have been illusory.

The compliance bookkeeping for this new "market" is vastly complex, and a McCain Administration would create a public-private "Climate Change Credit Corporation" to oversee it all. This new regulatory body is likely to morph over time into an "Energy Fed," similar to the one Warner-Lieberman would create. Such an agency would set the price of energy indirectly by fiddling with carbon levies, which will undoubtedly lead to economy-wide distortions.

Given the distance between Mr. McCain's rhetoric and the policy reality, we wonder if he even knows what he's proposing. This is of a piece with his approach to many domestic issues, where the policy contradictions and cul-de-sacs overwhelm his professed political convictions. The McCain campaign believes his global-warming plan will appeal to independents and young people, as well as separate the Senator from President Bush.

But he will never be green enough for the climate-change fundamentalists. The Obama campaign and Democrats were already dinging Mr. McCain yesterday for half-measures. His concessions won't help him much in November, but they will make his governing decisions in 2009 that much more difficult if by some chance he does win.  Source

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