Cap and Trade, Part II

Last week I explained a basic “cap and trade” model, using a simple example.  The beauty of such a concept is that those polluters who find it easiest (and cheapest) to reduce emissions can do so, selling their “energy credits” to industries with high emissions abatement costs.  The net effect is a reduction of emissions at the lowest possible abatement cost.  I’ve gotten flak from a few readers accusing me of being in favor of cap and trade.  Last week I only explained the concept; this week we’ll look at cap and trade in the context of the real world.

In my previous blog I said that cap and trade is makes sense only when three conditions are met; (1) there is a need to reduce carbon emissions, (2) all major polluting nations (including China and India) will realistically act to reduce carbon emissions, and (3) the program is structured properly.  In my opinion none of the three above conditions are met, so the congress should kill cap and trade legislation.

The first condition is that there is a need to reduce carbon emissions.  In 2007, the Intergovernmental Panel on Climate Change (IPCC) released to the public its Fourth Assessment Report titled Climate Change 2007 (IPCC-AR4, 2007).  The IPCC is a United Nations sponsored organization.  Its key authors have been appointed by governments.  The chief scientists working on global warming research are funded by government research grants.  The IPCC has been trying to convince the world’s citizens that human activity (CO2 emissions) is the main cause of global warming.  However, there is no conclusive evidence that a long-term global warming trend exists.  In fact, climate change is probably cyclical with the sun (not CO2 emissions) as the main cause of warming and cooling cycles.  There was a significant rise in global temperatures during the middle ages, long before carbon emissions became significant.

The second condition is that all major polluting nations (including China and India) will realistically act to reduce carbon emissions.  Sporting populations of more than 1 billion each, neither China nor India have any desire to choke off economic growth by retarding CO2 emissions.  While Mr. Obama is ready to sacrifice the US economy at the altar of global warming, the Chinese and Indians can’t and won’t make that sacrifice.  No amount of convincing by Europe, the United States, or the United Nations will change the fact that China is already the greatest CO2 polluter, with India soon to follow.  Therefore, no matter what the US does, the amount of worldwide carbon emissions is bound to increase.

Lastly, even if the first two conditions were met, the cap and trade program would have to be properly structured.  The Waxman-Markey bill, which passed last week in the House of Representatives, does not give the country time to re-tool from coal (which provides over 70% of our electrical energy) to other sources.  The Congressional Budget Office estimates that the cap and trade tax will cost the average household only $175 per year by 2020, but those are only the taxes in the early years of the plan.  The CBO doesn’t discuss the fact that the caps will contain large increases over the later years.  Furthermore, the CBO report ignores completely the negative effect of the carbon tax on future GDP.  Virtually every consumer and business will be negatively affected.  A footnote in the CBO study admits:  “The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap.”

Wow, convenient for the CBO to ignore that the cap and trade tax could severely cripple the US economy!  Before this cap and trade gets to the US senate for final passage, you might want to know that according to the Heritage Foundation, Waxman-Markey legislation would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill’s restrictions kick in, that number rises to $6,800 for a family of four by 2035.  The Wall Street Journal calls cap and trade legislation an “energy price tsunami.”  It is time to get on the phone and call your senator about the harmful effects of cap and trade.  While you’re at it, inform your congressman (if he or she voted for the Waxman bill) that you’re going to make sure they don’t get re-elected again for another two year term.

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