When The Politicians Come Calling Beware Of Their Cap & Trade Climate Bill
by Malcolm Katt, Associate Editor
June 23, 2008
Washington is at it again. They won't stop until they have completely destroyed the US economy and have ruined the American business community by adding more stifling regulation.The latest is known as "Cap and Trade". These measures would set a limit, or cap, on carbon dioxide emissions from fossil fuel use. The effect of such a cap would be to impose rationing of coal, oil, and natural gas on the American economy. Each covered utility, oil company, and manufacturing facility would be given allowances based on past emissions or some other formula. Those companies that emit less carbon dioxide than permitted by their allowances could sell the excess to those that do not; this is the trade part of cap and trade. Over time, the cap would be ratcheted down, requiring greater cuts in emissions.
Measures that target carbon emissions aggressively will be costlier than those that give the economy more time to adjust to the energy constraints. For example, over the long term, energy companies may find ways to capture and store carbon dioxide emissions underground, rather than emit them into the air, or switch to lower-emitting alternative energy sources as they are developed. But most experts see these advances as taking decades--much longer than the initial targets in a cap and trade bill. In fact, these targets may actually complicate the development of longer-term innovations, as they will divert resources to near-term fixes.
Carbon dioxide is the unavoidable byproduct of fossil fuel combustion, which currently provides 85 percent of America's energy. Thus, it will be very costly to move away from this preferred energy source A study by Charles River Associates puts the cost (in terms of reduced household spending per year) of the current cap and trade bill before the US Senate at $800 to $1,300 per household by 2015, rising to $1,500 to $2,500 by 2050. Electricity prices could jump by 36% to 65% by 2015 and 80% to 125% by 2050. No analysis has been done on the impact of the current bill on gasoline prices, but an Environmental Protection Agency study of a less stringent cap and trade bill estimates impacts of 26 cents per gallon by 2030 and 68 cents by 2050.
By limiting the supply of fossil fuels, a cap and trade bill would raise the cost of energy. For consumers, cap and trade means more expensive gasoline and electricity as well as net job losses in energy-dependent sectors. .A bill will significantly slow down the U.S. economy and increase the cost of consumer products, disrupt international commerce, and impose the largest tax increase in history. The proposed current bill estimates that $3.2 trillion will be raised by 2050 from the cap and trade auctions .Who gets this $3.2 trillion windfall? The bill envisions that $802 billion will go to relief for low income tax payers, $190 billion to training for "green collar" jobs, $288 billion for "wildlife adaptation", $342 billion for "international aid" and so on.
The net job losses from the proposed current cap and trade bill are estimated by Charles River Associates to be 1.2 million to 2.3 million by 2015. Some of these jobs will be lost for good, due to the impact of higher energy costs on economic activity. Others, chiefly in the manufacturing sector, will be sent overseas. In the very likely event that a bill significantly raises domestic manufacturing costs and that developing nations refuse to impose similar restrictions, the American economy could experience a substantial outsourcing of manufacturing jobs to those nations with lower energy costs. The Environmental Protection Agency concludes that the proposed current bill would reduce GDP by $1 trillion to $2.8 trillion by 2050.
While the costs of aggressive cap and trade proposals are substantial, the environmental benefits are suspect. This is true even if one fully accepts the claim of man-made global warming. The most ambitious measure to date is the Kyoto Protocol, but even if the U.S. were a party to this treaty and the European nations and other signatories were in full compliance (most are unlikely to meet their targets), the treaty would reduce the Earth's future temperature by an estimated 0.07 degrees Celsius by 2050--an amount too small even to verify.
UPDATE: The good news is that the US Senate just blocked the proposed cap and trade bill that would have required major reductions in greenhouse gases, pushing debate over the world's biggest environmental concern to next year for a new Congress and president. The bad news is that both Barack Obama and John McCain support implementation of a market-based cap-and-trade system to reduce carbon emissions by the amount scientists say is necessary (80% below 1990 levels by 2050).