While the US housing market lay fallow, the banking sector melting down, and the US auto industry being taken over by government, the House Energy and Commerce Committee was formulating a cap-and-trade bill aimed at reigning-in American carbon release into the atmosphere. Since the beginning of the cap-and-trade process, however, the global warming debate has been complicated by evidence of dishonesty on the part of those working in support of anthroprogenic global warming. So now we are told – with no change in the language – that cap-and-trade is aimed at weaning America from foreign oil.
Working chronologically backwards, there are three basic problems with cap-and-trade, as it stands today – it does nothing to promote domestic production of gas, oil and coal, cheapening its claim to be aimed at foreign oil; CO2 mitigation isn’t responsive to local solutions; and, fiscally, this is a counterproductive time to undertake a vast restructuring of America’s economy.
In general, cap-and-trade is an emissions management mechanism that turns existential regulation over to the marketplace. Government sets an overall carbon emissions target (14% below 2005 levels by 2020, in this case) and then allocates an allowable tonnage of carbon release to each business, calculated to reach that goal. This allotment is “use-it-or-lose-it”, in that you can’t accumulate unused tonnage toward next year’s requirement. If a business doesn’t use all of its allotment, it may sell them on a carbon market in ton increments. Businesses that overshoot their allotment may buy carbon credits from this market at the prevailing price. Businesses that operate outside of their allotment will be subject to stiff penalties. Each year, government reduces the overall (and therefore, the per-business) allowable carbon release. Therefore, each ton of credits on the carbon market is more expensive with time.
Obviously, nothing in this mechanism targets foreign oil, it targets CO2 emissions from whatever source – coal, oil and natural gas – foreign and domestic. Any other claim is either uninformed or disingenuous. Cap-and-trade actually discourages development of domestic petrochemical production, thus, if anything, it encourages continued reliance on foreign sources[1]. There is nothing in cap-and-trade that makes nuclear power generation (the only economically feasible alternative to carbon-based electricity production) any easier to license and operate. Subsidies to alternative energy R&D cannot produce competitive alternatives as fast as carbon-derived energy becomes scarcer and costlier.
The nature of a pollutant plays an important role in the efficacy of methods to control it. The problem in the 1980s was that American power plants were sending up vast clouds of sulfur dioxide (SO2), which was falling back to Earth in the form of [sulfuric] acid rain, damaging lakes, forests and buildings across eastern Canada and the northeastern United States. The squabble about how to fix this problem had dragged on for years. The Clean Air Act of 1990 established a cap-and-trade system to let polluters figure out the least expensive way to reduce their SO2 emissions. At that time, and with this pollutant, the choices were between various exhaust scrubbers and various pre-burn treatments of the feedstock. It has worked because the specific hazards of SO2 emissions fall off dramatically with distance from the source[2]. The detrimental effects of CO2 work at high altitudes and are global in nature. In the absence of internationally universal compliance, a given nation’s decision to hobble its economy with cap-and-trade becomes a question of domestic economic damage versus global environmental benefit.
Because of the current state of global warming science, nobody can say “spend this many billions in the US and the atmosphere will be this amount less warming”. It’s asking us to reduce our standard of living by a known amount in return for an unknown amount of improvement, if any. The estimates by the proponents of antroprogenic global warming range from an increase of 1.1°C to 6.4°C by the end of the century – that’s a margin of error of 527%[3]! It would be questionable under any circumstances to ask American businesses to lower our competitiveness, when two of our chief competitors (India and PRC) aren’t going to do the same, for an indeterminate (if any) improvement in worldwide conditions.
And that brings us to the restructuring of America’s economy at this time. Since virtually all of our cars and trucks, and over half of our electricity are powered by oil and coal, a strategy designed to price oil and coal out of the market will inevitably increase our cost of using energy. Energy costs are highly regressive, as the poorer one is, the higher proportion of one’s income goes to the purchase of energy. The cost of energy affects the cost of everything. Around 10 million people work in the gas, oil and coal industries. We are not yet in the recovery phase of a steep recession. Those are the economic realities facing the timing of this legislation.
Given the degree uncertainty about the effects on the problem (i.e., global warming), and the degree of certainty about the economic effects of voluntarily increasing the cost of American energy production, it would seem wise to delay consideration of this program until such a time as both the science and our economy are on better footing.
EPA has threatened to take this matter under its portfolio if Congress doesn’t act. Either way, enacting this program at this point would be detrimental to any thought of economic recovery and increased hiring. The talk of “creating millions of ‘green jobs’ ” isn’t borne out by empirical evidence – Spain enthusiastically engaged on a green jobs program (the very program upon which ours is based), and they have lost 1.2 jobs for every “green job” they created, and these programs can’t sustain themselves without massive government subsidies[4].
The known realities of imposing this on the American marketplace at this time would require convincing evidence of the necessity of doing it now, in addition to convincing evidence that this program will have the desired effect. Not only will implementing this program before recovery not assist in that recovery, it is almost purpose-built to exacerbate the recession.
The amount of money being committed, and the rate at which these monies are being committed, would seem to be nearing economic irresponsibility. Both sides of the aisle have been telling us that we are in the deepest recession since the Great Depression. By any measure that’s not true, but it is the deepest since the ’87 electronic trading crash. It’s serious because beyond a certain tipping point, recessions become self-sustaining. The layoffs-lack of buying-sinking profits-layoffs cycle feeds on itself proportionately to the depth and breadth of unemployment. The key is actually aggregate disposable income in the markets, but that is driven by the aggregate economic health of the consumer. Anything that increases the cost of doing business or reduces the disposable income of the consumer will depress recovery. Cap-and-trade does both – it raises costs for all businesses; and to the consumer, it looks like a consumption tax.
Until recovery becomes self-sustaining, government intervention into the marketplace should be limited to those that favor recovery – political agendas need to placed on hold until the economy rights itself. Merits of cap-and-trade aside, this is a political decision that not only doesn’t assist recovery, it works against it.
[1] The extraction and refining of coal, gas and oil are not readily or economically susceptible to alternative energy use, making these activities more expensive with time, and thus less competitive with foreign sources with time
[2] Pollution Hotspots, BBC map of areas that suffer from intense local pollution, BBC News, December 13 2004.
[3] Spin, science and climate change, in The Economist [London], March 18 2010.
[4] See E:-Drive/Dailies/Axcess/Cap and Trade/Study on the Effects on Employment of Public Aid to Renewable Energy Sources, Universidad Rey Juan Carlos, March 2009.
Posted
03-21-2010 8:25
by
Eagle Watch