Friday, July 3, 2009

Regarding Cap and Trade

I opposed the recent cap and trade bill passed by the US House of Representatives. I think it was a disaster. Should it become law, it will do little to control carbon emissions. It will put Congress in the position of picking winners and losers in the economy. It will destroy jobs and slow the recovery and will be a massive tax increase and a massive transfer of power to the Federal Government.

The bill will require an army of bureaucrats to insure compliance. It will provide lots of jobs for lawyers and lobbyist who will fight to get or keep an advantage. Should the bill become law, those who were awarded credits will fight like hell to keep them. Those who were given an advantage over their competitors by this bill will invest heavily in elections to keep their advantage. It will institutionalize political corruption. Cap and Trade in Europe has generally proven to be ineffective in reducing carbon emissions and our version is no better.

So, while I am disappointed that this bill passed, I nevertheless part company with many other opponents of the bill. I accept the majority scientific opinion that global warming is a reality. I am not comfortable in an alliance with those who simply deny the science of global warming and think we need to do nothing. I accept that we must try to reduce carbon emission. I accept that in theory a cap and trade bill could reduce American emission of CO2.

What could make a cap and trade bill workable is if all of the credits were sold instead of simply given away. Another provision that would make cap and trade more effective is if the role of nuclear energy was recognized as an alternative to carbon-based energy. If a utility closes a coal-fired plant and builds a nuclear plant, they should earn the credits for the carbon reduction.

In crafting this bill carbon credits were given away simply to fashion a bill that could win enough votes to pass. If cap and trade had sold all of the credits instead of given them away and if the money raised by selling of credits had been rebated to the American people in the form of income tax reductions and tax credits to pay for the higher energy cost that will result from this bill, that would have made the bill more palatable.

Even if the bill had been constructed as I suggest above, there would still be a major obstacle to making cap and trade work. Many manufacturing jobs would simply be shifted to India and China where companies do not have to pay a penalty for emitting carbon. While a good cap and trade bill might reduce carbon emissions in America that would have increased carbon emission in developing countries. A unit of carbon is just as damaging to the climate if it is produced in China as if it produced in America. That problem seems insurmountable. Unless the growing economies of China and India can be enticed to participate in carbon reduction, we are wasted our time. To ignore that reality is irresponsible. Nevertheless, we cannot continue to ignore the problem of looming climate change.

I would have much preferred a revenue-neutral direct carbon tax, rather than the smoke and mirrors of cap and trade. A carbon tax would be much more effective and simpler to administer. I would actually prefer to tax carbon than tax income. If there were a dollar-for-dollar offset, a switch to taxing carbon rather than income would not have to be detrimental to the economy. It is my hope that the Senate will kill this cap and trade bill and consider a revenue-neutral carbon tax bill. In the absence of that happening, I would hope that the Senate could drastically modify this bill so that it is workable and revenue-neutral.

There seems to be lot of people, among both those who favor cap and trade as well as those who oppose it, who have strong opinions about cap and trade yet know little about it. Unfortunately it seems congress did not know much about what they were voting on when they passed the 1200 page bill either.

One of the best analyses of cap and trade that I have come across is from Ryan Love, editor of The Bowater Republican. In these two articles linked here, The Cap and Trade Bill Explained and The Cap and Trade Addendum, Love summarizes the bill and explains the issues involved.

Love links to the full text of the bill so you may read the full 1200 pages should you actually want to do so and presents arguments from both sides. These two articles by Love are lengthy but very readable and well-documented. Some issues just can’t be explained in 400 words. I encourage you to read these linked post if you want a better understanding of the issues involved.

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  1. Very nice information, I am really enjoy it, hope that I can have more from you about this topic...

    Thanks a lot..

  2. Great stuff, thanks for this post. Really informative.

  3. As an American who has recently migrated to Australia, I see the government here looking for another to lead the way for climate change. All eyes are on Old Glory as the tip of the spear to make a change. If she can't do it, let the people that care unite their voices and make the stand.

  4. Well written article. I think Cap and Trade would be a disaster. I gave you blog a follow.

    Bluegrass Pundit

  5. Great information on those links!