Wednesday, September 16, 2009

Cap and Trade: All Tricks and No Treats (Part 3 of 3)

This is the last of a three part series about the cap and trade legislation under consideration by Congress. Part 1 postulated the important question that everyone should be asking themselves, “Why do I care if the average temperature of the earth rises a few degrees Celsius over the next 100 years?” In Part 2, I addressed the reason why cap and trade on carbon dioxide emissions in the United States will not achieve the desired outcomes and that alternative and sustainable energy sources are not an environmental panacea.

It is time now to look at the potential economic impacts of the cap and trade proposal or, as some call it, the energy tax. There is no faster or more comprehensive way to adversely impact every sector of the United States economy than to implement policies that effectively and artificially increase the cost of energy. And if you believe that cap and trade will only affect the carbon-based part of the energy industry, then I have a bridge over the Hudson River I’d like to sell you.

There has always been a strong correlation between rising energy prices and a slowing of the economy. It is really rather elementary when you think about it. Rising energy prices drive up the cost of nearly everything that Americans buy on a regular basis. Whether it is the manufacturing of durable goods, producing food, transporting goods and services, running your household heating and air conditioning, commuting, or your family vacation, the cost of all of these go up when energy prices increase.

Cap and trade on carbon dioxide emissions will do little to reduce the demand for energy in the United States, but it will most definitely increase the cost of using carbon-based energy and the generation and delivery of electricity. It is estimated that 85% of the total energy supply for the United States comes from carbon-based energy sources. Every single form of transportation in the United States—ships. planes, trains, and automobiles--burns some form of refined oil. 45% of the current United States electrical supply comes from coal-fired power plants.

It has been calculated that cap and trade will increase the cost of running an average household by as much as 29% after adjusting for inflation and after taking into account the greater efficiencies consumers will gain by switching to public transit, higher mileage vehicles, and more efficient homes. The Heritage Society has conducted analysis of the cap and trade proposal and they estimate that the average American household will be paying $1,200 per year in increased energy costs. Many dispute this figure, but there is no disagreement that cap and trade will increase the cost of energy for all Americans. And the higher energy prices would come at a time when people are already struggling with a recession, reduced income, and higher unemployment.

The increased cost of energy will have a disproportionately greater impact on the unemployed and the working poor of this nation. Because it is a much higher percentage of a lower income, this is effectively one of the most regressive kinds of pseudo-taxation policies. In fact, like taxation, cap and trade will transfer somewhere on the order of $250 to $300 billion per year out of the private sector (consumers and manufacturers). Cap and trade has the potential to be one of the largest tax-like programs in the history of this nation.

And as though Congress considering a cap on carbon dioxide emissions is not enough, the Environmental Protection Agency is proposing a new rule that will impose a penalty on all livestock producers who don’t—and they cannot—control the carbon dioxide emissions from all that livestock flatulence. At about $125 per year per cow, less for smaller animals, this carbon tax will effectively increase in the cost of eggs, milk, cheese, poultry, pork, and beef by nearly 10%. And we have not even added the cap and trade impacts of increased cost of producing feed for these critters or the higher cost of getting them to processors and then on to your local grocery store.

And all this increase in the cost of energy is being foisted on us at a time when the country is still in a recession, unemployment is still climbing, the Stimulus package is flagging, the national debt is skyrocketing, and Congress is looking for a way to pay for a trillion dollar health care plan. When the credit card company asks, “What’s in your wallet?” you will soon be saying, “Not much!”

Remember, cap and trade is supposed to reduce carbon dioxide emissions over the next 50 years in order to delay by 10 years the global warming that is projected to occur 100 years from now. I find it fascinating that even though we have been studying economics for a lot longer than the climate, our best economic models cannot project economic impacts much beyond 20 years. Nonetheless, the 20 year estimates of cap and trade impacts on the United States economy are stunning. By 2030, cap and trade could cost $4.8 trillion in reduced gross domestic product and is projected to result in the loss of 3 million jobs in the manufacturing sector alone. And these job losses are after all the new “Green Energy” jobs have been added and all the jobs created to make homes and cars more efficient have been created.

In review, we are told by some of the same climatologists who usually cannot accurately predict the weather 10 days from now, that in 100 years the average temperature of the earth may rise 2-3 degrees Celsius. The warmists insist that cause of this increase is not attributable to natural climate cycles, even though historic and natural swings in the earth’s average temperature are well documented. Instead, fear mongers contend that mankind’s excessive burning of carbon-based fuels is the major reason for the warming trend that started 160 years ago. And even though much of the world either cannot afford it or chooses not to play in the high risk carbon dioxide emissions game, a few in Congress want American families to ante up first and big even though most climate experts would bet that reducing human-caused emissions to zero tomorrow would only delay the inevitable by 10 years.

Did I tell you about that bridge I have for sale? I bet you won’t buy it either.

Wednesday, September 9, 2009

Cap and Trade: All Tricks and No Treats (Part 2 of 3)

Last week I wrote about the cap and trade legislation under consideration by Congress. In Part 1, I postulated the important question that everyone should be asking themselves, “Why do I care if the average temperature of the earth rises a few degrees Celsius over the next 100 years?” In that column I pointed out that the science is not conclusive or unanimous that humans are the cause of global warming despite the overwhelming media and political support for this hypothesis.

In this column, I will be discussing the policy implications of trying to reduce carbon dioxide emission through this cap and trade bill. The intended outcome of this legislation is presumably to stop, or at least slow the rate of global warming by reducing the amount of, or at least stopping the growth in annual emissions of carbon dioxide in the United States. I will also be looking at the potential secondary environmental impacts of reducing carbon dioxide emissions through the proposed cap and trade legislation.

One of the biggest challenges facing environmental policy makers today is that they first must come to the realization that there are no solutions, only trade offs. We do not live in Utopia and there is no perpetual motion machine out there that will allow us to ignore the most basic laws of physics.

Let’s take fuel cells as an example. In these engines, hydrogen and oxygen are burned to release energy and the only emission coming out of the tail pipe is water. If we ignore the fact that water vapor and clouds account for 90% of greenhouse gases, then fuel cells could replace carbon burning internal combustion engines and reduce carbon dioxide emissions significantly. But, hydrogen in its pure form is not an abundant resource, therefore, hydrogen fuel must be derived from sources such as water and natural gas. The fact of the matter is that it takes more energy to make hydrogen fuel than one gets from burning hydrogen. Because making hydrogen fuel is a net negative energy transaction, the only way to reduce carbon dioxide emissions with fuels cells is to make hydrogen fuel using energy that has been generated from non-carbon-based sources. I once read an analysis that suggested that using only solar and wind power to produce the hydrogen fuel required to run all the cars in California would impact half of that state with solar and wind power generation facilities! I can imagine the hue and the cry from environmentalists at that proposal.

And that gets us to one of the fundamental policy problems with the cap and trade bill. It attempts to create incentives for alternative or sustainable energy sources, but incentives are not enough, so it actually goes so far as to underwrite development of alternative or sustainable energy by taxing carbon-based power. “Alternative” and “sustainable” are buzzwords for any source of energy other than coal, oil, gas, nuclear, and hydroelectric. If the goal is to reduce carbon dioxide emissions, we should be encouraging the development of zero-emission electric generating facilities such as nuclear or hydroelectric plants. The term “sustainable” implies that these resources are unlimited or that there are no environmental impacts associated with these power sources. The most favored forms of alternative and sustainable energy, wind and solar, ignore the fact that many parts of the country do not have enough sunshine to make solar effective and other parts of the country do not have the kind of winds necessary to make wind power efficient.

As has been amply demonstrated by the permitting process for the Cape Winds Project in the Nantuckett Sound off the coast of Massachusetts, everybody wants wind energy. They just do not want it in their back yard. Indeed, it appears we have transcended from the “not in my back yard” (NIMBY) phenomena to “build absolutely nothing anywhere near anything” (BANANA)! The same people who do not want wind towers in their viewshed will also oppose the power transmission lines necessary to transport electricity from where wind and solar will work and be tolerated.

And consider this. The highest demand for electricity occurs when there is a heat wave, and during heat waves, the wind is often very calm. In order to meet peak demand in the new alternative/sustainable powered electric grid, power companies will have to build more peak demand generators that usually run on natural gas and emit carbon dioxide. Some analysts have suggested there might not be any net gain there.

Lastly, I am waiting for the climatologists to clue in to the fact that solar and wind power works on the principle of converting wind energy and the heat of solar radiation to electricity. What will be the long term effects on our climate from the human-caused alteration of these two very significant contributing factors to weather patterns around the world?

Other attempts to impose policies to reduce carbon dioxide around the world have failed. The European Union has imposed cap and trade on its carbon dioxide emissions, yet their total annual carbon dioxide emissions continue to increase. The Kyoto Protocol was intended to slow the growth in carbon dioxide emissions, and though some would blame the United States for not obligating itself to this treaty, the fact is that nearly every country that did sign on to the carbon dioxide reduction plan has failed to meet its obligations. These policies do not work because people will always find the loophole or a work around. More importantly, the people of the world are not curbing their appetite for electricity; the demand is increasing everyday.

Most egregious of all, a cap and trade bill in the United States will do nothing to address carbon dioxide emission from other countries. Yes, the United States may be the largest single source of human-caused carbon dioxide, but China (150% increase from 1992-2007) and India (103% increase from 1992-2007) are coming on fast. These two population giants have made it clear they will not deny their people the opportunity to prosper economically, improve their health, and enjoy the creature comforts of light and air conditioning.

By unilaterally and artificially making electricity less abundant and less affordable in the United States, we will create a huge incentive for American industry to take its business overseas. To address this contingency, the bill proposes tariffs on goods that come from countries that are not limiting their carbon dioxide emissions. In the current world economy and even with our trade deficit, the United States is still the largest exporting nation in the world. It would not be good policy for the United States to initiate a trade war, especially with the countries that are bank rolling our National Debt.

For better or for worse, the United States has built the most sophisticated and efficient infrastructure to explore for and produce oil and gas, process it, and distribute its byproducts to consumers across the nation. And we are finding more oil and gas all the time; these resources are not nearly as finite as some people would have you believe. We have domestic sources of clean burning, low sulfur coal that can meet the current US demand for centuries. At present about 45% of the electricity generated in the United States comes from coal and new coal fired power plants can be extremely clean. Our nation runs on energy and our life style, jobs, and the economy are dependent on a stable and affordable supply of it. We need new technology and we need more diversified forms of energy. We need more efficient transmission and improved battery technology. But, we should not be shooting ourselves in the foot by penalizing our most abundant and affordable energy sources. The United States in a prospering economy has shown itself to be incredibly resourceful at solving complex problems and meeting challenges. Conversely, if people cannot meet their basic needs of food, shelter, and security, then their willingness to expend time and resources to address the other issues decreases.

If global warming is indeed principally caused by human sources of carbon dioxide, then this problem began about 150 years ago with the industrial revolution. The most pessimistic projections are not expected to manifest themselves for 50 to 100 years. Even the scientists who believe humans are responsible for global warming agree that nothing done in the short term is likely to significantly impact the long term projections.

The policies of the United States should facilitate improving our understanding of climate science, promote and support expanded research and development on greater efficiencies and energy generation, transmission technology, and energy storage mechanisms. In the mean time, the United States should continue using the cleanest forms of carbon-based energy to fuel the economic engine that will improve our understanding and adequately develop the new technology and infrastructure necessary to fully address all the issues of the future.

Thursday, September 3, 2009

Cap and Trade: All Tricks and No Treats (Part 1 of 3)

Before the August Recess, the House of Representatives passed Cap and Trade legislation intended to reduce carbon dioxide emissions. The Senate will be considering the Cap and Trade bill after the recess. The popular media message and political rhetoric is that human sources of carbon dioxide emissions are the cause of projected global warming that will take place sometime over the next 100 years.

Cap and Trade is an often used and sometimes effective mechanism to reduce the amount of pollutants being released into our environment. The principle is fairly simple. Put a cap, an upper limit, on the amount of the pollutant that can be released, issue credits to those who reduce emissions, allow those credits to be traded to industries that increase emissions, all the while keeping total emissions below the established cap. The trading of credits provides a market mechanism and an incentive to reduce emissions.

The underlying and unspoken question that every American should be asking about global warming is, “Why do I care if the average temperature of the earth rises a few degrees Celsius over the next 100 years?” Now, before you dismiss me as some sort of hedonist, a holocaust denier, or a minion of the oil, gas or coal industry, bear with me while I try to explain a few things that may change your answer to this important question. And don’t dismiss me with the cliché “Scientists say it is so, therefore it is.” The science of climate change is far from conclusive. The division between scientists who believe humans are the reason the temperature is rising versus natural climate change is about an even split contrary to what environmentalists and many in the media would have you believe.

The issue of global warming has been hyped by the media and environmental alarmists. Polling data now indicates that the fear mongering on climate change has led many children in America to believe that the earth may become a dead planet within their life time.

One example of this hyperbole and a gross injustice is calling carbon dioxide a “pollutant.” If this column causes you to gasp in horror or yell hallelujah, then you are emitting carbon dioxide. Carbon dioxide is an essential compound for the existence of life on earth, just as much as oxygen and water. Since the industrial revolution and the advent of burning coal, oil and gas, man has contributed significant amounts of additional carbon dioxide to our atmosphere. This leads us to the number one reason why some people “care” about global warming. You see, if this were a natural climate change cycle, then some folks would not be able to blame mankind for this crisis.

Other misconceptions being perpetuated are that there is an ideal average temperature for the earth and that the sea level should remain constant. The sea level has been rising for centuries and is likely to continue to rise with or without global warming. And, on a planet that on any given day can have a high temperature exceeding 120 degrees Fahrenheit and a low temperature of below minus 40 degrees Fahrenheit, a change in the average temperature of 1-3 degrees Fahrenheit is not outside of an expected natural range of fluctuation.

In fact, scientists have been studying ice core samples, tree rings, and lake and sea bed sediments for decades, and as a result of that research, scientists say that the earth has experienced dramatic and rapid changes in average temperature over the past 100,000 years. Atmospheric concentrations of carbon dioxide have gone up and down significantly over the years as well. An impressive graph plotting average temperatures and carbon dioxide levels over time is used by Al Gore in his docudrama, An Inconvenient Truth. A little known truth about that graph is that it compresses a very large span of time onto a relatively small space giving the illusion that when carbon dioxide levels go up so does the temperature. Upon closer examination, however, every single historically significant increase in temperature was followed, not preceded, by an increase in carbon dioxide. When I had the opportunity to ask the climate change expert from the United States Geological Survey (USGS) about this apparent discrepancy, I was left aghast by his answer. “Well, it’s kind of a chicken or the egg thing,” he said. I could hardly believe my ears. In response to a question about the data used to support the theory that increased carbon dioxide levels are the cause of global warming, the lead USGS scientist says, “It’s a chicken or the egg thing!”

Now, consider the following verbiage from a National Science Foundation/USGS brochure describing the National Ice Core Laboratory in Denver, Colorado, and the modeling of climate systematics. “Information from ice studies represents pieces of the puzzle of understanding climate. It complements data from study of pollen, tree rings, coral, and lake and sea floor sediments. Through studies of ice, extreme climate swings have been identified in Earth's past; some have occurred remarkably quickly (in less than a decade). Mathematicians and modelers use the ice core data to create Global Climate Models, which are theoretical extensions of Earth's past climate conditions to what could happen in the future. Once the past can be explained, possible future events may be identified and their rapidity and effects predicted with at least some confidence and accuracy.” (emphasis added) These underlined words were carefully and deliberately chosen to describe the process of modeling climate change and demonstrate just how tenuous and uncertain the process of projecting climate change is. In fact, climate change modelers readily admit that there is not enough understanding of the role of clouds and cloud formation to include that in their “theoretical extensions.” Pure and simple, while rigorous and representative of the best knowledge available, modeling climate change is the one of the most under-informed, least reliable, and absolutely unverifiable forms of science that exists.

I have visited with two of the top mountain glacier scientists in the world and they both told me that the average temperature of the earth has been rising since the end of the Little Ice Age around 1850. As you might expect at the end of an ice age, most glaciers have been receding, but some have been advancing. Sometimes glaciers will both recede and advance in the same decade. It is important to note that all of this change began before the industrial revolution and before there were any significant sources of human-caused carbon dioxide emissions.

The same climate change alarmists who profess global warming today projected in 1975 (Newsweek Magazine, April 28, 1975) that the earth was entering a new and dramatic cooling period with many of the same calamitous effects that warming is predicted to cause.

Even the International Panel on Climate Change, the subject-matter experts often cited politicians and journalists, says in their report that if all human-caused carbon dioxide emissions were reduced to zero tomorrow, it would only slow the projected increase in the earth’s average temperature over the next 100 years by adding ten years. Moreover, natural sources of carbon dioxide emissions such as wild fires and volcanic eruptions could eclipse any reductions in human-caused emissions.

So, again, I ask, “Why should you care about global warming?” Or, more importantly, “What are you willing to pay or give up in light of the fact that in the end you may have no affect on climate change?” I suggest that if being more economical and efficient has the added benefit of reducing carbon dioxide emissions, then go for it. But, don’t forego a healthy economy, your car, your food supply, or your heating and air conditioning for a false hope. And don’t expect the people of China or India to give up their newly found prosperity, light bulbs, refrigerators, and air conditioning to appease the global warming extremists. I contend that “Reduce your carbon footprint” has become the moral equivalent of “Let them eat cake.” The people of the United States do not need to, nor should we, throw ourselves on the climate change sword based on theoretical projections, a focus only on humans as the cause, and a questionable outcome of any action we take.