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.

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