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December 17, 2011

The Politics and Policy of Cap and Trade, 2008-2010 [Truman North]

In light of our current consternation over the intractability and bloody-mindedness of Congressional Democrats, and the added evidence of a Great Climate Change Swindle coming from the Climategate II email set, here's a longish article discussing 2009's failed effort to ram through cap and trade.


Overview
Since the 1970s at least, organized opponents of entrepreneurs and industrialists who would utilize natural resources for industrial and economic expansion have pointed to the negative externalities of such expansion on the air, water, and several peoples of the world as reason to restrict and even stop the industrial processes which use and damage the natural environment.

In April of 2009, hearings started on the draft of the American Clean Energy and Security Act of 2009 (ACES) , a bill which would make it more expensive to produce domestic fossil fuel-based energy by placing a tax on carbon-based compounds which appear as unavoidable by-products of producing fossil energy. In June, the bill was passed by the House of 111th Congress, 219-212. Due to political circumstances, it was never taken up by the full Senate, and therefore died ignobly at the expiration of the term of the 111th.

Ironically, the bill was not necessarily American, having been largely based upon the EU’s Emission Trading Scheme; it was not about clean energy, but rather about restricting our access to energy the bill deemed to be dirty and transferring large amounts of wealth; and it was not about security, since the result would necessarily be the increased use of foreign energy sources. It was, however, an Act, and did appear first in 2009.

At the heart of the legislation is a cap-and-trade system that sets a limit on overall emissions of heat-trapping gases by government fiat while allowing utilities, manufacturers and other emitters to trade pollution permits or allowances among themselves. The cap would grow tighter over the years, pushing up the price of emissions and presumably driving industry to find cleaner ways of making energy.


The Problem: Under-regulated Growth of Pollution Emission
The underlying premise for establishing a carbon credit exchange and other pollution caps established by government fiat is evidence that the Earth is warming, and furthermore, at least some element of that warming has to do with emissions from industrial processes performed by human beings through the burning of so-called fossil fuels: primarily coal, oil, and natural gas. This additional warming is theorized to do harm to the environment and therefore to people, plants and animals when compounded over a long time period (several centuries at least). One of the chemicals released by the burning of fossil fuels is carbon dioxide, a vital component to the continued existence of all plant life, which occurs naturally in small amounts in the atmosphere. Although carbon dioxide is a minimal component to the atmosphere, and a minimal contributor to the overall greenhouse effect which keeps our world at habitable temperatures, and that the amount of carbon dioxide that human beings emit in proportion to the overall carbon dioxide level in the atmosphere, those scientists who believe that the Earth’s climate is being impacted by humans point to this carbon dioxide molecule as the culprit. Therefore, the modifier “carbon” in the context of cap and trade issues really refers to carbon dioxide, a natural and relatively beneficial chemical necessary for the climactic and biological processes we see at work around us.

According to proponents of the bill, America must lead the world in showing that we are good stewards of the environment. ACES would force electric companies to encourage people to reduce their use of electricity in order to produce less carbon dioxide. In order to do so the Environmental Protection Agency has already passed regulations that cap the amount of carbon dioxide that the power companies can emit. Under ACES, if these companies exceed the emissions caps on carbon dioxide, they must purchase carbon credits to offset their carbon dioxide emissions.

The Policy Decision: Regulating Carbon Emissions Directly Through Government-Created Markets
These carbon credits can be purchased from companies, countries, or other investors who have already purchased them. These carbon credits are initially available for purchase from a Carbon Exchange Company, established by the government under the auspices of this bill. If a company or other entity emits less carbon dioxide than they are allowed under law, this excess carbon can be sold in the form of credits available on the open market.

Also, in some circumstances, carbon credits will be given to underdeveloped countries for free if they promise not to develop their land and industry. (A side effect of this would be to keep underdeveloped countries from achieving prosperity and keeping them dependent upon the West for international aid.) For example, Indonesia has been promised billions of dollars if they stop the increase in productive use of their country’s natural resources. Companies which produce too much carbon dioxide will have to purchase carbon credits from the nation of Indonesia for real cash.

The Carbon Exchange, a public-private partnership, holds these credits for carbon investors and charges a transaction fee for trades. Certainly this is tantamount to plucking money out of “thin air!”

If cap and trade passed, this money from thin air would come indirectly from energy consumers: power companies would pass the cost of acquiring necessary carbon credits on to the consumer. Unfortunately, this does not actually reduce carbon dioxide emissions. It only transfers some money from consumers of electricity to carbon under-producers and a percentage for the Carbon Exchange for facilitating the transaction.

Although the scheme works most transparently in the case of power companies, every industry which uses electricity will also have to pay this consumption tax, and pass that cost on to the consumer. Prices of all goods would necessarily skyrocket, as every good produced requires some energy to make or transport to market.

So, since energy costs would increase, people would use less electricity. If they use less electricity, then the power companies would make less profit.

Additionally, power companies would be compelled by ACES to use a higher percentage of so-called “renewable energy” such as wind and solar. These sources produce far less energy per dollar than fossil energy does, shrinking the power company’s margin even further (if it is economically feasible to do so at all). Electricity generated from wind and solar can cost up to five times as much as that produced from coal and oil.

So how can a power company that seeks to stay in business encourage its customers to use less energy when it will cost them much more to produce it? The answer lies within the cap and trade bill again. There is a provision within ACES which provides for the “decoupling” of the production of energy, the stated purpose of a power company, from the company’s profits. Basically, if the electric company encourages people to use less energy, thereby lowering their profits, they would be able to unilaterally raise their rates in order to achieve the same profit margin as they had enjoyed before ACES.

This means electricity will be even more expensive than it would have otherwise been with only the carbon credit scheme and the government mandates to generate more energy from renewable sources. Consumers like you and me will pay the same amount (or more) for the privilege of using less electricity!

In addition to the devastating economic effects of cap and trade, it would likely lead to the same conditions that caused the housing bubble of a few years ago by “providing financial incentives to the federally funded metropolitan planning organizations to shift transportation resources and passengers away from automobiles to public transit and forms of non-motorized transportation such as walking and bicycles. The bill further suggests that these be accomplished through “zoning and other land use regulations” that lead to a more crowded living environment. In turn, these communities of higher population density would be more amenable to forms of transportation common in the decades prior to the invention of the internal combustion engine.” In short, such a bill would “de-develop” suburbs and exurbs since commuters would no longer be able to get to work or civic activities as easily.

Cap-and-trade measures would drive up fossil energy prices, and the results for agriculture (among other sectors) would be severe. The current recession means people are driving less, people are flying less, and companies are pumping out less carbon dioxide because people are simply buying less. The trade off for reduced carbon dioxide emissions is reduced economic activity – or an economy operating well under its potential. Heritage presented good evidence that cap and trade schemes are a universal and regressive tax which would retard economic growth.

Reports the New York Times: “The bill was freighted with hundreds of pages of special-interest favors, even as environmentalists lamented that its greenhouse-gas reduction targets had been whittled down."

Another nail in the cap and trade coffin is, like any large governmental program, it is subject to meddling through crony capitalism and interest-group lobbying. Robert Eschelman interviewed an expert for The Nation in late 2009 who seriously suggests that the only way to keep people from polluting is to tear down the neo-liberal capitalist system and instate something more primitive.

The Politics of Cap and Trade
As of June 2, 2009, even many environmentalists had given up on the bill. It is truly a monstrosity: it would cost consumers plenty, while doing little to reduce global temperatures. But the legislation had something far more important for legislators and special interests alike. It was a pork-fest that wouldn't quit.

Furthermore, in late 2009, a hacker who accessed the databases at East Anglia University, releasing a package of emails from leading climate change scientists (alternatively, it may have been a hacker who accessed their databases), apparently indicating that they were doctoring their reporting to make anthropogenic global warming appear more serious than it is, or possibly hiding the fact that it is not happening at all. Whatever side of the AGW debate one is on, it is clear that the science, formerly declared "settled," was in serious question. James Dellingpole gives a damning critique of Climategate: Manipulation of evidence; Private doubts about whether the world really is heating up; Suppression of evidence; Fantasies of violence against prominent Climate Skeptic scientists; Attempts to disguise the inconvenient truth of the Medieval Warm Period (MWP); and a long series of communications discussing how best to squeeze dissenting scientists out of the peer review process. As the 111th Congress drew to a close, fewer Americans than ever believed in the existence of significant anthropogenic global warming or the necessity of legislation combating it. ("Fewer Americans See Solid Evidence of Global Warming." Pew Research Center. 22 Oct. 2009). Many of the findings of the UN's IPCC were informed by faulty data and unsubstantiated opinion. Senators who had already made several controversial votes on the expansion of the government sought to avoid the issue entirely.

Analysis of the economic impact of Waxman-Markey projects that by 2035 the bill would: “Reduce aggregate gross domestic product (GDP) by $7.4 trillion, Destroy 844,000 jobs on average, with peak years seeing unemployment rise by over 1,900,000 jobs, Raise electricity rates 90 percent after adjusting for inflation, Raise inflation-adjusted gasoline prices by 74 percent, Raise residential natural gas prices by 55 percent, Raise an average family's annual energy bill by $1,500, and Increase inflation-adjusted federal debt by 29 percent, or $33,400 additional federal debt per person, again after adjusting for inflation.”

But not all pushback against cap and trade was legitimate. How hard did lobbyists fight against the passage of cap and trade? One firm forged letters of opposition from traditionally-liberal pressure groups. This indicates that there were serious financial disincentives for businesses potentially affected. Tim Fernholz, it should be noted, was in favor of this and other big-government reforms, once remarking, “One important result may be that, judging by the scoring of the bill and this phenomenon, people aren't going to suffer economically and will become acclimated to this kind of regulatory scheme -- call it the gay-marriage model of legislative progress: One of the best ways to lose credibility is see your apocalyptic warnings proven totally wrong."

Perhaps what finally killed off this bill was adverse public opinion. Both Pew and Gallup saw unprecedented skepticism among the public that there even was a to be solved, and few Americans could even tell you what cap and trade meant, let alone navigate the intricacies of the bill as explained by congressional Democrats and their allies in the old media. By the time the president used a clever legerdemain to sell cap and trade with the BP oil spill, the public had largely decided against supporting this huge reform. Coupled with the poor economy and other large and politically-unpopular programs that the president had asked Congress to work on such as the Recovery Act and Obamacare, government overreach on healthcare "crowded out" government overreach on cap and trade. Ultimately, Democratic Senators could be counted upon to make two very unpopular votes, but not three.

Ways Forward? And Is it Really Necessary?
Lawmakers sympathetic to imposing cap-and-trade schemes to lower emissions have another lifeline to hold on to: EPA regulations. Throughout the last 100 years at least, Congress has de facto delegated much of its authority to legislate to the executive branch, which has picked up the slack through intrusive and comprehensive regulatory bodies. Congress has delegated so much power to the Executive Branch that this type of power grab [passing cap and trade through regulation and not legislation] is not only possible, it's legal and it's common in the 21st century.

Currently as we see gas prices at the pump have doubled under president Obama and no relief in sight, public support for increased domestic oil and gas exploration has increased. The public has no taste for the increased energy prices ACES would bring.

29 out of the 63 defeated House Democrats in the 2010 mid-term election voted for Waxman-Markey. Joe Manchin, a conservative-talking West Virginia Democrat freshman Senator, aired a popular campaign ad showing the candidate shooting the cap and trade bill with a gun. Despite leaving the DNC chair nonplussed, it certainly contributed to his election. Put these stories together, and it appears that there won’t be much movement on a bill like ACES for a long time to come.

Conclusion
In order to sate the need of a few mandarins ensconced in the bowels of the engine of the ship of state—in order to “lead” on “environmental issues” which are about as scientific as any religion is—the vast mass of humanity would have been saddled with impossible financial burdens. Our national character and culture, bound as it is in mobility, safe and spacious private property, affordable energy, and individual liberty, would be ground up and presented as a burnt offering at the altar of Mother Earth in exchange for no tangible benefit to us or Earth as an entity whatsoever. While there would be the promise of the assuagement of guilt and ultimate salvation, no actual carbon reduction would be achieved since carbon credits are the fiat currency of carbon welfare, and not the miracle cure for dubious climate change.

Even worse, we would be enslaved to underdeveloped countries around the world in a diabolical carbon welfare scheme so nefarious that it is nearly incomprehensible to a moral people. To those who believe that the West has somehow gotten over on the third world and stolen the sovereign wealth of the latter group, this continuous and incontrovertible flow of wealth from producer to non-producer may indeed be a worthy aim in and of itself; and certainly, the sort of person who would believe this would have no qualms about using big government as a cudgel against liberty.

However, Congress is elected to be the representative of the American electorate. If those in Congress truly believe that their constituents wish to make this form of welfare into an untouchable entitlement, it would behoove them to present it openly and honestly, and not cloak it in the pseudo-religion of environmentalism and the moral uprightness of world leadership.

Not only is ACES a bad bill in terms of accomplishing what it says it would accomplish, namely keeping the Earth cooler, but it is also a bad bill for what it would actually accomplish: nationalizing a bigger chunk of every industry (and pocketbook) and transferring wealth to the poor, benighted masses in the pre-developed world.

Be honest, Congress. Try to sell your ideas for wealth redistribution on an international scale on their merits. And if you believe that human beings are negatively affecting the Earth and that a government program is the solution, please find a better one than this. The jobs you save may be your own.

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posted by Open Blogger at 06:44 PM

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