A Bad Bill For Cap-And-Trade
Now that Washington has taken over the troubled domestic auto industry and the banking system, federal lawmakers are cracking open business-school books to figure out how to market the next flawed product: a federal cap-and-trade system.
In May, during the markup of the Waxman-Markey climate change bill, congressmen gave away valuable emissions permits at no cost to favored industries. Though these handouts have temporarily bought political support for cap-and-trade–which is effectively an energy rationing system–Americans will see little, if any, environmental or economic return.
The European Union used a similar tactic of payoffs-via-permits to gain support for its carbon trading market. After nearly five years, this system has yet to deliver reductions in greenhouse-gas levels there, despite saddling European households with higher energy costs. A U.S. system will likely pan out the same way. The bill is a “green” Trojan horse that would deliver little, if any, climate benefits while instituting regulations that would greatly expand government’s control over our lives.
The almost 1,000-page bill calls for energy rationing through imposition of federal limits on carbon dioxide (CO2) emissions. Regulators would require companies to buy one emissions permit for every ton of CO2 they generate. These permits–which one journalist aptly described as alchemy–could be bought and sold in a government-created trading market. Their allocation is creating quite a stir; the House Energy and Commerce Committee announced that it is hosting a hearing Tuesday over the distribution of these permits.
This system’s main objective is to put a price on emissions, thereby creating an incentive for all segments of the economy, from corporations to consumers, to switch to less carbon-intensive fuels and technologies. But many of those alternative technologies and fuels don’t yet exist and won’t for some time to come. Consequently, this cap-and-trade proposal may belie an ulterior motive: forcing gasoline prices higher in order to drive consumers to buy smaller, higher mileage cars–presumably those made by companies like Government Motors (GM).
But, as President Obama told the Business Roundtable association of CEOs in March, “If you’re giving away carbon permits for free, then basically you’re not really pricing the thing and it doesn’t work.” That sentiment was supported by budget director Peter Orszag, who said, “If you didn’t auction the permit, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States.”
Yet that’s just what Congress is doing.
The current draft of Waxman-Markey gives away a staggering 85% of the available permits. One analysis calculates that the total value of these freebies would amount to $1.5 trillion between 2012 and 2030. (And that figure doesn’t even include the estimated $254 billion in subsidies the bill earmarks for some industries.) By simply giving away these valuable, government-created commodities, politicians not only dilute the incentive for greater energy efficiency but also forfeit billions of dollars in revenue that could be put toward clean energy research or used to offset some of the higher energy costs U.S. households will face.
Free permits, which really do cost the government a great deal of money, aren’t the only giveaways that will come at a great expense to the public. The current version of the legislation also includes a provision that allows companies to avoid actually meeting emissions reduction requirements by purchasing so-called “carbon offsets.” Like the medieval practice of purchasing indulgences in order to keep on sinning, buying CO2 offsets is a practice that’s been widely questioned and criticized.
One report from the environmental group Friends of the Earth calls the practice of selling CO2 offsets “fundamentally flawed.” The organization’s executive director, Andy Atkins, explains that offset systems provide lawmakers with a “green” veneer while “avoiding real action through dodgy accounting instead of taking bold action to tackle the climate crisis.”
“Dodgy accounting” brings back memories of Enron–an appropriate cautionary tale for cap-and-trade advocates. Because special interest groups and traders are aware of opportunities for manipulation, many of the jobs that cap-and-trade advocates claim the legislation will create will be on K Street and Wall Street rather than Main Street.
A recent analysis by the National Black Chamber of Commerce highlighted this concern, reporting that Waxman-Markey would trigger a net loss of 2.3 million to 2.7 million U.S. jobs each year through 2030. The bottom line is that Waxman-Markey will leave our economy weaker and our families poorer; only traders and the politically favored will be better off. That’s a deal that we can do without.