by Jack Lee
Last Friday while 93% of the news was focused on Michael Jackson a bill passed the House with little fanfare. It was called Cap and Trade and while many American's have probably heard of that name, far fewer have any idea what it means. Yet this bill will dramatically affect the lives of Americans for generation and there is a genuine risk that this one bill could move us of from a recession into a depression.
Do I have your attention now?
In order to fully understand the implications of Cap and Trade you have to turn to history, back to 1930 when two Republicans, Reed Smoot and Willis Hawley passed a bill that became known as Smoot - Hawley. These men saw a need to increase tax revenues and protect farmers from low cost imports. The need to raise revenues was obvious, the nation was in a severe recession and the cause was good, protecting American farmers and what better way to do than to shift the burden to foreigners!
Opponents decried the bill as economic stupidity. A petition signed by 1028 economists was sent to the White House asking President Hoover to veto the bill. Henry Ford spent an evening with Hoover trying to persuade him and J. P. Morgan's CEO almost went down on his knees begging Hoover...don't do it! But, Hoover had made campaign promises to help out farmers and the nation needed the revenue stream and he yielded to Republicans, even though he felt the bill would undermine an international partnership of nations who would be economically damaged by the new tariffs.
Once the bill was passed it didn't take long for the consortium of nations selling goods to the USA to retaliate. They passed similar tariff bills on American goods. This included our strongest ally, Canada who would go on to forge greater economic links with European nations and new trading partners.
It's arguable that Smoot - Hawley may not have single handedly plunged us from recession into depression, but it was certainly a strong economic factor and for that there is no argument.
NOTE TO LEGISLATORS: Hoover, Smoot and Hawley were defeated in their re-election bids.
Now enter the Cap and Trade bill - 2009: The USA is in the midst of the greatest recession since 1929. The federal government is seeking creative ways to bolster a reliable income stream due to lost tax revenues. To achieve this, Democrat legislators have invented the Cap and Trade (tax) bill which would allegedly provide a massive amount of revenue and it has a good purpose... to limit carbon emissions until emissions are reduced to 80 percent below 1990 levels by 2050.
Here's how it works: The cap - Businesses would have to obtain permits entitling them to emit a certain quantity of carbon dioxide or its equivalent in other greenhouse gases. All permits would be auctioned off by the government. Emissions permits in the near term would likely fall in the range of $10 to $15 per metric ton of carbon dioxide or its equivalent.
The trade: Companies unable to meet their emissions quotas could purchase allowances from other companies that have acquired more permits than they need to account for their emissions. The cost of buying and selling these credits would be determined by the marketplace, which over time would reduce the cost of trading the credits as trading becomes more widespread and efficient.
The profits: If the federal government auctions the emissions permits to the companies required to reduce their emissions, it would create a large and dependable revenue stream. These financial resources could be used to achieve critical public policy objectives related to climate change mitigation and economic development.
The federal government can also choose to "grandfather" allowances to the polluting firms by handing them out free based on historic or projected emissions. This would give the most benefits to those companies with higher baseline emissions that have historically done the least to reduce their pollution.
These measures would set a limit, or cap, on carbon dioxide emissions from fossil fuel use. The effect of such a cap would be to impose rationing of coal, oil, and natural gas on the American economy. Each covered utility, oil company, and manufacturing facility would be given allowances based on past emissions or some other formula. Those companies that emit less carbon dioxide than permitted by their allowances could sell the excess to those that do not; this is the trade part of cap and trade. Over time, the cap would be ratcheted down, requiring greater cuts in emissions.
An article in News Week by John Carey reads, "June 26, 2009, will go down as an historic moment in world's efforts to tackle climate change. For the first time, a Congressional body passed legislation that would place mandatory limits on the emissions of the greenhouse gases that cause global warming. " Not that the author says the emissions they are targeting actually caused global warming. The hard facts say, at worst these emissions played a minute part in a reoccurring weather pattern that has now moved into a warming period. But, never mind that, the important part here is it will lead to doubling of your electric bill, add costs to almost every manufactured item in America which will be passed along in the form of higher cost and that will have the effect of taking money out of your paycheck. To compound this problem, the USA will not be as competitive with nations that do not have a Cap and Trade bill, which is virtually all other nations.
Representatives Henry Waxman (D-Calif.) and Edward Markey (D-Mass.) crafted this disastrous bill, despite the warnings from many economists.
But, won't we save the planet and isn't that worth it? No, the Cap and Trade bill will have no effect on global warming, but it will provide the federal government with more money that comes at a tremendous sacrifice to consumers on a scale that dwarfs Smoot-Hawley. There's no control over how the federal government will spend their new found revenues either, it's a bill that is wide open for abuse and corruption.
Cap and Trade legislation is over 1500 pages long and this will keep lobbyists and staffers busy for years, as they try to exploit the fine print and sort out the details for political advantage.
Ironically it's been opposed by Friends of the Earth and Greenpeace who see it as a corporate giveaway and by Republicans who see it as just another tax hike that will cripple the economy.
News Week's Carey says, " ...the bill lies at the center of a high-stakes political calculation by the GOP. While there's a strong anti-regulation ideology in the Republican Party, there have been plenty of Republicans who urged passage of climate legislation. Such supporters included governors like California's Arnold Schwartzeneger and Sen. John McCain." High stakes indeed, we could be looking at the bill that tipped the economic scales right into depression as it devastates American businesses, drives up the costs of goods and places more people on the unemploment line.
Mark Whittington of Bussiness and Finance wrote, "Not content to tempt political fate by imposing huge carbon taxes on the American middle class, Democrats have added a provision which imposes stiff tariffs on our trading partners if they don't adopt aggressive carbon restrictions of their own.
"You heard correctly: progressives have authored a bill that earns the mortal enmity of domestic energy consumers and our most crucial trading partners at the same time. Economy-killing climate policies and a trade war -- together at last!"
The estimated cost to American families is $4500 for a bill that will not affect climate change and will not direct money into research for clean energy, but it will give Democrats more money to create more safety nets and buy off more voters.
Sounds like your buying and selling nothing, reminds me of the dot com mess all over again.
Okay, assume we need to reduce carbon dioxide production. How would you do it?
Many, like Greenpeace, favor a tax on carbon. It is simple to understand and hard to "game." The revenue could be used to develop clean technologies.
Conservatives point out that new taxes would dampen economic activity and would fail to generate new capital investment needed to create a new energy economy. They say it would be better to let the market work.
Cap and trade is a market based mechanism designed to encourage investment and innovation. Those able to innovate and reduce their carbon production will be able to recoup their investments by selling their unused carbon credits on the open market.
Auctioning the credits would have raised revenue but in Markley-Waxman, 85% of the credits are given away to existing carbon producers.
So, what would be better?
Respectfully,
Mark
People invested in dot coms. It was like investing in air...or empty care packages. There was no real value. Interest was stirred up with hype and excitement over a new "thing". When the bubble burst there were a lot of very disapponted people with holes in their pockets. This scheme is similar. The "product" is bogus. This is a strong arm tactic and it will blow up.
There is a very good article in England's "Financial Times" on this subject:
http://www.ft.com/cms/s/0/99ce494e-f45b-11db-88aa-000b5df10621.html?nclick_check=1
Defra in storm over discredited EU carbon plan
By Fiona Harvey and Chris Bryant
The government department spearheading Britain's effort to reduce carbon output is driving companies and individuals towards paying for emissions cuts that do not take place.
The Department for Environment, Food and Rural Affairs is also about to publish final details of a trading scheme that was set up to encourage companies to reduce their greenhouse gas emissions which led to only four taking £111m of taxpayers' money between them.
The first charge against Defra is that under a proposed code of practice, it has been advising businesses and consumers wishing to offset their emissions to buy carbon credits through the European Union or UN carbon trading scheme. However, phase one of the scheme was discredited last May for flooding the market with too many permits to achieve any emissions cuts.
With so many carbon trading schemes on the market, many British companies were keen to follow official advice. However, the result is that many were persuaded to buy environmentally worthless carbon credits.
Reflecting the surplus in ETS permits, the market price has plunged to less than €0.50 (£0.34) per tonne, but offsetting companies are selling permits for more.
Here's another article from England that asks:
Why are we paying the Third World to poison its environment? In the fields around this giant chemicals factory in Gujarat, the barren soil smells of paint stripper and the water from the well makes you gag. So why has it been given tens of millions of pounds of taxpayer-funded UN ‘green reward points’, which are traded hungrily on the financial markets at huge profit?
"The great carbon credit con," by Nadene Ghouri
http://www.dailymail.co.uk/home/moslive/article-1188937/The-great-carbon-credit-eco-companies-causing-pollution.html
Unintended consequences will bring a lot of misery to a lot of people and all because of hysteria over unproven, greatly disputed, theories.
It's true that the cap and trade exchange is buying and selling nothing. But there will be huge profits for the brokers who manage the exchanges. Al Gore owns the largest such company, and he will make millions upon millions of dollars. It reminds me of the corrupt Catholic priests during the Medieval period, who were selling indulgences to expiate the sins of wealthy patrons.