Wednesday, June 3, 2009

On Cap and Trade

The following appeared in the Knoxville News-Sentinel on May 3, 2009

In December 2007, I wrote about the economic consequences of enacting the Kyoto Accords on carbon emissions. Briefly, there was a rise in unemployment, a fall in GDP, a rise in utility bills and gasoline costs. These results occurred in the countries that adopted Kyoto. It is also interesting that emissions in Europe increased from 2000 to 2006 by 3.5 percent while in the US, emissions only increased by 0.7 percent. I guess that is a confirmation of Harold Black's First Law: Any Law worth being circumvented will be."

Yet despite this evidence, we are now faced with cap and trade on steroids. President Obama's budget calls for a reduction in US carbon emissions by 80 percent by 2050. Just recently, Henry Waxman introduced in the US House a bill calling for a reduction of 20 percent by 2020.

The economic impact will be staggering. Gasoline prices will increase by 50 percent. Energy prices will double. Economic growth will fall by 2 percent. Interest rates will rise. Inflation will increase. Unemployment will be permanently in the double digits. Construction, manufacturing and other industries will relocate to other countries.

Given the economic effects of cap and trade one wonders why any politician would vote for it. The reason why politicians want cap and trade is that it would constitute the largest tax increase in history and would be used to pay for the unprecedented increase in government spending. Politicians know that the trillion dollar deficits cannot be solely paid by taxing businesses or higher income households. That is why I have said before that the most likely alternative is to impose a consumption tax on top of the current income tax. Cap and trade taxes the production and use of fossil fuels and the Obama administration estimates that it would bring in $650 billion over the first 8 years. The second reason that politicians would favor cap and trade is dramatically increases their power. The $650 billion would be doled out by the government. The government could then pick winners and losers. It would tax carbon users and subsidize "greenies". As a sop to the public, the budget remits $400 to single worker families and $800 to two worker families - while costing them an estimated $4,000.

Since it would be political suicide to vote for a dramatic increase in taxes along with permanent decrease in the standard of living, Obama and Waxman will get cap and trade through the back door. The EPA has announced that carbon emissions are a pollutant and endanger health. As such it has the authority to impose carbon caps under the 1970 Clean Air Act.

To "cap" this all off, the EPA is following a political agenda and not a scientific one. Many environmental models show minimal if any effect on global temperatures. Indeed, last year 31,000 scientists signed a petition asserting that there is no convincing scientific evidence linking greenhouse gases to global temperature change. So dear reader, how are we going to extricate ourselves from this mess?

1 comment:

Michael Silence said...

You should blog more!