Cap and (no) Trade

3/15/09 – Beware the Ides of March

While I do not want to infer that this topic has anything to do with the patriotic honor we owe our Armed Forces, it is sot of my patriotic duty to discuss Cap and Trade and its implications on my favorite 3 Es, energy the economy and the environment. This opening is also used on my ponderings of Points to Ponder -- CAFE Standards 5/16/09.

This topic, also known as cap and tax, is becoming a key part of environmental/energy policy and warrants a pondering on its own merits (or lack there of).

This concept based on paying for carbon put into the atmosphere and, therefore, creating an economic incentive to shift away from carbon-based energy is fine in economic theory. It is also designed to make non-carbon fuels more economically competitive, not by lowering the costs of these new sources of energy, but by raising the cost of carbon. The devil is in the details. (See Points to ponder -- Economics is a Religion 4/12/09, or Step – 9, 9.9.19.2 of the report)

Whether or not mankind is a key driver of global warming, society does need to admit that there is a cost for carbon emissions. This footprint should be minimized in the most cost effective manners. This includes any and all carbon such as the ethanol footprint.

One issue is in timing. Springing a new cost on the consumer during this financial crisis would only extend the current difficulties. The only way this concept has a chance of working is if it is applied globally. A unilateral cap and tax policy will only put the country at a competitive disadvantage and would have a minimal impact on global carbon emissions.

Then there is the detail of the impact on carbon intensive localities and industries. If the costs could not be passed through immediately, the disproportionate impact would be devastating. In addition, any pass through would hit those least able to absorb the additional cost the hardest.

As noted above, this concept also becomes a source of revenue. These revenues will become a baseline for future spending. It will also end up catering to governmental favorites.

Here, economics should lead us to looking at not only all solutions, but concentrating on those solutions that can be most leveraging. Today, technology says the leader of the pact is nuclear.
The Green economy and green jobs make headlines and perhaps would justify subsidies. However, even with the incentive of cap and tax, they must show their economic worth.

As I note throughout the report and many of many ponderings, the environment does not recognize political borders. Any unilateral effort at reducing a carbon footprint will not solve global warming. Assuming that setting a good example is naive, disproportionately burdensome to the local economy and but a ruse to raise taxes.

The reader will note that I like to find at least 3 words to cover any topic. So in summary, while it is just good business and common sense to minimize our carbon footprint, Cap and Trade is protectionist, punitive and pisses me off.


Click here for more information about Confessions of an Energy Price Forecaster: A 12 Step Program to Enlightenment

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