The Folly of Cap-and-Trade

By Brian Anderson, Contributing Editor

The intensity of the discourse on health care reform has thus far overshadowed the discussion on another liberal agenda item: cap-and-trade. Like health care reform, cap-and-trade proposals would have an adverse affect on all Americans, particularly low income and middle income households.  

Cap-and-trade is a major agenda item for the left. It is a scheme to reduce CO2 emissions by capping the amount of CO2 that some sectors of the economy emit each year in an effort to curb global warming. Each year, the government would award companies in carbon emitting industries, such as energy and manufacturing, emission credits that could be bought, sold, and traded to other companies. Each credit would represent a given amount of CO2 that the company could emit that year. The premise on which cap-and-trade is based, however, is highly controversial and the outcomes of cap-and-trade would have negligible reductions in CO2 and harm low income and middle income households.  

Numerous scientists, including the notable hurricane forecaster Dr. Richard Pielke of Colorado State University and Atmospheric Science professor Dr. Richard Linzen of MIT, reject the notion that CO2 emissions due to human activity have had an alarming impact on global temperatures. Yet, in its bid to appease environmental special interest groups like the Sierra Club, the left is determined to pass legislation that would limit productivity in the United States’ carbon-based economy.  

Energy that emits carbon dioxide (CO2) fuels the vehicles that most Americans drive provides electricity from coal powered electrical plants, and performs various other functions in the economy. Capping the amount of Co2 that companies emit each year would increase the cost of energy and other goods and services indirectly tied to energy. The goal of cap-and-trade legislation is to reduce CO2 emissions by a certain percentage, around two percent, each year until the economy transitions from a carbon-based economy into an alternative energy economy.

Basic laws of economics suggest that capping the amount of production in an industry would increase the price of the goods produced in that industry. It’s supply and demand economics. In the energy sector, the supply of energy would drop under cap-and-trade while the demand would increase. Energy companies would increase the price of energy to compensate for the decrease in revenue due to the government-imposed cap on production. The price increase would have a disproportional affect on low income and middle income households.  

In a March 12, 2009 testimony before the US House of Representatives Subcommittee on Income Security and Family Support, Congressional Budget Office Senior Advisor Terry M. Dinan, an advocate of human-caused global warming and proponent of cap-and-trade legislation, stated that “price increases would impose a larger burden on low- and moderate-income households than on higher-income households, relative to either their income or total spending.” Dinan suggested later in the testimony that the increased costs of energy could be offset by fiscal policies like reductions in taxes or by a tax credit; which is another way to say that whoever the government deems to be wealthy would bear the burden of the increased costs of cap-and-trade. Dinan went on to imply that increased energy prices would necessarily force energy consumers to change their behavior and seek alternative energy. If this sounds familiar, then presidential candidate Barack Obama said that “electricity rates would necessarily skyrocket” under his cap-and-trade plan during an interview with the San Francisco Chronicle.   

Dinan’s testimony makes perfect sense to those who believe that global temperatures will continue to rise to catastrophic levels unless humans curb CO2 emissions. As the evidence against human-caused global warming continues to accumulate and the debate heats up, however, countless scientists and others who believe that human activity plays an insignificant role in global climate change feel that cap-and-trade legislation is unnecessary and destructive public policy. In addition to the direct costs of increased utility and gasoline prices there are indirect costs that will increase as well. For example, companies that rely on gasoline to transport goods and services will shift their energy cost increase to consumers (i.e. grocery stores). The impending inflation from the federal bailout programs and other spending will be bad enough but coupling it with inflation due to cap-and-trade would be catastrophic to low income and middle income families.  

Cap-and-trade is another example of big government interfering with the private sector and mandating how private industries and citizens should behave. Instead of imposing cap-and-trade on the private sector, the government apparatus in Washington D.C. should lift restrictions on oil drilling and oil production while simultaneously encouraging alternative energy production via low pollution methods such as nuclear power plants and natural gas. Doing so would decrease the cost of energy for all income brackets.  

On June 25, 2009 the Heritage Foundation released a short video that sums up the misconceptions about the impact of CO2 on climate change.