Cap and Trade Mirage

Larry Holterman

On January 17, 2008 Obama said “under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket.” The Democrats are now trying to make good on that promise. In October, 2009 an Environmental Protection Agency (EPA) analysis showed the Midwest, Great Plains, and Southern states would bear the heaviest costs of cap-and-trade while the east and west coasts would get the most federal help. An October story in the Washington Times said the allocation of allowances in the bill that passed the House of Representatives would create “a big windfall” for utility investors in the coastal states. 

Wisconsin will be a big loser under the Democrat’s plan. California and New York will be the big winners. California is home for the primary House author, Henry Waxman, and the primary Senate author Barbara Boxer. California will receive allowances of 99 million tons of CO2 to cover their estimated 87 million tons of emissions. That will make them a 12 million ton emissions winner. Wisconsin will be allocated 39 million tons of CO2 to cover our estimated 55 million tons of emissions. Wisconsin will be a16 tons of emissions loser and we will pay dearly for that.

What do we get in exchange for the cap-and-trade legislation the Democrats are proposing? The National Rural Electric Cooperative Association reports the computer models that are the basis for predictions of human-induced global warming say the proposed cap-and-trade emission cuts would prevent global warming to the tune of nine one-hundredths of one degree, Fahrenheit, by 2050. In July, NASA scientist James Hansen, whose 1988 congressional testimony arguably launched the global warming movement, wrote that the Waxman-Markey bill is a “counterfeit climate bill” and a “monstrous absurdity.” The bill “locks in fossil fuel business-as-usual and garlands it with a Ponzi-like cap and trade scheme,” Hanson wrote, branding  the measure “an astoundingly inefficient way to get a tiny reduction of emissions.”

Estimates of the cap-and-trade legislation done by the Congressional Budget Office (CBO) only look at 2020. It assumes unimpeded expansion of nuclear generation that will never happen in today’s political environment. The CBO admits it ignored the costs of higher energy prices shrinking gross domestic product (GDP) in its estimates. A footnote in the CBO Report says, “The resource cost does not include the potential decrease in GDP that could result from the cap.” What will the decrease in the GDP be that the CBO does not include? The Heritage Foundation estimates cap-and-trade will result in a $161 billion reduction in GDP by 2020. They estimate the average family of four will pay $1870 more per year in energy costs. Imagine what that means for businesses and farmers, and for the states like Wisconsin that exceed their cap. The Energy Information Administration (EIA), part of the U.S. Department of Energy, said Waxman-Markey would reduce industrial output by 2.5% as well as overall employment, even under a best case scenario. EIA said industrial shipments could drop 7% if there is little success in expanding nuclear power low-emission technology.  

Supporters of the climate bill passed by the House and the similar bill under consideration in the Senate say that the cap-and-trade approach would guarantee greenhouse-gas reductions. But this claim ignores the flaws inherent in both bills that would undermine their emissions-reduction targets. Laurie Williams and Allan Zabel, lawyers with the Environmental Protection Agency, but expressing the following views as private citizens, have written about offsets. They state offsets, considered indispensable to keeping cap-and-trade affordable, are supposed to be "additional" reductions beyond what is legally required. But experience with offsets in Europe and California has shown that ensuring real "additionality" is not an achievable goal. They considered the refrigerant HCFC-22, the manufacture of which creates an extremely powerful greenhouse gas as a byproduct. This byproduct is relatively easy and cheap to destroy, and governments could require refrigerant manufacturers to do just that. But offset investors have persuaded regulators to approve destruction of the byproduct as a carbon offset, making it twice as profitable to sell byproduct destruction, as it was to sell the refrigerant. Others have even fought to keep release of this byproduct legal because, otherwise, destruction of the byproduct would no longer produce offsets as it would no longer be "additional." The situation also creates incentive for some to make unneeded refrigerant to profit from byproduct offsets. The climate bills are riddled with these types of problems. It creates winners and losers and unfortunately, Wisconsin is a loser.

Supporters say that government spending on so-called green jobs will stop the decline in employment. Representative Jim Sensenbrenner wrote an editorial about green jobs in Spain. The Spanish government dumped $1.6 billion into green jobs last year and trumpeted 200,000 new jobs it said the subsidies created. But a study done by an economist at Rey Juan Carlos University in Madrid found that for every job created through green job subsidies, 2.2 jobs were lost in other sectors. Spanish taxpayers had to pay for each green job, most of which proved to be temporary construction jobs. Representative Sensenbrenner further wrote that cap-and-trade isn’t the law yet but carbon emissions dropped 6% this year as a result of the recession.  The Senate’s goal is 20%. Senator Kerry said: “We are effectively saying we need to go another 14%.” A bill like the one the Democrats are pushing just might get us there based on a study of the house bill that projects a loss of 2.4 million jobs under cap-and-trade by 2030. 

The House and Senate climate bills would give away valuable rights in cap-and-trade permits and create a trillion-dollar carbon-offsets market that will not lead to the promised reductions. Together, the illusion of greenhouse-gas reductions and the creation of powerful lobbies seeking to protect newly created profits in permits and offsets will not lead to climate improvements.

Please contact your representatives and ask them to vote against this damaging legislation.