Emissions trading (also known as cap and trade) is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants A central authority (usually a governmental body) sets a limit or cap on the amount of a pollutant that can be emitted. The limit or cap is allocated or sold to firms in the form of emissions permits which represent the right to emit or discharge a specific volume of the specified pollutant. Firms are required to hold a number of permits (or credits) equivalent to their emissions. The total number of permits cannot exceed the cap, limiting total emissions to that level. Firms that need to increase their emission permits must buy permits from those who require fewer permits. The transfer of permits is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. Thus, in theory, those who can reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest cost to society. There are active trading programs in several air pollutants. For greenhouse gases the largest is the European Union Emission Trading Scheme.
On June 26, 2009, the House of Representatives passed the Waxman – Markey bill which would have enacted a cap and trade scheme here in our country. Fortunately, the bill did not pass the Senate and right now appears to be dead.
If it had passed there would have been limits placed on the amount of carbon dioxide that could be emitted by various businesses with the objective of reducing the carbon dioxide in the atmosphere. Analysis by the Environmental Protection Agency (EPA) shows that a 60 percent reduction in CO2 emissions by 2050 will reduce CO2 concentrations by only 25 ppm in 2095. This reduction would affect world temperatures by 0.1 to 0.2 degrees C. In other words, it would make virtually no difference. Even though the reduction in CO2
is the published reason for this bill there must be some other reason for doing this for the bill does not accomplish that.
The Heritage Foundation has analyzed the Waxman-Markey bill and provides the following comments. ―Implementing a cap-and-trade program to cut emissions by 70 percent creates a transfer within the United States that is equivalent to taxes on the order of $250
billion to $300 billion per year, just for the years 2012 to 2030. The combined transfer is about $5 trillion in just the first 20 years.
This takes the purchasing power from the households and turns it over to the federal government or to whomever the government assigns the rights to the permits for emissions (allowances). This would be one of the largest taxes in the economy--almost twice as large as the highway use taxes‖.
They further state: ―Our analytical models are not suited to making projections beyond 2030. Nevertheless, the economic impacts of this cap-and-trade program in just the first two decades were extraordinary. The estimated aggregate losses to Gross Domestic Product (GDP), adjusted for inflation, are $4.8 trillion. By 2029 the job losses in the manufacturing sector will be nearly 3 million.
Because the transfer, in this case, is similar in magnitude to the lost GDP, we need to be clear on the distinction. A cap-and-trade program with an emissions reduction profile similar to that of last year's Lieberman-Warner bill, will cause an aggregate $5 trillion of transfers after it destroys $4.8 trillion of national income (GDP).
―In colloquial terms, the pie gets smaller by nearly $5 trillion and then a $5 trillion piece is cut out and redistributed.
―There are other problems associated with this. Cap-and-trade programs frequently include provisions to protect domestic industries from competition with firms in countries that have not adopted similarly costly mechanisms for reducing CO2. While the intent is certainly understandable, the provisions create the possibility of a protectionist wolf in global-warming clothes.
―Putting these protectionist policies into operation is a bureaucratic nightmare. Every product from every country will need to be judged to determine the level of advantage it may have due to different carbon-cutting regimes. Since different countries can have different approaches and since different manufacturers can use different technologies and processes, assigning an offsetting CO2 tariff will necessarily involve arbitrary decisions. The potential for a trade war is very real‖.
―The Center for Data Analysis at The Heritage Foundation analyzed a proposal to cut CO2 emissions by 70 percent. Such a cut would 15
have little impact on global temperatures. At best, the trade-off is trillions of dollars in lost income and hundreds of thousands of lost jobs‖ .
There are also the costs of this Cap and Trade scheme. Last week, the Congressional Budget Office released their analysis of the Waxman-Markey climate change bill that had proponents of the bill claiming we could save the planet for just $175 per household.
That was the figure CBO estimated cap and trade would cost households in 2020, which ―includes the cost of restructuring the production and use of energy and of payments made to foreign entities under the program, but it does not include the economic benefits and other benefits of the reduction in greenhouse gas emissions and the associated slowing of climate change.‖
The Heritage Foundation assessment continues. ―The trouble with the analysis is that costs are grossly underestimated. The trouble with legislation is that it will have virtually no impact on climate.
Overall, there are a number of basic problems with CBO‘s analysis:
• Their allowance cost numbers don‘t add up. They say the allowance price will be $28. Since there are 5.056 billion tons of CO2
equivalent in the cap that year, that implies a $141 billion gross cost. They list 91.4.. In the CBO‘s June 5 analysis of Waxman-Markey, they projected allowance revenues of $119.7 billion, 129.7 billion, $136 billion, $145.6 billion, and $152.9 billion for the years 2015 to 2019. It‘s hard to believe that the next number in that series would be $91.4 billion.
• They assume that spending/distribution of allowance revenue is dollar-for-dollar equivalent to a direct cash rebate to energy consumers. That is, the carbon tax isn‘t a tax if the government spends the money. When have Americans ever seen all of a tax returned to them? It‘s like suggesting your tax rebate will be as large as the amount taken from your paycheck every year.
• Most problematic is their complete omission of economic damage from restricting energy use. Footnote three on page four reads,
―The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap. The reduction in GDP would also include indirect general equilibrium effects, such as changes in the labor supply resulting from reductions in real wages and potential reductions in the productivity of capital and labor.‖ That‘s a pretty big chunk of change to ignore. In The Heritage Foundation‘s analysis of the Waxman-Markey climate change legislation, the GDP hit in 2020 was $161
billion (2009 dollars). For a family of four, that is $1,870 that they ignore.
―It‘s also worth noting that 2020 had the second lowest GDP loss of the 24 years we analyzed. For all years the average was $393
billion or over double the hit in 2020. In 2035 (the last year analyzed by Heritage) the lost GDP works out to $6,790 per family of four and that is before they pay their $4,600 share of the carbon taxes (again, costs are adjusted for inflation to reflect 2009 prices).
Also telling, on page 5, the report says:
―The distribution of the gross cost of complying with the policy would be quite different if the price level did not increase as a result of the cap—if, for example, the Federal Reserve adjusted monetary policy to prevent such an increase. In that case, the compliance costs would fall on workers and investors in the form of lower wages and profits.
―So high inflation will help mask the pain (at least in 2020); however, it is doubtful the Fed would not act to try to keep inflation low especially if investors and international investors are getting hit. According to the CBO, then, this would cause workers and investors to be hit harder. But if investors are hit harder, they will invest less; therefore, there will be less capital and the potential GDP will be lower going forward than it would otherwise be. A lower potential GDP means fewer opportunities for future populations. (Note: The Heritage analysis assumes the Fed would use a Taylor type rule. The CBO inflation number in 2020 [0.7 increase in CPI] matches Heritage‘s exactly. Yet the CBO claims it assumes no action by they Fed, while Heritage does. )
―Furthermore, the CBO is misleading on the ―costs‖ estimates. They are comparing ―net costs‖ as those assuming the government did not recycle the revenue from allowances back to the consumers (the ―gross cost‖ of the allowance) to the ―net cost‖ of allowance that has been recycled. Their analysis is not a net cost to the economy in terms of the overall economic cost without a Waxman-Markey cap and trade bill versus the overall economic cost with Waxman-Markey. Our analysis measures the effects of cap and trade versus a baseline with no cap and trade legislation in place.
―Higher energy costs create a significantly slower economy and reduce America‘s growth potential. Heritage analysis finds that by 2035, a projected 2.5 million jobs are lost below the baseline (without a cap and trade bill). The average Gross Domestic Product (GDP) lost is $393 billion, hitting a high of $662 billion in 2035. The negative economic impacts accumulate, and the national debt is no exception. The increase in family-of-four debt, solely because of Waxman-Markey, hits an almost unbelievable $114,915 by 2035.
―Whatever the costs, we will get almost nothing in exchange. According to climatologist Chip Knappenberger, Waxman-Markey would moderate temperatures by only hundredths of a degree in 2050 and no more than two-tenths of a degree at the end of the century. This doesn‘t sound like a great deal for the next generation—millions of lost jobs, trillions of lost income, 50-90 percent higher energy prices, stunning increases in the national debt, and all for undetectable changes in world temperature.
―Farm income (after paying all expenses) is expected to drop $8 billion in 2012, $25 billion in 2024 and over $50 billion in 2035.
These are decreases of 28%, 60% and 94%, respectively.
―The average net income lost over the 2010-2035 timeline is $23 billion, which is a 57% decrease from the baseline. Construction costs of farm buildings will go up from the baseline by 5.5% in 2025 and 10% by 2034. By 2035, gasoline and diesel costs are expected to be 58% higher and electric rates 90% higher. ―No wonder agriculture groups are increasingly coming out against the 16
Waxman-Markey bill. They know agriculture is a target. They know that cap-and-trade promises to destroy their livelihoods. A bill of this magnitude deserves thoughtful consideration and debate. Instead, Speaker Pelosi is rushing it through Congress to ―the detriment of all of us,‖ says Ranking Member Frank Lucas.
―To date, 42 agriculture groups have written letters to members of Congress expressing opposition to the Waxman-Markey bill‖.
In 2007 Governor Arnold Schwarzenegger signed AB-32 which was California‘s version of ―Cap and Trade‖. The state auditing agency released on May 13 its study concluding, ‖California‘s economy at large will likely be adversely affected in the near term by implementing climate-related policies that are not adopted elsewhere‖. The study finds that AB 32 will raise energy prices, ―causing the prices of goods and services to rise; lowering business profits; and reducing production, income and jobs‖.
Senator James Inhofe (R-OK) has issued a statement concerning Waxman-Markey: ―EPA's Anti-Industrial Policy - Threatening Jobs and America's Manufacturing Base
―On that note, let‘s begin with the claim that Waxman-Markey will be an engine of job creation. First, there‘s no evidence that this will create an overall net gain of new jobs. Putting stress on ―net gain‖ is important here. Backers routinely claim the bill will create
―green‖ jobs in the renewable energy. That‘s true—there will be greater demand for solar panels and windmills. But that‘s only one side of the equation.
―The fact is that Waxman-Markey will destroy millions of manufacturing jobs, meaning that America will experience a net job loss.
Consider a recent analysis of Waxman-Markey by CRA International, commissioned by the National Black Chamber of Commerce.
The analysis found that, ―the number of these new ‗green jobs‘ will be lower than the number of the other jobs that [Waxman-Markey]
would destroy elsewhere in the economy.
―In total, Waxman-Markey would cause a net reduction of 2.3 million to 2.7 million jobs. In other words, on the one hand, we‘ll create some green jobs, but on the other, we‘ll destroy many more jobs. Take Spain as an example. According to a study from King Juan University in Madrid, every job in renewable energies created in Spain in the year 2000 has cost 571,138 Euros and has been the cause of the loss of 2.2 jobs elsewhere in the economy. Now the Democrats want to transfer that same logic to the United States. They want to use expanded government, bureaucracy and taxes to create jobs, while if the private sector could just go to work, 2.2 jobs could be created for every 1 job that is created by the government. In this economy, those numbers add up.
―Now let‘s take a closer look at the legislation. I think most Americans would find it curious that a bill that supposedly creates jobs contains provisions to help people who would lose their jobs because of the legislation. But here they are. Let me read the provisions to you.
―Title IV, Section B, Part 2, is called ―Climate Change Worker Adjustment Assistance.‖ Just beneath that is Sec. 425, called
―Petitions, Eligibility Requirements, And Determinations.‖ This provision allows workers to file for a ―certification of eligibility‖ as a group with the Department of Labor. These workers can apply for ―adjustment assistance,‖ subsequent to a hearing to determine if they are eligible.
―What does this mean? The authors of Waxman-Markey, through this provision, implicitly acknowledge that Waxman-Markey will destroy jobs. The ―adjustment‖ mentioned here is just a euphemism for the pink slip workers get when Waxman-Markey goes into effect. And then, through a laborious process, they can petition the federal government for taxpayer handouts.
―Now let‘s turn to Sec. 426, called ―Program Benefits.‖ This provision allows for payment of a ―climate change adjustment allowance‖ for an ―adversely worker.‖ The obvious question here is: ―adversely affected‖ by what? Well, by the bill, of course. This provision authorizes payment to these workers for a week of unemployment that ―shall equal 70% of the average weekly wage of that worker for a period of not longer than 156 weeks,‖ or 3 years. Again, this payment would be made because of the provisions of Waxman Markey. Let‘s read on. The bill provides job training benefits, including ―individual career counseling‖ and ―prevocational services,‖ defined as ―development of learning skills, communications skills, interviewing skills, punctuality, personal maintenance skills, and professional conduct to prepare individuals for employment or training.‖ But that‘s not all: workers may be eligible in certain circumstances for a one-time job search allowance up to $1,500, and for relocation assistance up to $1,500.
―What‘s going on here? Again, the authors of Waxman-Markey created an elaborate bureaucratic, taxpayer-funded social services program for people who lose their jobs because of Waxman-Markey.
―But isn‘t Waxman-Markey a jobs bill? Why would any of these big government programs be necessary if the bill is supposed to create jobs? The answer is simple: buried at the end of nearly 1,400 pages of taxes and mandates, we see the stark reality of this bill: it sends pink slips to workers and then promises the unemployed that they will get assistance from the government.
―So workers beware: Waxman-Markey is coming for you, and if you get caught, you‘ll be unemployed and standing in line hoping that the federal government keeps you whole‖.
The Waxman – Markey bill seems to be dead but it is important to realize what these Democrat- environmentalists are willing to do.
Their agenda shows no concern over the economic damages it would cause and there is also very little benefit even if global warming and carbon dioxide production is considered to be a problem. Naturally, since those things are not a problem there is absolutely no benefit from it but the disastrous effects of the bill lead us to wonder what the real effect is. Are they on our side or are they trying to 17
destroy our economy or do they have a loose screw somewhere?
The other reason for considering the Waxman – Markey bill is that the Obama administration has another means of accomplishing the essential parts of the bill. In 2007, the U.S. Supreme Court handed down perhaps the most significant decision ever reached in environmental law. The Court ruled that the Clean Air Act, the landmark 1970 law aimed at protecting our air, is written to include greenhouse gas pollution. On April 17, 2010 Jackson's EPA issued an endangerment finding on greenhouse gases, concluding that carbon dioxide and other emissions posed a threat to public health and welfare. That potentially opens the door for the EPA to directly regulate greenhouse gases, which would represent the most far-reaching action in the agency's history.
Today's announcement by EPA Administrator Lisa Jackson that the Environmental Protection Agency is proposing to regulate greenhouse gas emissions (GHGs) from factories, utilities and refineries is a big deal. The proposed rule would require new businesses and businesses that modify their operations and that emit 25,000 or more tons of GHGs annually to adopt what is called "Best Available Control Technology" to control those emissions. Jackson's actions are the direct result of Massachusetts v. EPA. In that case, the U.S. Supreme Court held that the Bush Administration's failure to regulate greenhouse gas emissions under the Clean Air Act wasn't justified. The Obama Administration has responded to the Mass v. EPA case by announcing that it will regulate greenhouse gas emissions under the Clean Air Act. Today's newly proposed rule is one step toward what is likely to be much more extensive regulations aimed not just at new businesses that emit large amounts of greenhouse gases but also at existing ones.
So, the Waxman – Markey bill may be dead but the EPA is going to try to use regulations to institute the main points in the bill.
The conclusion is that a Cap and Trade scheme would cause serious damage to our economy, add huge taxes to the country, have very little effect on carbon dioxide emissions and would greatly benefit a few companies and individuals that were involved in the trading of carbon emissions.
All of this in the planned alarm over a non-existent problem that is caused by a beneficial gas that has been erroneously demonized to harm many and to
benefit a few. Hoax seems to be an accurate term to apply to the carbon dioxide scare.