A series of articles follow on the cap and trade issue now in the Senate. Incredibly important decisions are being made that could drive our country into poverty. People need to know about this.
Industries Allied to Cap Carbon Differ On the Details
By JAD MOUAWAD
02 June, 2008
The New York Times
Some of the most powerful corporate leaders in America have been meeting regularly with leading environmental groups in a conference room in downtown Washington for over two years to work on proposals for a national policy to limit carbon emissions.
The discussions have often been tense. Pinned on a wall, a large handmade poster with Rolling Stones lyrics reminds everyone, ''You can't always get what you want.''
What unites these two groups -- business executives from Duke Energy, the Ford Motor Company and ConocoPhillips, as well as heads of environmental organizations like the Natural Resources Defense Council -- is a desire to deal with climate change. They have broken with much of corporate America to declare that it is time for the federal government to act and set mandatory limits on emissions.
What divides them is that dealing with climate change will almost certainly hurt some industries and enrich others. Billions of dollars are at stake. Depending on how the nation decides to tackle the problem, electricity bills in some states could rise 50 percent, and gasoline prices could go up 50 cents a gallon.
''It's really now a battle over the economics,'' said James E. Rogers, chief executive of Duke Energy, who has long advocated curbing carbon emissions. ''The debate is not about the climate problem. Everybody could agree on the principles and still get the economics wrong.''
The Senate is to vote Monday to kick off a weeklong discussion on carbon limits. But the intense debates under way already illustrate just how hard it will be for Congress to satisfy conflicting business interests while coming up with a global-warming plan that works.
Opposition from corporate interests, including oil, gas and power companies, prompted the Bush administration to opt out of the Kyoto Protocol, a treaty that called on developed countries to limit their emissions.
The Senate voted 95-0 not to adopt the Kyoto treaty in 1997. You can't count on the New York Times to tell the truth about simple well established facts. The above statement is a flat out lie.
" Resolved, That it is the sense of the Senate that--
(1) the United States should not be a signatory to any protocol to, or other agreement regarding, the United Nations Framework Convention on Climate Change of 1992, at negotiations in Kyoto in December 1997, or thereafter, ..."
nationalcenter.org
But the political winds have shifted. All three presidential candidates have said they favor mandatory curbs on emissions, and the Democratic majority in Congress wants a strong climate policy. The Senate debate could help set parameters of future legislation, which many experts expect to see within two years.
Congress is considering a complicated approach that would set a limit, or cap, on emissions that would be reduced each year. It would also create emissions permits that large industrial companies, like oil refineries or power plants, would be required to use.
By putting a value on carbon dioxide, this cap-and-trade system would provide incentives for companies to reduce emissions. Experts say it could turn into one of the biggest markets in the world, estimated to be worth over $200 billion a year.
Thus far, climate policy has been slowly shaped by states like California and Massachusetts, with others following. The resulting patchwork of policies has created uncertainty for companies, some of which have recognized that federal system to limit carbon is ultimately unavoidable.
''If they are not at the table, they will not have a hand in the making of the regulation,'' said Robert N. Stavins, director of the environmental economics program at Harvard University.
That recognition led to the Climate Action Partnership, the Washington group, in which corporate behemoths and environmental groups have been debating climate policy for over two years, sometimes meeting every week, in order to force the issue.
In January 2007, the eclectic group endorsed a bold national policy that called for reduction in carbon dioxide emissions of 60 percent to 80 percent by 2050, an aggressive target that is in line with recommendations from an international panel of scientists. But the group, which now has 33 members, has failed to reach consensus on a variety of issues, including how to allocate carbon permits and whether to include a price cap for carbon credits.
This dramatic reduction would be a self-inflicted catastrophe for our economy.
''They helped crystallize the concerns about climate,'' said David G. Victor, the director of the energy and sustainable development program at Stanford University and an expert on climate policy who has been closely following the debates. ''But the moment the coalition starts to focus on the details, it starts breaking apart. It's a litmus test for the debate in the country.''
The sharpest battle lines have been drawn over the structure of a cap-and-trade system. This mostly centers on whether carbon allocations -- or pollution permits, as some see them -- should be granted to companies or auctioned off.
Under one proposal, Congress would give away about half the allowances to businesses like power plants and oil companies, but also to states and farmers, in order to give time for them to adapt to lower-carbon technologies. Over time, it would gradually sell the rest to the highest bidder, raising money for developing alternative energy sources.
The bill, sponsored by Senators Joseph I. Lieberman, an independent, and John W. Warner, a Republican, passed a crucial vote in a committee last December and will be debated on the Senate floor this week.
Under a similar emissions-trading system in Europe, carbon currently trades at around 26.45 euros a ton, or about $41. At that price, the value of the carbon credits would be about $220 billion in the first year alone.
The debate over who gets carbon credits is particularly intense in the power sector, which creates 40 percent of the nation's carbon emissions.
Companies that rely on coal to generate power say that allowances should be free so that customers in the Midwest and the Great Plains, where coal is mostly used, are not disproportionately penalized. Coal accounts for half the nation's power generation, and executives like Mr. Rogers of Duke say these customers should not have to bear the brunt of a national climate policy.
But not everyone wants to see allowances doled out free, especially among power producers that are less dependent on coal than Duke. Lewis Hay III, chairman of FPL Group, a Florida power company, says carbon emitters should have to pay for their emissions.
''There is just going to be a giant fight over the free allowances,'' he said.
Oil companies are also unhappy with the Senate plan. Although the transportation sector represents around 35 percent of the nation's carbon emissions, oil companies and refiners -- which fuel that sector -- would be granted just 4 percent of total allowances. That would force them to buy carbon credits, which would drive up the price of gasoline and diesel fuels.
Oh boy! And when fuel prices go up, the Senators will bring in the oil execs and shout at them.
At a time of sharply rising prices, oil executives say this is not the best way to reduce carbon emissions. Better, they argue, to raise fuel efficiency requirements directly or set up a low-carbon fuel standard.
The other big fight splitting corporations and environmental groups is whether to set a maximum price on carbon credits.
Many environmental groups oppose this, fearing it might jeopardize the ultimate goal, which is to reduce emissions. They say that if the price is artificially kept too low, companies would have fewer incentives to cut emissions.
But business groups say a ceiling would keep prices from skyrocketing. Some fear that higher energy costs would reduce companies' ability to compete globally and could drive jobs to countries that do not limit carbon. John Engler, president of the National Association of Manufacturers, said the climate bill amounted to ''economic disarmament.''
We don't import enough from China now. Let's just move all our manufacturing there. We will have no carbon emissions for manufacturing. They'll have a lot more because their industry is far dirtier. But there's doesn't count.
As the fight escalates, trade groups are planning ad campaigns to make their case against a climate policy. One ad, produced by the United States Chamber of Commerce, shows a man cooking breakfast over candles in a cold, darkened house, then jogging to work on empty highways, asking: ''Is it really how Americans want to live?''
Setting a price for carbon will raise energy costs throughout the economy, experts said. The Environmental Protection Agency estimated recently that a cap-and-trade bill could reduce gross domestic product by 0.9 percent to 3.8 percent by 2050.
''The reality is that cutting emissions is going to cost money,'' said Peter C. Fusaro, chairman of Global Change Associates, an energy and environmental consulting firm.
PHOTOS: Watchdog groups often single out the Four Corners site in New Mexico, which burns coal, as an egregious polluter. (PHOTOGRAPHS BY PAUL FOY/ASSOCIATED PRESS) (pg.C1); The transportation sector makes up a third of carbon emissions in the United States. Ford and ConocoPhillips are among the companies trying to shape plans for federal limits on carbon. (PHOTOGRAPH BY JAMIE RECTOR/BLOOMBERG NEWS) (pg.C2)
Cap and Spend
02 June, 2008
The Wall Street Journal
As the Senate opens debate on its mammoth carbon regulation program this week, the phrase of the hour is "cap and trade." This sounds innocuous enough. But anyone who looks at the legislative details will quickly see that a better description is cap and spend. This is easily the largest income redistribution scheme since the income tax.
Sponsored by Joe Lieberman and John Warner, the bill would put a cap on carbon emissions that gets lowered every year. But to ease the pain and allow for economic adjustment, the bill would dole out "allowances" under the cap that would stand for the right to emit greenhouse gases. Senator Barbara Boxer has introduced a package of manager's amendments that mandates total carbon reductions of 66% by 2050, while earmarking the allowances.
When cap and trade has been used in the past, such as to reduce acid rain, the allowances were usually distributed for free. A major difference this time is that the allowances will be auctioned off to covered businesses, which means imposing an upfront tax before the trade half of cap and trade even begins. It also means a gigantic revenue windfall for Congress.
Ms. Boxer expects to scoop up auction revenues of some $3.32 trillion by 2050. Yes, that's trillion. Her friends in Congress are already salivating over this new pot of gold. The way Congress works, the most vicious floor fights won't be over whether this is a useful tax to create, but over who gets what portion of the spoils. In a conference call with reporters last Thursday, Massachusetts Senator John Kerry explained that he was disturbed by the effects of global warming on "crustaceans" and so would be pursuing changes to ensure that New England lobsters benefit from some of the loot.
Of course most of the money will go to human constituencies, especially those with the most political clout. In the Boxer plan, revenues are allocated down to the last dime over the next half-century. Thus $802 billion would go for "relief" for low-income taxpayers, to offset the higher cost of lighting homes or driving cars. Ms. Boxer will judge if you earn too much to qualify.
There's also $190 billion to fund training for "green-collar jobs," which are supposed to replace the jobs that will be lost in carbon-emitting industries. Another $288 billion would go to "wildlife adaptation," whatever that means, and another $237 billion to the states for the same goal. Some $342 billion would be spent on international aid, $171 billion for mass transit, and untold billions for alternative energy and research -- and we're just starting.
Ms. Boxer would only auction about half of the carbon allowances; she reserves the rest for politically favored supplicants. These groups might be Indian tribes (big campaign donors!), or states rewarded for "taking the lead" on emissions reductions like Ms. Boxer's California. Those lucky winners would be able to sell those allowances for cash. The Senator estimates that the value of the handouts totals $3.42 trillion. For those keeping track, that's more than $6.7 trillion in revenue handouts so far.
The bill also tries to buy off businesses that might otherwise try to defeat the legislation. Thus carbon-heavy manufacturers like steel and cement will get $213 billion "to help them adjust," while fossil-fuel utilities will get $307 billion in "transition assistance." No less than $34 billion is headed to oil refiners. Given that all of these folks have powerful Senate friends, they will probably extract a larger ransom if cap and trade ever does become law.
If Congress is really going to impose this carbon tax in the name of saving mankind, the least it should do is forego all of this political largesse. In return for this new tax, Congress should cut taxes elsewhere to make the bill revenue neutral. A "tax swap" would offset the deadweight taxes that impede growth and reduce employment. All the more so because even the cap-and-trade friendly Environmental Protection Agency estimates that the bill would reduce GDP between $1 trillion and $2.8 trillion by 2050.
Most liberal economists favor using the money to reduce the payroll tax. That has the disadvantage politically of adding Social Security into the debate. A cleaner tax swap would compensate for the new tax on business by cutting taxes on investment -- such as slashing the 35% U.S. corporate rate that is the second highest in the developed world. Then there's the 2001 and 2003 tax cuts, which are set to expire in 2010 and would raise the overall tax burden by $2.8 trillion over the next decade. Democrats who want to raise taxes on capital gains and dividends are proposing a double tax wallop by embracing Warner-Lieberman-Boxer.
All of this helps explain why so many in Congress are so enamored of "doing something" about global warming. They would lay claim to a vast new chunk of the private economy and enhance their own political power.
Just Call It 'Cap-and-Tax'; __
Robert J. Samuelson
02 June, 2008
The Washington Post
We'll have to discard the old adage "Everyone talks about the weather, but no one does anything about it." It is inoperative in this era of global warming, because the whole point of controlling greenhouse gas emissions is to do something about the weather. This promises to be hard and perhaps futile, but there are good and bad ways of attempting it. One of the bad ways is cap-and-trade. Unfortunately, it's the darling of environmental groups and their political allies.
The chief political virtue of cap-and-trade -- a complex scheme to reduce greenhouse gases -- is its complexity. This allows its environmental supporters to shape public perceptions in essentially deceptive ways. Cap-and-trade would act as a tax, but it's not described as a tax. It would regulate economic activity, but it's promoted as a "free market" mechanism. Finally, it would trigger a tidal wave of influence-peddling, as lobbyists scrambled to exploit the system for different industries and localities. This would undermine whatever abstract advantages the system has.
The Senate is scheduled to begin debating a cap-and-trade proposal today, and although it's unlikely to pass, the concept will return because all the major presidential candidates support it. Cap-and-trade extends the long government tradition of proclaiming lofty goals that are impossible to achieve. We've had "wars" against poverty, cancer and drugs, but poverty, cancer and drugs remain. President Bush called his landmark education law No Child Left Behind rather than the more plausible Few Children Left Behind.
Carbon-based fuels (oil, coal, natural gas) provide about 85 percent of U.S. energy and generate most greenhouse gases. So, the simplest way to stop these emissions is to regulate them out of existence. Naturally, that's what cap-and-trade does. Companies could emit greenhouse gases only if they had annual "allowances" -- quotas -- issued by the government. The allowances would gradually decline. That's the "cap." Companies (utilities, oil refineries) that needed extra allowances could buy them from companies willing to sell. That's the "trade."
In one bill, the 2030 cap on greenhouse gases would be 35 percent below the 2005 level and 44 percent below the level projected without any restrictions. By 2050, U.S. greenhouse gases would be rapidly vanishing. Even better, their disappearance would allegedly be painless. Reviewing five economic models, the Environmental Defense Fund asserts that the cuts can be achieved "without significant adverse consequences to the economy." Fuel prices would rise, but because people would use less energy, the impact on household budgets would be modest.
This is mostly make-believe. If we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions. If coal is reduced, then conservation or non-fossil-fuel sources will take its place. But in the real world, if coal-fired power plants are canceled (as many were last year), wind or nuclear won't automatically substitute. If the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil.
As emission cuts deepened, the danger of disruptions would mount. Population increases alone raise energy demand. From 2006 to 2030, the U.S. population will grow 22 percent (to 366 million) and the number of housing units 25 percent (to 141 million), the Energy Information Administration projects. The idea that higher fuel prices will be offset mostly by lower consumption is, at best, optimistic. The Congressional Budget Office has estimated that a 15 percent cut of emissions would raise average household energy costs by almost $1,300 a year.
That's how cap-and-trade would tax most Americans. As "allowances" became scarcer, their price would rise, and the extra cost would be passed along to customers. Meanwhile, government would expand enormously. It could sell the allowances and spend the proceeds; or it could give them away, providing a windfall to recipients. The Senate proposal does both to the tune of about $1 trillion from 2012 to 2018. Beneficiaries would include farmers, Indian tribes, new technology companies, utilities and states. Call this "environmental pork," and it would just be a start. The program's potential to confer subsidies and preferential treatment would stimulate a lobbying frenzy. Think of today's farm programs -- and multiply by 10.
Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down. It wouldn't permit satisfactory economic growth. But if we're going to try to stimulate new technologies through price, let's do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable. If environmentalists still prefer an allowance system, let's call it by its proper name: cap-and-tax.
Carbon's Power Brokers
George F. Will
01 June, 2008
The Washington Post
An unprecedentedly radical government grab for control of the American economy will be debated this week when the Senate considers saving the planet by means of a cap-and-trade system to ration carbon emissions. The plan is co-authored (with John Warner) by Joe Lieberman, an ardent supporter of John McCain, who supports Lieberman's legislation and recently spoke about "the central facts of rising temperatures, rising waters and all the endless troubles that global warming will bring."
Speaking of endless troubles, "cap-and-trade" comes cloaked in reassuring rhetoric about the government merely creating a market, but government actually would create a scarcity so that government could sell what it had made scarce. The Wall Street Journal underestimates cap-and-trade's perniciousness when it says the scheme would create a new right ("allowances") to produce carbon dioxide and would put a price on the right. Actually, because freedom is the silence of the law, that right has always existed in the absence of prohibitions. With cap-and-trade, government would create a right for itself -- an extraordinarily lucrative right to ration Americans' exercise of their traditional rights.
Businesses with unused emission allowances could sell their surpluses to businesses that exceed their allowances. The more expensive and constraining the allowances, the more money government would gain.
If carbon emissions are the planetary menace that the political class suddenly says they are, why not a straightforward tax on fossil fuels based on each fuel's carbon content? This would have none of the enormous administrative costs of the baroque cap-and-trade regime. And a carbon tax would avoid the uncertainties inseparable from cap-and-trade's government allocation of emission permits sector by sector, industry by industry. So a carbon tax would be a clear and candid incentive to adopt energy-saving and carbon-minimizing technologies. That is the problem.
A carbon tax would be too clear and candid for political comfort. It would clearly be what cap-and-trade deviously is, a tax, but one with a known cost. Therefore, taxpayers would demand a commensurate reduction of other taxes. Cap-and-trade -- government auctioning permits for businesses to continue to do business -- is a huge tax hidden in a bureaucratic labyrinth of opaque permit transactions.
The proper price of permits for carbon emissions should reflect the future warming costs of current emissions. That is bound to be a guess based on computer models built on guesses. Lieberman guesses that the market value of all permits would be "about $7 trillion by 2050." Will that staggering sum pay for a $7 trillion reduction of other taxes? Not exactly.
It would go to a Climate Change Credit Corporation, which Lieberman calls "a private-public entity" that, operating outside the budget process, would invest "in many things." This would be industrial policy, a.k.a. socialism, on a grand scale -- government picking winners and losers, all of whom will have powerful incentives to invest in lobbyists to influence government's thousands of new wealth-allocating decisions.
Lieberman's legislation also would create a Carbon Market Efficiency Board empowered to "provide allowances and alter demands" in response to "an impact that is much more onerous" than expected. And Lieberman says that if a foreign company selling a product in America "enjoys a price advantage over an American competitor" because the American firm has had to comply with the cap-and-trade regime, "we will impose a fee" on the foreign company "to equalize the price." Protectionism-masquerading-as-environmentalism will thicken the unsavory entanglement of commercial life and political life.
McCain, who supports Lieberman's unprecedented expansion of government's regulatory reach, is the scourge of all lobbyists (other than those employed by his campaign). But cap-and-trade would be a bonanza for K Street, the lobbyists' habitat, because it would vastly deepen and broaden the upside benefits and downside risks that the government's choices mean for businesses.
McCain, the political hygienist, is eager to reduce the amount of money in politics. But cap-and-trade, by hugely increasing the amount of politics in the allocation of money, would guarantee a surge of money into politics.
Regarding McCain's "central facts," the U.N.'s World Meteorological Organization, which helped establish the Intergovernmental Panel on Climate Change -- co-winner, with Al Gore, of the Nobel Peace Prize -- says global temperatures have not risen in a decade. So Congress might be arriving late at the save-the-planet party. Better late than never? No. When government, ever eager to expand its grip on the governed and their wealth, manufactures hysteria as an excuse for doing so, then: better never. |
