Free Markets, Free People

Cap & Trade: Even More Expensive Than Thought

Sometimes math is actually pretty easy. For example, when someone, say some MIT professors, writes a report claiming that a tax on certain businesses will raise a specific amount of revenue for the government (\$366 Billion to be exact), and that revenue is divided by an estimated number of American households (117 Million), there isn’t any doubt about how much money per household that tax represents (\$366 b./117 m. = \$3,128.21). Unless, that is, there are politics involved. Then the math becomes Bistromathic, which allows one of the progenitors of the original numbers to declare “you’re doing it wrong!” and almost everyone will believe him. Unfortunately for them, real math operates on real facts, and thus reality is destined to intrude upon their fantasy.

That, in a nutshell, is basically how the argument over costs of the Obama Administration’s cap and trade policy has unfolded. MIT’s John Reilly co-authored the original study, Republicans used the numbers to derive a cost per taxpayer, Reilly balked, and the media/leftosphere went into paroxysms of outrage about how the GOP were all a bunch of liars. But that was just the main course. For dessert, there will be crow (my emphasis):

During a lengthy email exchange last week with THE WEEKLY STANDARD, MIT professor John Reilly admitted that his original estimate of cap and trade’s cost was inaccurate. The annual cost would be “\$800 per household”, he wrote. “I made a boneheaded mistake in an excel spread sheet. I have sent a new letter to Republicans correcting my error (and to others).”

While \$800 is significantly more than Reilly’s original estimate of \$215 (not to mention more than Obama’s middle-class tax cut), it turns out that Reilly is still low-balling the cost of cap and trade by using some fuzzy logic. In reality, cap and trade could cost the average household more than \$3,900 per year.

The \$800 paid annually per household is merely the “cost to the economy [that] involves all those actions people have to take to reduce their use of fossil fuels or find ways to use them without releasing [Green House Gases],” Reilly wrote. “So that might involve spending money on insulating your home, or buying a more expensive hybrid vehicle to drive, or electric utilities substituting gas (or wind, nuclear, or solar) instead of coal in power generation, or industry investing in more efficient motors or production processes, etc. with all of these things ending up reflected in the costs of good and services in the economy.”

In other words, Reilly estimates that “the amount of tax collected” through companies would equal \$3,128 per household–and “Those costs do get passed to consumers and income earners in one way or another”–but those costs have “nothing to do with the real cost” to the economy. Reilly assumes that the \$3,128 will be “returned” to each household. Without that assumption, Reilly wrote, “the cost would then be the Republican estimate [\$3,128] plus the cost I estimate [\$800].”

In Reilly’s view, the \$3,128 taken through taxes will be “returned” to each household whether or not the government cuts a \$3,128 rebate check to each household.

In short, Reilly’s claim of “you’re doing it wrong!” amounts to parsing of direct vs. indirect costs. Yes, the cap and trade taxes will be passed onto the consumers in some way, but those aren’t the “real costs” to the economy. Only those direct expenditures made necessary by the policy (the “but for” costs) are “real costs.” As long as the federal government provides a benefit to the taxpayers with the cap and trade taxes, then those higher utility bills are a wash:

In Reilly’s view, the \$3,128 taken through taxes will be “returned” to each household whether or not the government cuts a \$3,128 rebate check to each household.

He wrote in an email:

It is not really a matter of returning it or not, no matter what happens this revenue gets recycled into the economy some way. In that regard, whether the money is specifically returned to households with a check that says “your share of GHG auction revenue”, used to cut someone’s taxes, used to pay for some government services that provide benefit to the public, or simply used to offset the deficit (therefore meaning lower Government debt and lower taxes sometime in the future when that debt comes due) is largely irrelevant in the calculation of the “average” household. Each of those ways of using the revenue has different implications for specific households but the “average” affect is still the same. […] The only way that money does not get recycled to the “average” household is if it is spent on something that provides no useful service for anyone–that it is true government waste.

He added later: “I am simply saying that once [the tax funds are] collected they are not worthless, they have value.”

Essentially, Reilly is making the pernicious claim that a dollar in the taxpayer’s hand is the same as one in the government treasury. But we all know that’s not true, including (I’ll bet) Mr. Reilly.

No matter how efficient the government is, it will never be able to take \$X from me and return exactly \$X of benefit. Indeed, at least some portion of that \$X will be needed just to support the system of taking the money and providing the benefit. Already the taxpayer is at a loss.

Moreover, there is an implicit assumption in Reilly’s explanation that, in exchange for this de facto tax, the government benefits provided would be returned in proportion to their costs. But that would defy all historical precedence when it comes to the federal government which, once the money is received, tends to dole it back out to suit its own purposes. As Merv aptly states:

I really doubt the government will return any cost of cap and trade dollar for dollar. If they did it would be just an expensive money swap. To the extent the government does return any money you can bet that it will be based on conduct they want from people and not unconditionally. They will be imposing their choices on American families and their lifestyles.

To be fair, Reilly tacitly acknowledges this fact when he explains what use of his numbers would be acceptable to him:

“If the Republicans were to focus on that revenue, and their message was to rally the public to make sure all this money was returned in a check to each household rather than spent on other public services then I would have no problem with their use of our number.”

The fact is, cap and trade is going to cost taxpayers significantly more than the measly \$13/week tax cut that the Democrats and the left are so excited about. While the \$3,900 cost cited by John McCormack above is an accurate accounting of what Reilly’s study portends, even that is probably an unrealistically low estimate. Consider how the same policy has affected Europe:

Europe’s experiment with cap and trade has turned into a bureaucratic mess that has failed to live up to its initial expectations. A report by the GAO reveals that the supply of carbon permits has exceeded the demand causing allowance prices to fall substantially. This policy failure has caused the European economy to suffer and expectations to reduce CO2 emissions have been lowered.

Additionally, Europe’s cap and trade experiment has led to decreased employment opportunities and higher energy prices across the continent. In France manufacturers have packed up and left for Morocco. In the Netherlands factories are forced to close early to meet emissions standards. In Germany energy prices have risen 5% each year sparking widespread outrage. All across Europe evidence shows that cap and trade has hurt the economy. If the United States implements a European style cap and trade system, estimates show that it could wipe out between 1.2-1.8 million American jobs by 2020.

So the 95% of you who received a “tax cut” from Obama had better start saving that extra money up. You’re going to need every penny to service the debt required to pay for your costs of cap and trade.

How does one pound on CEOs and their perks when the same person (who has just run up record deficits and signed a 410 billion pork bill) indulges himself in this sort of waste of the taxpayer’s money?

When you’re the president of the United States, only the best pizza will do – even if that means flying a chef 860 miles.

Chris Sommers, 33, jetted into Washington from St Louis, Missouri, on Thursday with a suitcase of dough, cheese and pans to to prepare food for the Obamas and their staff.

He had apparently been handpicked after the President had tasted his pizzas on the campaign trail last autumn.

I assume Fightin’ Joe Biden will be calling him out on this. And Al Gore will be lamenting the pizza with the huge carbon foot print.

This is what I mean when I smack this guy around for lack of leadership. This is a classic case study of how not to lead. He still doesn’t seem to realize that a real leader leads by example, not by decree.

~McQ

Antarctic Ice Shelf Split – Global Warming Or Volcanic Activity?

Another day, another breathless  “Antarctica is melting” report:

An ice bridge linking a shelf of ice the size of Jamaica to two islands in Antarctica has snapped.

Scientists say the collapse could mean the Wilkins Ice Shelf is on the brink of breaking away, and provides further evidence of rapid change in the region.

Sited on the western side of the Antarctic Peninsula, the Wilkins shelf has been retreating since the 1990s.

The BBC report seems to consciously avoid blaming it on global warming, but does imply the change is recent (and leaves it to you to decide what that means):

“The fact that it’s retreating and now has lost connection with one of its islands is really a strong indication that the warming on the Antarctic is having an effect on yet another ice shelf.”

Since this is a floating ice shelf, its breakaway will have zero effect on sea levels.

The NYT, of course, is not so careful with its coverage:

An ice bridge holding a vast Antarctic ice shelf in place has shattered and may herald a wider collapse caused by global warming, a scientist said Saturday.

While citing both articles, Think Progress naturally choses the more dire pronouncement as its lede.

Of course we’ve been through this before. You may remember the discussion when it first came up almost a year ago to the day, we did some research and discovered, low and behold, that the area where the Wilkins Ice Sheet is located also happens to be the location of some active undersea volcanoes.

Notice the ice shelf is on the western side of the peninsula and south of its tip. Now, look at this:

Well I’ll be – an active volcano very near the shelf which also vents further up the peninsula. I wonder – could that cause a bit of warming in the area?

Last year, the Ice Cap provided a little sanity to the discussion.  Then it was an MSNBC report.  It is essentially no different than thes reports.  In fact it is more of what they don’t say than what they do say the make the news reports suspect. Here’s what Ice Cap said last year:

The [MSNBC] account may be misinterpreted by some as the ice cap or a significant (vast) portion is collapsing. In reality it and all the former shelves that collapsed are small and most near the Antarctic peninsula which sticks well out from Antarctica into the currents and winds of the South Atlantic and lies in a tectonically active region with surface and subsurface active volcanic activity. The vast continent has actually cooled since 1979.

The full Wilkins 6,000 square mile ice shelf is just 0.39% of the current ice sheet (just 0.1% of the extent last September). Only a small portion of it between 1/10th-1/20th of Wilkins has separated so far, like an icicle falling off a snow and ice covered house. And this winter is coming on quickly. In fact the ice is returning so fast, it is running an amazing 60% ahead (4.0 vs 2.5 million square km extent) of last year when it set a new record. The ice extent is already approaching the second highest level for extent since the measurements began by satellite in 1979 and just a few days into the Southern Hemisphere winter and 6 months ahead of the peak. Wilkins like all the others that temporarily broke up will refreeze soon. We are very likely going to exceed last year’s record. Yet the world is left with the false impression Antarctica’s ice sheet is also starting to disappear.

In other words, it is tiny portion of Antarctica which is located in a part of the continent which is most exposed to South Pacific currents and also has “surface and subsurface volcanic activity” to add to any warming. Graphically it looks like this:

So, other than it finally looks like Wilkins may split away, the situation isn’t any more dire than it was last year at this time and seems, instead, to be the work of natural forces that certainly would have a warming effect without the assistance of any sort of “global warming”.

~McQ

China Toughens Stance On Greenhouse Gas Emissions

China has stated it won’t be left holding the financial bag in order to cut greenhouse gas emissions. Calling itself a “poorer” nation, China wants the 7 most developed countries to spend 1% of GDP on helping them and others.

China raised the price of its co-operation in the world’s climate change talks yesterday by calling for developed countries to spend 1 per cent of their domestic product helping poorer nations cut greenhouse gas emissions.

The funding – amounting to more than \$300bn (£190bn, €240bn) based on Group of Seven countries – would be spent largely on the transfer of “green” technologies, such as renewable energy, to poorer countries.

Gao Guangsheng, head of the climate change office at the National Reform and Development Commission, the Chinese government’s main planning body, said that even such large funds “might not be enough”.

China’s toughened stance comes weeks ahead of United Nations talks in Poland aimed at forging a successor to the Kyoto protocol, whose main provisions expire in 2012.

China also suggests that to this point, emissions reduction has been mostly talk:

“Climate change policies need a lot of money to be invested, however developed countries have not made any substantive promises about how much they are going to spend on,” said Mr Gao. “And they did not fulfil some of the promises they made in the past very well either.”

Of course a number of reasons relate to why those previous promises haven’t been fulfilled. Most of them relate to economics and the realization that their promises are potentially crippling to their economies. That’s effecting the G20 meeting as we speak:

Fears are mounting that environmental issues could be almost entirely sidelined at tomorrow’s G20 summit in London as leaders of the world’s largest economies resist calls to make clear green commitments as part of the meeting’s closing communiqué.

According to Guardian reports, UK officials are leading a last-ditch effort to have clear environmental commitments incorporated into the global economic recovery package that will back up politicians’ repeated calls for a ” green new deal”.

Gordon Brown has said that the inclusion of a commitment on the environment would be one of the tests of the summit’s success, but he admitted that the negotiations were likely to be tough.

The draft version of the communiqué leaked at the weekend made only a passing reference to climate change and it is thought some nations are resisting more detailed commitments to dedicate a proportion of the global stimulus package to green projects that they fear could provide an excuse for protectionist measures.

There is also reluctance to incorporate climate change commitments that could be seen to step on the toes of the UN’s climate change negotiations, which are continuing this week at a separate conference in Bonn, Germany.

This, of course, is good news. Why?

“Everybody seems to be focusing on short-term recovery and getting long-term regulation of the banks right,” he said. “I haven’t heard anything that suggests green recovery and climate change are a major part of the [G20] agenda.”

That’s because that is the priority – not that anyone should expect the G20 to get any of financial part of it right either. However, the priority does keep them from making commitments that would cripple economic growth. And they, of course, know that – which is why they’re avoiding it and spinning it as a desire not to “step on the toes of the UN’s climate change negotiations”.

But back to China – you’ll enjoy this. It is called “having your cake and eating it too”:

[China’s climate ambassador Yu Qingtai]… said that China was willing to make a “due contribution” to curbing emissions, but warned that the country would not see its citizens “left in the dark” as a result of binding emission targets and was within its rights to continue to invest in coal power that allows its economy to grow.

Gotta love the Chinese – they make some of our spin merchants seem like rookies. China will decide what its “due contribution” will be while it builds thousands of coal fired plants. In the meantime, per China, it is up to the rest of the world to do what is necessary to curb emissions because, you know, the poorer nations just aren’t up to it. Su Wei, Chinese delegation chief to the UN climate change talks in Bonn:

Su said the success of the Copenhagen summit lies in whether or not the developed countries would make “substantial arrangements” for transferring climate-friendly technologies to and providing funds for developing countries.

Su noted the establishment of three international “mechanisms” is very important among the “substantial arrangements.”

“The first is to set up an international mechanism on climate-friendly technology development and transfer, to eliminate barriers hindering technology transfer, so that developing countries can get access to such technologies,” he said.

“Secondly, we should set up an effective financing mechanism to ensure the developed countries provide adequate funds for developing countries in their bid to cut emissions and fight climate change,” he added.

Thirdly, Su said an “effective supervision mechanism” should beset up to monitor the above-mentioned technology transfer and funding.

Nice. Known as the “you pay, we take” program, this pretty much excuses China (and the rest of the poorer BRIC nations) from doing much of anything. As long as China is convinced that a) enough technology hasn’t been transfered, or b) there hasn’t been enough “effective financing” of the effort, it can c) exempt itself from any cuts while insisting the rest of the developed world stick by its commitments.

Now that is how a master loots your wallet.

~McQ

“Green Jobs” Likely To Destroy More Jobs Than Are Created

A study just completed in Spain finds that the creation of so-called “green jobs” doesn’t at all seem to be the employment panacea promised by their advocates. As you recall, President Obama pointed to Spain as the reference point for the establishment of government aid to renewable energy. As the study points out, “No other country has given such broad support to the construction and production of electricity through renewable sources.” But the results are not at all what you might expect given the hype. In fact, they’ve been quite the opposite:

Optimistically treating European Commission partially funded data, we find that for every renewable energy job that the State manages to finance, Spain’s experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.

Be sure you read that last part of the sentence carefully as well – those jobs would have been created by “non-subsidizsed investments” with the “same resources” – or said another way, they’d have been created in the private sector without government picking winners and losers and spending billions in taxpayer money.

Between 2000 and 2008, Spain was very aggressive in pursuing alternative energy and green jobs. But its results were less than stellar:

Despite its hyper-aggressive (expensive and extensive) “green jobs” policies it appears that Spain likely has created a surprisingly low number of jobs, two-thirds of which came in construction, fabrication and installation, one quarter in administrative positions, marketing and projects engineering, and just one out of ten jobs has been created at the more permanent level of actual operation and maintenance of the renewable sources of electricity.

So 9 out of 10 were temporary jobs, while only 1 in 10 became permanent. And the cost?

The cost to create a “green job”:

The study calculates that since 2000 Spain spent €571,138 to create each “green job”, including subsidies of more than €1 million per wind industry job.

The cost in jobs lost:

Each “green” megawatt installed destroys 5.28 jobs on average elsewhere in the economy: 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro.

And the eventual cost to consumers:

The price of a comprehensive energy rate (paid by the end consumer) in Spain would have to be increased 31% to being to repay the historic debt generated by this rate deficit mainly produced by the subsidies to renewables, according to Spain’s energy regulator.

Spanish citizens must therefore cope with either an increase of electricity rates or increased taxes (and public deficit), as will the U.S. if it follows Spain’s model

Previous studies have concluded that such increases would impact the poorest quintile the most:

• Reducing emissions, a major rationale for “green jobs” or renewables regimes, hits the poorest hardest. According to the recent report by the Congressional Budget Office, a cap-and-trade system aimed at reducing greenhouse gas emissions by just 15% will cost the poorest quintile 3% of their annual household income, while benefiting the richest quintile (“Trade-Offs in Allocating Allowances for CO2 Emissions”, U.S. Congressional Budget Office, Economic and Budget Issue Brief, April 25, 2007).

• Raising energy costs loses jobs. According to a Penn State University study, replacing two-thirds of U.S. coal-based energy with higher-priced energy such as renewables, if possible, would cost almost 3 million jobs, and perhaps more than 4 million (Rose, A.Z., and Wei, D., “The Economic Impact of Coal Utilization and Displacement in the Continental United States, 2015,” Pennsylvania State University, July 2006)

So to recap, we have a scheme which would see a net reduction in jobs by its implementation, create jobs of which only 10% were permanent, Cost anywhere from a half a million to a million dollars per job, increase energy costs tremendously and hit the poor the hardest.

Sounds like a winner, doesn’t it?

Will anyone pay attention to the actual experiment conducted by Spain and its results? Or are the blinders firmly in place?

While this scheme would be important to contest at any time, it is critically important to do so now, given the economic situation. One thing that must be avoided is government killing jobs as fast as the private sector creates them. This is truly a time when government should do all it can to enable the private sector to create jobs (tax cuts, etc.) and step back and allow that process to work. What it shouldn’t be doing is picking winners and losers and enacting a scheme which, in Spain at least, has proven to do all the things necessary to kill or at least cripple any economic recovery.

~McQ

Darkened Cities For ‘Enlightened’ People

Oh, good – another meaningless, feel-good effort in which to participate (or not):

EARTH HOUR is about to sweep around the world in what the United Nations is calling “the largest demonstration of public concern about climate change ever attempted”.

The event, which started in Sydney two years ago, will see well over 3000 cities and towns in more than 90 countries switch off their lights for an hour this year. Hundreds of millions of people are expected to take part.

From the international dateline, Earth Hour starts in New Zealand’s Chatham Islands this afternoon and will conclude in Honolulu tomorrow night (Sydney time).

In between, tens of millions of houses and public buildings will dim their lights to call for an effective global deal to cut greenhouse gas emissions. More than 10,000 street parties are planned. Sydney’s turn comes at 8.30 tonight.

Sounds like a lot of fun – partying in the dark I mean.

Frankly I like James Taranto’s idea from yesterday better:

Reader, if you are against global-warming hysteria, high taxes, socialized medicine and a weak foreign policy, Sunday is your day. Show how you feel about the issues by turning on your lights in the evening and leaving them on until you go to bed. If you go out for a drive after dark, make sure you turn your headlights on too.

Granted, the EarthHour people have a head start on us. They started planning this months ago, whereas we’re giving you all of 48 hours notice. Yet we think the outlook is bright for this effort. Tell your friends, tell them to tell their friends, and so on, and we’ll bet millions of people across the country will turn their lights on Sunday night.

If no one will listen to the silent majority, let’s at least make sure they see us.

Indeed.

~McQ

If The Alternative Energy Types Think It Will Be Easy …

It won’t be. There’s nothing “sacred” about wind and solar, certainly nothing which is going to see environmentalists back off of their opposition to anything with despoils the vision they hold of how mother earth should be:

As David Myers scans the rocky slopes of this desert canyon, looking vainly past clumps of brittlebush for bighorn sheep, he imagines an enemy advancing across the crags.

That specter is of an army of mirrors, generators and transmission towers transforming Mojave Desert vistas like this one. While Whitewater Canyon is privately owned and protected, others that Mr. Myers, as head of the Wildlands Conservancy, has fought to preserve are not.

To his chagrin, some of Mr. Myers’s fellow environmentalists are helping power companies pinpoint the best sites for solar-power technology. The goal of his former allies is to combat climate change by harnessing the desert’s solar-rich terrain, reducing the region’s reliance on carbon-emitting fuels.

Mr. Myers is indignant. “How can you say you’re going to blade off hundreds of thousands of acres of earth to preserve the Earth?” he said.

As I’ve said before, if you think that these groups are going to let anyone carpet the Mojave Desert with solar panels and endanger its eco system, you haven’t been paying attention to what has been going on here for the last 50 years.

Terry Frewin, a local Sierra Club representative, said he had tough questions for state regulators. “Deserts don’t need to be sacrificed so that people in L.A. can keep heating their swimming pools,” Mr. Frewin said.

But that’s precisely what it will take for solar to make any appreciable difference, given the technology available today. The ironic thing is the movement to plus up solar is being driven by a Democratic administration and putting it into direct conflict with one of its more loyal constituencies.

It is also causing dissent within environmental organizations as well:

“It’s not enough to say no to things anymore,” said Carl Zichella, a Sierra Club expert on renewable power. “We have to say yes to the right thing.”

We’ll see who wins in the end and what the eventual political cost will be – but you can rest assured, there’ll be nothing easy about implementing solar and wind if environmentalists have any say.

~McQ

EPA Set To Kill The Economy

Here’s an item which, in the midst of the financial crisis, will probably be overlooked and underreported. However, it has the potential to destroy any economic recovery should we ever get one rolling.

The Environmental Protection Agency sent a proposal to the White House on Friday finding that global warming is endangering the public’s health and welfare, according to several sources, a move that could have far-reaching implications for the nation’s economy and environment.

The proposal — which comes in response to a 2007 Supreme Court decision ordering EPA to consider whether carbon dioxide and other greenhouse gases should be regulated under the Clean Air Act — could lay the groundwork for nationwide measures to limit such emissions. It reverses one of the Bush administration’s landmark environmental decisions: In July 2008 then-EPA administrator Stephen Johnson rejected his scientific and technical staff’s recommendation and announced the agency would seek months of further public comment on the threat posed by global warming pollution.

“This is historic news,” said Frank O’Donnell, who heads the public watchdog group Clean Air Watch. “It will set the stage for the first-ever national limits on global warming pollution. And it is likely to help light a fire under Congress to get moving.”

Actually I prefer to think of it as the excuse the Democratic Congress has been looking for to implement cap-and-trade. “The Court has required the EPA to consider whether CO2 is a pollutant and the EPA has so declared – our hands are tied!” And in such a convenient way.  Al Gore thanks you.

Naturally business interests are not at all happy with the development.

In December 2007 EPA submitted a written recommendation to the White House urging the Bush administration to allow EPA to state officially that global warming is a threat to human welfare. But senior White House officials refused to open the document and urged Johnson to reconsider, saying such a finding would trigger sweeping regulatory requirements under the 45-year-old Clean Air Act. An EPA analysis had found the move would cost utilities, automakers and others billions of dollars while also bringing benefits to other economic sectors.

Any guess as to which “economic sectors” EPA’s analysis says will “benefit” from sweeping regulatory requirements costing the utilities and automakers billions? My guess is they really don’t exist in any major form at this moment, and what does exist is chasing vaporware. But those millions of “green collar jobs” have to be funded somehow, don’t they?

But can you guess what else is lurking out there?

Our old friend, the “Law of Unintended Consequences”.  Not only would every business in our land be effected, so would every “stimulus” project aimed at improving the infrastructure:

“This will mean that all infrastructure projects, including those under the president’s stimulus initiative, will be subject to environmental review for greenhouse gases. Since not one of the projects has been subjected to that review, it is possible that the projects under the stimulus initiative will cease. This will be devastating to the economy.”

Some of the defenders of all of this will try to wave it away by claiming the administration will make exceptions for various industries and it will certainly do so for the infrastructure projects.

But Bill Kovacs, vice president of environment, technology and regulatory affairs at the U.S. Chamber of Commerce knows how this process will end up working, having witnessed similar scenarios over the years:

“Specifically, once the finding is made, no matter how limited, some environmental groups will sue to make sure it is applied to all aspects of the Clean Air Act.

That’s not a threat – that’s a promise. It is precisely how environmental groups have leveraged every environmental ruling and finding in the past. Of course, those who don’t learn from history are doomed to repeat it. And here we go …

~McQ

Cap-And-Trade – The Impact And The Politics

It is time to get real about what the promised cap-and-trade tax means to the average American.

Politicians love cap and trade because they can claim to be taxing “polluters,” not workers. Hardly. Once the government creates a scarce new commodity — in this case the right to emit carbon — and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag — now Mr. Obama’s budget director — told Congress last year that “Those price increases are essential to the success of a cap-and-trade program.”

Essentially Congress will be creating a new commodity literally out of thin air. It will only create a certain amount of that commodity and so create instant scarcity. As we all know, scarcity drives up prices. The next year, the plan is to remove a portion of the created commodity from the market creating even more scarcity and driving prices for the commodity even higher.

Imagine steel as the commodity. Imagine steel prices going through the roof. Do you suppose they might effect the price of, say, automobiles? Metal buildings? The price of building a bridge or sky scraper?

So who, in the final analysis, is going to end up paying for this increase in steel prices? Why the final consumer, of course. Naturally, with steel, in some cases you can choose to consume (buy a new car, rent an office or approve the bridge) or not consume. However, with the CO2 tax on all industry, to include manufacturing, service, transportation and energy, you have little choice in the matter of consumption. You will be picking up the tab for this.

That brings us full circle to the promised tax cut for 95% of America and my promise that what government gives with one hand it takes with another, making the tax cut illusory at best:

Hit hardest would be the “95% of working families” Mr. Obama keeps mentioning, usually omitting that his no-new-taxes pledge comes with the caveat “unless you use energy.” Putting a price on carbon is regressive by definition because poor and middle-income households spend more of their paychecks on things like gas to drive to work, groceries or home heating.

After all the caterwalling the left does about “progressive taxation” they are about to implement the most regressive tax I can imagine. And as I’ve pointed out, the tax is pervasive, touching just about all aspects of life. Food prices will rise. Energy prices will go through the roof.

The Congressional Budget Office — Mr. Orszag’s former roost — estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That’s about \$680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between \$880 and \$1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Cap and trade is the ideal policy for every Beltway analyst who thinks the tax code is too progressive (all five of them).

Of course there is talk of subsidizing those at the lower end of the economic ladder so the impact of rising prices is lessened. Naturally that also negates the impact of the cap-and-trade system. In the end, your tax dollars subsidze the system while increased prices are passed along by so-called polluters. As the price of permits rise over the years, permit holders pay the increasing cost, pass it along and you again subsidize it. The rich can afford it, the poor will be subsidized, so who will get squeezed? Why that middle class that Obama and Biden are so concerned with.

Economically, estimates are that we’re going to have a miserable year in ’09 and possibly ’10. But we may begin to see a recovery really start to take hold in ’11, just in time for the 2012 presidential election. The smart politicians in Washington plan to delay cap-and-trade implementation until 2012. The reason should be obvious. If cap-and-trade has the expected impact on the economy, we could very well see the recovery stall and head back into recession. But politically the timing would be perfect. The mirage of recovery would be just enough to keep the current administration in power for another 4 years, before the economy wrecker of cap-and-trade begins to do its work.

~McQ

The Coming Tax On Everything

Over the past few days, I’ve been highlighting the fact that the promise of tax cuts for 95% of Americans is illusory at best. If your bottom line is net spendable income, then despite the Obama promise, you’re going to have less of it when all his plans for your income are passed into law. Or, as I’ve been pointing out, while he’ll make a big deal of the tax cut for the 95% on the one hand, he’ll be taking what he’s cut back and more with the other.

The Detroit News editorial board seems to have figured that out:

President Barack Obama’s proposed cap-and-trade system on greenhouse gas emissions is a giant economic dagger aimed at the nation’s heartland — particularly Michigan. It is a multibillion-dollar tax hike on everything that Michigan does, including making things, driving cars and burning coal.

Tell me – who is it that has been whining for years about losing manufacturing jobs to overseas competitors? Who has thumped the podium about “outsourcing”? Who has claimed to be the champion of the working man?

The same crew that wants to enact draconian taxes which will affect the very companies and jobs they claim they want to save or create. And while the companies will do all they can to pass on the cost to the consumer (thereby negating any tax cut), they will have to absorb some of the cost to stay competitive.

Doing so will drive up the cost of nearly everything and will amount to a major tax increase for American consumers.

Or companies can go to countries who don’t have cap-and-trade laws such as China and India and set up there. Of course if they do, they’ll be called “unpatriotic” and the government who forced the issue will declare them the problem.

And the net result?

The proposed tax would take effect in 2012 and has the very real potential to throw the nation back into recession, if indeed the expected recovery has arrived by then. It’s impossible to raise costs for such basics as manufacturing and energy production by more than half a trillion dollars over a decade and not have the effects felt across the economy.

Economic common sense. But you see, the 2012 effective date is a result of political calculation. If we are seen to be climbing out of the recession by 2011, most likely the Obama administration will get a second term. After that they couldn’t care less how they or their policies are viewed. And it is far enough from 2016 that they think it may be politically survivable for the Democrats.

However it also means that if the GOP starts hammering on this now and making the same sense the Detroit News editorial board is making, there’s a chance they can use it as an issue to try to recapture power. That assumes, of course, they have the smarts and the spine to stand up, make the consequences known and ensure they frame the argument instead of letting the Democrats spin it away.

How likely is that?

Oh, and just for the record:

A similar program in Europe hasn’t worked. European automakers complained about carbon dioxide limits the European Union proposed in 2007 as damaging to the economy.

Ya think?

~McQ