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Is Cap and Trade Legislation a Sure Thing?

June 26, 2008

If energy wasn’t a big deal two years ago, it certainly is today. The cost of travel is indeed out of control with no real relief in sight in a large and expansive country that depends on affordable transportation. New energy is the promise.

The two top presidential candidates have similar views. Based on website presentation, Barack Obama sees fuel costs first as an energy issue and second as an environmental issue. However he doesn’t mince words about environmental propriety. John McCain sees fuel costs mainly as an environmental issue and a distant second as a economic issue cataloged under economic concerns. Nowhere does McCain suggest that he is acting on behalf of morality.

Obama paints the energy picture as a chance to rise to lifestyle moral challenges coupled with business concerns. He points to regulatory direction as a means to steer the way to eventual energy independence. In his view, business will follow.

McCain views energy policy as a means to establish a market-based system to curb greenhouse gas emissions, mobilize innovative technologies, and strengthen the economy. He sees energy as primarily an environmental concern through the eyes and direction of business.

While Barack Obama is more precise in general, both are noticeably similar in their approaches considering that America has two separate and distinct political parties in top competition for the White House. Obama seems to have independent and more creative ideas in some respects, but both hold to emission permits and credits to build and fund a new green-based economy. Obama has a timeline plan. McCain does not have a timeline plan and sticks to general principles.

Both are ardent fans of cap-and-trade legislation.

Obama supports implementation of a market-based cap-and-trade system to reduce carbon emissions by the amount scientists say is necessary: 80 percent below 1990 levels by 2050. Obama’s cap-and-trade system requires all pollution credits to be auctioned. Obama emphasizes a 100 percent auction, ensuring that all polluters pay for every ton of emissions released, instead of giving emission rights away to coal and oil companies. He has loosely specified that some of the revenue generated by auctioning allowances will be used to support the development of clean energy, to invest in energy efficiency improvements, and to address transition costs, including helping American workers affected by this economic transition. The indication in his presentation is that extra money will be available for other ideas or other governmental purposes.

John McCain proposes a cap-and-trade system setting limits on greenhouse gas emissions while encouraging the development of low-cost compliance options. However, in typical fashion, he isn’t suggesting any ideas on a low-cost option. He wants the market to decide and encourage the lowest-cost compliance options. Climate cap-and-trade regulations set a limit on greenhouse gas emissions and allow entities to buy and sell rights to emit. McCain compares cap-and-trade regulation as similar to successful acid rain trading program of the early 1990s. Is this a good comparison?

John McCain bravely tells Americans how his cap-and-trade system harnesses human ingenuity in the pursuit of alternatives to carbon-based fuels. Market participants are allotted total permits equal to the cap on greenhouse gas emissions, which is set by government protocol with the Kyoto Accord in mind. If they can invent, improve, or acquire a way to reduce their emissions, they can sell their extra permits for cash. The profit motive will coordinate the efforts of venture capitalists, corporate planners, entrepreneurs, and environmentalists on the common motive of reducing emissions. Perhaps Mr. McCain is leaving the door open to provide another means of developing a new burgeoning commodity designed to build wealth for investors and bankers while driving up prices on permits.

Emissions trading, or cap-and-trade, has won support from corporations and lawmakers who worry that strict global warming limits could damage the U.S. economy. Several plans have already been proposed in Congress. The cornerstone of each plan presented so far is the creation of an emissions trading system, in which “entities” are given limits for their emissions of carbon dioxide and other greenhouse gases and then are allowed to buy and sell their excess or deficit emissions as if they were financial securities. There has been not a mention of American citizens being forced to buy emissions permits, but the possibility is a clear and present danger.

Two alternatives are presently seen: either a carbon tax or a cap-and-trade system. Big business like the cap-and-trade system. Anyone care to guess why? Simply put, big business can make money from the cap-and-trade system. The cap-and-trade on the surface is easier to manipulate.

Some environmentalists also warn that these trading systems hurt minorities and the poor based on actions already seen in Europe. The cap-and-trade system in Europe has resulted in the concentration of pollution in low-income communities. Cap-and-trade policies have been tried in Europe and they have proven to be disastrous by many standards. European emissions have continued to climb.

However, current policies in the U.S. have resulted in less emissions. Senator James Inhofe, ranking member of the Environment and Public Works Committee relates that if the U.S. is going to impose enormous costs to the national economy, a carbon tax would be a much more efficient and transparent approach.

The subject of all this legislation, global warming, has been the subject of considerable hype and little hard-nosed analysis. Still, politicians the world over are in favor of legislation because it designs a new power structure and means to generate operating “capital”.

Depending on legislation, American business and users of energy (this means you) must pay more for the privilege of using energy. The cost of these permits in one case has been estimated at $6.7 trillion in the year 2050. The government makes money to distribute how it likes. Who pays? Every American consumer pays for the entire scheme.

Cap-and-trade legislation, like free trade agreements, amounts to economic disarmament. The U.S. economy is suffering now from the loss of consumer confidence, upward spiraling gas prices, a devalued dollar and inflationary costs. Do Americans really have to choose between economic growth and environmental protection?

Cap-and-trade could theoretically reduce the amount of carbon dioxide and greenhouse gases emitted by the United States. Are emissions reduced in other industrialized nations? China has surpassed the United States as the world’s largest pollution emission source. China is required to do nothing. As a result, nothing is really achieved. America does have a choice between conservation and environmental rape. Even now, the nation is somewhere in the middle between the two extremes.

If either of the front-running presidential candidates have their way, the United States is on the way to an agreed cap-and-trade system. Lawmakers are enamored with the idea. The political scene is set. Cap-and-trade is the personal preference of our public servants.

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