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The Political Excitement of Cap and Trade

December 27, 2009

E.J. Manning

If energy wasn’t a big deal two years ago, it certainly is today. Last December, the nation was looking at fuel shortages and unprecedented prices. Since then, the national cost of fuel has leveled somewhat followed by a mild increase. Americans know the reality of what we are up against in a personal sense. That is our national reality. The political reality is different as government looks for new ways to control costs of the market, market consumption and to garner authority. Meanwhile, the cost of travel has been in and out of control with no real relief in sight in a large, expansive country that depends on affordable transportation. New energy is the promise, but with little inspiration.

From the beginning, President Obama has painted the energy picture as a moral issue. He sees energy legislation as a chance to right U.S. lifestyle in combination with managing even thornier business concerns. He points to regulatory direction as a means to steer the way to eventual energy independence. In his view, business will follow.

President Obama supports the 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 originally required all pollution credits to be auctioned. In the past, President Obama has emphasized 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, which undoubtedly heralds more while collar and government jobs. The indication in his presentation is that extra money will be available for other ideas or other governmental purposes.

What the caps are will ultimately be determined by law makers. Know that caps will tighten over time. The whole purpose of cap and trade is to place a financial burden on emitters to force them to change. This means raising prices over time. The same principle that applies to the big polluters can be quickly applied to you, especially if you live in an air-conditioned mansion and drive a gas guzzlers. However, no man or woman is safe from the reach of this new global taxation based on what is now called a carbon footprint. There has not been a mention of American citizens being forced to buy emissions permits, but the possibility is a clear and present danger.

Don’t forget, regardless of how small you think you are, you have a carbon footprint that is taxable at some later date. Emissions trading, which could become an investment banker’s next monetary haven, has won support from corporations and lawmakers, despite the admission that many of them worry that strict global warming limits could damage the U.S. economy. The truth is that big corporates aren’t worried at all. Considering the corporate mindset of moving job and plants to more friendly territories overseas, cap and trade emissions may well have a chilling effect on many American jobs and the future potential of job markets in those areas that comply fully with global movement in cap and trade legislation.

The cornerstone of cap and trade 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, much like the European model. In the end, regardless of the moans, big business can make money from the cap-and-trade system. The cap-and-trade on the surface is easier to manipulate. Manipulation of the system is an American favorite.

Some environmentalists also warn that environmental 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 admission of some European authorities. European emissions have continued to climb despite attempts to ‘control the market’. While this could be considered as a negative, an economic boom usually results in increased economic activity as well as more pollution. This is a reality of the past that environmental trading hopes to change.

The subject of all this legislation, global warming, has been the subject of considerable hype and little hard-nosed analysis. Even so, Al Gore does have the Nobel Prize. 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 including the American public must pay more for the privilege of using energy. That privilege will be redefined. The cost of energy permits has been estimated at $6.7 trillion in the year 2050. The government makes money to distribute the plan as it sees fit while every American consumer pays for the entire scheme.

Cap-and-trade legislation, like free trade agreements, amounts to economic disarmament over time since U.S. maintains almost no control over business multinationals. The U.S. economy is suffering now from the loss of consumer confidence, elevated gas prices, a devalued dollar and inflationary costs. Do Americans really have to choose between economic growth and environmental protection? American politics refused to address the truth.

Cap-and-trade could theoretically reduce the amount of carbon dioxide and greenhouse gases emitted by the United States even though it has not been successful so far anywhere it has been enacted in the world. Instead, the corporate oligarchy simply buys exemptions or fails to meet the demands of policy. Are emissions reduced in other industrialized nations? Hardly. For example, 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 in the grand scheme of things. The pollution is simply moved elsewhere and so are jobs. The failure of the recent accord in Copenhagen reveals this reality as nations point at each other as to whom will pay for the grand responsibility of this brave new world of global governance and authority. ~ E. Manning

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