Cap and Trade (aka. Your Energy Costs are Going Up!)

During the campaign, President Obama said that he wanted to raise energy prices so that Americans would consume less energy. This is based on two assumptions:

1. that there is a global warming crisis, and
   
2. that it is primarily man-made.

We will not debate (in this posting) whether or not these are valid assumptions.

If you assume that they are true, then you can help the environment by forcing fossil fuel consumption down by making it much more expensive, so that people will consume less energy generated by fossil fuels . A common strategy for achieving this type of result is called "Cap and Trade".

President Obamas recent budget draft assumes $80 billion of revenue from "Cap and Trade" beginning in 2012 (article). This will grow to be upwards of $300 billion per year.

SO, JUST WHAT IS CAP & TRADE?

CAP

Cap-and-trade plans work by having the government sell to businesses the right to emit a certain amount of carbon dioxide or other gases. These permits set an enforceable limit (cap), on the amount of greenhouse gas pollution that the company is allowed to emit. Over time, the limits become stricter, allowing less and less pollution.

TRADE

It will be relatively cheaper or easier for some companies to reduce their emissions below their required limit than it will be for others. The companies who emit less than their allowance can sell their extra permits to companies that are not able to make reductions as easily.

MONEY

Basically, this creates a huge new revenue stream for the federal government. What will they do with it? The president’s plan assumes $80 billion of additional revenue in 2012. $65 billion would be used for the “Making Work Pay" tax credit (which offsets payroll taxes for about 95 percent of workers), while $15 billion per year gets set aside for various clean-energy technologies, energy efficiency, clean-car development, and so forth.

HOW WILL THIS IMPACT US?

ENERGY COSTS WILL INCREASE

The goal of this is to increase the cost of energy. Yes, you read that correctly. We are already using the cheapest energy sources available (fossil fuels). The renewable energy technologies are nowhere close to being cost competitive. So, to promote them the government is increasing the cost of the carbon-based energy sources. Duke Energy Corp. Chief Executive Officer James Rogers said President Barack Obama's plan to raise revenue from an emissions-trading system would increase electricity bills by as much as 40 percent in some U.S. states.

MORE WEALTH REDISTRIBUTION / GOVERNMENT CONTROL

This will generate $80 billion to $300 billion per year in additional revenues for the government. Businesses will pass on their additional costs (fee’s for permits, higher cost renewable energy sources) to consumers and other businesses. This will have a negative impact on economic growth, which again impacts us as workers and investors. Most important is the fact that more money is run through the federal government, who will “control the purse strings”. Think there won’t be some lobbyists hanging out around that pot of gold!

MINIMAL IMPACT ON THE ENVIRONMENT

Even if the assumptions listed above are correct, this will have minimal impact on the environment at the risk of inflicting great damage on the economy. More on this in a later post.