Let me preface this with the following: I am not an economist, political scholar, psychologist, ecologist, etc. I am a student who will graduate from New Mexico State University in December of 2008 with a Bachelor’s of Arts in Political Science and I have a supplementary major in Law & Society. With what authority do I write then? Common sense.
The Bill:
First, a little background on the Lieberman-Warner bill which is titled: “America’s Climate Security Act of 2007.” This bill was introduced, obviously, by Senator Joseph Lieberman (I-CT) and John Warner (R-VA). The goal of this bill is to create legislation that limits the amount of pollution we release into the atmosphere. I am not here to write argue against Global Warming or against stopping pollution, I love crisp blue skies and hate to see the dirt that is filling our air. I take issue with the means in which Lierberman and Warner are attempting to accomplish this goal of environmental cleansing. Lieberman-Warner, if enacted, would create a Cap-and-Trade system which would allow for only a certain amount of carbon (and other greenhouse gases) to be emitted. In order for this capped emission limit to be distributed among businesses the idea of carbon-credits have been create. A carbon-credit, in theory, will be a license (for lack of a better term in my head) for a company to produce X amount of metric tons of carbon. The more carbon-credits a company has the more it is allow to pollute without having fines and other sanctions imposed.
The Cap-and-Trade
Lierberman-Warner caps the amount of emissions a company can produce per carbon-credit that they have legal right to. The bill also caps the total amount of emission that may be released. This creates a zero sum market for carbon-credit trading.
Example: For sake of this post we’ll say that the current year’s total emissions cap is 100 metric tons and that each carbon-credit is capped at 1 metric ton. Therefore, only 100 carbon-credits are avaiable for trade in the cap-and-trade system.
The Problems I See:
There is a large amount of money to be made from energy production. There is only a set number of essential carbon-credits in the market place. This drives the price of an individual carbon-credit very high as there is a small quantity of credits available and a large desire to have these credits. A situation like this, a very closed market, creates artificially high prices and enables monopolies to development quite easily.
A second issue that arises from this Cap-and-Trade system is the lack of flexibility. During times of unexpectedly high consumption companies are not able to quickly produce more energy, and along with that pollution, without fear of being fined. This disincentive to produce more energy will ensure that energy prices sky rocket.
The third issue is who will be paying for these energy price increases. Any increase in cost-of-operating will be passed directly from the energy company to the consumer. This will not only affect the heating and cooling bills of family homes, it will also have a tremendous impact on other businesses that rely on energy to make their products.
Example: A textile factory’s energy bill might account for 20% of their operating costs. If energy prices rocket because demand is high and the quantity available is low, the energy bill for the textiles factory might increase to about 40% of their budget (numbers are for the sake of argument). Sure the factory pays more for electricity, but then the price of clothes increase in a related fashion.
Just look at what has happened to food prices. The profit to be made from growing grain-for-fuel was higher than grain-for-food; now we have food shortages. Another current and real example is the increase in fuel prices. As fuel prices increase, airlines have begun to charge extra for checked luggage, heavier passengers, etc. The raised energy cost has been directly passed on to the consumer.
To conclude this section I reiterate my main points that a cap-and-trade system is inflexible, costly, and detrimental to our economic stability and security.
Solutions:
An alternative to a cap-and-trade system is a tax incentive system. Tax incentives are positive rewards for good behavior. While the cap-and-trade system punishes those who cannot afford to buy up price-inflated carbon-credits, a tax incentive program encourages companies to change their behavior because it benefits them. People, much like companies, respond better to positive criticism and rewards than to being punished.
The System:
A tax incentive program should be created to encourage alternative and efficient energy development. The incentives would include funding for R&D, tax credit for money spent on R&D and new infrastructure, and other means that will encourage corporate development of safe and sane energy production.
Why It’s Better:
The tax incentive based system allows for flexibility when energy crunches appear. I am not suggesting that corporations should be allowed to pollute unchecked and irresponsibly, I just offer that they should not be restricted in a manner that has the potential to harm our economy and hurt the consumer. Further, while the cap-and-trade costs get passed along directly to the consumer, tax incentives affect consumers differently. A tax incentive approach just means that the government’s revenues will be lacking those taxes not paid by the energy companies. I don’t know about you, but it’s always easier for me to not have something in the beginning rather than have to give it up at some point.
Conclusion:
Call your Senators NOW and tell them why a Cap-and-Trade system is STUPID! Protect your wallet from rising energy costs by urging that the government, for once in its history, take a common sense approach to a very serious issue.