Those Little Cap and Trade Assumptions Sometimes Make a Big Difference

Thursday, April 23, 2009



I’ve been working through the 2007 MIT study on Cap and Trade. This study is the Holy Grail in terms of how Cap and Trade will impact the economy and global temperatures with today’s proposed legislation. My goal here is to inform on those little details that get missed when politicians start talking about the doomsday that global warming will bring. The study is long and being an economist, I hope to have a full economic rundown for you. However, the idea of Cap and Trade without respect to the “science” of Global Warming is and of itself an absurdity.

One of the first things you should know about the study are the assumptions being made. Although the study tries to take into effect as many possibilities, the success and limitation of negative environmental and economic effects requires that all nations adopt a similar carbon trading system. How much of an impact you may ask? Well, if only developed nations (US, Europe, Japan, Canada, Australia and New Zealand) follow through on enacting cap and trade, MIT estimates that we will reduce global temperatures a whopping .5 degrees Celsius over 100 years. If developing nations (India, China, Indonesia, Higher Income East Asia, Mexico, Central and South America, Middle East, Africa, and the Rest of the World) also commits, we will have reduced temperatures by 2 degrees Celsius over 100 years. These reductions are in relation to the “no cap and trade policy” case.

The study also assumes that government will redistribute the tax revenue from cap and trade back to households as a way to offset increasing cost to energy. I don’t believe I need to touch on that one. If anyone believes this will be the case, you are welcome to comment, but I will be laughing at you. Even with the redistribution, the social cost is very high.

The economic effects of the “all nations institute a similar cap and trade policy” are enormously negative for the US if it does not come true. I know this because those with government economics degrees at MIT point it out more than once. I quote! “The cost of policy in the US is greatly affected by policies in the rest of the world.” That is because Cap and Trade in and of itself is punishment to the US. Other countries can benefit in lower energy costs while the US punitively manufactures higher costs on…ourselves. This creates an incentive for countries, such as China (who has surpassed the US as the largest carbon emitter) to stay away from carbon trading, because switching to such a system requires them to punish themselves even more than the US and they would also have to forgo the reward for lower fossil fuel prices (fossil fuel prices drop significantly if the US stops using them). If only the common sense of Clinton were still around today. There’s no point in punishing ourselves for .5 degrees Celsius over 100 years if China’s not aboard. If we aren’t creating carbon, I guarantee someone else will pick up the mantle.

The study also states that it cannot account for government waste in the program. Since the government is doing two actions, taxing and spending, there inevitably will be government waste in both actions (See my post on Government Spending early in the week). Don’t worry. I’m sure John Murtha will be there to make sure enough Cap and Trade taxes are used to keep his airport open.

I’ve been working on a post on the problems for the “science” of global warming and one will be forth coming. I am having trouble finding credible information on either side of the argument so it is taking a long time. However, even without debating global warming, anyone can see the folly of Cap and Trade. Believe me, .5 degrees Celsius over 100 years lower than the no policy option is hardly worth the cost to the tax payers and the economy.
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Update:
Actually, this is old news. I am have pointed out the ineffeciveness of Cap and Trade Legislation. Now, I do not believe in man made global warming. However, James Hansen, the NASA scientist well known for his vocal defense of global warming science, also agrees with me. The UK Guardian outlines a letter Hansen sent Obama in January pleading with him not to follow the "ineffectual...approach" of Cap and Trade. Though I don't agree with all Hansen's proposed solutions, I will agree that this country needs to invest in "fourth generation nuclear plants, which use nuclear waste as fuel."

Update #2:
The Washington Post had a sobering article on the real potential, or lack thereof for solar and wind power. The Post points out the obvious, "the sun doesn't always shine and the wind doesn't always blow." They also point out the large premium that we will pay for energy when nature is not being accomodating. Also, the large subsidies and money needed to lay the infrastructure.

4 comments

Cap and trade - the single biggest threat to our national economic well-being. Just as you opine here, imagine the true costs that will come through our system and transfer down to the individual. I've followed politics for years and I think this is the big kahuna of the federal power grab!

April 23, 2009 at 6:50 PM
Devrim said...

Shhhhhh, you are threatening the profits of Al Gore and GE. And you must be against big government !!! I feel a phone tap is in order.

April 24, 2009 at 6:09 AM

LCR - You are absolutely correct. This is the single largest economic intrusion that this country has ever seen.

Devrim - You inspire me! Perhaps we should have cap and trade, but GE and Al Gore pay for everyone to have as many credits as they need. Come to think of it, we should expand that to all the progressives that want this.

April 24, 2009 at 9:45 AM
Andrew33 said...

Cap and Trade=Fascist Energy Tax. Note that Waxman, Markey and Pelosi as well as AlGore all have financial interests in companies that trade and profit off of "Carbon Credits". Why is that?

I encourage anyone who is interested to google Al Gore and Illegal Strip mining permits and see what you dig up. It will give you insight as to how Al Gore got the money to get into politics.

June 29, 2009 at 10:27 PM

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