Cap and trade is nothing more than inefficient regulation and tax

Today was the House vote on the cap and trade energy bill. Sadly, it passed by only a few members with 219 for and 211 against. The bill will now move to the Senate, where we really must work to try to stop it. This bill has the potential to severely hurt the economy for years to come and may not even be able to reduce pollution much. It is coming at a time when we really can’t afford it (not that it is beneficial during prosperous times either) and the ideas behind it are littered with logical fallacies.

The way cap and trade works is that each firm in the market is given permits, each which allow a certain amount of heat-trapping gas production. These firms cannot produce more emissions than what their permits allow them to. Firms are allowed to buy and sell permits in order to gain extra allowance or extra cash for permits they need/don’t need. Upon economic analysis and scrutiny it is clear that this system poses several problems and is yet another short-sighted and economically imprisoning proposal.

No matter what way you look at it, cap and trade is essentially a tax. Any companies that are currently producing more emissions than the amount their permits will allow them to will have to spend money to either buy more permits, cut production, or buy more energy-efficient means of production. These costs could be in the billions for some companies and there is no doubt that a lot of that cost will be passed on to the consumer, just as with any tax in a market with elastic supply. Several companies have already hinted at massive price hikes should the legislation go through. More taxes will only hurt production and hurt job growth.

Those in favor of cap and trade say that the legislation will create thousands of jobs, but that response is the result of a failure to see the big picture. With more financial burden on firms, everyone won’t simply upgrade to energy-efficient systems. Some will buy new permits, which will take a lot of capital, which could otherwise have gone to labor. In this way, it could actually hurt employment. Other firms may simply cut production in order to fall under their permit allowances, which could also mean jobs lost. Then, there are those firms that will simply leave the market as this legislation may be the tipping point for them on the Laffer curve. They may instead opt to move somewhere else like India or China, where pollution control is almost non-existent and where it would be a lot cheaper to operate. This possible outcome would also hurt jobs.

For the companies that do upgrade to more energy-efficient equipment, they may produce a few jobs in the short term, but after the new gear is in place, a lot of those jobs will be lost. Furthermore, the high costs of this equipment will mean prices hikes for consumers.

Basically, those that go ahead and upgrade their systems will end up charging consumers a lot more. Those that decide to simply cut production will end up cutting jobs as well as hurting the economy due to the lower production. They will also indirectly drive up market prices as supply goes down with the production. Those that decide to leave the market altogether will create a lot of unemployment and a lot of production losses. Either way, there isn’t a great scenario.

Unfortunately, even those inevitable circumstances are not the end of it. Considering that energy-producing firms produce a lot of emissions, cap and trade would mean less energy production in the United States and higher energy prices, and with the demand for energy growing once more, that could mean record-high prices for consumers in the near-future.

Not only would we have to suffer the cost of higher energy prices during a recession, but there is also the issue with where the government sets the allowed pollution rate. As we know from history, the government is inefficient and often incapable of setting such regulative rates because it is too hard to gauge the market. If the cap is set too high, then this bill will simply create more bureaucracy and pollution won’t be reduced. If it is set too low, we will see severe cutbacks in production and further troubles in the markets. In this way, cap and trade could even be worse than a simple tax.

From every standpoint, this bill has the potential to be disastrous. There are better ways to reduce pollution, such as allowing nuclear power and letting the free market find new alternate sources. By cutting regulations and taxes on energy companies, they would have a lot more capital to use on R&D towards new technologies, which would also mean new jobs. When there is demand for something, the market always meets it and with the recent green movement, it wouldn’t be long before the market would naturally find more energy-efficient and environmentally-friendly ways of doing business. The difference would be that the private sector would be able to do that without hurting long-term production and without distorting markets. This is why it is so important that we stop this bill in the Senate before it becomes law. Call or email your Senator and let him/her know that you oppose this bill. We really owe it to ourselves to take our government back and to make it for the people once more.