Carbon Cap and Trade Inconvenient Truths
Carbon Cap and Trade Inconvenient Truths
Facts have a funny way of getting in the way of good ideas—take Carbon Cap and Trade for example.
This is the proposed system, in which the government will auction off right-to-pollute licenses, and then these will be traded on the open market. Once these securities are being traded you can be sure that someone will start creating derivatives and other novel financial instruments not backed by anything of intrinsic value–wow it will be 2006 all over again!!!!
The big fat fact in the green ointment is the failure of the European Cap and Trade program. European nations have increased their carbon emissions since adopting the Kyoto global-warming treaty in 1997. The disagreeable Americans, who have not signed Kyoto, nor yet implemented Cap and Trade, have actually reduced carbon emissions by 1.8%.
The reason for this is that both Karl Marx and Adam Smith are wrong on one point—people are not totally motivated by material needs and desires. Such things as social stigma can change behavior, even if it is not materially beneficial.
A couple of Israeli researchers demonstrated this a few years ago. A day care center started imposing fines on parents who brought their children late. Surprisingly, the rate of truancy increased. The reason is that psychologically the penalty reduced the stigma of being late—it was a truancy license.
This may be what is happening in Europe—the purchase of a license to pollute reduces the stigma of being a greenhouse gas producer.
Al Gore is an excellent example. His palatial home has a carbon footprint twenty times larger than the average American home. But the Patron Saint of the Polar Bears is ok with that, because he purchases enough carbon offsets to reduce the footprint to zero.
There is nothing new under the sun. It is the same way the Catholic Church used to sell Indulgences to marauding , whoring noblemen—sin to your heart’s content and you can get your guilt neutralized with a few well-placed coins.
And then there is the inherent problem in all sin tax schemes. Recently the price of a pack of cigarettes was raised sixty-two cents to pay for the expanded SCHIP program. The government is dependent on that money, and will never raise the tax high enough to totally stop tobacco usage—although that is the stated purpose of this type of tax.
Barack Obama plans to use the money generated from the sale of cap and trade licenses to fund universal healthcare. Although the purpose of cap and trade is to totally eliminate the generation of greenhouse gases—obviously the government can never let that happen.
Ironically, in a cap and trade market, there will come a point where it does not make economic sense to reduce carbon emissions. As companies reduce carbon output, there will be less demand for these license to pollute, and their auction price, and trading price on the open market, will go down—in the end, purchasing these licenses will make more bottom line sense to polluters than cleaning up their act.
The smartest guys in the room at Enron were big believers in Cap and Trade because it would “do more to promote Enron’s business than almost any other regulatory initiative.”
Carbon Cap and Trade is a huge economic burden on ordinary Americans, and in the end it will not achieve the noble goal Congress intends.
At least, that’s how it looks when you consider the inconvenient truths.
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