Opponents of the Recent Clean Energy Bill Voice Their Concerns
In July of this year, the House of Representatives took a very narrow vote on to pass a controversial legislation, the ‘Waxman-Markey cap-and-trade bill’ ,that have many economists and environmental groups buzzing about the effectiveness, and potential economic ramifications of establishing a cap on greenhouse gas emissions and allowing companies to trade reductions. Per the legislative measure, establishing a price for carbon would be an important regulatory step taken by the U.S. towards investing with other nations in efficient ways and adopting the clean-energy goals of the Kyoto treaty.
Back in the era of the Clinton-Gore administration, investment in green technology and clean energy sources was pursued as a first priority over regulation of emissions, and today we observe a newly emerging green-lobby prioritization of regulation over investment. This reversal of priorities has lent a hand in pushing this legislative bill before the House of Representatives and making it among the top priorities of the Obama Administration. Several companies and special interest groups have issued statements in strong opposition of the bill, however, stating that it will drive up energy costs, it won’t cut emissions fast enough, and it introduces a system that would prove so difficult to regulate that it it would introduce a new threat of fraudulent activity in a global market already in shambles from a poorly monitored system of financial exchange. Greenpeace, Friends of the Earth,. the American Petroleum Institute, the U.S. Chamber of Commerce, the National Association of Manufactures and the Ohio Coal Association are among the opponents of the new regulation.
The Cap and Trade Bill
The basic concept behind the bill is to reduce air pollution from carbon dioxide. which is believed to contribute to global warming by trapping heat in the Earth’s atmosphere. The proposed system would set a limit, or cap, on nationwide carbon emissions. Companies would be allotted pollution credits they could buy if they wanted to exceed the cap, and sell if they already cut their emissions. Over the years, the cap will be lowered through political process to cut emissions by approximately 83% by the year 2050. Over time, the laws of supply and demand dictate that as the supply of available allowances decreases, the cost of greenhouse gas emission for each company will increase, eventually so much so that the largest domestic contributors to atmospheric pollution will be forced to take drastic measures to reduce their carbon footprint. Thus, these polluters would be forced to clean up, purchase credits from cleaner counterparts, or offset the pollution they create through other means, like planting tress. Thus, this system of capping carbon emissions and issuing carbon credits to be freely traded will in theory stimulate the economy by providing a business incentive for those companies and groups who cut their carbon emissions, which would in turn spur the innovation and adoption of green technology to enable more companies to profit from the trade of carbon credits.
Rising Costs to Consumers
According to the Congressional Budget Office (CBO), early forecasts on how quickly green technology can be developed will factor into the true economic impact of this regulation. Requiring companies to purchase carbon credits to account for their emissions will likely result in a sharp increase in the costs of energy and consumer products, possibly as high as $3,000 per year per family. This estimate, often quoted by opponents of the bill, comes from a study performed by John M. Reilly of the Massachusetts Institute of Technology. Another estimate, provided by the CBO, quotes the costs to the average American family as being much lower, but the many assumptions and unknowns presented in the bill feed the current wave of skepticism towards the true economic impact of the bill remains. Joseph J. Romm, a former Energy Department official, states, “No economic model has ever accurately modeled technological change induced by government action. That’s why they overestimate the cost of action.” Given the cloud of doubt over the anticipated rate of technological change, there is residual skepticism as to whether or not the proposed deficit spending would in fact stimulate the economy during a recession, as it is estimated that monitoring and regulating the exchange over which carbon credits would be traded would cost the U.S. an estimated total of $9 trillion over the span of 2012 to 2050 in order to achieve the carbon reduction goals set forth by the legislation. Should technological advancement fail to grow at the same rate as the rising cost of energy to the consumer, the cap and trade system could drive up prices for middle-class American families and drive jobs overseas by such a large percentage that it would potentially dig the economy deeper into recession.
Ability of Cap and Trade to Effectively Reduce Carbon Concentration
Contrary to the predictions of House Democratic leaders, the Environmental Protection Agency (EPA) issued a statement that the cap and trade bill would not “materially affect global carbon concentrations in the atmosphere.” Concurring with the EPA’s report to a certain degree, research from MIT concluded that “the different U.S. policies have relatively small effects on the carbon dioxide concentration if other regions do not follow the U.S. lead.” At the Group of 8 Summit in L’Auila, Italy, the New York Times reported the world’s biggest developing nations, led by China and India, refused to commit to specific goals for reducing greenhouse gas emissions to reverse the threat of climate change. Given the lack of a unified global effort thus far to follow in the steps of the U.S. , the true ability of the U.S. adoption of a cap and trade exchange to have any real effect on reducing carbon concentrations remains to be seen. Many countries besides the United States emit greenhouse gases, but the bill would only regulate U.S. emissions. Thus, even if it meets its outstanding goals of emissions reductions, the Department of Energy estimates that the bill would reduce world emissions by just 3 percent. As advocates of the bill argue, however, as with any mass movement for social change, there needs to be at least one group to take the lead with the hope of serving as a model for reluctant parties to eventually follow suit.
Monitoring Cap and Trade
Those for and against the bill agree that no cap and trade program can succeed in the long-run without vigorous enforcement of accurate emissions reporting and the ability to regulate the exchange of credits for currency. In addition, a system of quality control must be in place as a mechanism for early detection of any fraudulent activity. While the CFTC has announced its intention to serve as the central regulatory agency to monitor the carbon trading exchange, there are doubts as to how to accurately monitor carbon emissions when some companies are using formulas to estimate projected values of carbon emissions. If a monetary value is to be placed on carbon credits, there is very little room for error in emissions reporting if the cap and trade system is to be successful.
Optimism Remains
Other landmark attempts by the government to regulate climate change using cap and trade, such as provisions of the Clean Air Act and the Acid Rain Program, have seen success in setting a goal of reducing annual emissions of sulfur dioxide and nitrogen oxides by 10 million tons compared to 1980 levels and reducing the cap on emissions over time. These legislative measures have not only reduced sulfur dioxide omissions by a substantial percentage, but they have spurred a rapid wave of technological innovation to adapt to and offset the rising costs of compliance.
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