Cap and Trade: A Destructive Mess

Many people in the civilized world benefit from energy produced by the burning of fossil fuels.  In 2006, the Energy Information Administration reported that 86.1% of worldwide energy was produced from oil, coal and natural gas.¹ But along with the benefits, the combustion of these fossil fuels creates several pollutants that have been shown to harm humans: carbon monoxide, nitrogen oxides, sulfur oxides, and hydrocarbons.² The control of these pollutants is beyond the scope of this article and separate from the focus.

Carbon dioxide is also emitted and consequently leads us to our focus, which is Cap and Trade.  Carbon dioxide is a naturally occurring compound created by many processes, including human breathing.  It is used by plants during photosynthesis to produce organic compounds needed for plant growth and development.³ But its property as a greenhouse gas makes it suspect for causing climate change and sea level rise; ultimately resulting in the destruction of lives and property.  To the extent that the green house gas harms humans, emitters should be forced to control their waste just as they are forced to control their own bodily waste; regardless of the cost to the industry or society in general.

In an attempt to force people to control their carbon dioxide waste, Cap and Trade regulations have been proposed.  According to the Center for American Progress, the primary purpose of Cap and Trade is to reduce the rate of global warming.

The goal: To limit the rise in global temperature to approximately 2.0 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels by 2050 by reducing carbon dioxide and other emissions from companies as part of a larger plan for curbing global warming.

To achieve this goal, the U.S. government should steadily tighten the cap until emissions are reduced to 80 percent below 1990 levels by 2050. Businesses would have to obtain permits entitling them to emit a certain quantity of carbon dioxide or its equivalent in other greenhouse gases. All permits would be auctioned off by the government.

Initial estimates by the Congressional Budget Office project that an economy-wide cap-and-trade program would generate at least $50 billion per year, but could reach up to $300 billion. Approximately 10 percent of this revenue should be allocated to help offset costs to businesses and shareholders of affected industries. Of the remaining revenue, approximately half should be devoted to help offset any energy price increases for low- and middle-income Americans that may occur as a result of the transition to more efficient energy sources. The other half of the remaining revenue should be used to invest in renewable energy, efficiency, low-carbon transportation technologies, green-collar job training, and the transition to a low-carbon economy. Some resources should also be invested in the energy, environment, and infrastructure sectors in developing nations to alleviate energy poverty with low-carbon energy systems and help these nations adapt to the inevitable effects of global warming. Revenues from the permit auction would essentially be “recycled” back into the economy to facilitate the transition to an efficient, low-carbon energy economy and ensure that consumers are not unduly burdened by potentially higher energy costs.⁴

Cap and Trade regulations are based on the theory that present-day man-made carbon dioxide emissions are causing catastrophic global warming.  The regulations intend to lower carbon dioxide emissions to a safe level and at the same time regulate the institution of cleaner energy.

Before we move ahead with the punishment of fossil fuel producers and consumers it is important to be sure justice is served.  The case against the producers and consumers must be clearly articulated and supported with evidence.  If they are proven guilty as charged, they must compensate the victims must be compensated and they must cease producing and using fossil fuels.  Four questions must be answered.  Do fossil fuel emissions cause destruction to people’s lives and property?  Who’s lives and property were affected?  What is fair compensation?  What is fair punishment?

It has been pointed out “that a man is to be regarded as innocent until proven guilty, that the burden of proof is properly on those who would send him to the gallows.  This principal testifies to the fact that the consequences of acting on false certainty, no less than the consequences of not acting on real certainty, can be devastating…and they had therefore better make certain that their verdict is correct.^“5

The protection of individual rights requires objective laws and due process.  In order to be guilty of causing sea levels to raise, the evidence against man-made carbon dioxide must prove the case beyond a reasonable doubt.  If carbon dioxide emissions are destroying lives; What is the evidence? What is the counter evidence?  Prof. Robert Carter, of James Cook University in Australia, presented data to the High Court of Justice in England on August 22, 2007 that raises doubt as to whether or not man-made carbon dioxide has a significant effect on global temperatures.

World average ground temperature has not increased for 8 years since 1998 (Climate Research Unit, University of East Anglia; Carter, 2007), as recently conceded even by the Hadley Center in a new modeling study (Smith et al., 2007).⁶

Further, a  2008 Boston Globe article acknowledge that “(f)or nearly a decade now, there has been no global warming.”⁷ The fact that global temperatures have been steady now for more than ten years while carbon emissions have continued to increase shows that the effect of man-made carbon dioxide emissions on global temperatures is less than natural variations in temperature.  There is ample evidence provided by the Heartland Institute, MIT’s Dr. Richard Lindzen, Robert Carter, European Union President, Vaclav Klaus, and others to raise doubt as to the certainty of man-made carbon dioxide leading to catastrophic global warming.  Willie Soon, from the Harvard-Smithsonian Center for Astrophysics, illustrated how increased carbon dioxide in ice core samples, of the past 650,000 years, lagged behind temperature increases by 600 years.⁸ Even though carbon dioxide is a green house gas, this data shows how difficult it is to distinguish the effects of carbon dioxide from other variables related to Earth’s temperature.  In light of the evidence, Cap and Trade violates the rights of carbon producers and consumers by taking their property and prohibiting action without due process.

Despite the counter evidence, advocates of Cap and Trade determined there was sufficient evidence to prove that man-made carbon dioxide emissions will cause sea levels to rise, drought, disease, tornadoes and hurricanes.  Assuming any part of the aforementioned statement to be true, government has the right and duty to punish the fossil fuel industry and their consumers.  Cap and Trade inadequately punishes carbon producers.  It also inadequately protects the victims.

Guilty companies are allowed to continue producing carbon dioxide as was demonstrated by the implementation of Cap and Trade by the European Union.  Verified emissions have seen a net increase over the first phase of the scheme. For the countries for which data is available (all 27 member states minus Romania, Bulgaria and Malta), emissions increased by 1.9% between 2005 and 2007.⁹ This data indicates that Cap and Trade does not sufficiently lower carbon emissions to appropriate levels and therefor does not protect the victims from climate change, because CO2 emissions continue to increase despite the punishment.

Cap and Trade does not compensate the victims either.  For instance, the island nation of Maldives  is planning an evacuation based on the turbulent forecast and they are not receiving restitution for their damaged property.¹⁰

Cap and Trade is unjust.  It is not possible to determine whether or not fossil fuel emissions cause destruction to people’s lives and property through climate change.  The punishment of producers and consumers does prevent the use of fossil fuels.  The victims of climate change are not fairly compensated.

Even though Cap and Trade regulations due not bring about justice by any standard, they have many intended and unintended consequences.  The regulations intend to force the flow of money and investment into government favored alternative energy producers.  This regulation of energy production is an assault on a requirement for human life as we know it; the freedom to produce and consume energy.

Freedom and its implementation through the protection of individual rights form the sacred cornerstone of civilization and prosperity.  Any proposition to limit freedom should be thoroughly investigated.  People need to have their rights protected in order to live according to their moral and practical judgment.  Otherwise choices are based on the carrots and sticks offered by anyone willing to initiate force, private or government.  When people’s rights are violated, it distorts their ability to live as rationality dictates.  This is the  unintended consequence of Cap and Trade regulations. In order to profit in world governed by Cap and Trade policies, people make investment and career choice that are irrational in the long run.  The regulatory incentives provide the illusion of profitability and cause entrepreneurs to direct capital towards uneconomical production lines.  For example, refer to the following  New York Times article.

…[B]ig financial firms traded financing to offset tax liability. So-called tax-equity investors would bankroll a solar or wind project in exchange for a tax shelter, which was effectively pinned to profits. The system worked as long as Congress renewed the federal investment and production tax credits that granted developers a range of incentives, and it was widely viewed as a essential avenue within the renewable energy development community.¹¹

Subsidies in the form of tax incentives caused entrepreneurs to invest in renewable energy.  These illusory investments allowed entrepreneurs to hire works and use capital to pursue alternative energy production.

The system, like other schemes crafted by insiders, has crumbled as AIG, Lehman and others have collapsed. The big boys no longer have cash to bankroll projects or the means to pull the profits to get credits, so the tax-equity space has turned into a financial dead zone.

So what now? Experts at a cleantech conference last week offered a simple fix: Figure out how to tap the American Reinvestment and Recovery Act, the economic stimulus law.

Brook said the government, in setting up the grants, would distort energy markets by favoring wind, solar and other renewable sources. He compared the policy shift under the Obama administration to lawmakers’ subsidizing of mortgages, which led to “enormous unintended consequences.” Tringas countered that he regards the stimulus as a temporary solution until Congress passes a national renewable portfolio standard, which would send much simpler signals to the market, or a cap-and-trade system to regulate carbon emissions from power plants.¹¹

Instead of threatening a few companies with higher taxes, the new solutions threatened to dig into the pockets of every American by forcing them to invest in green energy via various stimulus packages until the government secured the reins of the energy industry through Cap and Trade.

When tax money is used to subsidize popular forms of energy, irrationality spreads like wildfire.  Observe that opportunists eagerly listen for the buzz words surrounding the crusade.  The carrot of “free” money and the stick of regulation favor individuals and organizations that can prove they are “green”.  So businessmen, academics and consumers join the crusade and create an avalanche of impenetrable noise.  University research teams fight over who is greener to obtain favor and “free” grant money.  In the process they leave behind a flood of academic research articles favoring “green” technology and regulations.  Individuals receive “free” money towards the purchase of “green” cars as long as they destroy their old car.  Companies set up shop to produce “green” technology in order to collect “free” money from carbon trading. Under the guidance and force of the authority, businessmen invest in energy sources and products that people can not afford to pay for, but it does not matter.  They maintain existence by subsidies at the expense of someone else’s profits.

Where will the subsidies come from once the carbon producers, who are supporting the endeavor, reduce their emissions to “80 percent below 1990 levels”?  Another pragmatic solution?  Perhaps the government could build coal plants out of urgency or even worse, imagine a nuclear power plant.  Then what regulations would they follow and who would enforce them?  Or maybe human nature, physics and the laws of economics will bend to political power and popular will.  Perhaps subsidies do not encourage irrational choices and given enough time, subsidized alternative energy will become efficient and profitable.

An exercise of reason can demonstrate why subsidized companies can never become profitable as the norm.  Profit is not a requirement for their continued existence.  They exist by political pull.  Since government chooses favorites to subsidize, companies do not compete for efficiency, they compete for favor.  Businessmen turn into lobbyists instead of innovators and their energy is spent seeking favor from congress rather than profit through production and trade.  The situation for the entrepreneur is very difficult.  Especially those who want to develop new energies and technologies without subsidies.  When their neighbors keep prices low by virtue of subsidies it makes it essential for all to seek subsidies or drop out.  Then when excess profits of potential investors are taxed away to pay for the subsidies, it compounds the problem by limiting venture capitalist investment in new technology.  Then, when times get rough businessmen may resort to bribery or corruption.  After all, they are used to asking for favors and permissions in exchange for intellectual support and votes.   An official might be willing to accept money for his troubles as the demand for his favors increases. A little payment could move a person to the front of the “free” money line.

Many well-intentioned people face unnatural dilemmas in their quest for survival when they are forced to act according to the judgment of others.  The regulations and subsidies driving Cap and Trade use government force to direct people’s choices and actions. As an extreme, but all too real example of authoritarian rule, China determined excessive human population to be a threat to human lives.  In order to regulate the population, women were forced to refrain from having more than one child.  In order to comply with the regulation, many women abandoned their moral judgment and killed female and accidental second children in order to make the best of the situation and to avoid punishment.¹² Cap and Trade regulations are not calling for population control and do not result in the irrational killing of babies, but they do call for the regulation of energy and foster irrational investments and business choices on a national scale.

The wind projects that were bankrolled “in exchange for a tax shelter” are an example of the irrationality that is encouraged by government subsidies.  According to Václav Klaus’s calculations, it would take 4,750 wind power plants to replace the Temelín nuclear power plant, “the construction of which would require 8.6 million tons of material…[and] they would create a 665-kilometer-long and 150-meter-high line…”¹³ The majority of the material would likely be composed of Portland Cement based concrete—”the manufacture of which is not only a source of combustion-related CO₂ emissions, but it is also one of the largest sources of industrial process-related emissions in the United States.”¹⁴ In a free market wind projects would exist in their proper place and time, but irrational ideas like replacing mankind’s energy needs—to any significant degree—with windmills is widespread only because of the false signals of monetary success provided by subsidies to green technology and the false signals trumpeted by grant funded academic research supporting “green technology”.  Government subsidies favoring any project, green or otherwise, encourage and allow people to continually make otherwise irrational energy choices by postponing the hardships generally brought about by bad ideas.

Even if man-made carbon dioxide were proven to cause global warming and lead to the destruction lives and property, the regulations and subsidies imposed by Cap and Trade would not solve the problem.  The solution lies with the protection of individual rights, including protection from pollution that destroys lives and property.  The people and organizations suspected of harming others should be brought before a court of law and tried based on the evidence.  If convicted, the guilty party should be forced to change its ways and pay retribution to the victims for damages.  “(T)hat’s how American law used to treat pollution.  But a series of nineteenth-century nuisance cases changed that: the courts suddenly decided that certain levels of pollution could be allowed for the sake of the greater good.  The implication was that if, for example, a few farmers had their property destroyed by passing trains, that was just the price of progress.  These cases allowed private industry to invade the property rights of others and deprived those others of legal recourse.”¹⁵

The nineteenth-century’s attempt to assist the growth of industry by giving them a free pass to destroy or confiscate the property of others should be re-investigated and rejected.  There is no short cut.  The fastest way to prosperity and a clean Earth is through the diligent protection of individual rights.

References

¹http://www.eia.doe.gov/iea/overview.html

² Union of Concerned Scientists, The Hidden Cost of Fossil Fuel, (10/29/02) http://www.ucsusa.org/clean_energy/technology_and_impacts/impacts/the-hidden-cost-of-fossil.html

^{3 “}Carbon Dioxide,” Wikipedia, http://en.wikipedia.org/wiki/Carbon_dioxide

⁴ Center for American Progress, Cap and Trade 101 (2008) http://www.americanprogress.org/issues/2008/01/capandtrade101.html

⁵ Gena Gorlin, The Objective Standard: Doubt vs Certainty (2009) Vol. 4, No.1, p.69

⁶ Stuart Andrew Dimmock and The Secretary of State for Education and Skills, The High Court of Justice, Queens Bench Division, Administrative Court (22 August 2007): Witness Statement: Robert Carter Claim CO/3615/2007 http://www.newparty.co.uk/UserFiles/File/carterstatement.pdf p.5

⁷ “Where Did Global Warming Go?” Boston Globe (Jan. 6, 2008) http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/01/06/br_r_r_where_did_global_warming_go/

⁸“A Critique of Climate Change Science and Policy” Willie Soon and Keith Lockitch, ARC Lecture Series, April 13, 2009. Illustration at 12 minutes into Part 1.

⁹“European Union Emissions Trading Scheme” Wikipedia, http://en.wikipedia.org/wiki/European_Union_Emission_Trading_Scheme

¹⁰“Wanted: A New Home for my Country” New York Times (May 8, 2009)  http://www.nytimes.com/2009/05/10/magazine/10MALDIVES-t.html?pagewanted=1&_r=1

¹¹“Wobbly Wind Sector Sets Sights on Stimulus” New York Times (March 30, 2009) http://www.nytimes.com/gwire/2009/03/30/30greenwire-wobbly-wind-sector-sets-sights-on-stimulus-10351.html?pagewanted=1

^12“The Chosen Sex—Chinese Turn to Ultrasound, Scorning Baby Girls for Boys” New York Times (July 21, 1993)  http://www.nytimes.com/1993/07/21/us/chosen-sex-special-report-chinese-turn-ultrasound-scorning-baby-girls-for-boys.html?sec=health&spon=&scp=7&sq=china%20baby%20killing&st=cse

¹³Václav Klaus, Blue Planet in Green Shackles, CEI 2008. P.105

¹⁴U.S. Environmental Protection Agency. CO₂ Emissions Profile of the U.S. Cement Industry http://www.epa.gov/ttnchie1/conference/ei13/ghg/hanle.pdf

¹⁵ Ron Paul, “The Revolution” Grand Central Publishing, 2008 p.105