Scrap Cap-and-Trade

By Karl Rove, Newsweek

Climate-change legislation that doesn’t add up

There’s much debate about the efficacy of controlling pollutants with economic incentives, also known as cap-and-trade. Its advocates dress it up with a lot of moral indignation. Cap-and-trade would not achieve its goals—and it would put America on a ruinous course. Here’s why:

The price tag would be huge. Cap-and-trade would raise prices for the energy we get from natural gas, coal, and oil. Putting a tax on carbon means that every American who flips a light switch, turns a car key, or buys anything made or shipped in this country will pay more. The Treasury Department estimates that the president’s cap-and-trade approach would “generate federal receipts on the order of $100 [billion] to $200 billion annually”; the Congressional Budget Office (CBO) reports that a 15 percent CO2 reduction would cost an average household $1,600 a year. Other experts say the price tag could be much higher. That would mean utility bills will rise everywhere, exploding in some parts of the country. Ratepayers in manufacturing states (with higher per capita energy use) and in states that depend more heavily on coal for electricity would see their utility bills soar, slowing economic growth and job creation.

Cap-and-trade is also a regressive tax. It would take a bigger chunk out of the paychecks of the poor. The CBO estimates a 15 percent CO2 reduction would cost wealthy Americans 1.7 percent of their income, the middle class between 2.7 and 2.9 percent, and families at the bottom 3.3 percent (about $680 a year).

Cap-and-trade would shift jobs overseas. It would require a larger, more intrusive government bureaucracy, regulating vast swatches of our economy and diminishing innovation, flexibility, and enterprise. Businesses would reduce their cap-and-trade costs by moving jobs to countries without a tax on carbon or a cap on greenhouse emissions. Inevitably some companies would win at the expense of competitors. Nike makes shoes abroad and wouldn’t be affected much by cap-and-trade; New Balance makes them here and would. With its nuclear plants, Exelon backs cap-and-trade because it would fatten its bottom line and stock price. Southern Co. produces most of its energy from coal, so Exelon customers would benefit at the expense of Southern’s. Apple manufactures abroad: its Web site admits that only 3 percent of its greenhouse gases come from its U.S. facilities. So it would fare better than competitors that make their products in America.

The policy is not properly focused. America is no longer the world’s biggest emitter of greenhouse gases. China, with an economy half our size, produces more. And what about India, Brazil, and other growing economies? We’d make better progress on greenhouse gases by focusing on global energy efficiency, which would lower CO2 emissions. Not to mention that there are more pressing moral obligations. Preventable diseases like malaria and treatable ones like HIV, inadequate economic growth, and a lack of clean water and learning opportunities are more pressing problems in the Third World. Prosperous, healthy economies are more likely to protect their environments.

Why tax the affordable forms of energy we have today to subsidize forms of energy that can’t compete in the marketplace? Economies riddled with subsidies are less efficient, less competitive, slower growing, and less likely to create jobs. And once a subsidy is in place, it’s nearly impossible to end it. We should focus on making our existing energy sources cleaner. Government should invest in basic scientific research into conservation, carbon capture, energy efficiency, and new forms of energy like hydrogen fuel cells—then let the marketplace commercialize these new technologies.

Cap-and-trade does very little at a very high cost. Americans would spend $100 billion to $200 billion a year for limited results: a 15 percent cut in U.S. emissions would reduce global emissions by less than 4 percent, which would have a negligible worldwide impact. Investment bankers need cap-and-trade to make their “green energy” deals successful. That’s great (and profitable) for them, but their earnings would come at the expense of every other American.

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