Cap and Trade? More Like 'Cap and Tax'

Now I finally understand the concept of how cap and trade is supposed to fight global warming and the way the politics are playing out in Congress. The best explanation I found has come from the Financial Times editorial “Cap and trade or coach and horses.”

President Obama’s original idea was to auction permits granting a finite allowance to emit greenhouse gasses to the highest bidders. The supply of permits or allowances would be capped at the level of pollution the government wants to allow. The purchasers of the allowances could then sell them in the open market, thus the trade component.

The Administration should more aptly call the program cap and tax, since the President’s real objective was to pay for his middle class tax cut, healthcare reform, and other social and economic programs. The President’s hands-off policy towards Congress is allowing the real horse trading to take over, and plenty of companies will be able to generate their manure for free.

Just like Bernanke’s Fed is printing money with reckless abandon, the current House proposal will give away 85% of the allowances for free. The idea is to assist consumer friendly electric utilities and punish big bad oil. The beneficiaries would theoretically pass the savings on to consumers.

With 85% of the allowances generating no revenue for the federal government, the temptation to inflate the supply of allowances will be too difficult to resist. If the market does not trust that the supply will be limited, their value will be questionable. Traders will not want to keep any allowances in inventory. Brokers only act as agents and the market would be held back by a lot of friction.

Without an auction and the belief that the supply of allowance will truly be managed, neither the revenue nor the global warming goals of the President will be realized. Inflating the allowance supply will destroy its currency, a lesson neither Bernanke nor Greenspan seemed to grasp.

Comments

[BrotherMaynard:]

how about cap and no trade. why must we include investment banks in everything?

no need for trading...it just increases the costs and potential distortions.

David Sokol wrote about this yesterday.

www.washingtonpost.com...

May 20 11:36 AM

[Valley Boy:]

How about a cap and no trade on off-the-wall ideas for
excessive government spending and taxation?


On May 20 11:36 AM BrotherMaynard wrote:

> how about cap and no trade. why must we include investment banks
> in everything?
>
> no need for trading...it just increases the costs and potential distortions.
>
>
> David Sokol wrote about this yesterday.
>
> www.washingtonpost.com...
>

May 20 01:12 PM

[Tony Petroski:]

Wouldn't it be cheaper to pay medicine men to do an anti-global-warming dance? Phony fixes for non-existent problems.
Global warming scareology is the flat-earth thinking of our times.

May 20 07:26 PM

[BrotherMaynard:]

"How about a cap and no trade on off-the-wall ideas for
excessive government spending and taxation?"

and

"How about Capping the gas coming out of Politicians?"

i like those euphemisms better. props.

May 21 11:04 AM

[Ferdinand E...:]

Interesting article, but what's the point. Isn't it obvious to the dumbest congressperson or bureaucrat that cap-and-trade is economic nonsense. Isn't there anybody in Washington with enough guts and/or intelligence to explain that to Dr Chu.

May 21 12:47 PM

[fireofenergy:]

With the auto giants failing, it seems there won't be much to tax. Global warming is true (whether or not we did it) thus this is why Mr. Chu (who I believe is the national energy dude) is developing advanced battery tech. Besides, oil is needed to prop up the next (even bigger and clean) energy platform before we starve during post peak.

All closed cycle nuclear, desert solar, and wind companies should be exempt from having to pay for carbon use required for the production of clean energy capital!

May 21 04:24 PM

[mc2406:]

What make you think any of the professional pols in Washington is interested in anything but getting reelected? Cap and trade is (I agree) nonsense as is global warming being the result of us humans.


On May 21 12:47 PM Ferdinand E. Banks wrote:

> Interesting article, but what's the point. Isn't it obvious to the
> dumbest congressperson or bureaucrat that cap-and-trade is economic
> nonsense. Isn't there anybody in Washington with enough guts and/or
> intelligence to explain that to Dr Chu.

May 22 04:23 PM