Carbon Cap and Trade, and the Costs of Trading Hot Air

Written by Christopher Monckton


May 9, 2008
The cost and futility of trading hot air
by Christopher Monckton
Source: SPPI
(Full Report and Technical Appendix at end of article)
The “Environmental Defence Fund” (EDF) has circulated a “Report ” that says the cost of controlling the “pollution that causes ‘global warming’” is “only pennies a day … almost too small to measure.” The conclusions, summarized by EDF, are –

• “We cannot afford to wait. Further delay will greatly increase the costs of making necessary emissions cuts and will risk locking in irreversible climate change.” The “Report” says: “The scientific consensus is clear: Global ‘warming’ is real, and it is already happening. While nobody can be certain about the exact timing or location of its consequences, the possible severity of those consequences is becoming increasingly clear. Allowing greenhouse gas emissions to increase unchecked is an invitation to catastrophe. The potential consequences of warming include widespread famine, triggered by extreme drought in the major grain-producing areas of the world; the wholesale disappearance of the world's coral reefs; and sea levels rising by several meters over the course of a few centuries.” The “Report” concludes that we must act now to avoid “catastrophic climate change”.

• “We can afford an aggressive cap-and-trade policy to tackle ‘global warming’. The cost to the economy will be minimal -- less than one percent of U.S. gross domestic product in 2030. The “Report” says that the US economy will grow to “$26 trillion by 2030, but, with a cap on the greenhouse gas emissions that cause ‘global warming’, the economy will reach the same level two to seven months later. It adds that job losses would be minimal; the new carbon market would create new jobs; that the manufacturing sector will lose a few jobs; that household consumption will fall by only one percent at worst; that increases in energy costs would be modest; and that overall costs would be small enough to permit expansion of programs to offset the burden for low-income households. The “Report” says that strict limits on ‘global warming’ pollution can harness the power and creativity of capital markets, and that cap-and-trade would work by “turning market failure into market success”. It assumes that if fossil-fueled energy were artificially made more expensive other technologies would emerge to replace it.

The “Report” is based not on theoretical demonstration nor on empirical observation but on computer models – an expensive and unreliable form of guesswork. It claims to be the first of its kind, but there have been one or two others like it, such as the now universally-discredited Stern Report , which used the same unscientific rhetoric of “market failure” together with overstatements of the imagined consequences of anthropogenic “global warming” as a substitute for rigorous economic analysis. The conclusions of the “Report” are unsound, and computer models can be – and have been – deployed to demonstrate results diametrically opposite to those which the “Report” advances.

“We cannot afford to wait, or ‘catastrophic climate change’ will occur”

Late in 2006 the “Institute for Public Policy Research”, a grandly-titled and extravagantly-funded pressure group in the UK, first proposed that the international Left should from then on declare that the science of “global warming” was settled. This proposal was accepted with alacrity by bodies worldwide such as the “Natural Resources Defense Fund” and the “Environmental Defense Fund”.

Not a single scientific authority or reference is cited in the “Report” for any of the supposed catastrophes arising from “global warming” that it mentions. However, peer-reviewed papers throughout the scientific journals refute such conclusions:

Catastrophe? What catastrophe?

There is no scientific “consensus” in the peer-reviewed literature to the effect that “global warming” is an actual or potential “catastrophe”, still less that “allowing greenhouse-gas emissions to increase unchecked is an invitation to catastrophe”. A recently-published peer-reviewed paper (Schulte , 2008) that surveyed 539 papers in the scientific journals containing the words “global climate change” and published between January 2004 and mid-February 2007 found that not a single paper provided any evidence whatsoever that “global warming” might be even potentially “catastrophic”. Only one of the 539 papers reviewed even mentioned the possibility of “catastrophe”, but without offering any evidence.

“Climate Change Is Real.” What reality?

Next, the “Report” says, “‘Global warming is real”. This point was well and bluntly addressed in the spring of 2006 in a letter from 61 leading scientists in climate and related fields to the Canadian Prime Minister :

“‘Climate change is real’ is a meaningless phrase used repeatedly by activists to convince the public that a climate catastrophe is looming and humanity is the cause. Neither of these fears is justified. Global climate changes all the time due to natural causes and the human impact still remains impossible to distinguish from this natural ‘noise.’”

Warming? What warming?

The “Report’s” assertion that the “possible severity” of the consequences of “global warming” is becoming “increasingly clear” is not and cannot be based on any scientific view. “Global warming” began at the end of the Maunder Minimum in 1700 and continued at a near-uniform rate of 0.5-0.7 degrees C (0.9-1.2 F) per century until 1998, when it paused. There has been no statistically-significant increase in mean global surface temperature since 1998. In the past six and a half years global temperatures have been falling at an impressive rate equivalent to 0.4 degrees C (0.7 F) per decade:

Unpredicted trend: Since late 2001, the trend of global surface temperatures has been downward. “Global warming” paused in 1998; and, though it may resume in future years, the rate of warming is less than that which the models relied upon by the IPCC had projected. Source: Hadley Centre for Forecasting / Climate Research Unit, University of East Anglia.

Carbon dioxide causes some warming: therefore, the upward trend in temperatures over the past 300 years, for which steadily-increasing solar activity was chiefly but not solely responsible, may well resume in future. However, the rate at which foreseeable increases in atmospheric carbon dioxide concentration will cause further warming is by no means “settled science”; and, as the above graph indicates, it is becoming increasingly clear with each passing year that the very high official estimates of climate sensitivity to anthropogenic CO2 enrichment are proving to be exaggerations.

For instance, Lindzen (2008) says that the failure of computer models accurately to predict the behavior of the tropical upper troposphere, a problem identified and quantified in Douglass et al. (2004, 2006, 2007), requires all of the IPCC’s estimates of climate sensitivity to be divided by at least three. If Professor Lindzen is right, then there is no “climate crisis”: a small, harmless, and beneficial warming rate will continue, and that is all. For a short account of the combined magnitude of this and other errors in the IPCC’s official calculations of climate sensitivity, see the Technical Appendix.

Drought? What drought?

The “Report” says widespread famine may be caused by droughts arising from “global warming”. However, the Clausius-Clapeyron relation mandates that, as the climate warms, the space occupied by the atmosphere is capable of carrying near-exponentially more water vapor. Therefore, in general, there will be fewer droughts. This effect has already been observed and reported. For instance, the Sahara has shrunk by 300,000 km2 in the past quarter of a century (Nicholson, 1998, 2001).

The shrinking Sahara: Throughout the period of strong “global warming”, the Sahara’s extent shrank by 300,000 km2. Source: Nicholson (1998, 2001).

Nomadic tribes have been able to move back to areas of the Sahara that have not been settled within living memory. This is the very reverse of the pattern of “widespread drought” predicted by the “Report”. Indeed, the fact that the carrying-capacity of the atmosphere for water vapor becomes greater as the climate warms has been cited by health authorities such as the World Health Organization and the Department of Health in the United Kingdom as a (false) pretext for statements that warmer and hence wetter weather will increase the world’s standing water and will hence encourage the malaria mosquito to breed (though there is no scientific basis for this conclusion either).

Though the pattern of drought and flood has fluctuated in the past and will do so again in the future, there is no sound scientific reason to suppose that warmer weather will mean more droughts. The computerized guesswork of the models relied upon by the UN failed to predict the shrinking of the Sahara, and it provides no basis for concluding that drought will spread. There are fewer droughts in many parts of the world today than there was in the first half of the 20th century, when John Steinbeck wrote The Grapes of Wrath, in which he graphically described the severe droughts of that era in the Great Plains – droughts that have not occurred in the warmer weather since.

Threat to corals? What threat?

The “Report’s” assertion that all the world’s coral reefs are imminently threatened by “global warming” is also without scientific foundation . Coral reefs are not threatened by warmer oceans : most of them prefer warmer water. Corals first came into existence by algal symbiosis some 175 million years ago, in the Triassic era, and some say they date back 500 million years. For most of that period, global temperatures are thought to have been 7 degrees Celsius (12.5 F) warmer than the present. The corals not merely survived but throve. To the extent that they are threatened at all, the threat is from pollution, and from dynamiting in aid of fishing.

The coral bleaching that was observed in 1998 was the consequence of the exceptional and sudden El Nino Southern Oscillation of that year, whose intensity had only two precedents in the previous 300 years. Both of the previous intense El Ninos also produced coral bleaching, and the corals readily survived it (Hendy et al., 2004). Going back further, Precht and Aronson (2004) concluded that between 10,000 to 6,000 years ago extratropical North Atlantic sea surface temperatures were 2-3 degrees C (3.5-5.5 F) warmer than at present and coral reefs flourished. They reported that the fossil record clearly demonstrates the ability of corals to expand their ranges poleward in response to global warming and to "reconstitute reef communities in the face of rapid environmental change." They also report that corals are expanding their territories: "There is mounting evidence that coral species are responding to recent patterns of increased SSTs by expanding their latitudinal ranges."

Thriving corals: reefs are not threatened by “global warming”

Sea-level rise? What sea-level rise?

Finally, the “Report” mentions the possibility of “sea levels rising by several meters over the course of a few centuries”. This is true, but the implication that it arises chiefly from manmade “global warming” is entirely false. In the 10,000 years since the end of the last Ice Age, sea level has risen by 130 meters (400 feet): an average of 1.3 m (4 ft) per century. However, most of the world’s land-based ice has long since melted, and nine-tenths of what remains – on the high plateaux of Greenland and Antarctica – is not at risk unless temperatures are sustained at least 2 degrees C (3.5 F) above today’s for several millennia (IPCC, 2007). Indeed, in each of the past four interglacial periods neither Greenland nor Antarctica lost their ice sheets. Greenland, but not Antarctica, lost its ice sheet in the interglacial period 850,000 years ago: but temperatures in each of the interglacials of the past million years were at least 5 degrees C (9 F) higher than today’s, entirely through natural causes.

There is, therefore, no scientific basis for the oft-repeated suggestion that “global warming” will melt so much ice that sea levels will imminently rise by Al Gore’s imagined 20 ft. The IPCC has now reduced its estimate of the maximum sea-level rise to the year 2100 by one-third, from 0.88 m (3ft) to 0.59 m (<2ft), and nearly all of this projected increase, if it arises, will come not from melting ice but from thermosteric expansion – if the oceans continue to warm.

However, recent detailed surveys, such as Lyman et al (2006, revised 2007) show no statistically-significant warming at all. The oceans are 1100 times denser than the surface atmosphere, and they are as deep in some places as the troposphere is high: their thermal inertia, therefore, is immense. Moerner (2004), who has studied sea level throughout his distinguished, 30-year professional career and is recognized as the world’s foremost expert, says there is no basis even for the UN’s best estimate of a 0.43 m (17 in) rise in sea level to 2100. His own best estimate is that there will be little increase above that which was observed in the 20th century – just 8 inches.

The published literature – all of the papers cited above are peer-reviewed except the documents of the IPCC – demonstrates that there is no scientific basis for any of the alarmist propositions in the cited paragraph of the “Report” to the effect that there is a danger of imminent “catastrophe” arising from man-made “global warming”.

There is no long-term danger of catastrophe either: on the evidence of past interglacial records, inferred from temperature proxies derived from ratios of oxygen isotopes in samples of air trapped in Antarctic ice-cores (Petit et al., 1999), the world is already overdue for the next Ice Age, so that after several further millennia, if not sooner, it is global cooling, not “global warming”, that will be the primary concern of humankind.

In short, none of the imagined disasters is at all likely to occur before the onset of the next Ice Age, even by natural causes – still less as a result of humankind’s activities. “Global warming” is not a global crisis. It requires no economic intervention by national governments, still less by supranational entities. Cap-and-trade is, therefore, unnecessary.

“We can afford an aggressive cap-and-trade policy to tackle ‘global warming’”

The “Report” states or implies that “cap-and-trade” works well enough to make a difference to the climate; that it costs very little; and that it will not damage the US economy.

The truth is that “cap and trade” does not work. The European Union’s carbon emissions are rising yearly, while those of George Bush’s US are falling yearly. In the EU, “cap-and-trade” has already been tried twice and has spectacularly failed twice, at huge cost. The environmental result: nil. Europe’s emissions continue to rise. There have been similar failures elsewhere in the world. A recent analysis by the U.S. Environmental Protection Agency of the Lieberman-Warner bill projects that costs of electrical power and gasoline would rise very sharply. Gasoline would cost about 53 cents per gallon more in 2030 and $1.40 per gallon more in 2050.

Nigel Lawson, the former UK Treasury Secretary, in his book An Appeal to Reason – A Cool Look at “Global Warming”, dismisses “cap-and-trade” in a few crisp and characteristically perceptive paragraphs –

“If western governments, at least in Europe, are going to remain obsessed with the alleged need to cut back sharply on CO2 emissions by increasing the cost of carbon, what is the best means of achieving this? The route the politicians (but very few economists) prefer is known as “cap and trade” – a regime in which emissions, or some of them, are statutorily capped, and the emitters are then free to trade the emission permits which result from this system. The trouble is that both in theory and in practice (for it has, to some extent, been put into practice) it is a method that has little to commend it.

“For one thing, it is in no sense the ‘market’ solution that it purports to be. It is essentially a government-controlled, administrative rationing system, in which the rations can subsequently be traded. It is rather as if, instead of seeking to cut back on smoking by taxing it, we were to allocate Soviet-style production permits to the cigarette manufacturers, which they were then permitted to buy and sell amongst themselves. Of course, for the market-makers and other middlemen who trade in the CO2 emissions permits, it is indeed a market, and one which they will not hear a word said against: for them it presents a lucrative and – they hope – growing business opportunity.

“Among its many other drawbacks, cap and trade is arbitrary and distortionary, covering some emissions but not others (it is impractical, for example to extend it to the personal and household sector, including motoring). For those industries where it does apply, it is anti-competitive, since permits are issued to existing emitters, and not to new entrants, who have to purchase them from the market. In general, the administrative allocation system scores badly on transparency, and lends itself to lobbying, corruption, and abuse of one kind or another. This is even more pronounced in an international scheme, when each government is under pressure to allocate generously to its own national emitters. Another problem is that it injects an artificial volatility into the price of energy, making rational investment decisions more difficult – not least any decision to invest in low-carbon or non-carbon energy. And, inevitably, the ethereal nature of the commodity being traded makes it particularly hard to police.

“The only substantial emissions-trading scheme so far attempted, the European Union’s ETS, exhibits all these fundamental flaws – and indeed several more, as recent studies have shown. In practice, it has done nothing to reduce emissions, and has merely awarded subsidies to selected emitters. In theory, some of the disadvantages of the scheme could be avoided if the emissions permits were auctioned, rather than given away, but the design of an auction to cover all emitters – including the personal sector – and extending it internationally would be mind-bogglingly complex and contentious, if indeed it could be done at all. Which is why, for the new and allegedly improved second (2008-2012) phase of the ETS (the first phase is universally agreed, except by those who have made money out of it, to have been a farce), the EU has decided that 98.5% of the permits should be allocated and only 1.5% auctioned.

There are two other forms of governmentally-sponsored carbon trading. Both are impossible to supervise and continue to suffer from such widespread abuse that their net effect on the climate is probably an increase in total carbon emissions. First, the “Clean Development Mechanism” set up under the Kyoto Agreement allows developed countries bound by Kyoto targets to buy “certified emissions reductions” from developing countries rather than cutting its own emissions. The UN is supposed to declare that the reductions would not have occurred in any event and have not been offset by any increase in emissions somewhere else.

China and India have both exploited the Clean Development Mechanism to the full, and greatly to their profit, but without any environmental benefit whatsoever to our planet. Chinese and Indian producers of chlorofluorocarbons, powerful greenhouse gases, are able to earn massive windfall profits by opening or buying plants designed to emit halocarbons – tens of thousands of times more potent than CO2 as greenhouse gases – and then by receiving cash payments via the Clean Development Mechanism to close them down again. Since the payments are scaled to reflect the “global warming potential” of the greenhouse gases emitted by the plants, the profiteers by this scam are making billions. The profits – at the expense of the West – are so gross that the Chinese Communist regime now levies a special windfall tax on them, which it can then spend on paying the cost of its declared program of opening two or three new coal-fired, greenhouse-gas-emitting power stations every week (for the sheer scale of this program, see the Annual Statistical Communiqué of the “People’s” “Republic” of China, 2006). It is difficult to see any environmental merit whatsoever in this mechanism.

Secondly, the “Joint Implementation”, also established under the Kyoto Protocol, allows developed countries emitting below their Kyoto thresholds to sell “carbon credits” (cynically but accurately known on the financial markets as “hot air”) to others who cannot meet their own thresholds. However, the only Kyoto signatory emitting well below its threshold, which the Protocol defines as 5% less than actual 1990 emissions, is Russia, because the collapse of Communism brought thousands of State-subsidized heavy industries to a sudden end. Russia at first stood out against the Kyoto Protocol but, more recently, its leaders realized that it could profit by Joint Implementation to the tune of tens of billions at the expense of the West. Suddenly, it ratified Kyoto. Soon, the profits will roll in, and we will be paying.

There is also a private-sector scheme known as “carbon offsetting,” by which jet-setting celebrities like Al Gore can publicly parade the pretence that their extravagant, carbon-emitting lifestyle is not really adding anything to manmade greenhouse-gas emissions. All they have to do is to buy the modern equivalent of the Indulgences sold for profit by unscrupulous pastors in the mediaeval Church. The Indulgences, coyly marketed under the name “carbon offsets”, are sold by various private scamsters, who craftily suggest to penitents that they can salve their consciences for, say, the carbon emissions arising from a transatlantic flight by paying as little as $5 towards the planting of trees that may or may not take place, and might or might not have taken place anyway. Type “carbon offsets” into Google and look at almost any of the myriad scams on offer. Most of them are so transparently fraudulent that it is at first blush astonishing that prosecutions have not resulted.

For it is the unique, common characteristic of all forms of carbon trading – whether by cap-and-trade, the “Clean” Development Mechanism, the Joint Implementation, carbon offsets, or any other device in the panoply of international nonsense that has sprung into being so profitably for the scamsters and their allies among the international enemies of the West, and so expensively for the rest of us – that not only both parties to each transaction but also all of the States or supranational entities nominally supervising and regulating them have a direct and powerful vested interest in overstating both the scale and the significance of the transactions.

The emitter wishes to salve his conscience and receive absolution by pretending that he has done all that is necessary to make him and his household or enterprise fashionably (though unnecessarily, and climate-irrelevantly) “carbon-neutral”. The counterparty to the emitter’s transaction wishes to attract more business from penitents by suggesting to them that for unrealistically small sums they can be forgiven all their carbon sins. The regulators and legislators wish to demonstrate to their voters (in those countries – unlike the European Union, or Rhodesia – where voters still matter, and still retain the power to choose and to dismiss those who govern them) that they are playing a full and successful part in the great Sancho Panza crusade to “Save The Planet”.

No surprise, then, that notwithstanding all the rhetoric and all the activity and all the “Reports” about the desirability of carbon trading, the trend in worldwide carbon emissions continues relentlessly upward, and at an accelerating rate. Though “carbon offsetting” is indeed enriching the wealthy market-fixers, scamsters, and regulators, while further impoverishing the poor citizenry, it is not – back in the real world – actually offsetting any emissions of carbon dioxide at all: nor is it ever likely to do so.

For, even if the entire Western world were to close down its economies altogether, and revert to the Stone Age but without even the ability to light fires, the planned growth in emissions in India and China alone would replace the West’s entire emissions within little more than a decade.

The central truth about “global warming” is that from here on it is the emerging tigers of Asia who will be the world’s dominant emitters. The West is no longer the chief problem, and no longer holds the solution in its own hands. We are bit-part players.

For the foreseeable future, therefore (setting aside the small decline that has recently occurred because the exceptionally cold winter of 2007/8 cooled the climate-relevant surface or “mixed” layer of the oceans and allowed that layer to take up unusually large quantities of CO2 from the atmosphere), carbon dioxide concentrations in the atmosphere will continue to rise as they have throughout the half-century since modern gas-chromatograph measurements were first taken by the formidable Charles David Keeling on the shoulder of the Mauna Loa volcano in March 1958.

Therefore, it would not be responsible for the international community, or for any individual nation, to plan on any other basis than that by the end of this century there will be a great deal more carbon dioxide in the atmosphere than there is today. Not that that matters, for its effect on the climate will be negligible and generally beneficial – see the Technical Appendix.

Yet the principal objection to all forms of carbon trading, however elaborate and however piously intended, is not that it is inherently and inescapably fraudulent, nor that it is inevitably and ineluctably futile, but that it delivers no environmental benefit whatever in return for its massive cost – a cost which, as we shall see, falls almost exclusively upon the poorest while considerably enriching the richest. Carbon trading is Robin Hood in reverse, robbing the poor to enrich the rich. Abraham Lincoln once said, “You cannot make the poor rich by making the rich poor.” You certainly cannot make the poor rich by making the poor still poorer: that is the chief economic effect of carbon trading.

The real reason why carbon trading is a wasteful menace that ought to be forbidden by law is that it is altogether unnecessary. It is unnecessary not only because, as we have seen, the world has not warmed for a decade and is not likely to warm at more than a minuscule, harmless, and beneficial fraction of the rate luridly but inaccurately projected by the IPCC and its self-serving adherents in the international classe politique. It is unnecessary, above all, because the iron economic law of supply and demand is already driving up the cost of all carbon-based fuels, altogether irrespective of any intervention by etatiste meddlers.

It is a truism that the supply of fossil fuels is finite. Also, it is demonstrable not only that the cost of exploration is rising as a proportion of the exploitable reserves discovered but also that the cost of extraction is rising as a direct result of the political risks consequent upon the location of most of those reserves in the territories of unstable, undemocratic regimes that are for various reasons implacably hostile to the free West.

However, it is demand-side pressure, more than supply-side scarcity, that is chiefly responsible for the recent galloping inflation in the prices of fossil fuels, notably gasoline, currently trading at 1000% of its world price little more than a decade ago. This hyperinflation in the cost of fossil fuels is chiefly driven by the sudden surge in demand from emerging nations such as India and China. And the more we use carbon trading to close down our own economies and destroy the jobs of our working people, the more we shall stimulate that already-burgeoning demand for carbon fuels in India and China.

It is very likely that today’s oil price inflation, driven partly by limited and politically-uncertain supply but chiefly by ever-increasing world demand, will continue. Therefore, even if there were any imperative need for action to avert a “climate crisis” (which there is not: see the Technical Appendix), there would still be no need for national or international governmental action to drive up fossil-fuel prices any further: indeed, to do so would be particularly harmful to those on low incomes, and might dangerously deepen the present recession, without delivering any environmental benefit.

The deepening of a worldwide recession, though it is a mere inconvenience to the wealthy nations of the free West, has immediate and fatal consequences in the poorer nations, whose citizens are already starving as a direct result of the unscientific, now-discredited, bureaucratically-driven dash for biofuels , and are now menaced not only by the galloping increases in fuel prices caused by the surge in international demand but also – and quite unnecessarily – by the threat from the international classe politique artificially to increase fuel prices still further by means of “cap and trade”.

In a crude attempt to circumvent and downplay the fact of fossil-fuel hyperinflation, the EDF’s Report” disingenuously tries to argue – as did the now-defunct Stern Report – that the cost of cap-and-trade is negligible and will not add anything much to fossil fuel prices. In one respect, this is true. The first collapse of the European Union’s characteristically bureaucratic and extravagantly pointless cap-and-trade system was engendered by a huge fraud at the heart the system’s very construction. Under the system as originally conceived – or, rather, misconceived – every member-State was allowed to set its own emission limits. As a result, almost every member-State except Britain, whose current crop of ministers and civil servants are lamentably inexperienced and out of their depth in international negotiations, set themselves emission limits that actually exceeded previous total emissions. No surprise, then, those emissions in the EU continued to rise notwithstanding the introduction of cap-and-trade, so that, within a very short time, emissions permits were trading at less than $1 per tonne of CO2. This was indeed cheap – so cheap that it was comfortably exceeded by the monstrous bureaucratic handling charges involved in the trading, whereupon the scam collapsed.

The lesson to be learned from this typically incompetent failure on the part of the EU, whose officials are not subject to any effective democratic scrutiny, audit, or recall and who are accordingly not under any pressure to get things right, is this: if cap-and-trade is as cheap as the “Report” suggests, it will have no effect on carbon emissions. The corollary is that, if cap-and-trade actually reduces emissions, it can only do so if it is sufficiently expensive. Otherwise, as the failure of the EU scheme demonstrates, the environmental impact of “cap-and-trade” is actually negative: emissions rise, in a fine demonstration of the Law of Opposite Consequences: whenever a government attempts to interfere in the workings of the economy, even for beneficial purposes, it will be likely to trigger consequences that are not merely unintended but the diametric opposite of those that were, however piously, intended.

What, then, might the true cost of an effective cap-and-trade system be?

This question was recently examined in a detailed analysis of the Lieberman-Warner “Climate Security Act” by the American Council for Capital Formation and the National Association of Manufacturers, which concluded as follows –

The CO2 emissions allowance price needed to reduce energy use to meet the Bill’s targets is estimated at $55 to $64 per metric ton of CO2 in 2020, rising to between $227 to $271 per ton in 2030.

The cost of the allowances raises energy prices for residential consumers by 26% to 36% in 2020, and 108% to 146% in 2030 for natural gas, and 28% to 33% in 2020, and 101% to 129% in 2030 for electricity. In short, a workable carbon trading scheme, even if it were necessary, could be expected to double the price of basic household energy.

These and other increased energy costs will slow the US economy (at today’s prices) by $151 billion to $210 billion in 2020 and $631 billion to $669 billion in 2030, causing job losses of between 1.2 million to 1.8 million in 2020 and 3 million to 4 million by 2030. If anything, these figures for job losses are conservative, since the calculation ignores any second-order or “knock-on” effects caused by the rapid and worldwide economic dislocation that “cap-and-trade” would cause.

As manufacturing slows, the value of shipments will fall by 3.2 % to 4% in 2020 under the low and high cost cases; by 2030 the value of shipments will fall by 8.3 % to 8.5% under the two cases. The higher energy costs, lower economic activity and fewer jobs will in turn reduce average household income (at today’s prices) by $739 to $2,927 in 2020 and by between $4,022 and $6,752 in 2030. Here too, the analysis is very much on the conservative side: for the sole consequence of the fatal self-inflicted wound of carbon trading on the economies of the free West will be to transfer manufacturing activity and the jobs that go with it from our own shores to China, where no cap-and-trade system will be put in place, and where the carbon dioxide emitted per unit of electricity generated is far higher than in the West, as is the concomitant particulate pollution. In short, the inevitable consequence of introducing a cap-and-trade system in the West will be to increase the world’s carbon emissions and its pollution, while pointlessly damaging our own economies.

The manufacturers’ analysis, like the “Report”, was performed using computer models, but coming to an opposite result, illustrating that the output of computer models is more likely to reflect the inclinations of their users than to reveal objective reality. If anything, however, the manufacturers’ analysis of the Lieberman-Warner Bill errs very much on the side of understating the true costs of cap-and-trade schemes: for the analysis optimistically assumes that nuclear power will be readily available (notwithstanding the considerable political resistance to it that persists); that carbon capture and storage will be practicable and affordable (though the workability and cost of this technology has not yet been demonstrated); that wind and biomass technologies will work (notwithstanding that no unsubsidized wind-farm is profitable, and that even the UN has now abandoned its earlier recommendation of biofuels because of their significant contribution to the recent, sudden doubling of world food prices); and that low-cost offsets against carbon emissions will be obtainable (though there is no evidence that they will be).

The manufacturers’ analysis also greatly underestimates the profound economic dislocation that will arise from the growing number of proposals to shut down up to 90% of the economies of the West. If any action were required to mitigate carbon dioxide emissions, over and above the inexorably-rising international prices that will mitigate them without the need for any governmental intervention, cap-and-trade would be one of the least efficient methods. Straightforward taxation of gasoline and of electricity would be far simpler.

Why, then, does the “Report” argue for the complex, costly, fraud-prone scheme that is cap-and-trade, rather than for simple, marginal-cost-free increases in energy taxes? The reason is purely political. Precisely because cap-and-trade is so complex, numerous middlemen are involved, each of whom will enrich himself at our expense. Also, energy-producing corporations that would oppose the increased taxation of their product can be persuaded to back cap-and-trade because the opportunities for fraud are so great that the corporations can devise ways of making very substantial profits, again at the expense of the ultimate user – you and me. Private-sector entities that would oppose additional taxation are being bribed, in effect, by the promise that if they ignore the scientific consensus to the effect that “global warming” will not be catastrophic (Schulte, 2008, op. cit.), they will be able to profit from the rigged market in licenses to emit.

The “Report” by the Environmental Defense Fund not only echoes the Stern Report in artificially overstating the climate consequences of anthropogenic influence on the atmosphere, but also in artificially understating the costs of mitigation and artificially evaluating future costs by the use of a discount rate well below that which commercial entities would use: it also makes the naïve and scientifically-unjustifiable assumption that if carbon-based fuels are made more expensive new technologies to produce energy more cheaply will certainly emerge to replace them.

Without this speculative assumption, the entire “Report” collapses. Though it is self-evident that as the price of gasoline and electricity rises the rewards for those able to find or develop alternative sources of energy will correspondingly increase, there is no guarantee that affordable or workable new technologies will emerge to replace the old.

By the same token, one may not definitively assume that the higher carbon-fuel prices that are inevitable regardless of cap-and-trade will not lead to the rapid emergence of new energy technologies capable of replacing fossil fuels as they run to exhaustion. However, the following difficulties in new technologies are apparent:

Wind farms produce very small amounts of electricity, at enormous landscape and environmental cost, particularly to large game birds and to bats killed by the apparently-slow-moving but in fact very fast-moving blades. The variability of the wind requires all rated capacities to be divided by 4-6. Wind farms produce not a milliwatt when the wind is not blowing strongly enough, so that fossil-fueled power stations have to be kept in steam at all times to take up the load when the wind drops. Also, wind farms are chiefly located a long way from where the power they generate is needed, requiring expensive and unsightly transmission lines and causing substantial transmission losses. Worst of all, the load variability caused by wind fluctuations destabilizes any electricity grid to which the wind farms supply power, so that they cannot safely contribute more than a small percentage of total power supply even when the wind is blowing.

Hydro-electric power is already almost as fully developed as it can be: there is little scope worldwide for very large increases in hydro-electric capacity. Hydro power has killed more people per kWh than almost any other form of power generation, largely through the failure of dams.

Wave-power is still in its infancy, but it is already apparent that building wave-power generating sets strong enough to cope with the severe weather at sea will continue to be a severe drawback. Wave-power requires still longer transmission lines than wind-power, since it is by definition an offshore technology: transmission losses, therefore, will be formidable.

Solar power continues to be beset by problems converting solar energy to electrical energy. Though solar cells are steadily improving their efficiency, they are only useful in sunny climates and on a micro-generation scale. Larger solar collectors built in deserts suffer from extremes of temperature, exposure to wind, and sandstorms. Maintenance costs are high; reliability is low; transmission losses are substantial.

Nuclear power, in the post-Chernobyl climate of irrational fear, will not make a comeback soon, though the UK Labor Government, originally implacably opposed, now recommends it. Unless fast-breeder reactors can be made to work, the world’s supply of usable uranium will be exhausted in about half a century, at about the same time as oil and gas. Attempts at nuclear fusion, both on the macro scale (tokamaks and tori) and on the micro scale (aneutronic fusion) have proven unsuccessful and little progress has been made after 40 years’ research.

Biofuels, once recommended by the “global warming” alarmists, have disastrously doubled the price of staple foods and of agricultural land worldwide, and are already causing millions to starve. Also, it has now been calculated that the carbon emissions from the production and consumption of most biofuels is actually greater than that of gasoline, underlying not only the senselessness of biofuels but the need for governments to develop and enact science-based policies free from interference by scientifically-illiterate pressure-groups.

Hydrogen fuel cells are unreliable, expensive to produce and to maintain, and subject to a series of so-far-incurable scientific drawbacks that limit their usefulness.

Electric vehicles are slower than conventional vehicles, have a shorter range, and cause carbon emissions not significantly less than conventional vehicles, because the power that charges them comes from conventional power stations.

It is always possible to imagine entirely new space-age, high-tech solutions that might spring us free from dependency upon carbon-based fuels. However, it is naïve to assume, as the “Report” does, that such solutions will inevitably arise merely because cap-and-trade will increase still further the price of carbon fuels that are becoming daily more expensive in any event.

The danger in making such a naively hopeful assumption is that, if we destroy our own economies in the hope that some scientific deus ex machina will save us at the last moment, the lights will begin to go out all over the West – and soon.

If carbon trading works, it will not be cheap. If it is cheap, it will not work. Either way, it is unnecessary, both because “global warming” will not prove catastrophic and because the prices of carbon-based fuels are already rising on their own without State interference. It would accordingly be false to suggest that the cost of cap-and-trade to the economy – whether financially or in terms of jobs, household consumption, and growth – will be “minimal”.

Most proponents of cap-and-trade have a vested and often financial direct interest in taking advantage of their privileged positions to create and then to exploit a rigged market, where the State will ration the volume of emissions that may be traded and will, therefore, largely dictate the price, whether directly (as in the dirigiste EU), or indirectly. It is at best disingenuous to pretend that the cost to the victims of this or any rigged market will be negligible.

Likewise, the artful notion that some of the additional revenues contributed to governmental coffers by the victims of carbon trading can be redeployed to alleviate the worst of its ill effects on the poorest households is, in economic terms, absurd. For most households are poor: therefore, State subsidies to minimize the cost to the poorest households of the carbon trading that so greatly enriches those who rig and control the false market in hot air will also minimize what little environmental benefit might be expected from the scheme.

Above all, the self-inflicted economic wound of making the use of carbon fuels more expensive in the free West than in Communist China will merely transfer carbon emissions and jobs to the corrupt, polluting regime that already has the worst environmental record in the world, and will deploy the profits towards the continued expansion of its own network of uniquely dirty, coal-fired power stations, to the detriment of its own already-brutalized people, and to that of the environment, without any benefit to the climate whatsoever. Seen in this light, carbon trading – like biofuels before it – is lunacy.

The lunacy is culpable. For there is a moral dimension. It is inhumane and cruel carelessly or callously to inflict upon the poorest in the nation a policy – however currently fashionable – that is not justified by any “climate crisis”, that would not have any effect on the climate even if there were a “crisis”, that would cost the poorest households their current right to affordable electrical power and transportation while at the same time transferring overseas the jobs upon which our working people depend for their livelihoods, and that is calculated – and perhaps even intended – to enrich the enemies of freedom among the international community while actually increasing the global carbon emissions that it was nominally intended to reduce. Carbon trading is not merely futile – it is immoral, for it cannot but do harm to the poorest people in our community: the very people who are most deserving of our protection.
SOURCE: Science & Public Policy Intitute
Full Report (PDF), complete with Technical Appendix) The Science and Public Policy Institute (SPPI) is a nonprofit institute of research and education dedicated to sound public policy based on sound science. Free from affiliation to any corporation or political party, we support the advancement of sensible public policies for energy and the environment rooted in rational science and economics. Only through science and factual information, separating reality from rhetoric, can legislators develop beneficial policies without unintended consequences that might threaten the life, liberty, and prosperity of the citizenry.

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