Written by Vincent Gioia
May 28, 2008
By Vincent Gioia
Despite 31,000 scientists debunking the idea that you and I are responsible for climate change on the planet, congress is going forward with enactment of laws that will have disastrous effects on our economy and way of life. Members of Congress are considering several bills designed to combat climate change. Chief among them is Senate bill 2191--America's Climate Security Act of 2007--introduced by Joseph Lieberman (I-CT) and John Warner (R-VA). This bill would set a limit on the emissions of greenhouse gases, mainly carbon dioxide from the combustion of coal, oil, and natural gas.
As much as 85 percent of energy required to fuel our economic engine comes from fossil fuels. Senate bill S. 2191 represents an extraordinary level of economic interference by the federal government. Congress has not learned from the recent mandate of ethanol how government interference causes unintended consequences, and ethanol illustrates some of the costs and risks created when a government imposes significant new regulations on the energy market. Requiring expansion of ethanol use has imposed unintended impacts on world food prices because of increase acres under cultivation for corn production. Despite of the enormous expense of producing ethanol, which is far less efficient as a vehicle fuel than gasoline, production goals set for ethanol are unlikely to be met and anticipated environmental benefits are even less likely to be obtained. Yet the unfortunate consequences of S. 2191 far exceed the results of mandating ethanol usage.
The Lieberman-Warner bill if (most likely “when”) enacted into law strict upper limits on the emission of six greenhouse gases (GHGs) (with the main emphasis on carbon dioxide (CO2)) will be imposed. The mechanism for limiting GHG emissions will be the infamous “cap and trade” program which requires emitters to acquire federally created permits (allowances) for each ton of GHG emitted. The cost of the allowances will be significant and will cause large increases in the cost of energy for consumers. The effect of the cost of allowance will amount to an energy tax and the increase in energy costs will amount to large transfers of income from private energy consumers to special interests.
According to William W. Beach, David Kreutzer, Ph.D., Ben Lieberman and Nick Loris Center for Data Analysis (Report #08-02):
“Cumulative losses in gross domestic product (GDP) are at least $1.7 trillion and could reach $4.8 trillion by 2030 (in inflation-adjusted 2006 dollars). Single-year GDP losses hit at least $155 billion and realistically could exceed $500 billion (in inflation-adjusted 2006 dollars). Annual job losses exceed 500,000 before 2030 and could approach 1,000,000. The annual cost of emission permits to energy users will be at least $100 billion by 2020 and could exceed $300 billion by 2030 (in inflation-adjusted 2006 dollars).The average household will pay $467 more each year for its natural gas and electricity (in inflation-adjusted 2006 dollars). That means that the average household will spend an additional $8,870 to purchase household energy over the period 2012 through 2030. Our analysis does not extend beyond 2030, at which point S. 2191 mandates GHG reductions to 33 percent below the 2005 level. However, it should be noted that the mandated GHG reductions continue to become more severe and must be 70 percent below the 2005 level by 2050.”
If the direct economic impact is not bad enough, a generally unreported provision of S. 2191 is that all imported goods are subject to GHG emission rules. It will be necessary to measure the GHG footprint for all imported goods, to determine the relative aggressiveness of the exporting country concerning their GHG limiting programs, and assign a possible emissions tariff. Obviously the inherent imprecision involved in such calculations will make international trade subject to the vagaries of bureaucrats.
In summary, S. 2191 is a cap-and-trade bill that caps greenhouse gas emissions from regulated entities starting in 2012. In the beginning each power plant, factory, refinery, and other regulated entity will be allocated allowances (rights to emit) for six greenhouse gases, but only a total of 40% of the allowances will be available to these facilities. The remaining 60 percent will be auctioned off or distributed for other types of GHG-producing facilities. Most emitters will need to purchase at least some allowances at auction. For example, businesses that reduce their CO2 emissions in order to meet the S. 2191 targets will still have to purchase 60 percent of the needed allowances in 2012 and an even higher fraction in subsequent years.
Looking ahead to the future after S. 2191, businesses that reduce their emissions below their annual allotment can sell their excess allowances to those who don't (the trade part of cap-and-trade). However, over time, the cap is decreased from a freeze at 2005 emissions levels in 2012 to a 70% reduction below those levels by 2050. In addition, the fraction of allowances that are given to the businesses that emit GHG is reduced, and a larger fraction is auctioned to the highest bidder.
You might ask what happens to the vast amount of money collected in payment for the allowances. S. 2191 specifies how the distribution of the auction proceeds will be spent, with constant percentages from 2012 to 2036. To facilitate the market in allowances, a new nonprofit corporation called the Climate Change Credit Corporation is to be created to initiate and complete the auctioning of allowances. According to the Center for Data analysis report:
“Eleven percent will be allocated to an advanced-technology vehicles-manufacturing incentive. While 44 percent is to be spent on low-carbon energy technology, advanced coal and sequestration programs, and cellulosic biomass ethanol technology programs, 45 percent is to be spent on assisting individuals, families, firms, and organizations in the transition to a low-carbon regime. This includes 20 percent allocated to an Energy Assistance Fund, 20 percent allocated to an Adaptation Fund, and 5 percent allocated to a Climate Change Worker Training Fund.”
Given the very wide distribution range of projected auction proceeds, an enormous number of de facto entitlement programs will be created for socialistic distribution for decades to come. In the final analysis, we are entering into a massive redistribution of wealth according to the socialist agenda because ultimately the cost of implementing climate change programs like the Lieberman-Warner bill will fall on the American worker.