Thursday, May 07, 2009

Cap and Trade Dead in the Water?

Democrats in the Congress are deserting Obama’s climate change key legislative agenda – the cap and trade proposal. The most recent deserter is the Chairman of the powerful Agriculture Committee, Colin Peterson (D: Minn). Sen. Benjamin L. Cardin (D-Md.) called cap-and-trade "the most significant revenue-generating proposal of our time." Even scientists, like James Hansen and John Lovelock – the leading climate alarmists in the world – oppose the cap and trade legislation. In their view, the cap-and-trade approach is both “ineffectual” and “verging on a gigantic scam.”

There have been several technical analysis of the potential impact of the cap and trade legislation in the US. Most suggest that a full implementation and adherence to the emissions restrictions provisions described by the Waxman-Markey Climate Bill would result only in setting back the projected rise in global temperatures by a few years—a scientifically meaningless prospect. This assumes a reduction of U.S. greenhouse gas emissions of greater than 80%, as envisioned in the Waxman-Markey climate bill. It would produce a global temperature “savings” during the next 50 years of about 0.05ºC, assuming India and China also started to cut emissions.

The bill envisions a cap and trade revenue to the US treasury of $400 billion, increase energy costs to a level of app. $3,000 a year more per family and lead to some 800,000 job losses. At least, this is the view of Senator Jim Inhofe – the Senate’s resident climate change skeptic. Pointing out that the vote on this aspect of the budget secured just 39 votes in the Senate – Obama needs 60 for the legislation to become law – Inhofe makes clear that he thinks that the cap and trade scheme is “dead in the water”.

Experience elsewhere – especially the EU – suggests that cap and trade, unless really carefully enacted and enforced, will lead to some people becoming quite wealthy, most people becoming poorer with almost no impact of CO2 emissions. A pharmaceutical company in France, for example, has switched its core business from producing health products to selling carbon credits – its more profitable. They continue to emit exactly what they emitted before the scheme began.

Some law makers in the US are beginning to tout the idea of a carbon tax – along the lines of that implemented in British Columbia. This too is dead in the water. Almost all law makers are opposed to a carbon tax, arguing that it would have substantial negative impacts on the economy in general and “ordinary” families in particular. While the promise is that other taxes would be reduced, the reality of the US debt-ridden economy is that the government needs all of the tax revenue it can get. The suggestion is that a carbon tax would be simpler to administer than a cap and trade scheme. In the history of US tax law, no “simple” tax has remained simple for long – it would get very complex very quickly, with exemptions, different rates for different industries and special cases. It is not going to happen.

Obama has committed to reducing CO2 emissions to 1990 levels by 2020 – a cut of 14% on current levels – and then a cut of 80% of the 1990 C02 emissions by 2050. The IPCC has already said that the 2020 target is far too low and should be nearer 25%. The target is important – it reflects the extent of Obama’s commitment and is the lowest target set by any G7 nation. It also represents what Obama thinks is realistic – something other countries do not seem to take into account when setting targets (almost none of which are ever met).

If the cap and trade legislation fails, as looks likely, Obama has released his secret weapon: the Environment Protection Agency. They have ruled that CO2 is a pollutant and falls within their remit to regulate. They will begin to develop regulations, focusing on major polluters first – watch for the coal industry and coal fired energy plants to be targeted – they have already placed a hold on several coal fired powered plants which were about to be approved. Also targeted will be buildings and emissions from transportation. The EPA is a blunt instrument which will enact regulations within existing legislative frameworks, not requiring permission from Congress.

As the US develops its opening position for the Copenhagen Climate Change global summit in December, a failure to pass cap and trade and the setting of very modest targets would signal that the US will not lead the Copenhagen negotiations. Instead, the EU will be the lead organization. According to several diplomatic sources, preliminary work on the summit is not going well. The faltering US legislation and low targets, coupled with the continued challenge by China and India over their role in climate change and the implications of establishing global targets are challenging the diplomats to find a meaningful compromise. Also challenging is the demands of developing nations for an annual payment of $600 billion to compensate them for the impacts of climate change, largely driven by the developed economies. Copenhagen will be a battle, and largely symbolic.

The good news is that it is getting cooler, the global climate is well within its normal range, the arctic ice is getting thicker and there is growing recognition that climate alarmists, who base most of their arguments on climate change models rather than actual observations, are being revealed as exaggerators and polemicists. It will be an interesting period between now and the end of the year.

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