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The Catastrophic Economic Impact of Cap and Trade
Here on Zerohedge the main goal is to present the readers with facts that remain hidden under the radar of the traditional ( soon to be dead ) information providers. Also, we try to provide information which is useful to our readers, and from which our readers can learn something new.
So i decided to present to you a specialist view on the economic impact of Cap and Trade legislation. Based on scientific facts which are, at least, contingent in their nature, this legislature will not only impact every single part of your life, it will also limit your basic freedoms, and not only that; it will put a price on that which makes you a human being, which makes you a living organism. I will not give my personal opinion on this topic, but i think that the article which i will post here will give you a clear picture of what my opinion on this matter is.
Testimony before
The Energy and Commerce Committee
U.S House of RepresentativesApril 22, 2009
My name is David Kreutzer. I am the Senior Policy Analyst in Energy Economics and Climate Change at The Heritage Foundation. The views I express in this testimony are my own, and should not be construed as representing any official position of The Heritage Foundation.
I want to thank the members of the Energy and Commerce Committee for this opportunity to address you concerning the economic impacts of cap-and-trade policies.
What Is the Problem with Carbon Dioxide (CO2)?
Carbon dioxide is not a toxin, is not directly harmful to human health, and is not projected to become so--even without legislative or regulatory action. CO2 is fundamental to all known forms of life. Indeed, studies show that increased CO2 levels are beneficial for crop production.
Nevertheless, driven by concern that increasing levels of CO2 (and other greenhouse gasses) will lead to a warmer world and cause environmental damage, there have been calls to significantly restrict emissions of all greenhouse gasses, but especially CO2. Among the proposals to reduce CO2 levels are carbon taxes and cap and trade.
The Costs
The typical cap-and-trade proposal seeks to reduce CO2 emissions by 60 percent to 80 percent by 2050 where the comparison year is usually 2005. The Center for Data Analysis at The Heritage Foundation did an analysis of the costs of meeting the goals of the Lieberman-Warner bill, S. 2191, last spring. The report on this analysis is attached.
Our analytical models are not suited to making projections beyond 2030. Nevertheless, the economic impacts of this cap-and-trade program in just the first two decades were extraordinary. The estimated aggregate losses to Gross Domestic Product (GDP), adjusted for inflation, are $4.8 trillion. By 2029 the job losses in the manufacturing sector will be nearly 3 million. This is over and above the nearly one million manufacturing job losses that most economists predict will occur even in the absence of global-warming legislation.
The manufacturing job losses are shown in an attached chart taken from a study of an EPA mandated 70 percent cut in CO2. Also attached is a map showing the relative importance of manufacturing to a state's economy.
Some of the workers forced out of manufacturing will find employment in the service sector, but overall, the economy loses jobs. In some years, this overall job loss exceeds 800,000.
Note: Current law already has many provisions for curtailing CO2 emissions. They range from local renewable-portfolio mandates to increased nationwide Corporate Average Fuel Economy (CAFE) standards to subsidies for ethanol production. While the reductions in CO2 emissions are included for the purposes of meeting the emissions targets, the considerable cost of these programs is not included in our analysis. This is because the costs are attributable to existing legislation and will occur even without additional laws or regulations. Of course, if they were included, job and GDP loss totals would be even higher.
Why Is It So Costly?
Eighty-five percent of our energy use today is based on CO2-emitting fossil fuels. The ability to switch to non-CO2-emitting energy sources over the next 20 years is limited and expensive. Therefore, significant cuts in CO2 emissions require significant cuts in energy use. The energy cuts, in turn, reduce economic activity, shrink GDP, and destroy jobs.
The cap-and-trade schemes, as well as more straight-forward carbon taxes, limit emissions by making energy sufficiently more expensive that they cut their energy use. In addition to the direct impact on consumers' budgets for electricity, gasoline, heating oil, and natural gas, these higher energy costs force cutbacks on the production side of the economy and lead to lower output, employment, and income.
It is important to note that these losses occur after consumers, workers, and businesses have adjusted as well as they can to the higher energy costs. After adjusting for inflation, household energy prices will rise 29 percent above the business as usual prices, even though consumers will have switched to smaller cars, moved into more energy efficient houses, and made greater use of public transit. The lost comfort, convenience, and satisfaction of making these changes are not included in our calculation of economic impacts, though the costs would be very real.
Green Stimulus?
Production drops even though firms will have adopted more energy efficient technologies and processes. To reiterate, the trillions of dollars of lost GDP and the hundreds of thousands of lost jobs occur even after homes and businesses have made the switch to greener methods. The hoped-for green-job gain is a mirage.
Attached is a copy of a page from a 1945 issue of Mechanix Illustrated. It shows a cyclist pedaling a jerry-built generator to power hair dryers in a Parisian beauty salon. Though not the sort of green job that is currently talked about, this human-powered generator illustrates why costly energy policies are not a stimulus.
A person on a bicycle generator would do very well to average 150 watts of output during a day. At this level, a modern-day cyclist/generator could produce electricity worth 10-15 cents per day at retail prices. With sufficient subsidies, people could be induced to power such generators and the proponents could then point to the "green" jobs that have been "created." What is not seen is the value of the cyclists' forgone output elsewhere. Even at minimum wage, the value of the labor is $52.40 per day. So each human-powered generator would shrink the economy by over $50 per day. This is not an economic stimulus.
Alternative energy schemes that require subsidies or that require protection from competing with conventional sources of power cannot be economic stimuli--their output is worth less than their inputs. An industry whose inputs cost more than its output is making the economy smaller and will necessarily reduce overall income.
The Tax
Implementing a cap-and-trade program to cut emissions by 70 percent creates a transfer within the United States that is equivalent to taxes on the order of $250 billion to $300 billion per year, just for the years 2012 to 2030. The combined transfer is about $5 trillion in just the first 20 years. This takes the purchasing power from the households and turns it over to the federal government or to whomever the government assigns the rights to the permits for emissions (allowances). This would be one of the largest taxes in the economy--almost twice as large as the highway use taxes.
Because the transfer, in this case, is similar in magnitude to the lost GDP, we need to be clear on the distinction. A cap-and-trade program with an emissions reduction profile similar to that of last year's Lieberman-Warner bill, will cause an aggregate $5 trillion of transfers after it destroys $4.8 trillion of national income (GDP).
In colloquial terms, the pie gets smaller by nearly $5 trillion and then a $5 trillion piece is cut out and redistributed.
Back-Door Protectionism
Cap-and-trade programs frequently include provisions to protect domestic industries from competition with firms in countries that have not adopted similarly costly mechanisms for reducing CO2. While the intent is certainly understandable, the provisions create the possibility of a protectionist wolf in global-warming clothes.
Putting these protectionist policies into operation is a bureaucratic nightmare. Every product from every country will need to be judged to determine the level of advantage it may have due to different carbon-cutting regimes. Since different countries can have different approaches and since different manufacturers can use different technologies and processes, assigning an offsetting CO2 tariff will necessarily involve arbitrary decisions. The potential for a trade war is very real.
The Gain
Analysis by the Environmental Protection Agency (EPA) shows that a 60 percent reduction in CO2 emissions by 2050 will reduce CO2 concentrations by only 25 ppm in 2095. This reduction would affect world temperatures by 0.1 to 0.2 degrees C. In other words, it makes virtually no difference.
Conclusion
The Center for Data Analysis at The Heritage Foundation analyzed a proposal to cut CO2 emissions by 70 percent. Such a cut would have little impact on global temperatures. At best, the trade-off is trillions of dollars in lost income and hundreds of thousands of lost jobs versus a fraction of a degree change in average world temperature 85 years from now.
Call your congressman, and DEMAND of him to vote NO. Also, you can use this post as a thread where you can discuss Cap and Trade, Chicago Climate exchange and all other, topic related, issues. I will post the links for the graphs mentioned in the above article, as they are to big for me to post them here.
Graphs
State-by-state Manufacturing Intensity
EDIT: here is a presentation given by Lord Monckton, a former advisor to Margaret Thatcher. It is 1hr 35min long, but worth a watch.
Thank you for reading
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Cheeks, you the man; well, you and Gabby Chaves (is he a man yet?) This cap and trade charade is just another means for Goldman and the other bankstas to redistribute the wealth to their pockets. Just another 100 million a day trading scheme in carbon credits, with no benefits whatsoever.
control the enegy and you control the people, that is what this is about
World has never been warmer ?
Look at this picture... a global warming advocate (dendrochronologist Greg Wiles)looking for evidence of past climate by drilling a core sample from a tree that has emerged from 1000 year old glacier ice in Alaska...
Hmmmm... maybe things where actually so warm back 1000 years ago that mature forests grew where nothing grows today...
SHIT!!! there goes the research grant...
http://static.guim.co.uk/sys-images/Guardian/Pix/pictures/2009/5/12/1242128716271/Climate-change-scientist--005.jpg
And for your viewing enjoyment the IPCC hockey stick graph that got the party started...
http://www.moonbattery.com/archives/warming_graph.gif
Which of the two is correct?
I rest my case.
CB, keep on rolling brother man. I know you have and do give serious consideration to your work and I for one appreciate it.
All The Best
Once the Nobel Prize winning president signs this in Copenhagen in December it's all over... and this document will ironically supercede the Constitution of the United States of America.
http://wattsupwiththat.files.wordpress.com/2009/10/un-fccc-copenhagen-2009.pdf
Even the BBC is in on the 'Arctic is melting' scam... talking about the passage finally being open in 2007...
http://news.bbc.co.uk/2/hi/americas/6999078.stm
Seems in all the excitement they forgot that the passage was ice free in the 1930's and 1940's as well... before the levels of co2 where taking off... Ooops!
http://www.athropolis.com/arctic-facts/fact-st-roch.htm
If this is truly a treaty under the US definition (as opposed to an executive agreement) then it will require a 2/3 majority of the senate to ratify it. See Treaty Clause:
http://en.wikipedia.org/wiki/Treaty_Clause
On a related note, VP Gore actually signed the Kyoto Protocol in 1998 as a symbolic gesture. Prior to that, the Senate had already voted 95-0 not to be a signatory to any treaty that harms the economic interests of the U.S. Kyoto was never submitted to the Senate for ratification.
I have heard so much blather for years about treaties that supposedly override contrary provisions of the US Constitution. Can anyone provide me a citation to a valid decision of the US Supreme Court stating as much? I know this is a commonly repeated claim but I think it is akin to the bizarre opposite-world claim that the Second Amendment (to the Bill of Rights, in case you needed context) has nothing to do with individual ownership of weapons.
Cheeky, pls consider getting a trademark for your name!
If you started your own blog right now, a lot of us would visit your work along with our daily visits to ZeroHedge!!! Thank you so much!
agrotera, baby, no way im leaving this place .... ever .....
and you make me feel funny when you compliment me ...
baby, no way im leaving this place .... ever .....
well i guess you are a liar. you have left this place, you fucker. all you fucks just lie and lie and lie.
so what†
And, who would leave?! Please allow my clarification: i didn't mean at all anything about you leaving here--i simply was expressing my enjoyment of your work, and since that is complimentary, please accept my apology for any other times and for this if it makes you feel funny. I am sorry and i wont do it again.
Maybe feeling "funny", was not meant in a bad way . Like giddy , elated , all agog , giggling like a school girl ?
Like climbing the rope in gym class?
be cool agrotera, i was just kidding ....
CB - We know she is like that.. Which is why we like her so much...
Thank you for understanding me Miles! (... and CB, if you knew me, I am pretty sure you would not feel funny about my compliments--i just look for the best in people.)
I taught high school chemistry when i was younger and on teacher appreciation day, my students dressed up like me and pretended that i was the leading a group in the old COKE song..."I'd like to teach the world to sing, in perfect harmony..." They pegged me well.
i think you are gay. nothin wrong with being gay, just sayin†
i think you are gay. nothin wrong with being gay, just sayin†
i think you are gay. nothin wrong with being gay, just sayin†
We know you look for the best dear associate. It is the way you scream bull shit in combination with that looking for the best that is so compelling. Rare feat. It is amazing how these traits seem to cascade here at ZH........
miles, blue in the evening, pink in the morning. i should twitter more†
MK, i see the cascade of these traits here too, and it is like fresh air and pure water for all who read!!!!!
OK fine, thank you, and i will lay on more compliments tomorrow (just kidding!!!)
Welcome to Mordor, GS principle architect.
This will erase our culture as we know it.I have already written my reps about the doom that would result.Our entire economy is built on inexpensive energy.It figures the dark lords would want a serious cut of the energy budget.Their greed really and truly is spelled DOOM.We must stop them at all cost.If they succeed, it really is the end of life as we have known it.
Thanks Cheeky, as always you rock.
Well, at least your honest about it. "Inexpensive energy" as we know it is based on exploitation - of your fellow creatures, human, animal or plant. Greed, my friend, is a phenomenon not exclusive to GS or the financial community. I thought ZH was a place of critical examination of data and interpretations thereof. Yet a dude pretending to be able to project multiple-digit losses in GDP for the next 20 years and calculates the cost of energy by assuming human power generators gets cheers and applause. I am not saying the all these C02-proposals are flawless and or make sense at all. But hey, the idea that some substantial amount of vested interest makes this policies possible should not come as a surprise to a community like this. What did you expect? That the leaders of the world sign treaties and policies for their love of daisy flowers?? That driving a humvee home to her farm is still going to be a viable option for a female rice farmer in Szichuan in 50 years? I have no idea how and when "the end of life as we know it" will happen. The probability of the final blow coming from an international treaty or domestic energy policy is low, however, very low. Relax will you please.
No need to relax as a plan to steal so much is put in place.It must be stopped.
This does not mean I think things like humvees make any sense, or that moving products via truck vs building more rail lines make any sense either.This measure will turn the economy off like a light switch.We should invest in more sane energy production methods...if for no other reason than to save the oil for food production.Oh...the price of food would skyrocket too.Nothing says DIE to the poor quite like nuking the availability of affordable food.Corn, in the US, is an oil product.The fertilizer is oil, the herbicides are oil, the machinery to harvest it run on oil, the methods to move it run on oil.Add a huge carbon tax and famine will result.I call that the end of life as we know it.
IE:I will not relax.This proposal will kill people.Lots of them.
1. It's quite possible that many here don't necessarily buy the math but believe humans aren't to blame for temperature ebbs and flows.
2. Aren't you concerned in the least about a document that appears to make WTO infringements on the Constitution pale in comparison ?????????
1. Well yeah. But unfortunately, this is not a question of "believing" or not.
2. I was responding to a post claiming the end of the world as we know it if cheap energy isn't perpetually available.
If this is implemented it is because of political cover gained because the masses "believe" the sales job. Nevertheless, i agree that it is not the end of the world. There are too many options available.
There's a great presentation on the topic given by Lord Christopher Monckton, former science adviser to British Prime Minister Margaret Thatcher.
http://mnfreemarketinstitute.org/2009/10/22/new-monckton-presentation-vi...
thank you very much ... i edit the post and included a link to that video .... thanks again ...
CB ... the genie out the bottle... didnt spain see a decline because of power rates forced inflation on the masses
It's going to make one former ex-vice president of the USA a shit-ton of money, though, so of course it's a good idea. Cheeky thanks for the posts and glad to see you've hit the big-time in becoming a contributor.
As written in the Wizard of Oz - if I only had a brain. :)
No soy Madridista pero me gusta tan mucho Messi tambien, aunque el es un jugador por Mes Que Un Club. :)
MESSIah!
El Putain de Gore, ya esta rico con toda la plata que le saco a conveniente Mentira!
oh, just wait till i start woopin GS and Al Gores ass with the future posts. now i have the guns as a contrib, and i can pretty much take on anyone.
Hehe. This is so much fun.
Cheeky;
GS is neck deep in (algore's ass) this carbon credits scam!
I believe Ma tt T ai bbi discussed the rationale for the formation of a trading platform and the involvement of G S in the project.
Could be the biggest ripoff/scam/tax ever.
http://www.rollingstone.com/politics/story/28816321/the_great_american_b...
Thanks for posting this link. I remember reading this when RS published it, and am still amazed at how little it gets mentioned. It's an important and under-addressed facet of the whole debate.
The only real way to limit emissions is a carbon tax; everything else is smoke and mirrors.
Once again, GS looms in the background...
Yes man, spread the word. This is worse than any bailout, than any money printing scheme. This will end the prosperity enjoyed for decades, and put the world back into some sort of neo-feudalism. This is a long term priority number one.
Cheeky; great work. How about translating this into VERY plain English so as to attract the attention of the everyday Joe, not that he reads this blog, but it needs to be published and read more widely. You are preaching to the converted on this blog, though you filled in a lot of detail.
on Thu, 10/15/2009 - 10:31
#99790
My people are saying, get out of the water before Oct 19.2009.
This will end America and we will come under the rule of EU and IMF..these fochers want to vote away our soveringty!
1. destroy the wealth
2. socialise the country
3. New world Order run by UN and lead by guess who???
Even the guys at RealClimate (a Gore favorite) say it's worthless
http://www.realclimate.org/index.php/archives/2009/05/the-tragedy-of-climate-commons/
http://masterresource.org/?p=2355
renoun"ed" climatologist?