Cap-and-Trade Is Like a Zombie from a Bad Horror Movie

Cap-and-Trade Is Like a Zombie from a Bad Horror Movie

March 16, 2010
Originally published in A Line of Sight

A bi-partisan Senate coalition killed costly carbon controls the first
time they were introduced, in the summer of 2008. A year later, the
House of Representatives enacted a global warming emissions (energy)
tax, but companion legislation quickly died in the Senate. Just when it
looked as if cap-and-trade policy was six feet under, it was
resurrected by Senator Lindsey Graham (R-South Carolina). Last
December, he unexpectedly defibrillated moribund climate negotiations.

Senator
Graham’s sudden enthusiasm for energy rationing doesn’t jibe with his
party’s principles, but he told columnist Thomas Friedman that he is
acting in order to protect the GOP’s “future with younger people.”
Recent evidence suggests that Graham’s reasoning is flawed. Last week,
Yale released a poll showing that “adults under the age of 35 are
significantly less likely than their elders to say that they had
thought about global warming before today”.

It isn’t
unreasonable to think that Senators Graham’s real motivation for
supporting a cap-and-trade is pleasing General Electric.  After all,
the New York Times reports that GE is helping him write climate
legislation. Not coincidentally, GE has a huge manufacturing plant in
Greenville, South Carolina.

You might be thinking, “Why would an
industrial user of energy like GE lobby for an energy tax?”  The
answer, of course, is that GE stands to make tons of money. If the
Congress puts a price on carbon, then coal will lose market share to
nuclear power and natural gas, and GE is a global leader in these two
industries.

This wouldn’t be the first time that GE spent
millions of dollars lobbying the Congress to enact legislation that
forces consumers to buy GE products. Consider the “market”  for compact
fluorescent light bulbs. GE invested heavily in CFLs production, but
consumers didn’t want them, because their light is pasty, and cleaning
them up when they break is a pain. So GE devised a solution: It paid a
bunch of lobbyists a bunch of money to convince the Congress to pass a
law that forces Americans to use compact fluorescent light bulbs. By
2012, it will be illegal to buy incandescent bulbs.

To be sure,
GE isn’t the only company trying to get rich quick off cap-and-trade.
There are now four climate lobbyists for every Member of Congress. Many
of them are employed by companies in the U.S. Climate Action
Partnership (U.S.CAP), a group of industrial suppliers and users of
energy pushing for a cap-and-trade. 

Some members of U.S. CAP,
like PG&E and Exelon Corporation, want to tilt the market in their
favor. Others, like DuPont and Alcoa, want to reap windfall profits by
selling hot-air carbon credits under a cap-and-trade energy rationing
scheme. All of them are being too clever by half. A small set of
companies might win in the short term under a cap-and-trade. In the
long term, however, a business plan predicated on political favors is
risky, because politics are more volatile than even the most arcane
derivatives market.

Then again, the U.S. CAP already knows this.
When Democratic Party leadership introduced a cap-and-trade bill into
the House of Representatives last April, it was remarkably similar to
the U.S. CAP’s Legislative Blueprint for Action. Two months later,
after all the political horse trading, the legislation was 1,000 pages
longer and dramatically different. This led to the rather comical
spectacle of James Rogers, CEO of Duke Energy (a member of U.S. CAP)
saying that he supported the House’s cap-and-trade before he opposed it.

Senator
Graham is working closely on climate policy with Sens. John Kerry
(D-Massachusetts) and Joseph Lieberman (I-Connecticut). Due to the
failure of the House of Representative’s cap-and-trade in the Senate
last November, the “tripartisan” trio has to start the legislative
sausage making from scratch. Can the Senate Green Three satisfy enough
demands to pass a cap-and-trade? Their biggest hindrance is that they
must placate competing—rather than compounding—demands.

For most
issues, Congressional negotiating can be effortless back scratching.
You get yours, I get mine, and we both go home happy. This is, for
example, the galvanizing idea behind the farm bill every five years:
Farmers get subsidies, urbanites get food stamps. The deficit grows.
All the politicians win.  All their grandchildren lose.

Climate
legislation isn’t so simple. Demands are mutually exclusive. Natural
gas state Senators want federal supports to turn coal power plants into
gas plants; naturally, coal state Senators aren’t thrilled.
Manufacturing state Senators also are miffed, because more natural gas
plants means higher demand, and therefore higher prices, for natural
gas, an important feedstock for many industrial processes. Nuclear
state Senators want subsidies for the construction of nuclear power
plants, but that’s off-putting to environmentalist Senators. So is
expanded drilling on federal lands, which is a demand from oil state
Senators. And so forth and so on.

Sens. Graham, Kerry, and
Lieberman are trying to deliver a viable bill before the end of March,
but they’d be hard pressed to achieve that deadline. Details of the
legislation are scarce. The Senators say that everything is on the
table, and negotiations are slow.

At worst, they’ll re-heat
energy rationing of the sort that passed the House of Representatives
last summer. At best, they’ll stuff and bill full of pointless and
wasteful “green jobs” subsidies. And every three weeks that the
Congress deliberates, the Chinese build another two coal fired power
plants.