Blog

Cap-and-Trade, All Cost and No Benefit
Martin Feldstein, Washington Post, 1 June 2009

In my judgment, the proposed cap-and-trade system would be a costly policy that would penalize Americans with little effect on global warming. The proposal to give away most of the permits only makes a bad idea worse. Taxpayers and legislators should keep these things in mind before enacting any cap-and-trade system.

How Obama Made Energy Platform ‘Pop’
Steven Mufson & Juliet Eilperin, Washington Post, 31 May 2009

After a long day of campaigning on July 8, candidate Barack Obama arrived at his Chicago headquarters for a three-hour brainstorming session about a suddenly hot issue: energy and climate change.

The Breath Tax
Joseph C. Phillips, Bog Hollywood, 1 June 2009

The rationale for the “Waxman-Markey American Clean Energy and Security Act of 2009,” otherwise known as Cap and Trade, is that environmental catastrophe awaits us if we do not control the amount of carbon dioxide (CO2) flowing into the atmosphere. This hysteria has been propelled by alarmists using computer models to predict (not to prove) that what-used-to-be-called-Global-Warming-before-it-became-clear-that-the-earth-is-cooling-so-it-is-now-called-Climate Change is caused by man made emissions of carbon dioxide.

One of Obama’s own advisers admits that the cap-and-trade energy-rationing scheme backed by the “Obama Administration and Congressional Democrats” would “have a trivially small effect on global warming while imposing substantial costs on all American households. And to get political support in key states, the legislation would abandon the auctioning of permits in favor of giving permits to selected corporations.”

Obama adviser Martin Feldstein notes that “the Congressional Budget Office recently estimated that the resulting increases in consumer prices” from capping the amount of carbon dioxide energy users can emit “would raise the cost of living of a typical household by $1,600 a year,” a figure that “would rise significantly” from year to year.

Meanwhile, politically-connected corporations would make a bundle, since the “bill would give away some 85 percent of the permits” to emit carbon dioxide to favored “businesses instead of selling them at auction.”

Feldstein, a Harvard economist who has advised Obama, earlier warned that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.” He compared Obama’s tax increases to the ones that contributed to the Great Depression and the “Lost Decade” of economic stagnation and decay in Japan.

Feldstein, who serves on Obama’s economic advisory board, has also “warned of serious inflation and higher taxes down the road” as a result of Obama’s policies.

Feldstein earlier noted that President “Obama’s biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. . .CBO Director Douglas Elmendorf testified before the Senate Finance Committee on May 7 that the cap-and-trade price increases . . . would cost the average household roughly $1,600 a year, ranging from $700 in the lowest-income quintile to $2,200 in the highest-income quintile.”

That’s a highly regressive tax increase, since lowest-income earners don’t make a third of what highest-income earners make, but they would incur a third as much cost. It’s regressive in the same way as the 1932 excise tax increase by Herbert Hoover that deepened the misery of the Great Depression.

During the Great Depression, Herbert Hoover damaged the economy, and impoverished the American people, with costly, artificial attempts to stimulate the economy through increased government spending, financed by heavy taxes like the Revenue Act of 1932.

Obama earlier admitted that “under my plan of a cap and trade system, electricity rates would necessarily skyrocket.” As Obama admitted, that cost would be directly passed “on to consumers” — just the way Herbert Hoover’s regressive excise taxes were in 1932. Although the tax’s supporters claim it will cut greenhouse gas emissions, it may perversely increase them and also result in dirtier air.

In reality, Obama’s proposed “cap-and-trade” tax is likely to raise $2 trillion over the next decade, far more than even Feldstein anticipates. That’s far more than the $646 billion the Administration earlier estimated — amounting to at least $3,100 per family per year. And that figure may be dwarfed by the amount of money siphoned from consumers to well-connected corporations that have learned how to game “cap-and-trade” schemes.

In the Great Depression, President Herbert Hoover raised marginal tax rates to 63%, and went on a deficit spending binge. Similarly, Obama has proposed higher marginal tax rates, which will produce another $1.9 trillion in tax increases.

In spite of its massive size, Obama’s carbon tax won’t begin to pay for all his spending increases, such as a budget that will generate $4.8 trillion in increased deficits, Obama’s trillion-dollar toxic-asset program, and his $800 billion, economy-shrinking “stimulus” package, all of which contradict Obama’s campaign pledge of a “net spending cut.”

These tax increases are breaches of Obama’s campaign promise not to raise taxes on people making less than $250,000 a year, which he earlier broke by signing into law the regressive SCHIP excise tax increase.

It’s part of a long line of broken promises, such as Obama’s pledge to enact a “net spending cut,” which he discarded by offering mind-bogglingly large budgets that will explode the national debt through $9.3 trillion in massively increased deficit spending.

Obama has spent on an unprecedented scale, such as for a stimulus package that has actually shrunk the economy and destroyed thousands of jobs, and an auto bailout that forces cash-strapped taxpayers to bail out high-paid union auto workers, whose pay remains much higher than that of the typical taxpayer, while saddling the car companies with politically-correct mandates that may kill their chance of survival.

The Biggest Tax Increase in World History
Myron Ebell, Human Events, 27 May 2009

The House Energy and Commerce Committee on the evening of May 21 passed the biggest piece of the Obama administration and Congressional Democrats’ agenda to put the federal government in charge of the American economy. On a 33 to 25 vote, the Committee approved the “American Clean Energy and Security Act,” H. R. 2454. The 946-page energy-rationing bill is better known as Waxman-Markey, named after its two chief sponsors, Committee Chairman Henry Waxman (D-Calif.) and Rep. Edward Markey (D-Mass.), Chairman of the Subcommittee on Energy and the Environment.

Climate Smart Aid Is Anything But
William Yeatman, International Affairs Forum, 27 May 2009

Now here’s an inconvenient truth: curbing the planet’s carbon footprint necessarily slows economic growth, the primary engine of human well-fare. International aid organizations need to carefully consider the impact of the climate “solutions” they advocate, lest they do more harm than good.

German Minister on Copenhagen: “No real advances”
DPA, 26 May 2009

The much-anticipated UN Climate Change Conference scheduled to take place in December in the Danish capital Copenhagen is heading for disaster, German Environment Minister Sigmar Gabriel said Tuesday in Paris. “There is no movement,” Gabriel complained just before the conclusion of a two-day preparatory meeting of ministers from 16 industrial nations in the French capital. “The expectations we all had… have not been fulfilled.”

Bjorn Lomborg, November 2007:

…although it may seem almost comically straightforward, one of the best temperature-reducing approaches is very simple: paint things white. Cities have a lot of black asphalt and dark, heat-absorbing structures. By increasing reflection and shade, a great deal of heat build-up can be avoided. Paint most of a city and you could lower the temperature by 10C.

Steven Chu, May 2009:

Professor Steven Chu, speaking at the opening of the St James’s Palace Nobel Laureate Symposium, for which The Times is media partner, said this simple and “completely benign” approach to “geo-engineering” could have a vast impact at low cost. By lightening all paved surfaces and roofs to the colour of cement, it would be possible to reduce carbon emissions by as much as taking all the world’s cars off the roads for 11 years, he said.

I ask you to compare and contrast because one of these men is an “evil delayer” (or worse), and the other a planetary savior.  Yet the savior is now adopting a policy advocated for two years by the “delayer.”

Perhaps there is hope for the global warming debate yet.

President Obama unveiled Tuesday a plan to sharply increase federal gas mileage rules for vehicles sold in the United States, eventually bringing the requirement up to an average of 35.5 miles per gallon. Unfortunately, these rules – known as the Corporate Average Fuel Economy (CAFE) standards – have the deadly effect of causing new cars to be lighter, smaller and less crashworthy.

CAFE is among the deadliest government regulations we have, and with today’s announcement it’s going to get even deadlier. It kills consumers by reducing vehicle size, and now it may well kill car companies by forcing them to produce cars that consumers don’t want. The only redeeming aspect of the President’s announcement is that there’ll be only one standard imposed on the industry, rather both national and California standards. But that just means carmakers will have one noose around their necks instead of two.

A 2002 National Research Council study found that the federal CAFE standards contributed to about 2,000 deaths per year through their restrictions on car size and weight. An increase in the severity of the rules will only raise that death toll. Shockingly, the federal agency tasked with making Americans safer on the road – the National Highway Traffic Safety Administration – has refused to acknowledge this fact, even after being overturned by a federal court for ignoring the issue.

The federal government poured billions of dollars into Chrysler, which then went bankrupt and merged with Fiat. But Chrysler may never revive, thanks to absurdly generous compensation for the company’s union employees. The Obama Administration has refused to cut union wages substantially, though it had no compunction about ripping off the pension funds and other lenders who loaned money to Chrysler to try to keep it afloat. Even union members seem surprised by how little they were asked to sacrifice.

Moderate Democrat Mickey Kaus, who reluctantly voted for Obama, notes that the federal bailout may yet fail:

“Before the deal, Chrysler’s UAW workers made $28 an hour. After the deal, they’ll make $28 an hour. They gave up a scheduled increase in wages, plus a couple of scheduled bonuses. That explains why Chrysler’s Belvidere, Illinois workers told TV station WIFR that ‘the plan is not nearly as drastic as they expected.’ …

“As for Chrysler’s ‘chance for long-term success,’ it appears vanishingly small. Italian manufacturer FIAT is supposed to save Chrysler with new products, but according to a recent Automotive News article, ‘four of the six new vehicles from Fiat will enter the small-car segment,’ which is highly competitive but ‘covers only 14 percent of the entire U.S. light-vehicle market.’ ‘The volumes need to be big for Chrysler to survive,’ [market analyst Tracy Handler] said. ‘Will they be? I have doubts about that.’

“See also this BBC article (”it’s madness”). Pathetically, Chrysler hopes that even if they don’t save the company the new small cars will ‘[b]urnish the environmental image of Chrysler brands,” says Automotive News. Unfortunately, the pipeline for those brands’ other, larger, products–burnished or not–is pretty much empty.

“If Chrysler workers were paid, say, not $28 an hour instead of $24–still not bad–the firm might actually have a ‘chance for long term success’ through charging lower prices. But that wasn’t a sacrifice Obama was ready to ask (even if Belvidere workers were apparently willing).”

While saddling Chrysler with excessive compensation costs and union ownership, the Obama Administration has inflicted a body blow to its ability to sell its traditional lines of large vehicles by radically ratcheting up federal CAFE fuel-economy standards, which harm the Detroit automakers more than their foreign competitors. 50,000 jobs could be destroyed as a result. Meanwhile, the global-warming regulations backed by the Administration will destroy millions of jobs and “decrease average household purchasing power,” thus cutting auto sales and further hurting automakers like Chrysler.

One of Obama’s own advisers now says that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.” He compares Obama’s tax increases to those that deepened the Great Depression.

In the Depression, President Hoover imposed regressive excise taxes that burdened consumers. Obama is now doing the same thing through his proposed $2 trillion cap-and-trade carbon tax. Obama privately admitted to the San Francisco Chronicle (which didn’t report it) that under his “plan of a cap and trade system, electricity rates would necessarily skyrocket.” As Obama admitted, that cost would be directly passed “on to consumers” — just the way Herbert Hoover’s 1932 excise tax increase was. Although the tax’s supporters claim it will cut greenhouse gas emissions, it may perversely increase them and also result in dirtier air. It is also chock full of corporate welfare, regional favoritism, political pay-offs, and give-aways to special interests.

California’s voters on Tuesday overwhelmingly rejected a series of tax increases that Republican Governor Arnold Schwarzenegger and the Democratic-controlled state legislature claimed were necessary to save the State from bankruptcy.  The voters have it right, as do the conservative Republicans in the legislature.  State Senate Republicans were so determined to oppose the tax increases that they kicked out their leader when he caved to pressure from the Governor and elected stalwart conservative Dennis Hollingsworth as their new leader.

California is in economic freefall largely as a result of spendthrift government spending, crushing taxes, and heavy-handed regulations that have raised the cost of energy and of doing business in California.   The whole sorry story is explained clearly and analyzed acutely in an op-ed in today’s Washington Times by Tom McClintock, a freshman Republican Member of the House of Representatives and a long-time Member of the California state legislature.  Rep. McClintock said in January that in his judgment it was inevitable that California would default on its debt.  Unless the state legislature suddenly reverses course, McClintock will soon be proved right.  California is facing bankruptcy.

There is an alternative: Governor Schwarzenegger comes to Washington and appears at a congressional hearing.  On one side of the Republican Governor will be House Speaker Nancy Pelosi (D-Calif.) and on the other side Senator Dianne Feinstein (D-Calif.).  Schwarzenegger testifies that California is too important to fail and therefore must be bailed out.  After all, California is the model for the nation, especially in its energy and global warming policies (see a CEI paper by Tom Tanton on this subject).  That’s what Schwarzenegger, Pelosi, President Obama, House Energy and Commerce Committee Chairman Henry Waxman (D-Beverly Hills), and Senate Environment and Public Works Chairman Barbara Boxer (D-Calif.) have been telling the country.  As McClintock writes,  “Congress is well under way toward imposing the same policies on the rest of the nation. California is just a little further down that road.”  Actually it’s not a road, it’s a cliff, and California has already jumped.

In this insightful, informative post, Keith Hennessey, formerly the senior economic advisor to President G.W. Bush, cautions that Obama’s new fuel economy rules could destroy 50,000 auto industry jobs. Yet the rules would have no detectable impact on projected global temperatures or sea level rise–all pain for no gain.

In addition, Hennessey notes that Obama’s action “will accelerate EPA’s regulation of greenhouse gas emissions from stationary sources.” He continues: “While Congress is futzing around on a climate change bill, EPA is getting ready to bring their “PSD” monster to your community soon.” He concludes:

In effect, EPA could insert itself (or your State environmental agency) into most local planning and zoning processes.  I will write more about this in the future.  It terrifies me.

Well, it worries me too. Politically, however, there may be a silver lining in this dark cloud. Concerning which, I posted the following comment on Keith’s blog.

Excellent analysis, Keith. Yes, the PSD monster is a big part of this story, which most media coverage has missed. It will spring to life the moment EPA finalizes the new GHG/Fuel Economy standards by making carbon dioxide a Clean Air Act-regulated “air pollutant.” In addition, the endangerment finding that underpins the standards will substantively satisfy the test, in Section 108 of the Act, that initiates a NAAQS rulemaking. The Center for Biological Diversity and many other warmists argue that NAAQS for CO2 should be set at 350 parts per million. Even outright de-industrialization of the United States probably would not suffice to attain such a standard.

The looming prospect of an era of litigation-driven Clean Air Act regulation is an important subtext of the debate over the Waxman-Markey cap-and-trade bill. Proponents are pursuing a legislative extortion strategy. Their not-so-subtle message: Support the bill (which precludes greenhouse gas regulation under the PSD, NAAQS, Title V, and HAP programs, although not under NSPS and Title II), or we’ll sic EPA and the eco-litigation lobby on the economy.

My big fear is that Republicans will panic and provide Obama-Waxman-Markey bipartisan cover for cap-and-trade. Republicans need to clear their minds and realize that, with a modicum of courage and discipline, they can turn this threat into an opportunity. Although intended as a legislative hammer, it more nearly resembles a political suicide note.

In effect, Team Obama and Waxman are saying, “You had better provide us with bipartisan cover to raise gasoline prices and destroy jobs, or we’ll sic EPA on the economy, and won’t you be in trouble with your voters then when EPA raises their energy prices and destroy their jobs!” Cap-and-trade Democrats are setting the stage for a political backlash that Republicans can later exploit. All Republicans need to do now is keep opposing cap-and-trade as an energy tax, and keep saying that Congress never intended for the Clean Air Act to morph into Kyoto on steroids.

Once moderate Democrats realize how the extortion strategy could backfire, many may jump off the cap-and-trade bandwagon. Some may even support separate legislation to preclude greenhouse gas regulation under PSD, NAAQS, etc. 

Obama officials are already trying to hide behind Mass v. EPA, claiming ‘the Court made us do it.’  This excuse won’t wash. President Obama can protect consumers, jobs, and the economy from EPA regulatory excess any time he wants just by introducing stand-alone legislation to exclude carbon dioxide from regulation under PSD, NAAQS, etc.

Obama has not done so, because he is unwilling to let Waxman-Markey succeed or fail on its own merits. He wants the prospect of regulatory chaos to herd Republicans into the cap-and-trade corral. But Republicans can turn this weapon against those brandishing it just by refusing to share responsibility for policies they oppose. 

Irony of ironies, Mass v. EPA unexpectedly gives Republicans an opportunity to clarify party differences and hold Democrats accountable for the economic fallout from either cap-and-trade or Clean Air Act regulation.

Sometimes it takes a while to read pending legislation, which our pals at the American Energy Alliance have been doing with the Waxman-Markey Cap-and-Energy-Tax Bill. With only 165 pages to go, they discovered this nugget (from their press release):

On Page 781 of Waxman Cap-and-Tax Bill, a Response Guide for Mass Unemployment
Beneficiaries to receive 3 years of salary, health insurance, job training, and relocation package as a result of this job-killing measure

Washington, DC – With 946 pages of legislative text, it comes as no surprise that as the days pass by, interesting new provisions buried deep in the Waxman-Markey cap-and-tax bill are revealed. Today we expose section 426.

“While the authors of this bill continue to insist that cap-and-tax will be a clear economic winner, several provisions buried deep in the text confirm their true belief that it will massively stimulate the unemployment rolls,” said Thomas J. Pyle, president of the American Energy Alliance.

Pyle is referring to Title IV, Subtitle B, Part 2, Section 426, of the American Clean Energy and Security Act of 2009, which states; An eligible worker (specifically, workers who lose their jobs as a result of this measure) may receive a climate change adjustment allowance under this subsection for a period of not longer than 156 weeks…80 percent of the monthly premium of any health insurance coverage…up to a maximum payment of $1,500 in relocation allowance…and job search expenses not exceed[ing] $1,500.

“America is supposed to be a land of opportunity and prosperity – not a land where political elites work behind closed doors to ship jobs offshore,” continued Pyle. “And with only 24 percent of the American people even knowing what cap-and-trade is, I am convinced that when the public learns that the leaders of this government are indeed, purposely and knowingly outsourcing American jobs in the name of global warming, they will demand answers and hold them accountable.”

Hat tip: Bridget Wagner at Heritage.